Topics in operations strategy treated in this chapter

1
Time, trade-offs and targeting
?
Topics in operations strategy treated in this
chapter
2
The technological specification of its
product/service?
PRODUCT/SERVICE TECHNOLOGY
OPERATIONS
MARKETING
The way it positions itself in its market?
The way it produces its goods and services?
Where does the business get its competitive
advantage?
3
PRODUCT / SERVICE TECHNOLOGY
OPERATIONS
MARKETING
PRODUCT SERVICE TECHNOLOGY
MARKETING
OPERATIONS
MARKETING
OPERATIONS
The contribution of each area will change over
time
4
STRATEGIES OF VOLKSWAGENWERK 1920 - 1992
BEFORE 1948 FERDINAND PORSHE - PEOPLES 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 -
PEOPLES CAR ADDS EMHPASIS ON QUALITY,
TECHNICAL, EXPORT, SERVICE STANDARDS 1949 -
1958 INTENDED STRATEGY REALIZED CAR IDEAL FOR
POST WAR CONDITIONS RAPID EXPANSION IN
VOLUME NO NEW MODELS (WORK ON NEW MODEL HALTED
IN 1954)
5
1959 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
6
1990 - 1996 INCREASING PRESSSURE 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

7

• MINTZBERGS CONCEPT OF EMERGENT STRATEGIES
• NOT ALL INTENDED STRATEGIES ARE REALISED
• and ...
• NOT ALL REALISED STRATEGIES ARE INTENDED

DELIBERATIVE STRATEGIES
UNREALISED STRATEGIES
EMERGENT STRATEGIES
Emergent strategies derive from the shared
understanding of managing the resources of the
organization The concept of emergent strategies
therefore has a particular significance for
operations strategy
8
Market Requirements
Strategic Reconciliation
Operations Resources
Emerging, any working vehicle
Building up capacity and capability
1946-1951 Implementing strategy
Simple design
Systemisation of resources and processes
Maturing, simple robust vehicle
1952-1958 Continuity of strategy
Standardized design
1959-1964 Minor change and continuity
More sophisticated performance, quality
Minor reconfigura-tion for new model
New 1500 model
1965-1970 Searching for viable strategy
Uncertain rejection of VW traditional products
Fragmented acquisition of new resources
Multiple new designs
Market requirements, operations resources and
strategic reconciliation at VW for half a century
9
Market Requirements
Strategic Reconciliation
Operations Resources
Clarifying around style, quality and variety
Adapt best practices from enlarged group
1971-1975 Emergent strategy
Defined range
Accommodate new models and acquisitions
Segmentation around performance, style and variety
1976-1989 Continuing with minor changes
Product development paths
Drastic reconfiguration to increase efficiency,
reduce costs
1990-1996 Major change (internal)
Design for low-cost manufacture
Increasingly competitive around price
Continuous process improvement and cost reduction
Branding with price, quality, and style
1997-2000 Implementing strategy
Common product platforms
Market requirements, operations resources and
strategic reconciliation at VW for half a century
10
Intended Strategy
Realised Strategy
Deliberate Strategy
Unrealized Strategy
Emergent Strategy
Mintzbergs concept of emergent strategy
11
Order winners and qualifiers
Positive
Order Winners
Neutral
Competitive Benefit
Qualifiers
Negative
Low
High
Achieved Performance
12
Adding Delights
Positive
Delights
Order Winners
Neutral
Competitive Benefit
Qualifiers
Negative
Low
High
Achieved Performance
13
Delights become order winners and order winners
become qualifiers
Positive
Delights
Order Winners
Neutral
Competitive Benefit
Qualifiers
Negative
Low
High
Achieved Performance
14
What service dimensions are delight, order
winners and qualifiers now, and in the future?
Today
Tomorrow
Delights
Order Winners
Qualifiers
15
Budget Hotel Chain
Today
Tomorrow
Delights
Central reservation
Order Winners
Central reservation Location (autoroutes)
Location (autoroutes) Location (restaurants) Price
Loyalty cards
Qualifiers
Location (restaurants) Price Loyalty
cards Cleanliness Décor
Cleanliness Décor Service
?
16
Budget Hotel Chain
Today
Tomorrow
Delights
Central reservation
Price
Order Winners
Central reservation Location (autoroutes) Location
(restaurants)
Location (autoroutes) Location (restaurants) Price
Loyalty cards
Qualifiers
Location (restaurants) Price Loyalty
cards Cleanliness Décor
Cleanliness Décor Service
?
17
Budget Hotel Chain
What aspects of service will form tomorrows
delights, order winners and qualifiers?
What new capabilities will operations need to
develop to deliver these?
Delights
Price
Cheap land costs
Search processes Flexible design
Build at low cost
Low fixed costs Standardization
Low overheads Low labor costs New technology
Operate at low cost
Order Winners
Central reservation Location (autoroutes) Location
(restaurants)
More, smaller sites
Partnership deals with restaurants
Qualifiers
Location (restaurants) Price Loyalty
cards Cleanliness Decor
18
Trade-offs
Do you want it good, or do you want it Tuesday?
No such thing as a free lunch.
You cant 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.
19
Competitive Objective A
Competitive Objective A
Competitive Objective B
Competitive Objective B
Model I Function (Skinner, 1992 Hayes and
Pisano, 1996)
Model II Pivot and Function (Slack, 1991)
Two ways of illustrating the trade-off concept
20
Three schools of trade-off thought
Natural Frontier of Performance
X3
X2
X
X1
X
Z
Performance measure B
Y
Y3
Y
Y2
Y1
Performance measure A
Must aim to be good at everything (e.g.
Schonberger)
You have to choose when to reposition and when
to overcome trade-offs through improvement
(e.g. Hayes and Pisano)
Its all about positioning (e.g. Skinner)
21
Repositioning vs.improvement
Improve Net improvement in performance because
trade-off is overcome
A
B
A
B
Pivot
Pivot
Base
Base
Base
Trade-off changed because improved system
attributes have enabled both A and B to be
improved without changing their relative position
Original trade-off
Reposition Change in relative performance of
competitive objectives
A
A
B
Pivot
B
Pivot
Base
Base
Base
Trade-off changed because improved system
attributes have enabled A to be improved without
reduction in B
Trade-off changed because A is now required to
have higher performance but system attributes
have not improved so performance of B is lower.
22
good
Service
bad
Degree and number of service checks
Cost of providing service
Average waiting time for service
Cost of providing service
Ability to keep waiting time short even in peak
periods
Cost of providing service
vs.
Range of services offered
Cost of providing service
Examples of services vs. cost trade-offs at an
auto quick fit center
23
good
Capital expenditure
Service
bad
Degree and number of service checks
Capital cost of purchasing computer diagnostics
equipment
vs.
Capital cost of providing extra physical capacity
or automated processes
Average waiting time for service
vs.
Ability to keep waiting time short even in peak
periods
Capital cost of providing extra capacity for peak
loading
vs.
Range of services offered
Capital cost of purchasing wider range of
equipment
vs.
Examples of services vs. capital expenditure at
an auto quick fit center
24
good
Capital expenditure
Service
bad
Capital cost of providing computer diagnostic
equipment
Cost of providing service
vs.
Examples of cost vs. capital expenditure at an
auto quick fit center
25
good
Working capital
Service
bad
Level of parts inventory kept in stock
Ability to replace part without any delay
vs.
good
Working capital
Cost
bad
Level of parts inventory kept in stock
Cost of arranging for out of stock part to be
delivered
vs.
good
Capital expenditure
Working capital
bad
Capital expenditure on storage space
Level of parts inventory kept in stock
vs.
Examples of working capital related trade-offs at
an auto quick fit center
26
Service
Cost
versus
versus
versus
Capital expenditure
versus
versus
versus
Working capital
Trade-off categories
27
Extended performance frontier
Area Q
Z
X
Performance objective B
Area P
Y
Natural performance frontier
Performance objective A
Reconciliation as improvement by pushing back the
performance frontier of a trade-off
28

