OPSM 301 Operations Management Class 2: Operations management strategy Strategic fit Koç University Zeynep Aksin

Firms compete on product attributes. This requires process capabilities.  Price (Cost) P  Quality Q –Customer service –Product quality  Time T –Rapid, reliable delivery –New product development  Variety V –Degree of customization “order winners” To deliver we need “capabilities”

Fit between Strategy and Processes  Processes must fit the operations strategy of the firm: Competing on -Cost (Southwest Airlines) -Quality (Toyota, Arçelik) -Flexibility (HP) -Speed (McDonalds) all require different process designs and different measures to focus on. Corporate Strategy  Key Performance Indicators  Operations Strategy  Process Design& Improvement

Strategic Fit: Desired Capabilities Processes Match processes with desired capabilities

Order-Winners and Qualifiers Performance LowHigh Competitive Benefit Positive Negative Neutral OrderWinner LessImportant OrderQualifier Source: Slack and Lewis

Order Qualifiers and Winners Defined  Order qualifiers: the basic criteria that permit the firms products to be considered as candidates for purchase by customers –Screening criteria –Standard, expected performance  Order winners: the criteria that differentiates the products and services of one firm from another –The more, the better –Customer chooses based on this criteria

Mission/Strategy  Mission - where you are going  Strategy - how you are going to get there; an action plan

Strategy Process Marketing Decisions Operations Decisions Fin./Acct. Decisions Company Mission Business Strategy Functional Area Strategies

Strategy vs. Operational Effectiveness: The Operations Frontier as the minimal curve containing all current positions in an industry Responsiveness operations frontier A B C Cost HighLow

Increasing Customer Value Value A B C Price HighLow High Low Operations Frontier Increasing Value

Lowering Costs Value A B C Price HighLow High Low Operations Frontier Lowering Costs

Shouldice Hospital Video Case

Shouldice Business Model  Medical –Simple hernias –Optimized process –Check-ups and follow-up  Social –Club Med like experience –Co-production at individual and cohort level –A network for life

Shouldice Patient Experience COST QUALITY SPEED FLEXIBILITY Low, both real and opportunity Low recurrence, satisfaction with experience Fast operation and recovery The process rules; only simple hernias

Comparison to General Hospital Hernia complexity Shouldice: prepares for the simplest General Hospital: prepares for the most complex

A product/process matrix General Hospital: Variety & flexibility High cost Low margins Low Cost High margins Shouldice Hospital: Standardization Cost, speed, quality Process Flexible job Rigid line flow Product High customization Low volume High unit margin High standardization High volume Low unit margin Industrialization

Shouldice as a lean enterprise ShouldiceGeneral Hospital Focus on low risk casesNo focus, multiple goals Clear single value prop.Confusion of value prop. Predictable processUnpredictable process Strive for perfectionStrive for threshold perf. Eliminate wasteTolerate some excess Manage patient flowsView patients as functional tasks Pull patients into processPush patients through process Womack and Jones (2000) From Lean Production to Lean Enterprise, HBR March-April 1994

Focus at Shouldice: the results  Breakthrough service  High customer and employee satisfaction  Industrial approach

Shouldice Process Life Cycle  Birth of the Shouldice formula  Process selection, design, and improvement  Innovation at the interfaces  Process overtaken (when?)