CHAPTER 7 – ANALYSES FOR STRATEGY DESIGN
AIMS OF THE CHAPTER
The last chapter discussed the way that managers can approach the design of
an operations strategy. The main requirement for this is a detailed knowledge
of higher strategies, operations and the environment. This chapter looks at
some analyses that give this knowledge. In particular, it considers an
environmental scan to collect information about the operations environment,
and an operations audit to show the details of operations. Then it outlines
some further analyses that can help with strategic design.
The aim of the chapter is to review some tools for collecting and analysing
information that can help design an operations strategy. More specific aims
? Discuss the types of analyses needed to design an operations strategy There are three main areas for analyses. Firstly, the higher strategies –
particularly the business strategy – which have to be analysed from an
operations perspective. Secondly, the operations environment which is
analysed using an environmental scan. Thirdly, internal operations are
analysed using an operations audit.
? Describe the types of information needed about the environment
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Any information about the environment might be useful for designing an
operations strategy. The three most common areas of concern are:
1. the industry that the operations work in, which is defined by organisations
that use – or might start using in the future – similar resources to make
equivalent products to satisfy the same customer demand
2. the market for the operations’ products, which is defined by the customers
who buy – or might buy – a particular type of product
3. any other relevant external factors, including economic conditions, legal
requirements, market conditions, etc.
? Collect data through an environmental scan
An operations environmental scan collects all relevant information about the
environment that might be useful for designing an operations strategy. It
generally focuses on the three areas of industry, market, and any other
relevant external factors (including economic conditions, legal requirements,
market conditions, etc). We do not want to go into the details of data
collection, but common methods include observation, interviews, market
surveys, literature searches, Web searches, data sampling, questionnaires,
and so on.
? Outline a number of analyses for environmental factors
There are many possible analyses of environmental factors. The chapter
described industry and market analysis – followed by PEST, industry
attractiveness, market attractiveness, key success factors, competitor analysis,
competitor profiling, group map, driving force analysis, and any other
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appropriate analysis. Within each of these, managers can do many other
? Discuss the type of information needed about internal operations
Any internal information might be useful in designing an operations strategy.
The most useful types concern:
o Products, and the complete packages that are passed to customers
o Process, including details of operations, their performance,
structure of the supply chain, types of raw materials, financial
support, skills of employees, etc
o Resources, which are found from a resources audit
o Management, and the skills with which they control operations.
? Collect data through an operations audit
An operations audit collects all relevant information about the internal
operations of an organisation and gives a detailed view of the activities,
process, resources, management – and generally the way that things
? Use a number of analyses for internal operations
There are many possible analyses for internal operations. Those mentioned
in the chapter are financial analysis, performance analysis, performance-
importance, balanced scorecard, benchmarking, value-chain analysis and
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? Do a SWOT analysis
SWOT analyses bring together the two types of analysis emphasised in the chapter – environmental scans and operations audits. In particular, they list
the strengths (what the operations do well and can be built into distinctive capabilities), weaknesses (problems within the operations that need improvement), opportunities (that can help the organisation) and threats (that can cause damage). The basic analysis is to lay out these factors, and use a structured format to develop ideas for a strategy. In practice, the identification and discussions of factors are the most important part of the analysis, rather than the presentation of summarised results.
1. Is management more of an art or a science?
Over the years there has been a lot of discussion about this question. One view says that it is an art, as no formal methods can predict future conditions or performance with certainty. Science assumes that when an experiment is repeated it gives the same results again – but when management decisions
are repeated they often give completely different results. As management decisions rely on judgement, intuition and experience there can be no scientific footing.
The opposing view says that decisions should be made rationally, and based on the logical foundations of science. If we look at any management problem we can do formal analyses of circumstances, compare alternatives and use
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rational analyses to make the best decisions. A scientific approach is the only
reasonable way of making decisions – and any problems with decisions
suggest failings in managers’ analyses and implementation rather than the
A reasonable view says that managers can use scientific methods to collect
and analyse information, but conditions are so complex and uncertain that
they need ‘art’ skills for the actual decisions.
2. What do managers need to analyse when they design an operations
The three areas of higher strategies (particularly analysing the business
strategy from an operations perspective), the operations environment (using
an environmental scan) and internal operations (using an operations audit).
Each of these gives a complex and changing picture that contains many
different features to be analysed.
3. An operations environmental scan describes the main features of the
related industry and market. Is this true?
Yes – but this is only part of its job, as it collects all relevant information about the operations environment. Essentially, an environmental scan
collects everything about the environment that might be useful in
designing an operations strategy. It allows managers to analyse the
effects of the environment on current and proposed operations.
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4. The operations environment is too complicated for any managers to
understand properly – and they probably cannot even identify the most
important features. So what is the point of trying to use simple, standard
analyses of the environment?
