Unit I: Introduction to

Operations Strategy
Strategy

Definition: Strategy is the long-term direction and scope of an organization, aimed at

achieving competitive advantage in a changing environment.

Purpose: It guides resource allocation and aligns operational goals with the organization’s
overarching mission and vision.

Types: Includes corporate, business, and functional strategies, each focusing on different
organizational levels

Strategic Fit: Effective strategy ensures a fit between the organization's external environment
and its internal capabilities.

Dynamic Nature: Strategies must evolve in response to market shifts, technological

advancements, and competitive pressures
Operational Goals

Definition: Operational goals are short- to medium-term targets focused on specific

processes and activities within the organization.

Purpose: They aim to enhance the efficiency and effectiveness of daily operations,
ensuring the smooth functioning of production and service delivery.

Examples: These can include reducing lead times, improving product quality, increasing
customer service efficiency, or optimizing inventory levels.

Alignment with Strategy: Operational goals should directly support the organization's
broader strategic objectives by providing a clear pathway for achieving them.
Strategic Fit

Definition: Strategic fit refers to the alignment between an organization’s external environment (e.g., market
demands, competition) and its internal capabilities (e.g., resources, processes, skills).

Importance: Ensures that the organization can effectively respond to external opportunities and threats while
leveraging its strengths.

Components:

• External Alignment: Involves matching the company’s operations with market requirements, such as customer preferences and industry
standards.
• Internal Alignment: Focuses on synchronizing resources, processes, and functional strategies to deliver on the market demands efficiently.

Dynamic Nature: Strategic fit is not static; it requires continuous adjustments to maintain alignment as market
conditions and organizational capabilities evolve.

Outcome: A strong strategic fit enhances organizational performance by improving responsiveness, reducing
waste, and enabling sustained competitive advantage.
Concept
• RBV emphasizes that a firm's competitive advantage stems from its unique internal resources and
capabilities rather than external market conditions.

Purpose
• RBV complements strategy by providing a framework for identifying and developing internal

Resource-
resources that align with the firm's strategic goals, ensuring a strong strategic fit between capabilities
and market demands​

VRIN Criteria:

Based View •
•
•
Valuable: Resources that help an organization exploit opportunities or neutralize threats.
Rare: Resources that are not widely possessed by competitors.
Inimitable: Resources that are difficult or costly to imitate.

(RBV) of the • Non-substitutable: Resources that cannot be replaced by other resources to achieve the same benefit.

Resource Heterogeneity

Firm • RBV assumes that firms possess unique resource combinations, leading to differences in performance
and competitive advantage.

Resource Immobility
• Some resources, such as organizational culture or proprietary knowledge, are difficult to transfer
between firms, enhancing their strategic value.

Strategic Development
• RBV encourages firms to develop and nurture unique capabilities, such as innovation, operational
excellence, or customer relationships, for long-term advantage​
Domino Japan faced a strategic dilemma: focus on
fortressing or pursue market expansion.

Domino’s Fortressing strategy involved clustering stores in urban areas

to optimize delivery speed and reduce costs.

Pizza in Japan:
Fortressing or The company’s competitive advantage relied on quick
delivery, supported by an efficient urban store density
model.
Market
Expansion? Market expansion aimed to grow in less saturated regions,
but risked diluting operational efficiency.

Key challenge: balancing service speed and operational

costs in new, less dense areas.
Decision involved leveraging core competencies while
exploring new growth opportunities.

Domino’s Expansion could affect resource allocation and

potentially compromise the quick delivery promise.
Pizza in Japan:
Fortressing or Fortressing provided an opportunity to strengthen the
brand’s position in existing markets.

Market
Expansion? Consideration required an analysis of market conditions,
consumer preferences, and resource capabilities.

