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Operations Performance Chapter 2. ContentsDefinition? The Reality Check Operations Strategy Vs Operations Management Strategic Fit Categories of Business.

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Presentation on theme: "Operations Performance Chapter 2. ContentsDefinition? The Reality Check Operations Strategy Vs Operations Management Strategic Fit Categories of Business."— Presentation transcript:

1 Operations Performance Chapter 2

2 ContentsDefinition? The Reality Check Operations Strategy Vs Operations Management Strategic Fit Categories of Business Strategies Strategy Formulation Primary Task, Core Competencies, Order winners/qualifiers, competitive priorities, Process strategy matrix, policy deployment Definition? The Reality Check Operations Strategy Vs Operations Management Strategic Fit Categories of Business Strategies Strategy Formulation Primary Task, Core Competencies, Order winners/qualifiers, competitive priorities, Process strategy matrix, policy deployment

3 Operations Strategy: Definition

4 Operations Strategy ‘… the decisions which shape the long-term capabilities of the company’s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources …’

5 The Reality Check: Why Strategic Perspective in Operations

6 Competitiveness Today’s market demands… Quality Being RIGHT Speed Being FAST Dependability Being ON TIME CostBeing PRODUCTIVE Being ABLE TO CHANGE Flexibility

7 The relative importance of the market requirements and operations resource perspectives change over time, how performance objectives trade-offs between each other and operations focus can lead to exceptional performance TRADE-OFFS Performance objective A Performance objective B ? Relative importance of the Operations Resource perspective Relative importance of the Market Requirements perspective

8 Island Army 1 Army 2 You are commanding Army 1, the objective is to capture the island. Army 2 has the same objective

9 Island Army 1 Army 2 Burn

10 Island Army 1 Army 2 Do not Burn

11 Broad strategic objectives for a parcel delivery operation applied to stakeholder groups Society Increase employment Enhance community well-being Produce sustainable products Ensure clean environment Customers Appropriate product or service specification Consistent quality Fast delivery Dependable delivery Acceptable price Suppliers Continue business Develop supplier capability Provide transparent information Shareholders Economic value from investment Ethical value from investment Employees Continuous employment Fair pay Good working conditions Personal development

12 Three Major Trading Regions Previously firms classified as domestic, exporters, or international Now have global firms, joint ventures, foreign subsidiaries International Markets and Producers

13 Strategy and Issues During a Product’s Life

14 Ginger Hotels No-frills June 2004 No room service, travel desk, swimming pool Wi-fi Two type of room: Rs. 999 and Rs Prabhat Pani, CEO, RootsCorporation

15 BillDesk, a property of IndiaIdeas.com Ltd., 2000 Three Arthur Anderson Executives Third-party bill collection 25 Banks, 100 companies

16 Difference between Op Strategy and Op Management

17 ‘Installed’ product/service fully operational End of core processing Start of core processing Request for product/service Receipt of information Request for information Awareness of need Milestone HospitalSoftware producer Presentation of symptoms Visit to doctor for advice and tests Test information confirms diagnosis Decide on surgery Enter hospital for surgery Procedure successfully completed Patient fully recovered Installation time Waiting time Enquiry time Core processing time Customer decision time Enquiry decision time Asks for specification and estimates Receives proposal Places order Start of design and coding Software ‘completed’ Software fully debugged and working Customer decides new software is needed Significant ‘milestone’ times for the delivery of two products/services

18 First/Business-class cabin, airport lounges, pick-up service Economy cabin Wealthy people, business people, VIPs Travellers (friends and family), vacation takers, cost-sensitive business travel Wide range, may need to be customised Standardised cabin Relatively high Relatively low Relatively low volumeRelatively high volume Medium to high Low to medium First/Business class Economy class Customisation, extra service, comfort features, convenience Quality (specification and conformance), Flexibility, Speed Price, acceptable service Cost, Quality (conformance) Services Customers Service range Rate of service innovation Volume of activity Profit margins Main competitive factors Performance objectives Different product groups require different performance objectives

