© nigel slack and michael lewis 2003 performance objective a performance objective b operations...

© Nigel Slack and Michael Lewis 2003

Performance objective AP

erfo

rman

ce o

bje

ctiv

e B

Operations Resources

Market Requirements

OPERATIONS STRATEGY

Strategic Reconciliation

?

Topics in operations strategy treated in this chapter

Time, trade-offs and targeting


PRODUCT/SERVICE TECHNOLOGY

MARKETING OPERATIONS

Where does the business get its competitive advantage?

The “technological” specification of its product/service?

The way it positions itself in its market?

The way it produces its goods and services?


OPERATIONS

PRODUCT / SERVICE TECHNOLOGY

MARKETINGOPERATIONS

PRODUCT / SERVICE TECHNOLOGY

OPERATIONSMARKETING

PRODUCT SERVICE

TECHNOLOGY

The contribution of each area will change over time

MARKETING


STRATEGIES OF VOLKSWAGENWERK

1920 - 1992

BEFORE 1948FERDINAND PORSHE - ‘PEOPLES CAR’ 1920sGOVERNMENT SUPPORT 1934 - PLANT ON STREAM

19391939 WAR - PLANT TURNED TO PRODUCTION OF WAR VEHICLES1948 NORDHOFF PUT IN CHARGE

1948NORDHOFF TAKES HALF A STRATEGY - PEOPLES CARADDS EMHPASIS ON QUALITY, TECHNICAL, EXPORT, SERVICE STANDARDS

1949 - 1958INTENDED STRATEGY REALIZEDCAR IDEAL FOR POST WAR CONDITIONSRAPID EXPANSION IN VOLUMENO NEW MODELS (WORK ON NEW MODEL HALTED IN 1954)


1960 - 1964 1500 MODEL INTRODUCED

SALES INCREASED BUT PROFITS SQUEEZED

1965 - 1975PRESSURES OF COMPETITION BECOME SEVERENEW STRATEGY FROM AUDI - FRONT WHEELED DRIVE, STYLISH,

WATERCOOLEDOTHER LINES DROPPEDPRODUCTION RATIONALISED ON WORLD BASISMARKETING EMPHASISED PERFORMANCE, RELIABILITY AND SERVICE

1976 - 1989GOLF ESTABLISHED AS MARKET LEADER

CONTINUED EMPHASIS ON TECHNICAL EXCELLENCEOLD DESIGNS PERIODICALLY FASHIONABLEMAIN EUROPEAN COMPETITOR SEEN AS FIATSOME PRESSURE FROM JAPANESE MANUFACTURING

1959INCREASED COMPETITION AND CHANGES IN TASTESRESPONSE - INCREASED ADVERTISING

- DESIGN STARTED FOR 1500 ORIGINAL STRATEGY UNCHANGED IN ESSENTIALS


1990 - 1996INCREASING PRESSSURE ON COSTS FROM JAPANESE MANUFACTURERSGERMAN LABOUR COSTS AND EXCHANGE RATE ARE DISADVANTAGEOUSLATTERLY EUROPEAN RECESSION INCREASES PRESSURECOST CUTTING MEASURES - EAST EUROPEAN PLANT - AGGRESSIVE

PURCHASING

1997 - 2000DEVELOPING SEPARATE BRANDING STRATEGIES TO OCCUPY DIFFERENT MARKET SEGMENTSDEVELOP SEPARATE PRODUCTS FROM COMMON PLATFORMS TO

REDUCE COST CONTINUE AGGRESSIVE COST REDUCTION AND PROCESS IMPROVEMENT


MINTZBERG’S CONCEPT OF EMERGENT STRATEGIES

NOT ALL INTENDED STRATEGIES ARE REALISEDand …...