The company needed to ensure sustainable competitive

advantage in both existing and new markets.
Analysing the Case using PACADI
• Problem: The key issue is whether Domino’s should focus on fortressing its existing market by increasing store
density or expand into new markets within Japan. The decision involves balancing operational efficiency with
growth potential.
• Alternatives: Domino’s has two primary strategic options
• Fortressing: Increase store density in existing markets to enhance delivery speed and operational
efficiency.
• Market Expansion: Enter new geographic areas to broaden the customer base.
• Criteria: The decision should be evaluated based on the following criteria:
• Customer Satisfaction: Faster delivery times improve customer experience.
• Market Share Growth: Expanding into new areas may increase overall market share.
• Operational Efficiency: Fortressing may lead to cost synergies and better resource utilization.
• Profitability: Both strategies need to be assessed for their impact on revenue and profit margins.
• Brand Presence: Expansion could enhance brand visibility across Japan.
• Risk: Fortressing carries saturation risks; expansion involves market-entry challenges.
Fortressing:

• Improves delivery times, leading to higher

customer satisfaction and loyalty.
• Enhances cost efficiency due to economies of
scale in dense areas.
• Risks market saturation and limits growth
potential.

Analysis Market Expansion:

• Opens new revenue streams by tapping into

underserved regions.
• Involves higher costs related to new market entry
and potential cultural adaptation.
• Delivery times might initially suffer in less dense
areas, affecting customer satisfaction.
Decision

• The decision would lean toward fortressing if Domino’s aims to

solidify its competitive edge in delivery speed and maximize
operational efficiency. However, market expansion would be
preferred if the goal is long-term growth and diversification.

Implementation

• If fortressing is chosen:
Decision & • Identify high-potential areas within existing markets to open
additional stores.
Implementation • Optimize delivery routes and staffing to capitalize on the
increased store density.
• If market expansion is selected:
• Conduct market research to identify regions with growth potential.
• Develop localized marketing strategies to penetrate new markets
effectively.
• Gradually scale operations to manage entry risks and maintain
service quality.
• This structured analysis ensures that Domino’s strategic decision
aligns with its organizational goals and market dynamics.
Solving Case using resource-based view
Identification of Key Resources and Capabilities

Delivery System: Domino’s advanced delivery network, optimized for speed and reliability.

Urban Store Density Model: A sophisticated system for determining optimal store locations in dense urban
environments.

Brand Reputation: Strong global and local brand recognition in the Japanese market.

Technological Integration: Use of technology for order management, tracking, and delivery efficiency.

Global Best Practices: Access to insights and innovations from the Center for Global Innovation.

Supply Chain Efficiency: Robust logistics and supplier network tailored to Japanese market demands.
VRIO Analysis
Valuable: Rare: Inimitable: Organized:

• The delivery system • The level of delivery • Competitors face • Domino’s has
and urban density speed and urban significant barriers in structured its
model are crucial for store density replicating the store operations to fully
meeting customer optimization is density model and exploit these
demand for quick uncommon among logistics efficiency resources, ensuring
service. competitors. due to Domino’s high service quality
• Brand reputation • Proprietary proprietary systems and operational
enhances customer technologies and and accumulated efficiency.
trust and market global best practices experience.
penetration. give Domino’s a • The integration of
unique edge. local and global
innovations creates a
complex, hard-to-
copy advantage.
Strategic Implications

Fortressing Strategy:
• Aligns well with Domino’s valuable and inimitable urban density model.
• Enhances delivery efficiency and customer satisfaction in existing
markets.
• Maximizes the use of operational resources, leading to higher profitability.

Market Expansion Strategy:

• Uses the brand and supply chain capabilities in untapped regions.
• Introduces the challenge of adapting the urban density model in less
dense or rural areas, potentially diluting the speed advantage.
• Based on RBV, fortressing emerges as the stronger strategy in the short
term. It capitalizes on Domino’s unique and inimitable capabilities,
ensuring sustained competitive advantage through optimized delivery
performance and cost efficiencies.
• However, market expansion could be a viable long-term strategy if
Domino’s develops new resources and capabilities tailored to less dense
regions, such as alternative delivery models or franchise partnerships.
• Fortressing:
• Further refine the urban density model.
Invest in marketing to reinforce the delivery speed advantage.
Recommendation
•

• Strengthen customer loyalty programs.

