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Time, trade-offs and targeting
Performance objective A Performance objective B ? Operations Resources Market Requirements OPERATIONS STRATEGY Strategic Reconciliation Topics in operations strategy treated in this chapter
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Where does the business get its competitive advantage?
The “technological” specification of its product/service? PRODUCT/SERVICE TECHNOLOGY MARKETING OPERATIONS The way it positions itself in its market? The way it produces its goods and services? Where does the business get its competitive advantage?
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PRODUCT / SERVICE TECHNOLOGY
OPERATIONS MARKETING PRODUCT / SERVICE TECHNOLOGY PRODUCT SERVICE TECHNOLOGY MARKETING OPERATIONS MARKETING OPERATIONS The contribution of each area will change over time
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STRATEGIES OF VOLKSWAGENWERK
BEFORE 1948 FERDINAND PORSHE - ‘PEOPLES CAR’ 1920s GOVERNMENT SUPPORT 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 INTENDED STRATEGY REALIZED 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 INCREASED COMPETITION AND CHANGES IN TASTES RESPONSE - INCREASED ADVERTISING - DESIGN STARTED FOR 1500 ORIGINAL STRATEGY UNCHANGED IN ESSENTIALS 1500 MODEL INTRODUCED SALES INCREASED BUT PROFITS SQUEEZED 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 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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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 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
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MINTZBERG’S 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
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Strategic Reconciliation Market Requirements
Operations Resources Strategic Reconciliation Market Requirements Emerging, any working vehicle Implementing strategy Building up capacity and capability Simple design Continuity of strategy Systemisation of resources and processes Maturing, simple robust vehicle Standardized design Minor change and continuity Minor reconfigura-tion for new model More sophisticated performance, quality New 1500 model Searching for viable strategy Fragmented acquisition of new resources Uncertain rejection of VW traditional products Multiple new designs Market requirements, operations resources and strategic reconciliation at VW for half a century
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Strategic Reconciliation Market Requirements
Operations Resources Strategic Reconciliation Market Requirements Clarifying around style, quality and variety Adapt best practices from enlarged group Emergent strategy Defined range Continuing with minor changes Accommodate new models and acquisitions Segmentation around performance, style and variety Product development paths Drastic reconfiguration to increase efficiency, reduce costs Major change (internal) Design for low-cost manufacture Increasingly competitive around price Continuous process improvement and cost reduction Branding with price, quality, and style Implementing strategy Common product platforms Market requirements, operations resources and strategic reconciliation at VW for half a century
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Mintzberg’s concept of emergent strategy
Intended Strategy Deliberate Strategy Realised Strategy Unrealized Strategy Emergent Strategy Mintzberg’s concept of emergent strategy
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Order winners and qualifiers
Positive Order Winners Competitive Benefit Neutral Qualifiers Negative Low High Achieved Performance
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Adding ‘Delights’ Competitive Benefit Achieved Performance Positive
Order Winners Competitive Benefit Neutral Qualifiers Negative Low High Achieved Performance
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Delights become order winners and order winners become qualifiers
Positive Delights Order Winners Competitive Benefit Neutral Qualifiers Negative Low High Achieved Performance
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What service dimensions are delight, order winners and qualifiers – now, and in the future?
Today Tomorrow Delights Order Winners Qualifiers
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Budget Hotel Chain ? Today Tomorrow Delights Order Winners Qualifiers
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 ?
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Budget Hotel Chain ? Today Tomorrow Delights Order Winners Qualifiers
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 ?
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Budget Hotel Chain Delights Order Winners Qualifiers
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 Operate at low cost Low overheads Low labor costs New technology Order Winners Central reservation Location (autoroutes) Location (restaurants) More, smaller sites Partnership deals with restaurants Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Decor
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Trade-offs “Do you want it good, or do you want it 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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Model II: Pivot and Function (Slack, 1991)
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
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Three schools of trade-off thought
“Natural” Frontier of Performance X3 Performance measure A Performance measure B Performance measure A Performance measure B X2 X X1 X Z Performance measure B Y Y3 Y Y2 Y1 Performance measure A “It’s all about positioning” (e.g. Skinner) “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)
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Repositioning vs.improvement Improve Reposition
Net improvement in performance because trade-off is overcome A B A B Pivot Pivot Base + Base Base Original trade-off Trade-off changed because improved system attributes have enabled both A and B to be improved without changing their relative position Change in relative performance of competitive objectives Reposition A A B Pivot B Pivot Base + Base Base Trade-off changed because A is now required to have higher performance but system attributes have not improved so performance of B is lower. Trade-off changed because improved system attributes have enabled A to be improved without reduction in B
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Examples of services vs. cost trade-offs at an auto quick fit center
good good bad Cost Service bad vs. Degree and number of service checks Cost of providing service vs. Average waiting time for service Cost of providing service Ability to keep waiting time short even in peak periods Cost of providing service vs. vs. Range of services offered Cost of providing service Examples of services vs. cost trade-offs at an auto quick fit center
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good good bad Capital expenditure Service bad Degree and number of service checks Capital cost of purchasing computer diagnostics equipment vs. Average waiting time for service Capital cost of providing extra physical capacity or automated processes 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
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Examples of cost vs. capital expenditure at an auto quick fit center
good good bad 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
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good good bad Working capital Service bad Level of parts inventory kept in stock Ability to replace part without any delay vs. good good bad Working capital Cost bad Level of parts inventory kept in stock Cost of arranging for out of stock part to be delivered vs. good good bad Working capital Capital expenditure bad Level of parts inventory kept in stock Capital expenditure on storage space vs. Examples of working capital related trade-offs at an auto quick fit center
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Service versus Cost versus versus Capital expenditure versus versus versus Working capital Trade-off categories
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Performance objective B
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
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‘Normal’ operation trade-off frontier zone
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
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Market and operations segmentation matched
Market segment A Operation A Market segment 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
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Army 1 Island Army 2 Burning bridges behind you increases commitment but reduces flexibility
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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
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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
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Cost of providing services
Specific Specific A Ideal performance A Ideal performance Quality of service Quality of service B B Superficial Superficial Limited Broad High Low Range of services Cost of providing services
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Cost of providing services Cost of providing services
Specific Specific A A Ideal performance Ideal performance A A Ideal performance Ideal performance Quality of service Quality of service Quality of service Quality of service C C Superficial Superficial Limited Limited Broad Broad High High Low Low Range of services Range of services Cost of providing services Cost of providing services
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Cost of providing services Cost of providing services
Specific Specific A A Ideal performance Ideal performance A A Ideal performance Ideal performance D D Quality of service Quality of service Quality of service Quality of service C C Superficial Superficial Limited Limited Broad Broad High High Low Low Range of services Range of services Cost of providing services Cost of providing services
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