1. © Nigel Slack and Michael Lewis 2003 Level 1 - Fit This chapter examines the third level of the operations strategy process – risk Level 2 - Sustainability Level 3 - Risk Align resources with requirements Develop sustainable competitive advantage Include impact of uncertainty Increasing complexity

2. © Nigel Slack and Michael Lewis 2003 Level of market requirements Level of operations resource capability Real fit over time (‘requirements evolve and capabilities evolve’) Line of fit A External operational risk (Market needs exceeding current level of capability means risk of failing to satisfy the market) Internal operational risk (excess capability for current market needs means risk of unexploited capabilities) B

3. © Nigel Slack and Michael Lewis 2003 Level of market requirements Level of operations resource capability Pure operations risk Line of fit A y1 x1 B y2 x2

4. © Nigel Slack and Michael Lewis 2003 Level of market requirements Level of operations resource capability Speculative operations-related risk Line of fit D y4 x3 C y5 y3 x5x4 E F

5. © Nigel Slack and Michael Lewis 2003 CAUSATIVE EVENT(S) NEGATIVE CONSEQUENCE Risk and the operations transformation model

6. © Nigel Slack and Michael Lewis 2003 Level of market requirements Level of operations resource capability Speculative operations-related risk at Monsanto (1985-1998) Line of fit H y8 I G y7 y6 x6x7 19851998

7. © Nigel Slack and Michael Lewis 2003 2025303540455055600 Line A Line B Age and risk-taking profile 5.00 4.00 3.00 Increasingly risk averse Age

8. © Nigel Slack and Michael Lewis 2003 Level of market requirements Level of operations resource capability Subjective operations failure Line of fit L K y10 x8 J y9 x9x10

9. © Nigel Slack and Michael Lewis 2003 CAUSATIVE EVENT(S) (corroded storage tank leaks) NEGATIVE CONSEQUENCE The influence of context on causative events and negative consequences (?) OPERATING CONTEXT

10. © Nigel Slack and Michael Lewis 2003 Specific operations process concerns Specific event Specific stakeholder concerns Generic stakeholder concerns 1. The direct (physical and temporal proximity etc.) negative consequences of an operational incident. The negative consequences for the entire operations process. Might be separated from specific incident by space and time. 2. 3. The negative consequences for immediate stakeholders (i.e. staff, managers, customers, neighbours). Prone to greater subjective interpretation. The negative consequences for all possible stakeholders. This might include generic groups such as ‘concerned citizens’, politicians and media. 4. Layers on context for understanding negative consequences

11. © Nigel Slack and Michael Lewis 2003 Causative event(s) Negative consequences Mitigation Recovery Prevention Three risk control strategies

12. © Nigel Slack and Michael Lewis 2003 [1] [4] [2] [5] [3] [6] Minor Major LooseTight Degree of coupling in the operation Causal event (failure) Potential crisis Probable control through mitigation Coupling, mitigation and recovery

13. © Nigel Slack and Michael Lewis 2003 AX B Y Very undesirable: low pay-off and high risk Very desirable: high pay-off and low risk Spread of pay-offs for decision The risk-return diagram

14. © Nigel Slack and Michael Lewis 2003 HIGH LOW 2 years Today Time Value of firm Probability High Low mean Uncertainty cone and outcome distribution Based on Amram and Kulatilaka, 1999)

15. © Nigel Slack and Michael Lewis 2003 Operational assets and capabilities Cone of external uncertainty Cone of uncertainty for investment Assets and capabilities modifying exposure to uncertainty