• Market Expansion:
• Begin with test expansions in moderately dense new regions.
• Leverage global best practices while adapting to local market
conditions.
• Gradually build capabilities to replicate the success in new
geographic areas.
Operations Strategy Matrix
The Operations Strategy Matrix is a tool used to analyze and align a firm's performance objectives with its decision
areas. It helps to ensure that the firm's operations are strategically aligned with its market and competitive needs.

Components of the Matrix:

• Performance Objectives:
• Quality: Consistency and reliability of products or services.
• Speed: The time taken to deliver products or services.
• Dependability: Reliability in meeting delivery promises.
• Flexibility: The ability to adapt to changes in demand or customer preferences.
• Cost: Efficiency in managing expenses to offer competitive pricing
• Decision Areas:
• Capacity Strategy: Determines the scale, timing, and location of operations.
• Supply Network Strategy: Involves decisions on outsourcing and supplier relationships.
• Process Technology: Concerns the tools and systems used in production.
• Development and Organization: Focuses on people, culture, and operational improvement
• Critical Intersections:
• The matrix highlights intersections were specific decision areas impact performance objectives.
• For example, how capacity influences flexibility or how supply networks impact cost and dependability
How to apply operations strategy matrix

• Step 1: Understand the Purpose

• The Operations Strategy Matrix helps a business match its goals (like fast delivery or low cost) with the decisions it makes
about how to run the business (like how much to produce or where to buy supplies).
• Step 2: Identify Your Goals (Performance Objectives)
• Think about what the business wants to be good at. These are the Performance Objectives:
1. Quality: Making sure products or services are reliable and consistent.
2. Speed: Delivering products or services quickly.
3. Dependability: Being reliable in keeping promises (e.g., delivering on time).
4. Flexibility: Changing what you offer or how much you produce when needed.
5. Cost: Keeping expenses low to offer good prices.
• Step 3: Look at Key Decisions (Decision Areas)
• These are the areas where important choices are made:
1. Capacity Strategy: How much can you produce? When and where will production happen?
2. Supply Network Strategy: Will you make everything yourself or buy from others? Who will be your suppliers?
3. Process Technology: What tools or machines will you use to make your products?
4. Development and Organization: How will you train your workers and improve your processes?
How to apply operations strategy matrix

• Step 4: Match Goals with Decisions

• Now, match each goal to the decision areas. Ask these questions:
• Quality: What processes or tools help ensure high quality? Do you need special training for workers?
• Speed: How can you design your production to be faster? Should you make products closer to customers?
• Dependability: How do you ensure timely delivery? Are your suppliers reliable?
• Flexibility: Can you easily change production if customer demands shift? Do you have enough capacity to adjust quickly?
• Cost: Where can you save money without reducing quality? Should you buy cheaper materials or produce more efficiently?
• Step 5: Find Critical Intersections
• Look for places where decision areas overlap and affect goals. For example:
• Capacity affects Flexibility: If you have many small production sites, it’s easier to change production levels.
• Supply Network affects Cost: Choosing the right suppliers can reduce expenses while keeping quality high.
• Step 6: Make Decisions
• Using the matrix, decide on the best actions:
• If you want speed, you might decide to build more stores closer to customers.
• If cost is a priority, you might outsource production to a cheaper supplier.
• Step 7: Review and Adjust
• Keep an eye on how well your choices are working. If delivery times are still slow, think about changes like increasing production
capacity or using faster delivery services.
• Economic Challenges: Despite prolonged economic stagnation and low consumer
confidence in Japan, Seven-Eleven Japan (7-Eleven) thrived in the retail sector.
• Position: Established in 1973, 7-Eleven became Japan's largest retailer, with over
11,500 outlets and unmatched profitability in the industry.
• Advanced Inventory Management: The company implemented an advanced
inventory management system driven by its Total Information System (TIS),
integrating data across stores, suppliers, and distribution centers.
• Item-by-Item Approach: Inspired by a personal shopping experience, Chairman

Seven-
Toshifumi Suzuki pioneered a system that ensured each product met localized
demand, minimizing stockouts and enhancing customer satisfaction.
• Efficient Distribution: Suppliers were encouraged to use common distribution
centers, reducing daily store deliveries from 30 in 1980 to under 10 by 1999.