19 Operations strategy is different from operations management Example: capacity decisions Time scale Short-term capacity decisions 1–12 months DemandLong-term capacity decisions 1–-10 years Demand Operations management Operations strategy

20 Operations strategy is different from operations management Level of analysis Operations management Operations strategy Micro level of the process Macro level of the total operation

21 Operations strategy is different from operations management Level of aggregation Operations management Operations strategy Detailed For example “Can we give tax services to the small business market in Antwerp?” Aggregated For example “What is our overall business advice capability compared with other capabilities?”

22 Operations strategy is different from operations management Level of abstraction Operations management Operations strategy Concrete For example “How do we improve our purchasing procedures?” Philosophical For example “Should we develop strategic alliances with suppliers?”

23 Strategic Fit for reconciliation

24 Operations resources Market requirements Strategic reconciliation Operations strategy reconciles the requirements of the market with the capabilities of operations resources OPERATIONS STRATEGY Market requirements and operations resources perspectives of operations strategy

25 What you HAVE in terms of operations capabilities NEED What you NEED to ‘compete’ in the market Operations resources Market requirements What you WANT from your operations to help you ‘compete’ What you DO to maintain your capabilities and satisfy markets Strategic reconciliation

26 Continuous improvement at a strategic level Market requirementsOperations resources Intended competitive position in the market place DEPLOY operation’s contribution by exploiting superior capabilities Potential competitive position in the market place MARKET STRATEGY DEVELOP operations capabilities through learning The operation’s capabilities and performance Getting the fit right The operation’s resources and processes DIRECT performance

27 getting the fit right ‘Fit’ means that the operation’s resources and processes are aligned with the requirements of its markets. Line of fit Market requirements Operation’s resource capability

28 Deviations? Line of fit Market requirements Operation’s resource capability

29 Top-down perspective What the business wants operations to do Operations resources perspective What operations resources can do What day-to-day experience suggests operations should do Bottom-up perspective Market requirement perspective What the market position requires operations to do Operations strategy The four perspectives on operations strategy

30 Corporate strategy Business strategy Emergent sense of what the strategy should be Operational experience Top-down and bottom-up perspectives of strategy Operations strategy

31 The strategy hierarchy Key strategic decisions Influences on decision making Business strategy What is the mission? What are the strategic objectives of the firm? How to compete? Customer/market dynamics Competitor activity Core technology dynamics Financial constraints Corporate strategy What business to be in? What to acquire? What to divest? How to allocate cash? Economic environment Social environment Political environment Company values and ethics Functional strategy How to contribute to the strategic objectives? How to manage the function’s resources? Skills of function’s staff Current technology Recent performance of the function

32 Trade-offs “Do you want it good, or do you want it Tuesday?” “No such thing as a free lunch.” “You can’t have an aircraft which flies at the speed of sound, carries 400 passengers and lands on an aircraft carrier. Operations are just the same.” (Skinner) “Trade-offs in operations are the way we are willing to sacrifice one performance objective to achieve excellence in another.”

33 1946–1951 Implementing strategy Building up capacity and capability Simple design Standardised design Systemisation of resources and process Emerging, any working vehicle Maturing, simple robust vehicle Minor reconfiguration for new model Maturing, sophisticated performance, quality New 1500 model Operations resources Market requirements 1952–1958 Continuity of strategy 1959–1964 Minor change and continuity Strategic reconciliation Market requirements, operations resources and strategic reconciliation at VW over 70 years

34 1965–1970 Search for viable strategy Fragmented acquisition of new resources Multiple new designs Defined range Adapt best practices from enlarged group Uncertain rejection of VW traditional products Clarifying around style, quality and variety Accommodate new models and acquisitions Segmentation around performance, style and variety Product development paths Operations resources Market requirements 1971–1975 Emergent strategy 1976–1979 Continuing with minor changes Strategic reconciliation Market requirements, operations resources and strategic reconciliation at VW over 70 years