NOT ALL REALISED STRATEGIES ARE INTENDED

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

DELIBERATIVE STRATEGIES

UNREALISED STRATEGIES

EMERGENT STRATEGIES


Market Requirements



Emerging, any

working vehicle

Maturing, simple robust

vehicle

More sophisticated performance,

quality

Uncertain rejection of

VW traditional products

Building up capacity and capability

Systemisation of resources and processes

Minor reconfigura-tion for new model

Fragmented acquisition of new resources

Multiple new

designs

New 1500

model

Standardized design

1946-1951

Implementing strategy

1952-1958

Continuity of strategy

1959-1964

Minor change and continuity

1965-1970

Searching for viable strategy

Simple design

Market requirements, operations resources and strategic reconciliation at VW for half a century


Clarifying around

style, quality and

variety

Segmentation around

performance, style and variety

Increasingly competitive

around price

Branding with

price, quality,

and style

Adapt best practices from enlarged group

Accommodate new models and acquisitions

Drastic reconfiguration to increase efficiency, reduce costs

Continuous process improvement and cost reduction

Common product

platforms

Design for low-cost

manufacture

Product development

paths

Defined range

1971-1975

Emergent strategy

1976-1989

Continuing with minor changes

1990-1996

Major change

(internal)

1997-2000

Implementing strategy

Market Requirements



Market requirements, operations resources and strategic reconciliation at VW for half a century


Intended Strategy

Realised Strategy

Deliberate Strategy

Mintzberg’s concept of emergent strategy

Unrealized Strategy

Emergent Strategy


Order winners and qualifiers

Low HighNegative

Order Winners

Qualifiers

Positive

Neutral

Achieved Performance

Co

mp

etit

ive

Ben

efit


Adding ‘Delights’

Low HighNegative

Order Winners

Qualifiers

Positive

Neutral


Co

mp

etit

ive

Ben

efit

Delights


Low HighNegative

Order Winners

Qualifiers

Positive

Neutral


Co

mp

etit

ive

Ben

efit

Delights

Delights become order winners and order winners become qualifiers


What service dimensions are delight, order winners and qualifiers – now, and in the future?

Delights

Order Winners

Qualifiers

Today Tomorrow


Delights

Order Winners

Qualifiers

Today Tomorrow

Budget Hotel Chain

Central reservation

Location (autoroutes)Location (restaurants)

PriceLoyalty cards

Central reservationLocation (autoroutes)

Location (restaurants)PriceLoyalty cardsCleanlinessDécor

CleanlinessDécor

Service

?


Delights

Order Winners

Qualifiers

Today Tomorrow

Central reservation Price

Location (autoroutes)Location (restaurants)

PriceLoyalty cards

Central reservationLocation (autoroutes)Location (restaurants)

Location (restaurants)PriceLoyalty cardsCleanlinessDécor

CleanlinessDécor

Service

?

Budget Hotel Chain


Delights

Order Winners

Qualifiers

Central reservationLocation (autoroutes)

Location (restaurants)

Location (restaurants)Price

Loyalty cardsCleanliness

Decor

Price

What aspects of service will form tomorrows

delights, order winners and qualifiers?

What new capabilities will operations need to

develop to deliver these?

More, smaller sites

Cheap land costs

Build at low cost

Operate at low cost

Search processesFlexible design

Low fixed costsStandardization

Low overheadsLow labor costsNew technology

Partnership deals with restaurants

Budget Hotel Chain


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.”


Competitive Objective

A


B

Model II: Pivot and Function (Slack, 1991)


A


B

Model I: Function (Skinner, 1992:

Hayes and Pisano, 1996)

Two ways of illustrating the trade-off concept


Performance measure A

Per

form

ance

mea

sure

B


Per

form

ance

mea

sure

B


Per

form

ance

mea

sure

B

“Natural” Frontier of Performance

X

Y

Three schools of trade-off thought

“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)

Y1

Y2

Y3

X3

X2

X1

X

Z

Y


Trade-off changed because improved system attributes have enabled both A

and B to be improved without changing their relative position

Pivot

Base +

Base

A B

Trade-off changed because improved system attributes have enabled A to be improved without reduction in B

Pivot

Base +

Base

A

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.

Pivot

Base

A

B

Pivot

Base

A B

Original trade-off

ImproveNet improvement in performance because trade-off is overcome

Re

po

siti

on

Ch

ang

e in

rel

ativ

e p

erfo

rman

ce o

f co

mp

etit

ive

ob

ject

ives

Repositioning vs.improvement


vs.

vs.

vs.