Eleven Deliveries were grouped by storage temperature to maintain product quality.

• Optimized Shelf Space: With limited shelf space, 7-Eleven ensured every product
earned its place through detailed sales tracking, analysing customer types,

Japan case
purchasing times, and trends.
• Franchisee Support: Field counsellors worked closely with franchisees to improve
operations and profitability, fostering shared learning and best practices across the
network.
• Clustered Expansion: The expansion strategy focused on opening a minimum of 50
stores in any area, lowering advertising and distribution costs while maximizing
market presence.
• High Sales Performance: Average daily sales per store were significantly higher
than those of the main competitor, justifying higher franchise royalty fees due to
superior profitability.
• Sustainable Competitive Advantage: 7-Eleven’s integration of technology, efficient
logistics, and strong franchisee relationships enabled sustained growth and
operational excellence.
Applying Operations Strategy Matrix
• Performance Objective –
• Quality: 7-Eleven ensured high product quality through a temperature-based distribution system, preserving the freshness of food items
like frozen, chilled, and hot foods​
• Speed: Frequent, small deliveries reduced the time between store orders and product deliveries, enhancing service responsiveness​
• Dependability: The Total Information System (TIS) enabled real-time inventory tracking and demand forecasting, ensuring stock
availability and reducing stock-outs​
• Flexibility: Item-by-item control allowed stores to adjust stock based on customer preferences and demand variations, showcasing
adaptability to market needs​
• Cost: Clustered store expansion reduced advertising and logistics costs, improving overall cost efficiency without compromising service
quality​
• Decision Area
• Capacity Strategy: 7-Eleven ensured optimal use of store space by stocking only high-performing products, maintaining profitability per
square foot​
• Supply Network Strategy: Establishing common distribution centers streamlined the supply chain, enhancing delivery efficiency and
reducing the logistical burden on individual stores​
• Process Technology: The integration of networked cash registers and handheld terminals enabled detailed data collection and analysis,
supporting precise inventory management​
• Development and Organization: Field counsellors provided ongoing support and training to franchisees, fostering continuous
operational improvements and sharing best practices​
• Strategic Alignment: By aligning its operations strategy with market demands, 7-Eleven successfully balanced competing objectives, achieving
sustained competitive advantage and superior market performance
Operations Performance
Quality:
• Explanation: Ensuring that products or services consistently meet customer expectations.
• Example: A luxury hotel maintains high cleanliness and personalized service standards, ensuring a
consistent experience for guests.

Speed:
• Explanation: The time taken to deliver products or services to customers.
• Example: A coffee shop like Starbucks serves beverages within minutes of ordering, providing quick
service during busy hours.

• Explanation: Reliability in delivering what is promised to customers, such as delivery times or product

Dependability: availability.
• Example: A logistics company like FedEx guarantees next-day delivery, ensuring dependability in
service.

• Explanation: The ability to adjust operations to handle a variety of products, changes in demand, or

Flexibility: custom requests.

• Example: A custom furniture company allows customers to choose their designs and materials,
adapting production to individual preferences.

Cost:
• Explanation: Efficiency in managing expenses while delivering value to customers.
• Example: A supermarket like Aldi offers low prices by optimizing its supply chain and reducing
operating costs.

Efficient Frontier
• Meaning: Trying to get better at quality, speed, dependability, flexibility, and cost at the same time.
• Example: A company like Apple ensures its products are high quality, delivers them quickly, and keeps
improving its processes to save costs.
Operations Focus
Specialization in Specific • Meaning: Focusing on a few key performance objectives to excel in them.
Objectives: • Example: Domino’s focuses on speed and dependability to ensure fast and reliable pizza delivery.

• Meaning: Specializing in a limited range of products or services to achieve operational efficiency.

Product or Service Focus: • Example: IKEA focuses on affordable, flat-pack furniture and self-service to streamline its
operations.

Targeting Specific • Meaning: Optimising operations to meet the needs of a particular customer group.
Markets: • Example: Rolls-Royce focuses on high-quality, customized luxury cars for premium customers.