The first part of the question is generally true, that the operations environment is too complicated for any managers to understand properly – and it is also
true that most managers would have difficulty in identifying all of the most important features. But this does not mean that they should simply give up and not try to understand anything at all. Some knowledge is almost invariably better than complete ignorance. Managers might not have complete mastery of, say, economics but they can understand enough to use the rule that higher prices generally mean lower demand. Simple analyses and models might not describe all the details of the environment, but they can certainly help with decisions.
5. What are the most widely used analyses for internal operations? Analyses of internal operations are generally included in an operations audit, which gives a detailed description of the operations used by an organisation. Many analyses can contribute to this, with those mentioned in the chapter being financial analysis, performance analysis, performance-importance, balanced scorecard, benchmarking, value-chain analysis and cost analysis.
6. Balanced scorecards have become increasingly popular in the past few
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They give a way of looking at four important factors for the design of an operations – or any other – strategy, but this is not new. Many alternatives
have been suggested, often using the same format and with slightly different names. Perhaps it unfair to suggest that balanced scorecards have become popular because of good marketing. Managers are particularly susceptible to using the latest idea or gimmick to try and get an advantage, so it is uncertain whether this interest will be sustained or whether it will die away.
7. SWOT and similar analyses only describe present conditions. They do not
show whether this is good or bad, and they do not show how to improve
things. What, then, is their purpose? Their purpose is exactly as stated in the question – which is to describe
present conditions. They give a structure for presenting current circumstances, and this allows managers to consider the ways to move forward from the current position to a desired future one. Realistically, no analysis can either determine the best future position, or the best way of achieving this. In practice, collecting, analysing, reviewing and discussing the information for a SWOT analysis gives the most useful part of the analysis.
8. How would you start a SWOT analysis for a public company? What type
of factors would you include?
By definition, you would start by colleting information about strengths (that the operations do well), weaknesses (where there are problems within the operations),opportunities (that can help the organisation) and threats (that can cause damage). Details of the factors to consider depend on the type of
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IDEAS IN PRACTICE
Aim: to show how a sudden environmental change can harm an organisation
The operations environment is often stable for long periods, but it can also change very quickly. This case shows a classic example where the environment changed almost overnight, and there was little that Ratner could do to adapt. It is particularly interesting as the company (or its dominant manager) brought much of the change upon themselves.
Managers had spent years building Ratner into a highly successful jewellery retailer. Customers appreciated the new methods introduced by Ratner and it had a good overall image. Then overnight its fortunes changed. Some misguided comments by its dominant manager completely changed its image. He seemed to suggest that the company viewed its own products as rubbish that was not worth buying. The implication was that customers would be foolish to buy them – so not surprisingly, they immediately stopped. The fact
that many of Ratner’s products were of high quality and gave very good value
mattered little in a newly hostile market.
Aim: to show an outline structure for a PEST analysis
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Conditions in Poland changed dramatically after 1989 when it moved from a centrally planned economy based on government ownership to a market economy based on private ownership. These changes continued after the country joined the European Union in 2004. A sign of these changes is the growth of television channels. There are obvious attractions for new companies in a large and rapidly growing market – but there are also
problems in an outward looking country that has a distinctive culture. This case outlines some concerns raised by a PEST analysis. This distinguishes a series of opportunities and threats that can also be used as part of a SWOT analysis.
mmO2 Aim: to suggest the scale of intangible assets in a mobile telephone company
Many companies have intangible assets that have far greater values than their tangible assets. These are very difficult to value. Most people recognise names of companies like McDonald’s and Coca Cola – but how much is this
recognition really worth. Most people also recognise names like Hitler and Stalin, but this recognition would not necessarily increase the value of any company associated with them.
The analysis given for O2 (which in 2006 became a part of Telefonica) shows how share value gives one way of valuing these intangible assets. As the share prices changes quickly, often for no apparent reason, and usually in line
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with changes in the general market, this valuation is at best a guideline.
Nonetheless, it is often the only reasonable figure that is available.
Aims: to show how scoring models can compare the performance of different
Scoring models are widely used for comparing different operations – and
many other things. This case illustrates the use of a simple scoring model,
and suggests other areas where such models can be useful. These models
have the advantages of being simple, easy to use, and presenting information
in a useful format. On the other hand, they rely on subjective opinions about
important factors, the relative importance of each, and actual performance.
Supporters say that they combine diverse and often qualitative information
into a single quantitative measure: critics say that they give a not very
convincing way of justifying decisions that have already been made.
Aim: to show the early stages in a SWOT analysis
This case gives a very brief view of a SWOT analysis for a new firm of
management consultants. It does little more than list some headings – but
even this can suggest useful directions. For example, weaknesses centre on
their small size – and this is also at the heart of the threats. So an obvious direction for the strategy would call for expansion. They have some gaps in
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