Service Cost

good

bad

good

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

vs.Cost of

providing service

Range of services offered

Cost of providing

service

Examples of services vs. cost trade-offs at an auto quick fit center


vs.

vs.

vs.

Service Capital expenditure

good

bad

good

bad

vs.

Examples of services vs. capital expenditure at an auto quick fit center

Degree and number of service checks

Average waiting time for service

Ability to keep waiting time short even in peak periods

Range of services offered

Capital cost of purchasing computer

diagnostics equipment

Capital cost of providing extra physical capacity or

automated processes

Capital cost of providing extra capacity for peak

loading

Capital cost of purchasing wider

range of equipment


Capital expenditure

good

bad

good

bad

Service

vs.Capital cost of providing computer diagnostic equipment

Cost of providing service

Examples of cost vs. capital expenditure at an auto quick fit center


Working capital

good

bad

good

bad

Service

vs.Level of parts inventory kept in stock

Ability to replace part without any

delay

Working capital

good

bad

good

bad

Cost


Cost of arranging for out of stock part to be

delivered

Working capital

good

bad

good

bad

Capital expenditure


Capital expenditure on storage space

Examples of working capital related trade-offs at an auto quick fit center


Capital expenditure

CostService

Working capital

versus

versusversus

versus versus

versus

Trade-off categories


Performance objective A

Per

form

ance

ob

ject

ive

B

Y

X

Extended performance

frontier

Natural performance

frontier

Area Q

Area P

Z

Reconciliation as improvement by pushing back the performance frontier of a trade-off


Cost performance

Var

iety

‘Normal’ operation trade-off frontier zone

Trade-off curve of operation designed for narrow range of

activities only

Trade-off curves are (a) broad representations of a performance frontier zone; (b) dependent on how the operations have been designed

B

A


Market segment

A

Market segment

B

Operation A

Operation B

Operation C

Market segment

A

Market segment

B

Market segment

C

Operation A

Operation B

Operation C

Market and operations segmentation matched

Market and operations segmentation not matched

Segmentation of markets and operations resources

Market segment

C


IslandArmy 1

Army 2

Burning bridges behind you increases commitment but reduces flexibility


Learning and improvement

Structural vulnerability

but butbut

Operations Resources Market RequirementsStrategic reconciliation

Clearly focused

resources

Appropriate resources

Limited capabilities

Risk of market change

Clearly targeted market

Clarity of objectives

Focused operations can exhibit positive and negative characteristics in both market and operations perspectives


1st trade-off

Staff scheduling in retail loans

Response time

Utilisation of staff

2nd trade-off

Level of service purchased from credit agency

Operational cost of credit information

Speed and quality of

information

3rd trade-off

Retail loans on-site investment

Operations cost and speed of

serviceCapital

investment in ‘retail’ system

4th trade-off

Insurance IT system investment

Range of services possible Investment in

multi-function system

Three trade-offs in the Call Center example


B

A Ideal performance

Qu

alit

y o

f se

rvic

e

Limited BroadSuperficial

Specific

Range of services

B

A

Qu

alit

y o

f se

rvic

e

High LowSuperficial

Specific

Cost of providing services

Ideal performance


A Ideal performance

Qu

alit

y o

f se

rvic

e


Specific

Range of services

A

Qu

alit

y o

f se

rvic

e

High LowSuperficial

Specific


Ideal performance

CC

A Ideal performance

Qu

alit

y o

f se

rvic

e

Limited BroadRange of services

A

Qu

alit

y o

f se

rvic

e

High LowCost of providing services

Ideal performance


A Ideal performance

Qu

alit

y o

f se

rvic

e


Specific

Range of services

A

Qu

alit

y o

f se

rvic

e

High LowSuperficial

Specific


Ideal performance

A Ideal performance

Qu

alit

y o

f se

rvic

e

Limited BroadRange of services

A

Qu

alit

y o

f se

rvic

e

High LowCost of providing services

Ideal performance

C C

DD

© nigel slack and michael lewis 2003 performance objective a performance objective b operations...

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