Operations Strategy Week #1: Concept & Framework How to describe strategic position? Our (p,T,V,Q) value proposition & The Discipline of Market Leaders 4/17/2017 Service attributes: Customer Relationship Product attributes Image Operational Excellence P T V QoP ✓ Smart shopper Companies excel at competitive pricing, Product quality, and on-time delivery Customer Intimacy ✓ ✓ ✓ ✓ Personalized service (QoS) Long term relationships Trusted brand Just a quick reminder of another useful way of describing the value position… Companies excel at offering personalized service to customers and at building long-term relationships with them Product Leadership ✓ T ✓ QoP ✓ Best in class Companies excel at creating unique products with functionality that pushes the envelope ✓ general requirement differentiator Source: Discipline of market leaders by Treacy and Wiersema © Van Mieghem

A Balanced Scorecard Map Balanced scorecard measures a company's performance in: market, operations, learning and growth, and finance. The map can be used relate an operations strategy with the firm's financial and competitive strategy. The balanced scorecard tends to emphasize the learning and growth view and represents earlier innovation lever as a separate view. The financial view specifies how the organization seeks to increase its NPV. The two financial levers are to increase revenues or decrease costs. The growth strategy must define its desired balancing point between emphasizing productivity or revenue growth.

A balanced scorecard map Operations Strategy Week #1: Concept & Framework A balanced scorecard map 4/17/2017 Value Proposition Market View Competencies Operations Strategy Operations View Resources Processes This map is used as a one-page overview/summary of total strategy including OS. Benefits: Integrated, comprehensive view Linkages and causal relationships via arrows. Should lead to alignment. Good for teambuilding and understanding how all pieces come together. While the value proposition is key to competitive strategy, approximately three quarters of exec teams do not have consensus about this basic information. Similarly, L&G is important but generally hard to define. Innovation Learning & Growth View Growth Strategy Financial View x Productivity Revenue NPV © Van Mieghem

Four Perspectives 0f The Balanced Scorecard Financial Perspective Customer Perspective Process Perspective Learning and Growth Perspective (Infrastructure)

Financial Perspective Revenue Growth Increase amount of new products Pricing strategy Cost Reduction Reducing cost Asset Utilization Improvement

Customer Perspective Increase Market Share Increase Customer Retention Increase Customer Acquisition Increase Customer Satisfaction Increase Customer Profitability Performance Value: Product quality Post-purchase Price 7

Process Perspective Innovation Operations Post-sales Service New products Cycle time Operations Quality Time Post-sales Service Service Quality Service Efficiency

Learning and Growth Perspective Employee capabilities Information Technology capabilities Employee attitudes Motivation Empowerment Alignment

Linking Measures to Strategy Balanced scorecard is a collection of critical performance measures derived from a company’s vision, strategy, and objective. Performance measures should be integration of outcome and lead measures. Lead measures are performance drivers which makes things happen while outcome measures are indicators of results. Cause and Effect relationship between outcome and lead measures leads all scorecard measures to be linked by same relation. What is measured is done….. 10

Testable Strategy Financial Customer Increase shareholders value Decrease Process Cost Increase Profits Increase Revenue Financial Improve Delivery Reliability Increase Customer Retention Increase Market share Customer Testable strategy is defined as a set of linked objectives aimed at an overall goal. It is achieved by restating the strategy into set of cause-and-effect hypotheses that are expressed by a sequence of if-then statements. Improve Cycle time Redesign Process Process Learning & Growth Improve Employee skills 11

Strategic Feedback Cause-and –effect structure indicates that viability of strategy is testable. If desired results are not achieved through balanced scorecard it may indicate: - Implementation problem. - Invalid strategy. Double loop feedback – validity of assumptions underlying the strategy and effectiveness of strategy implementation. 12

Strategic Alignment Implementing Creating Communicating 1 Communicating Targets & Incentives 2 Resource Allocation 3 13

Communicating Strategy It must be structured to support the strategy. 1 Targets & Incentives 2 Targets Incentives It must be structured to support the strategy. Financial E.g.: Increase Profits, Revenues Learning Growth E.g.: Improve Employee Skills Customer E.g.: On –Time Delivery Internal Process E.g.: Improve Cycle Time 14