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The 3rd International Conference on Technology and Operations Management “Sustaining Competitiveness through Green Technology Management” Bandung – Indonesia, July 4-6, 2012

Sustainable Operations Strategy: A Conceptual Framework Gatot Yudoko1,* 1

School of Business and Management (SBM) – Institut Teknologi Bandung (ITB), Jl. Ganesha 10 (Gedung SBM-ITB), Bandung 40132, Indonesia

Abstract. Since the world's adoption on sustainable development, many green initiatives have been developed in business, including operations, resulting in a new concept of sustainable operations management. However, rarely has green development been included in the context of operations strategy. Therefore, the aim of this paper is to develop a conceptual framework on operations strategy. The methodology for model building is based on the positivist, deductive-theorizing orientation based on the literature review. The proposed conceptual framework of sustainable operations strategy contains three major constructs, namely context, content, and process. The chosen context is sustainable development as it has been accepted as a global consensus for the future generation. The content deals with a hierarchy of strategy, comprising corporate, business, and operations strategy. In addition, content deals also with structural and infrastructural decisions that may contribute to the achievement of environmental, economic, and social goals. The process involves top-down, bottom-up, and strategic alignment process. The top-down process is meant as the formulation of corporate strategy, and subsequently business and operations strategy. The higher strategy level provides direction and priorities for the lower, and vice versa, in the bottom-up process, the lower level strategy functions to support the higher level strategy. In the strategic alignment a process for creating fit between external requirements and the internal resources, processes, and capabilities is sought. In addition, an adjustment to uncertain event or known as risk is another kind of process to build new fitness to achieve a sustainable operations strategy.

Keywords: Structural and infrastructural decisions, conceptual framework, sustainable operations strategy

1. Introduction Raturi and Evans (2005) defined operations management as “the business activity that involves the design, development, and maintenance of systems and processes that transform resources, such as raw materials, technology, and labor, into goods and services that meet customers’ needs.” Slack and Lewis (2011) defined operations strategy as “the total pattern of decisions which shape the long-term capabilities of any type of operation and their contribution to overall strategy, through reconciliation of market requirements and operations resources.” Operations strategy has been understood by many to be distinct from operations strategy. Waters (2006) provided some differences between different levels of decision as shown in table 1.

* Corresponding author. E-mail address: [email protected]

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Table 1. Some differences between different levels of decision Type of decision

Strategic

Tactical

Operational

Importance

high

medium

low

Timescale

long

medium

short

Level of manager

senior

middle

junior

Focus

whole organization

parts of the organization

individual activities

Resource used

many

some

Few

Risk and uncertainty

high

medium

Low

Structure

unstructured

some structure

highly structured

Amount of detail

little

some detail

very detailed

Data available

limited

some

More

Management skills

conceptual

interpersonal

technical

Source: Waters (2006)

One of the emerging research topics in operations management, according to Kleindorfer, Singhal, and van Wassenhove (2005) is sustainable operations management by recognizing sustainable development through its three major principles such as economics, social, and environment or also known as the “triple bottom line”, consisting of profit, people, and planet. However, the inclusion of sustainable development in operations strategy has rarely been addressed. Due to its strategic role, operations strategy affects operations management. Therefore, the objective of this paper is to propose a conceptual framework of sustainable operations strategy in order to fill this lack and expands the existing body of knowledge on operations strategy research (Boyer, Swink & Rosenzweig, 2005; Gupta, Verma & Victorino, 2006; Bayraktar et al., 2007).

2. Method 2.1. Definitions Many authors have agreed that operations has a strategic role in creating and sustaining competitive advantage. In other words, operations has been viewed as competitive weapon (Garvin, 1992; Stonebraker & Leong, 1994; Hayes, et al., 2005; Waters, 2006; Beckman & Rosenfield, 2008; Finch, 2008; and, Slack & Lewis, 2011). This common understanding can be seen through various definitions of operations strategy proposed by several authors as shown in table 2. All these definitions signify the distinction between operations management and operations strategy. Table 2. Definitions of operations strategy Author(s)

Definition of operations strategy

Garvin (1992)

“Operations strategy examines the use of manufacturing and operations as competitive weapon).”

Stonebraker & Leong (1994)

“the current domain and pattern of resource commitments to transformation processes, and planned improvements, as a means to achieve the distinctive competence and goals of the firm.”

Hayes, et al. (2005)

“a set of goals, policies, and self-imposed restrictions that together describe how the organization proposes to direct and develop all the resources invested in operations so as to best fulfill (and possibly redefine) its mission.”

Raturi & Evans (2005)

“the set of decisions across the value chain that supports the implementation of a higher-level business strategies.”

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Waters (2006)

“consists of all the long-term goals, plans, policies, culture, resources, decisions and actions that relate to its operations.”

Beckman & Rosenfield (2008)

“connecting operations goals with customer concerns.”

Finch (2008)

“a strategy that establishes the link between operations decision making and business strategy.”