35 1990–1996 Major change (internal) Drastic reconfiguration to increase efficiency, reduce costs Design for low- cost manufacture Common product platforms Continuous process improvement and cost reduction Increasingly competitive around price Branding with price, quality, and style Lean process improvement and more low-cost locations Increasingly competitive around price and innovation Modular design Operations resources Market requirements 1997–2000 Implementing strategy 2001–2007 Implementing strategy Strategic reconciliation Market requirements, operations resources and strategic reconciliation at VW over 70 years

36 Categories of Business Strategies

37 First-to-Market Strategy Products available before competition Products available before competition Strong applied research capability needed Strong applied research capability needed Can set high price to skim market or set lower price to gain market share Can set high price to skim market or set lower price to gain market share

38 Second-to-Market Strategy Quick imitation of first-to-market companies Quick imitation of first-to-market companies Less emphasis on applied research and more emphasis on development Less emphasis on applied research and more emphasis on development Learn from first-to-market’s mistakes Learn from first-to-market’s mistakes

39 Cost Minimization or Late-to-Market Strategy Wait until market becomes standardized and large volumes demanded Wait until market becomes standardized and large volumes demanded Compete on basis of costs instead of product features Compete on basis of costs instead of product features Research efforts focus on process development versus product development Research efforts focus on process development versus product development

40 Strategy Formulation

41 Five Steps for Strategy Formulation Defining a primary task Defining a primary task What is the firm in the business of doing? What is the firm in the business of doing? Assessing core competencies Assessing core competencies What does the firm do better than anyone else? What does the firm do better than anyone else? Determining order winners and order qualifiers Determining order winners and order qualifiers What wins the order? What wins the order? What qualifies an item to be considered for purchase? What qualifies an item to be considered for purchase? Positioning the firm Positioning the firm How will the firm compete? How will the firm compete? Deploying Strategy Deploying Strategy How corporate strategies will be translated into measurable objectives? How corporate strategies will be translated into measurable objectives?

42 01. Primary Task Mission statements express organization’s primary task: What business a company is in? Constitution, The Corporate directives Constitution, The Corporate directives

43 02. Assessing Core Competencies Collective knowledge and skills an organization has that distinguish it from the competition. Collective knowledge and skills an organization has that distinguish it from the competition. Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services. Typically center on an organization’s ability to integrate a variety of specific technologies and skills in the development of new products and services. Building blocks of core capabilities. Building blocks of core capabilities. Are basis on which new outputs are developed. Are basis on which new outputs are developed. Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products. Better to think of organization in terms of its portfolio of core competencies than as a portfolio of products. Identifying and developing core competencies is one of top management’s most important roles. Identifying and developing core competencies is one of top management’s most important roles.

44 Examples of Core Competencies Sony - miniaturization 3M- knowledge of substrates, coatings and adhesives Honda - engines and power trains Cannon core competencies in optics, imaging, and electronic controls Products include copiers, laser printers, cameras, and image scanners. Boeing integrating large scale systems commercial jetliners, space stations, missiles Core Competencies Used to Gain Access to Variety of Markets

45 Competitive Priorities Corporate strategy goals core competencies environmental responses new products/services global strategies

46 Competitive Priorities Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment

47 Competitive Priorities Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment Competitive priorities OperationsMarketing cost qualityFinance time flexibilityOthers

48 Competitive Priorities Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment Cost1.Low-cost operations Quality2.High-performance design 3.Consistent quality Time4.Fast delivery 5.On-time delivery 6.Development speed Flexibility7.Customization 8.Volume flexibility

49 Competitive Priorities Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment Competitive priorities OperationsMarketing cost qualityFinance time flexibilityOthers

50 Competitive Priorities Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment Competitive priorities OperationsMarketing cost qualityFinance time flexibilityOthers Functional area strategies finance marketing operations others

