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Operations Performance
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Time, Trade-offs and Targeting
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how performance objectives trade-offs between each other and
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
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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 Suppliers Continue business Develop supplier capability Provide transparent information Customers Appropriate product or service specification Consistent quality Fast delivery Dependable delivery Acceptable price Shareholders Economic value from investment Ethical value from investment Employees Continuous employment Fair pay Good working conditions Personal development 2
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The operations function can provide a competitive advantage through its performance at the five competitive objectives Quality Being RIGHT Competitiveness Speed Being FAST Dependability Being ON TIME Being ABLE TO CHANGE Flexibility Cost Being PRODUCTIVE
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Internal and external benefits of excelling in each performance objective
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Hospital Milestone Software producer Presentation of symptoms Awareness of need Customer decides new software is needed Enquiry decision time Visit to doctor for advice and tests Request for information Asks for specification and estimates Enquiry time Receipt of information Test information confirms diagnosis Receives proposal Customer decision time Decide on surgery Request for product/service Places order Waiting time Start of core processing Enter hospital for surgery Start of design and coding Core processing time End of core processing Procedure successfully completed Software ‘completed’ Installation time ‘Installed’ product/service fully operational Patient fully recovered Software fully debugged and working Significant ‘milestone’ times for the delivery of two products/services
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Different product groups require different performance objectives
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 volume Relatively 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
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Polar diagrams are particularly useful when summarizing any company’s performance objectives.
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Polar diagram for Newspaper Collection (NC) and General Recycling (GR) services
Newspaper collection service General recycling service Cost Speed Dependability Quality Flexibility
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Polar diagram for a proposed police performance method
Actual performance Required performance Reassurance Efficiency Crime reduction Working with criminal justice agencies Crime detection
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The effects of the product/service life cycle on operations performance objectives
Sales volume Customers Competitors Dominant operations performance objectives Introduction into market Growth in market acceptance Maturity of market, sales level off Decline as market become saturated Innovators Early adopters Bulk of market Laggard Likely order winners Few /none Increasing numbers Stable numbers Declining numbers Product/service specification Availability Low price Dependable supply Likely order qualifiers Quality Range Price Flexibility Speed Dependability Cost
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The effects of the product/service life cycle on the organisation
Sales volume Introduction Growth Maturity Decline Likely order winners Product/service characteristics, performance or novelty Availability of quality products/services Low price Dependable supply Likely qualifiers Quality Range Price Range Dependable supply Dominant operations performance objectives Flexibility Speed Dependability Cost
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Qualifiers are the ‘givens’ of doing business
Order Winners gain more business the better you are Adding Delights Delights become Order winners and Order winners become Qualifiers Positive Delights Order winners Competitive benefit Neutral Time Qualifiers Negative Low High Achieved performance
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What performance objectives are Qualifiers, Order Winners and Delights ?
… and in the future ? ??? What is the operation doing today to develop the capabilities which will provide the ‘Delights’ of the future ? Today Tomorrow Delights Order winners Qualifiers
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The illustration of how performance objectives change over time used is that of VW.
One could then identify the various phases that the business may have gone through and the associated changes in the relative importance of performance objectives.
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The VW Group operates 45 production plants in eleven European countries and a further seven countries in the Americas, Asia and Africa. Around the world, more than 336,000 employees produce over 21,500 vehicles or are involved in vehicle-related services on every working day.
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Operations strategy of volkswagenwerk
1920–2004 Before 1939 Ferdinand Porshe - ‘People’s Car’ 1920s Government support 1934 – plant on stream 1939 1939 War – plant turned to production of war vehicles 1948 Nordhoff put in charge 1948 Nordhoff takes half a strategy – people’s car Adds emphasis on quality, technical, export, service standards 1949–1958 Intended strategy realised Car ideal for post-war conditions Rapid expansion in volume No new models (work on new model halted in 1954)
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1959–1964 Increased competition and changes in tastes Response - increased advertising - design started for 1500 Original strategy unchanged in essentials 1960–1964 1500 model introduced Sales increased but profits squeezed 1965–1975 Pressures of competition become severe New strategy from audi - front wheeled drive, stylish, watercooled Other lines dropped Production rationalised on world basis Marketing emphasised performance, reliability and service 1976–1989 Golf established as market leader Continued emphasis on technical excellence Old designs periodically fashionable Main European competitor seen as Fiat Some pressure from Japanese manufacturing
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1990–1996 Increasing pressure on costs from Japanese manufacturers German labour costs and exchange rate are disadvantageous Latterly European recession increases pressure Cost cutting measures – East European plant – aggressive purchasing 1997–2000 Developing separate branding strategies to occupy different market segments Develop separate products from common platforms to reduce cost Continue aggressive cost reduction and process improvement 2001 Modify common platform policy to ease brand erosion 2002/5 Renewed cost pressures focus attention on input costs also hit by scandals!! 2006 Sales recovering, speculation over Russian plant
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Market requirements, operations resources and strategic reconciliation at VW over 70 years
1946–1951 Implementing strategy Emerging, any working vehicle Building up capacity and capability Simple design 1952–1958 Continuity of strategy Systemisation of resources and process Maturing, simple robust vehicle Standardised design 1959–1964 Minor change and continuity Minor reconfiguration for new model New 1500 model Maturing, sophisticated performance, quality
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Market requirements, operations resources and strategic reconciliation at VW over 70 years
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
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Market requirements, operations resources and strategic reconciliation at VW over 70 years
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 Strategic reconciliation
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Trade-offs ‘Do you want it good, or do you want it on 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.’
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‘Trade-offs are all in the mind
‘Trade-offs are all in the mind. Look at how we used to think about the trade-off between cost and quality when buying automobiles. It was assumed that you had to spend money in order to get a car without defects. The Japanese showed us that it is perfectly possible to get great quality for a low price at the same time. In fact, achieving an error-free production process actually reduced the cost of manufacturing the vehicle and therefore reduced the price that could be charged. It’s the same with all other types of trade-off isn’t it?’
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Performance objectives differ for different operations with different strategies. An obvious way of demonstrating this is to take two well-known companies in different parts of the same sector competing in different ways. This is evident by contrasting a well-known low-cost airline such as Ryanair with Virgin Atlantic’s upper class service.
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The ‘efficient frontier’ view
A X C D Cost efficiency Variety B The new ‘efficient frontier’ B1 The ‘efficient frontier’ Variety A C D B X Cost efficiency
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Improvement through focus increases vulnerability to shifts in the market
Cost efficiency Variety Focus strategies can change the trade-off curve from convex to concave
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You are commanding Army 1, the objective is to capture the island
You are commanding Army 1, the objective is to capture the island. Army 2 has the same objective Army 1 Island Army 2
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Burning your bridges Island Army 2 Army 1
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In sum, there are four issues related to operations performance
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There are five ‘generic’ performance objectives
There are five ‘generic’ performance objectives. However, it may be noted that one may introduce a broader perspective on operations performance at this point, including aspects of corporate social responsibility (CSR) and so on. The relative importance of these performance objectives changes over time. The Volkswagen (VW) example illustrates this over a number of decades. There are trade-offs among the various performance objectives. The ‘efficient frontier’ concept may illustrate this. • Focusing an operation on a very small number of performance objectives can lead to superior performance in those objectives. This is the classic ‘focused factory’ idea that Skinner raised several decades ago. Of course, it applies equally to non-manufacturing operations.
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How Tactical Factors & Contingency Issues Influence an Operations Strategy
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