Trade-off curve of operation designed for narrow
range of activities only

Normal operation trade-off frontier zone
Variety
B
A
Cost performance
Trade-off curves are (a) broad representations of
a performance frontier zone (b) dependent on how
the operations have been designed
29
Market segment A
Market segment A
Operation A
Operation A
Market segment B
Market segment B
Operation B
Operation B
Market segment C
Market segment C
Operation C
Operation C
Market and operations segmentation matched
Market and operations segmentation not matched
Segmentation of markets and operations resources
30
Army 1
Island
Army 2
Burning bridges behind you increases commitment
but reduces flexibility
31
Operations Resources
Strategic reconciliation
Market Requirements
Clarity of objectives
Appropriate resources
Learning and improvement
Clearly focused resources
Clearly targeted market
but
but
but
Structural vulnerability
Risk of market change
Limited capabilities
Focused operations can exhibit positive and
negative characteristics in both market and
operations perspectives
32
Operational cost of credit information
Response time
Utilisation of staff
Speed and quality of information
1st trade-off
2nd trade-off
Staff scheduling in retail loans
Level of service purchased from credit agency
Operations cost and speed of service
Range of services possible
Capital investment in retail system
Investment in multi-function system
3rd trade-off
4th trade-off
Retail loans on-site investment
Insurance IT system investment
Three trade-offs in the Call Center example
33
Specific
Specific
A
A
Ideal performance
Ideal performance
Quality of service
Quality of service
B
B
Superficial
Superficial
Limited
Broad
High
Low
Range of services
Cost of providing services
34
Specific
Specific
A
A
A
A
Ideal performance
Ideal performance
Ideal performance
Ideal performance
Quality of service
Quality of service
Quality of service
Quality of service
C
C
Superficial
Superficial
Limited
Broad
High
Low
Limited
Broad
High
Low
Range of services
Cost of providing services
Range of services
Cost of providing services
35
Specific
Specific
A
A
A
A
Ideal performance
Ideal performance
Ideal performance
Ideal performance
D
D
Quality of service
Quality of service
Quality of service
Quality of service
C
C
Superficial
Superficial
Limited
Broad
High
Low
Limited
Broad
High
Low
Range of services
Cost of providing services
Range of services
Cost of providing services