51 Competitive Priorities Capabilities current needed plans Corporate strategy goals core competencies environmental responses new products/services global strategies Market analysis segmentation needs assessment Competitive priorities OperationsMarketing cost qualityFinance time flexibilityOthers Functional area strategies finance marketing operations others

52 Strategy and Decisions Corporate strategy

53 Strategy and Decisions Market analysis Corporate strategy

54 Strategy and Decisions Market analysis Competitive priorities Corporate strategy

55 Strategy and Decisions Operations strategy Market analysis Competitive priorities Corporate strategy

56 Strategy and Decisions Operations strategy Market analysis Competitive priorities Corporate strategy ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order

57 Strategy and Decisions Operations strategy Market analysis Competitive priorities Corporate strategy ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order

58 Strategy and Decisions Operations strategy Market analysis Competitive priorities Corporate strategy ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions

59 Strategy and Decisions Operations strategy Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions Market analysis Competitive priorities Corporate strategy ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order

60 Strategy and Decisions Operations strategy Process decisions Quality decisions Capacity, location, and layout decisions Operating decisions Market analysis Competitive priorities Corporate strategy ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order Capabilities

61 Competitive Strategy: The Positioning View Options for firm positioning: Cost leadership Differentiation Focus And, within each of the three: Variety-based Needs-based Access-based

62 Competitive Strategy: The Resource-Based View Types of capabilities Process-based e.g., McDonald’s Systems- or coordination-based e.g., Ritz-Carlton e.g., Southwest Airlines Organization-based e.g., Nucor Steel Network-based e.g., Dell

63 Competitive Strategy: Integrating the Positioning and Resource-Based Views

64 How Strategy Is Made

65 Levels of Strategy-Making

66 Business Strategy: Focus on the Customer Types of customer needs Must haves Linear satisfiers Delighters Neutral

67 Strategy-Making in Context

68 Strategy-Making: Cross-Functional Participation

69 Operations Strategy: Decision Categories Structural decisions Vertical integration Process technology Capacity Facilities Infrastructural decisions Sourcing Information technology Supply chain coordination Business processes and policies Capabilities development Lean operation Quality Flexibility

70 Integrated Strategy-Making Framework

71 03. Determining Order Winners / Order Qualifiers

72 Distinguish Order Qualifiers from Order Winners Order Qualifiers: Competitive priorities that a product must meet to even be considered for purchase Generally, represented by features shared by all competitors in a given market niche Order Winners: Competitive priorities that distinguish the firm’s offerings from competitors & ultimately win the customer’s order

73 Neutral +ve –ve Performance Competitive benefit Order-winning factors Neutral +ve –ve Performance Competitive benefit Qualifying level Order-Qualifying factors

74 Delights become Order winners and Order winners become Qualifiers Adding Delights Order Winners gain more business the better you are Low High Negative Positive Neutral Achieved performance Competitive benefit Time Delights Order winners Qualifiers Qualifiers are the ‘givens’ of doing business

75 What performance objectives are Qualifiers, Order Winners and Delights ? Delights Order winners Qualifiers TodayTomorrow … and in the future ? ??? What is the operation doing today to develop the capabilities which will provide the ‘Delights’ of the future ?

76 04. Positioning The Firm: Competitive priorities

77 Competitive Priorities Cost Cost Quality Quality Flexibility Flexibility Speed Speed

78 Which enables you to do things cheaply (cost advantage)? Which enables you to change what you do (flexibility advantage)? Which enables you to do things quickly (speed advantage)? Which enables you to do things on time (dependability advantage)? Which enables you to do things right (quality advantage)?