Slack and Lewis (2011)

“the total pattern of decisions which shape the long-term capabilities of any type of operation and their contribution to overall strategy, through reconciliation of market requirements and operations resources.”

2.2. Hierarchy of Operations Strategy Another common agreement among authors regarding operations strategy is in terms of its hierarchy (Stonebraker & Leong, 1994; Hayes et al., 2005; Waters, 2006; Beckman & Rosenfield, 2008; Finch, 2008; Slack and Lewis, 2011). From the top-down perspective, corporate strategy determines business strategy and business strategy affects operations strategy. From the bottom-up perspective, operations strategy supports business strategy and business strategy supports corporate strategy. Figure 1 shows this hierarchy.

2.3. Two Major Paradigms As in the area of strategic management research (Fahey & Christensen, 1986; Barnes, 2001; Hutzschenreuter & Kleindienst, 2006; Barney, 2007), operations strategy shares the same major classification of research into content and process (Stonebraker & Leong, 1994; Hayes et al., 2005; Raturi & Evans, 2005; Rytter, Boer & Koch, 2007; Beckman & Rosenfield, 2008; Finch, 2008; and, Slack & Lewis, 2011). There are two major paradigms in operations strategy, namely resource-based view and market-based view (Hart, 1995; Aragon-Corea & Sharma, 2003; Lowson, 2003; Mills, Platts & Bourne, 2003; Beckman & Rosenfield, 2008; Slack and Lewis, 2011). Then, there is a common consensus among authors that operations strategy involves a strategic alignment or reconciliation between external requirements and internal resources and capabilities, involving tradeoffs and focus.

Fig. 1. Hierarchy of strategy

2.4. Content According to Slack & Lewis (2011), operations strategy content is “concerned with strategic decisions that shape and develop the long-term direction of the operation”. There has been an agreement regarding classification of strategic decisions in operations strategy. These decisions can be divided into structural and infrastructural. The former affects the physical configuration of operations, while the latter consists of systems and policies required to operate the former. Hayes et al. (2005) and Finch (2008) mentioned the structural decisions to consist of capacity, sourcing, facilities, and information and process technology and the infrastructural decisions consisting of resource allocation and capital budgeting systems, human resource systems, work planning and control systems (e.g., purchasing, aggregate planning, scheduling, inventory control, and waiting time), quality systems, measurement and reward systems, product and process development systems, and organization. The 3rd International Conference on Technology and Operations Management (ICTOM) Conference Proceedings © 2012 – ISBN: 978-979-15458-4-6

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2.5. Process According to Slack & Lewis (2011), operations strategy process is “the way in which operations strategies are (or can be) formulated.” or “the procedure that are, or can be, used to formulate operations strategy. In the context of strategic management, process is about strategy making or formulation (Beckman & Rosenfield, 2008). Figure 2 shows strategic reconciliation process in operations strategy (Slack & Lewis, 2011).

2.6. Context Context may refer to an external environment in which operations takes place. Alexander (1993) defined context as time, social institutions and value-ideological premises. Therefore, a context is expected to influence both structural and infrastructural decisions. In this paper, the context chosen is sustainable development as it has been accepted as a global consensus. A summary of perspectives of sustainable development is shown in figure 3 (Yudoko, 2000).

3. Method The methodology use in building the proposed conceptual framework of sustainable operations strategy follows positivism with its deductive-theorizing orientation (Neuman, 2006). In this regard, the conceptual framework consists of four major elements, namely assumptions, concepts, relationships among concepts, and unit of analysis. The major assumption of the proposed conceptual framework is that sustainable operations strategy which is based on sustainable development consensus is expected to be adopted by most companies in the world to achieve its goals or objectives. This is in line with the practices of international operations strategy (Prasad, Babar & Motwani, 2001). Concepts and their relationships related to sustainable operations strategy are derived from the literature review. As mentioned by many, operations strategy is categorized as a functional strategy, and therefore, the unit of analysis of the proposed conceptual framework is a functional unit within any firm.

Fig. 2. Operations strategy process (based on Slack & Lewis, 2011)

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The proposed conceptual framework of sustainable operations strategy is developed based three major constructs, namely context, content, and process as mentioned in the literature review. Context is the first order as it is assumed to be the external environment in which operations strategy takes place. Specifically, the context of sustainable development with its triple principles of environment, economic, and social or planet, profit, and people is being adopted (Bansal & Roth, 2000; Branzei et al., 2004; Bansal, 2005). Next, inside the boundary of the context, content and process exist. In the content, a hierarchy of strategy is being used, consisting of strategic, business, and functional.

Fig. 3. A summary of sustainable development (Yudoko, 2000)

In the corporate strategy, four major concepts are used, namely mission, vision, values, and business area. The proposed mission is to do ethical, economically viable, socially responsible, and environmentally business

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practices. The vision is to be a sustainable corporation supporting sustainable development (Jernnings & Zandbregen, 1995; Diesendorf, 2000); Kleindorfer, Singhal & Van Wassenhove, 2005; Nunes & Bennet, 2010). Values include principles and standard consistent with sustainable development, such as mentioned the United Nations Global Compact (Steiner & Steiner, 2006). The business chosen is to make and sell product(s) and/or services that support sustainable development goals (Porter & van der Linde, 1995; Diesendorf, 2000).