• Meaning: Reducing complexity to focus on efficiency in specific areas.

Simplified Processes: • Example: Subway focuses on a simple sandwich-making process, which allows for faster service
and customized orders.

• Meaning: Focusing on high-volume production to reduce costs and increase efficiency.

Economies of Scale: • Example: Coca-Cola focuses on producing large quantities of a few key beverages, achieving cost
efficiency through scale.

Operational Excellence in • Meaning: Becoming the best in a specific operational capability.

• Example: FedEx focuses on speed and dependability in logistics, ensuring overnight delivery for
One Area: its customers.
What are Trade-offs?

•Meaning: Improving one performance objective might negatively impact another.

•Example: A factory might increase production speed, but this could reduce product quality if not carefully
managed.

Cost vs. Quality:

Trade-offs
•Meaning: Lowering costs might result in lower-quality products.
•Example: A budget airline reduces ticket prices but offers fewer in-flight services to save costs.

in
Speed vs. Cost:

•Meaning: Delivering faster services can increase operational costs.

•Example: An express courier service charges higher fees for faster delivery to cover additional expenses.

Operations
Flexibility vs. Cost:

•Meaning: Offering more customization options can increase costs.

•Example: A car company that allows customers to customize their vehicles might face higher production

Strategy
costs due to less standardized processes.

Dependability vs. Flexibility:

•Meaning: Being reliable in delivering on time may reduce flexibility in handling last-minute changes.
•Example: A catering service promising fixed delivery times may not accept late order changes to ensure
dependability.

Quality vs. Speed:

•Meaning: Focusing on speed might reduce the time available for quality checks.
•Example: A fast-food restaurant could serve meals quickly but might compromise on ensuring every order
is perfect.
• Definition: Total operations flexibility refers to an organization’s ability to
adapt to changes in various operational aspects, such as product offerings,
production volumes, or delivery schedules, to meet customer and market
demands.
• Four Key Types:
• Product/Service Flexibility: Ability to introduce or modify products
and services.
Mix Flexibility: Capability to adjust the combination of different
Total
•
products or services produced.
Volume Flexibility: Capacity to scale production levels up or down.
Operations
•

• Delivery Flexibility: Ability to change delivery schedules and meet

varied customer timing requirements.
Flexibility • Range Dimension: Measures the extent or variety of changes an operation
can handle, such as the number of different products offered or the range of
delivery times.
• Response Dimension: Focuses on the speed at which these changes can be
made, such as how quickly a new product can be introduced or how soon
delivery times can be adjusted.
• Strategic Advantage: High flexibility allows companies to respond
effectively to market volatility, customer preferences, and competitive
pressures, ensuring better customer satisfaction and market
competitiveness.
Range and response dimensions of the four
types of total operations flexibility
Product/Service
Mix Flexibility: Volume Flexibility: Delivery Flexibility:
Flexibility:
• Range: The ability to • Range: The variety of • Range: The ability to • Range: The extent to
offer a variety of products or services increase or decrease which delivery dates
products or services. produced within a total output levels. can be changed.
• Response: The time given time frame. • Response: The time • Response: The time
required to develop • Response: The time it takes to adjust the required to
or modify products needed to adjust the production volume. reorganize
and services. mix of products or • Example: An operations to meet
• Example: A services being automobile new delivery
smartphone produced. manufacturer schedules.
company like Apple • Example: A bakery scaling up • Example: A logistics
launching new shifting from production to meet a company
models or updating producing more sudden surge in rescheduling
existing ones to cakes to more bread demand. deliveries to
meet market based on seasonal accommodate
demands. demand. urgent customer
requests
Internal and external benefits of excelling at
each performance objective
• Internal Benefits: Reduces process disruptions, improves reliability, and lowers processing

Quality: costs.
• External Benefits: Leads to high-specification, error-free products and services that
customers trust​.

• Internal Benefits: Shorter throughput times reduce queuing and inventory levels, leading

Speed: to lower overhead and processing costs.

• External Benefits: Enables quick responses to customer requests and ensures short
delivery or waiting times​.

• Internal Benefits: Increases confidence in operations by reducing the need for contingency

Dependability: plans, improving internal stability, and lowering costs.