79 Competing on Cost Eliminate all waste Eliminate all waste Invest in Invest in Updated facilities & equipment Updated facilities & equipment Streamlining operations Streamlining operations Training & development Training & development

80 Competing on Quality Please the customer Please the customer Understand customer attitudes toward and expectations of quality Understand customer attitudes toward and expectations of quality

81 Competing on Flexibility Produce wide variety of products Produce wide variety of products Introduce new products Introduce new products Modify existing products quickly Modify existing products quickly Respond to customer needs Respond to customer needs

82 Competing on Speed Fast moves Fast moves Fast adaptations Fast adaptations Tight linkages Tight linkages

83 Product / Service Design Strategies

84 Operations Strategy: Products and Services Make-to-order Make-to-order products and services are made to customer specifications after an order has been received products and services are made to customer specifications after an order has been received Make-to-stock Make-to-stock products and services are made in anticipation of demand products and services are made in anticipation of demand Assemble-to-order Assemble-to-order products and services add options according to customer specifications products and services add options according to customer specifications

85 Strategy and Decisions Operations strategy Market analysis Competitive priorities Corporate strategy ServicesManufacturing Standardized services Assemble-to-order Customized services Make-to-stock Assemble-to-order Make-to-order

86 Market Orientation and Customer Experienced Lead Time

87 Process Strategy Matrix

88 Product-Process Matrix Source: Robert Hayes and Steven Wheelwright, Restoring the Competitive Edge: Competing Through Manufacturing (New York: John Wiley & Sons, 1984), p. 209

89 More Standardized – Higher Volume Project Construction of the aircraft carrier USS Nimitz was a huge project that took almost 10 years to complete. Batch Production At Martin Guitars bindings on the guitar frame are installed by hand and are wrapped with a cloth webbing until glue is dried. Mass Production Here in a clean room a worker performs quality checks on a computer assembly line. Continuous Production A paper manufacturer produces a continuous sheet paper from wood pulp slurry, which is mixed, pressed, dried, and wound onto reels.

90 Service-Process Matrix Source: Adapted from Roger Schmenner, “How Can Service Businesses Survive and Prosper?” Sloan Management Review 27(3):29

91 Professional Service A doctor provides personal service to each patient based on extensive training in medicine. Service Shop Although a lecture may be prepared in advance, its delivery is affected by students in each class. Mass Service A retail store provides a standard array of products from which customers may choose. Service Factory Electricity is a commodity available continuously to customers. Less Customized-Less Labor Intensive

92 X Cost efficiency Variety A C D B The ‘efficient frontier’ A X C D Cost efficiency Variety B The new ‘efficient frontier’ B1 The ‘efficient frontier’ view

93 Deploying Strategy

94 Policy Deployment Hoshin Kanri Hoshin Kanri Focuses employees on common goals & priorities Focuses employees on common goals & priorities Translates strategy into measurable objectives Translates strategy into measurable objectives Aligns day-to-day decisions with strategic plan Aligns day-to-day decisions with strategic plan

95 Balanced Scorecard Finance — How should we look to our shareholders? Finance — How should we look to our shareholders? Customer — How should we look to our customers? Customer — How should we look to our customers? Processes — At which business processes must we excel? Processes — At which business processes must we excel? Learning and Growing — How will we sustain our ability to change and improve? Learning and Growing — How will we sustain our ability to change and improve?

96 Key Performance IndicatorsSource: Robert Kaplan and David Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business School Press, 2004), Figure 3-2, p. 67

97 Strategic Decisions in OM

98 Operations Strategy: Capacity and Facility Capacity strategic decisions include: Capacity strategic decisions include: When, how much, and in what form to alter capacity When, how much, and in what form to alter capacity Facility strategic decisions include: Facility strategic decisions include: whether demand should be met with a few large facilities or with several smaller ones whether demand should be met with a few large facilities or with several smaller ones whether facilities should focus on serving certain geographic regions, product lines, or customers whether facilities should focus on serving certain geographic regions, product lines, or customers facility location can also be a strategic decision facility location can also be a strategic decision

99 Operations Strategy: Human Resources What is skill levels and degree of autonomy required to operate production system? What is skill levels and degree of autonomy required to operate production system? What are training requirements and selection criteria? What are training requirements and selection criteria? What are policies on performance evaluations, compensation, and incentives? What are policies on performance evaluations, compensation, and incentives? Will workers be salaried, paid an hourly rate, or paid a piece rate? Will workers be salaried, paid an hourly rate, or paid a piece rate? Will profit sharing be allowed, and if so, on what criteria? Will profit sharing be allowed, and if so, on what criteria?