Fig. 4. A conceptual framework of sustainable operations strategy

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Table 3. Sustainability perspectives of structural decisions Decision Categories Strategic capacity decisions

       

Strategic facility decisions Strategic process technology decisions

      

Strategic supplier relationship decisions

Economic Cost per unit Efficiency or utilization Speed or quick response Long-run profit Reduced purchase cost Improved processes Response time Reduced labour, inventory, and utility costs Reduced quality variability Improved communication along supply chain Reduced production time Improved productivity Improved dependability Improved quality Increased flexibility

Social  Provision of jobs

Environment  Amount of virgin materials use  More efficient use of resources  Reduced pollution

 Provision of jobs  Provision of infrastructure  Provision of jobs  Creation of safe working condition  Reputation

      

Amount of virgin materials use More efficient use of resources Reduced pollution Amount of virgin materials use More efficient use of resources Reduced pollution and wastes Use of alternative energy

 Local participation /partnerships  Empowerment  Local capacity building

   

Amount of virgin materials use More efficient use of resources Reduced pollution Use of alternative materials

Table 4. Sustainability perspectives of policy and systems (infrastructural) decisions Decision Categories Strategic resource allocation and capital budgeting system decisions

Economic  Resource optimization

Strategic human resource decisions

 Labor cost

Strategic quality decisions

         

Strategic work planning and control decisions

Efficiency Speed Quality Dependability Adoption of ISO 9000 Purchasing/procurement Forecasting Aggregate planning Inventory control scheduling

Social  Provision of jobs or local economic development  Provision of basic services (health, education, housing)  Protecting culture  Training and education  Local recruitment  Local empowerment  Safe working condition  Spreading knowledge and/or practices

Environment  Green procurement  Green investment

 Local participation  Local empowerment

        

Strategic new product or service development decisions Strategic performance system decisions

 Eco-efficient  Opportunities for new markets

 Local capacity building

 Economic performance indicators

 Social responsibility indicators

Strategic organization system decision

 Establishment of formal unit to be responsible for the achievement of economic and financial performance

 Training

 Adoption of ISO 9000, 14000

Green operations Green productivity Green warehousing Green transport Green packaging Green selling Green marketing Reverse logistics Design of green products/services

 Environmental performance measurement  Establishment of formal unit  Establishment of formal to be responsible for unit to be responsible for corporate social environmental responsibility performance

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The business strategy uses both competitive and collaborative modes. The former consists of competitive cost leadership through eco-efficiency or green productivity operations and competitive differentiation through creation of eco-advantage or environmentally friendly competitive advantage, while the latter is collaborative partnerships that support sustainable development objectives. Operations strategy as a functional strategy deals with sustainable structural and infrastructural decisions that may have contribution on environmental, economic, and social goals (Srivastava, 1995, 1995b). In the process, there are top-down, bottom-up, and strategic alignment process. The top-down process is meant as the formulation of corporate strategy, and subsequently business and operations strategy. The higher strategy level provides direction and priorities for the lower, and vice versa, in the bottom-up process, the lower level strategy functions to support the higher level strategy. In the strategic alignment a process for creating fit between external requirements and the internal resources, processes, and capabilities is sought. In addition, an adjustment to uncertain event or known as risk is another kind of process to build new fitness to achieve a sustainable operations strategy. Otherwise, there will be mismatch between the effect from the unwanted event or crisis and the internal resources, processes, and capabilities. This situation will eventually lead to decreasing competitive advantage and a firm’s sustainability. Figure 4 shows the proposed conceptual framework of sustainable operations strategy. Table 3 and 4 shows the three sustainability components of the structural and infrastructural decisions based on Diesendorf (2000), Yudoko (2000), and Greater Vancouver Regional District (2011).

4. Further Works Because this paper adopts the positivist, deductive approach to theorizing, the next work is to develop operationalization of the framework and then test it in Indonesia. This will provide state-of-the-art adoption and implementation of sustainable development in operations strategy by Indonesian firms. The result of this model testing research is expected to trigger more research in this area as sustainable operations strategy is a long-term endeavor.

Acknowledgements I wish to express my sincere gratitude to the anonymous reviewers who provided valuable comments to improve this paper.

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Cite this paper Yudoko, G. (2012). “Sustainable Operations Strategy: A Conceptual Framework,” Proceedings of The 3rd International Conference on Technology and Operations Management: Sustaining Competitiveness through Green Technology Management, Bandung–Indonesia (July 4-6), pp. 109-118. ISBN: 978-979-15458-4-6.

The 3rd International Conference on Technology and Operations Management (ICTOM) Conference Proceedings © 2012 – ISBN: 978-979-15458-4-6