• External Benefits: Customers benefit from on-time delivery and predictable service
performance​.

• Internal Benefits: Allows for better handling of unexpected events, wider product or

Flexibility: service range, and more efficient volume and delivery adjustments.
• External Benefits: Provides frequent new products, services, and customization options to
meet customer preferences​.

Cost:
• Internal Benefits: Enhances productivity and operational efficiency, resulting in higher
margins.
• External Benefits: Customers enjoy competitive pricing without compromising on value​.
Order-Winning and Qualifying Competitive Factors

Definitions: Benefits: Criticism:

• Order-Winning Factors: These are • Competitive Differentiation: Firms can • Short-Term Focus: The order-winning
aspects that directly contribute to prioritize resources on order-winners to and qualifying model often focuses on
winning customer business. They are key stand out in the market. transactional customer behavior,
reasons why a customer selects a • Customer Trust: Meeting qualifying potentially ignoring long-term
product or service. Improving these factors ensures reliability and relationship dynamics.
factors can lead to increased sales and trustworthiness, preventing customer • Market Dynamics: Over time, today's
competitive advantage. loss. delights and order-winners can become
• Qualifying Factors: These do not directly • Strategic Focus: By identifying order- tomorrow’s qualifiers as competitors
win business but are essential to be winners and qualifiers, companies align catch up, necessitating continuous
considered by customers. If these their operations and marketing strategies innovation.
factors fall below a threshold, the firm efficiently.
will not be considered at all, even if it • Innovation Opportunity: Delights allow
excels in order-winning factors. firms to lead markets through novel
• Delights: Some factors provide offerings, temporarily securing a unique
unexpected and novel benefits to market position.
customers, creating significant
satisfaction and competitive advantage
until competitors catch up.
List of competitive factors

Order-Winning Factors: Qualifying Factors: Delights:

Price Competitiveness: Offering Basic Product or Service Standards: Innovative Features: Introducing new
products or services at lower costs that Meeting minimum acceptable levels in and unexpected product attributes that
attract customers. terms of quality and reliability. surprise and please customers.
Quality Performance: Superior product Regulatory Compliance: Adhering to Exceptional Customer Service:
or service quality that differentiates necessary legal and industry standards to Providing a unique service experience
from competitors. operate. that exceeds standard expectations.
Delivery Speed: Fast turnaround times Operational Reliability: Ensuring Eco-Friendly Practices: Implementing
that enhance customer satisfaction. consistency in product or service sustainable operations that appeal to
Customization: Ability to tailor delivery. environmentally conscious customers.
products or services to specific customer
needs.
• Market Dynamics:
• As industries evolve, customer expectations shift. For example, in early stages, cost might
dominate, but as markets mature, quality and speed may gain priority.
• Example: The smartphone market initially focused on cost-effective devices but now emphasizes
innovation and speed in product launches.

Changes in • Competitive Pressure:

• When competitors improve in specific performance areas, companies must adapt to maintain their
market position.

relative
• Example: An airline might prioritize cost during high competition but later shift to dependability
or service quality as customer preferences evolve.
• Technological Advancements:

importance
• New technologies can change the feasibility of excelling in multiple objectives simultaneously.
• Example: Automation allows manufacturers to enhance both speed and quality, making these
objectives more critical.

of
• Lifecycle Stage:
• The stage of a product or service lifecycle influences the importance of objectives.
o Introduction Stage: Flexibility and speed are vital to adapt to market feedback.

performance
o Growth Stage: Quality and dependability become crucial for building trust.
o Maturity Stage: Cost efficiency is prioritized to maximize profits.
o Decline Stage: Cost remains critical as demand wanes.

objectives • Customer Expectations:

•
•
Changes in consumer preferences drive shifts in operational focus.
Example: As consumers demand faster deliveries, companies like Amazon prioritize speed and
dependability over other objectives.
• Globalization and Sustainability:
• In a globalized market, sustainability and environmental practices are emerging as critical
performance objectives.
• Example: Automotive companies now balance cost and flexibility with sustainable manufacturing
practices.