100 Operations Strategy: Human Resources Will workers perform individual tasks or work in teams? Will workers perform individual tasks or work in teams? Will they have supervisors or work in self-managed work groups? Will they have supervisors or work in self-managed work groups? How many levels of management will be required? How many levels of management will be required? Will extensive worker training be necessary? Will extensive worker training be necessary? Should workforce be cross-trained? Should workforce be cross-trained? What efforts will be made in terms of retention? What efforts will be made in terms of retention?

101 Operations Strategy: Quality What is target level of quality for our products and services? What is target level of quality for our products and services? How will it be measured? How will it be measured? How will employees be involved with quality? How will employees be involved with quality? What will be the responsibilities of the quality department? What will be the responsibilities of the quality department?

102 Operations Strategy: Quality (cont.) What types of systems will be set up to ensure quality? What types of systems will be set up to ensure quality? How will quality awareness be maintained? How will quality awareness be maintained? How will quality efforts be evaluated? How will quality efforts be evaluated? How will customer perceptions of quality be determined? How will customer perceptions of quality be determined? How will decisions in other functional areas affect quality? How will decisions in other functional areas affect quality?

103 Operations Strategy: Sourcing Vertical integration Vertical integration degree to which a firm produces parts that go into its products degree to which a firm produces parts that go into its products Strategic Decisions Strategic Decisions How much of work should be done outside the firm? How much of work should be done outside the firm? On what basis should particular items be made in-house? On what basis should particular items be made in-house? When should items be outsourced? When should items be outsourced? How should suppliers be selected? How should suppliers be selected?

104 Operations Strategy: Sourcing (cont.) What type of relationship should be maintained with suppliers? What type of relationship should be maintained with suppliers? What is expected from suppliers? What is expected from suppliers? How many suppliers should be used? How many suppliers should be used? How can quality and dependability of suppliers be ensured? How can quality and dependability of suppliers be ensured? How can suppliers be encouraged to collaborate? How can suppliers be encouraged to collaborate?

105 Operations Strategy: Operating Systems How will operating systems execute strategic decisions? How will operating systems execute strategic decisions? How to align information technology and operations strategic goals? How to align information technology and operations strategic goals? How information technology supports both customer and worker demands for rapid access, storage, and retrieval of information? How information technology supports both customer and worker demands for rapid access, storage, and retrieval of information? How information technology support decisions making process related to inventory levels, scheduling priorities, and reward systems? How information technology support decisions making process related to inventory levels, scheduling priorities, and reward systems?

106 Changing Corporation : John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87 by special permission, copyright 2000 by The McGraw-Hill Companies, Inc. Source: John Byrne, “Management by Web,” Business Week (August 28, 2000), p. 87 by special permission, copyright 2000 by The McGraw-Hill Companies, Inc. Characteristic 20th-Century Corporation 21st-Century CorporationOrganizationFocusStyle Source of strength StructureResourcesLeadershipWorkers Job expectations PyramidInternalStructuresStabilitySelf-sufficiency Physical assets DogmaticEmployeesSecurityWebExternalFlexibleChangeInterdependenciesInformationInspirational Free agents Personal growth

107 Changing Corporation Characteristic 20th-Century Corporation 21st-Century CorporationOperationsProductsReachFinancialsInventoriesStrategyMotivationImprovementsQuality Vertical integration Mass production DomesticQuarterlyMonthsTop-down To compete Incremental Affordable best Virtual integration Mass customization GlobalReal-timeHoursBottom-up To build Revolutionary No compromise


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