This document discusses strategy formulation and strategic decisions in operations. It outlines 5 steps to strategy formulation: 1) defining the primary task, 2) assessing core competencies, 3) determining order winners and qualifiers, 4) positioning the firm, and 5) deploying the strategy. It also discusses 7 areas of strategic decisions in operations: 1) products and services, 2) processes and technology, 3) capacity and facilities, 4) human resources, 5) quality, 6) sourcing, and 7) operating systems. The document provides examples and definitions for each step and strategic decision area.

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Strategy is a common vision that unites an organization, provides consistency in decisions and keeps the
organization moving in the right direction. Strategy formulation consists of five basic steps:
1. Defining a primary task: The primary task represents the purpose of a firm-what the firm
is in the business of doing. It also determines the competitive arena. As such, the primary
task should not be defined too narrowly.
2. Assessing core competencies: Core competencies are what a firm does better than
anyone else, its distinctive competence. A firm’s core competence can be exceptional
service, higher quality, faster delivery or lower cost. One company may strive to be first to
the market with innovative designs, whereas another may look for success arriving later
but with better quality.
3. Determining order winners and order qualifiers: Order qualifiers are the
characteristics of a product or service that qualify it to be considered for purchase by a
customer. An Order winner is the characteristics of a product or service that wins orders
in the marketplace- the final factor in the purchasing decision.
4. Positioning the firm: No firm can be all things to all people. Strategic positioning
involves making choices- choosing one or two important things on which to concentrate
and doing them extremely well. A firm’s positioning strategy defines how it will compete
in the marketplace – what unique value it will deliver to the customer. An effective
positioning strategy considers the strengths and weaknesses of the organization, the needs
of the marketplace, and the position of competitors.
A company that has positioned itself to compete on cost, quality, flexibility and speed.
(Ref: p- 18)
Competing on cost: Carefully designed service, efficient operations and committed
personnel help to establish strategy of low cost and support control growth. Companies
that compete successfully on cost realize that low cost cannot be sustained as a
competitive advantage if increases in productivity are obtained solely by short-term cost
reductions. A long-term productivity ‘portfolio’ is required that trades off current
expenditures for future reductions in operating cost. The portfolio consists of investments
in updated facilities and infrastructure, equipment, programs and systems to streamline
operations and training and development that entrance the skills and capabilities of people.
Competing on quality: Most companies approach quality in a defensive or reactive
mode; quality is confined to minimizing defect rates or conforming to design
specifications. To compete on quality, company must view it as an opportunity to please
the customer, not just a way to avoid problems or reduce rework cost.
Competing on flexibility: Flexibility is the ability to adjust to changes in product mix,
production volume, or design. Flexibility has become a competitive weapon. It includes
the ability to produce a wide variety of products, to introduce new products and modify
existing ones quickly and to respond to customer needs. Like windows system, different
models of handset etc.
Competing on speed:Competing on speed requires an organization characterized by fast
moves, fast adaptations and tight linkages. The internet has conditioned customers to

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expect immediate response and rapid product shipmen. Service organizations such as SA
poribohon, Amazon.com, McDonald’s have always competed on speed.
5 Deploying the strategy: Implementing strategy can be more difficult than formulating
strategy. Different departments or functional areas in a firm may interpret the same
strategy in different ways. If their efforts are not co-ordinate, the results can be disastrous.
Effective ways to deploy strategy:
i. The strategic planning Hierarchy: Senior management with input and participation from
different levels of the organization develops a corporate strategic plan in concurrence with
the firm’s mission and vision, customer requirements (voice of the customer) and business
conditions (voice of the business). The strategic plan focuses on the gap between the
firm’s vision and its current position. It identifies what needs to be done to close the gap
and provides direction for formulating strategies in the functional areas of the firm such as
marketing, operations and finance. It is important that strategy in each of the functional
areas be internally consistent as well as consistent with the firm’s overall strategy.
ii. Policy Deployment: Policy deployment also known as hoshin planning tries to focus
everyone in an organization on common goals and priorities by translating corporate
strategy into measurable objectives throughout the various functions and levels of the
organization. As a result, everyone in the organization should understand the strategic
plan, be able to drive several goals from the plan and determine how each goals tie into
their own daily activities.
iii. Balanced Scorecard: Balanced scorecard measuring more than financial performance,
which examined a firm’s performance in four critical areas.
Finance: How should we look to our shareholders?
Customer: How should we look to our customers?
Processes: At which business processes must be excelling?
Learning and Growing: How will we sustain our ability to change and
improve? (Ref: pg-20)
# Strategic Decisions in Operations: Strategic decisions in operations involve products and
service, processes and technology, capacity and facilities, human resources, quality, sourcing and
operating systems.
1. Product and Services: The kinds of products and services offered by a company drive operations
strategy. Products and services can be classified as make-to-order, make- to- stock or assemble-to-
order.
i. Make-to-order: Products & Services are designed, produced and delivered to customer
orders. Examples include wedding invitation, custom-built homes, custom-tailored clothes
etc.
ii. Make –to- stock: Products & Services are designed and produced for ‘Standard’ customers
in anticipation of demand. Examples includes furniture of otobi, televisions, airlines
flights etc.
iii. Assemble-to-order: Products & Services also known as build-to-order are produced in
standard modules to which options are added according to customer specifications. Thus,
components are made –to-stock and then assemble to order after the customer order has
been received. Examples include computer system, industrial equipment, corporate
training etc.

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2. Process and Technology: Production process can be classified into projects, batch production,
mass production and continuous production.
A project is a one-at-a time production of a product to customer order which has a well defined
starting and finished time. Examples include construction projects, new product development etc.
Batch production processes many different jobs through the production system at the same time in
groups or batches. Examples of batch production include printers, education, bakeries etc.
Mass production produces large volumes of a standard product for a mass market. Product
demand is stable and product volume is high. Examples include automobiles, televisions, fast
food, computer goods etc.
Continuous production is used for very high volume commodity products that are very
standardized. The system is highly automated and is typically in operation continuously 24 hours
a day. Examples include refined oil, water treatment plants, food stuffs etc.
3. Capacity and Facilities: Capacity decisions affect product lead times, customer responsiveness,
operating costs and a firm’s ability to compete. Inadequate capacity can lose customers and limit
growth. Excess capacity can drain a company’s resources and prevent investments in more
lucrative ventures. When, how much and in what form to alter capacity are critical decisions.
4. Human Decisions: Strategic issues in human resources involve determining the skill levels and
degree of autonomy required to operate the production system, outlining training requirements
and selection criteria and setting up policies on performance evaluations, compensation and
incentives.
5. Quality: Quality permeates virtually every strategic decision. What is the target level of quality
for our products and services? How will it be measured? How will employee be involved with
quality? What types of training are necessary? How will customer perceptions of quality be
determined?
6. Sourcing: On what basis should particular items be made-in-house? When should items be out
sourced? A firm that sells the product, assembles the product, makes all parts and extracts the raw
material is completely vertically integrated. But most companies cannot or will not make all of the
parts that go into a product. A major strategic decision, then, is how much of the work should be
done outside the firm. This decision involves questions of dependence, competency building and
proprietary knowledge as well as cost.
7. Operating Systems: Operating systems execute strategic decisions on a day to day basis, so it is
important that they be designed to support how the firm competes in the market place. The IT
system must be able to support both customer and worker demands for rapid access, storage and
retrieval of information. Planning and control systems must be set up with timely feedback loops
and consistent decision making criteria. Inventory levels, scheduling priorities and reward systems
should align with strategic goals.