operations strategy leeds school of business2497

8/2/2019 Operations Strategy Leeds School of Business2497

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Operations Strategy

Leeds School of Business

University of Colorado

Boulder, CO

Professor Stephen Lawrence


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Factories at Asnieres Seen from the Quai de ClichyVan Gogh


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Summary of

OPERATIONS

MANAGEMENT


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Operations80-90% Hidden


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Transformation

Processes

Goods

Services

Labor

Knowledge

Capital

Materials

Transformation Definition

INPUTS OUTPUTS


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Added Value Model

adapted from Porter, Competitive Advantage, Free Press, 1985

Information Systems

People and Organization

Finance

Accounting

Marketing Operations

Profit!

Cost

Added Value for Customer


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The Value Equation

price

ePerformancValue

price

InnovationyFlexibilitTimelinessQualityValue

P

IFTQValue


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Evolution of

Operations Strategy


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Operations in the 50s & 60s

Germany, Japan, Europe, and Asia

Industrial infrastructure destroyed in WWII

U.S. without significant international competition 1945 to 1970

The problem of production has been solved.

John Kenneth Gailbraith

noted economist, 1950s

Operations largely ignored, not strategic


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Manufacturing: Missing Link in Corporate StrategyWickham Skinner,Harvard Business Review, May-June 1969

Corporate management abdicates manufacturing strategyto low levels

Viewed as requiring technical skills

Morass of petty details Companies become saddled with noncompetitive

production systems

Strategic manufacturing issues involve Plant and equipment

Production Planning and control

Labor and staffing

Product design and engineering

Organization and management

Manufacturing: Missing Link in Corporate Strategy,Wickham Skinner, Harvard Business Review, May-June 1969


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The Focused FactoryWickham Skinner,Harvard Business Review, May-June 1974

Observations of 50+ factories

There are many ways to compete besides low cost

A factory cannot perform well on every yardstick

Factories were provided with inconsistent objectives

Focus on cost and efficiency rather than other measures

Problem: Too many factories try to do too much

Solution: The focused factory

Simplicity and repetition breed competence

Focus on relative competitive ability

Limit scope of factorys responsibilities

Limit overhead, focus on production

The Focused Factory,Wickham Skinner,Harvard Business Review, May-June 1974


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Why Japanese Factories WorkRobert Hayes,Harvard Business Review, Jul-Aug 1981

Toured eight plants at six Japanese companies

What I did not see

Few modern structures, robots, quality circles

Aside: Toyota, GM, and NUMMI (1984) What I did see

Clean orderly workplaces

Almost total absence of inventoryroot of all evil

Stability and continuity in manufacturing processes

Bottlenecks eliminated, machines & people not overloaded Continuous equipment monitoring, preventative maintenance

No-crisis atmosphere

Pursuing the last grain of rice approach to quality

Long term commitment to employer, employees, customers

Why Japanese Factories Work,Robert Hayes,Harvard Business Review, Jul-Aug 1981


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Competing Through ManufacturingWheelwright and Hayes,Harvard Business Review, Jan-Feb 1985

How effectively do companies use operations?

Continuum of four stages

Stage 1: Internally Neutral

Minimize negative impact of operations

Stage 2: Externally Neutral

On par with competitors

Stage 3: Internally Supportive

Provide credible support to business strategy Stage 4: Externally Supportive

Ops used to create competitive advantage

Competing Through Manufacturing,Wheelwright & Hayes,Harvard Business Review, Jul-Aug 1985


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Frugal ManufacturingSchonberger,Harvard Business Review, Sep-Oct 1987

U.S. manufacturing an extravagance of scale

Too many U.S. plants are too large, too complex

Achieve a frugal focus

Improve/adapt conventional machines before automation

Dont abrogate manufacturing strategy to lower levels, vendors

Improve capability to modify, customize, & simplify

Consider bigger and faster equipment with caution

Automate only when benefits are clear

Factories within factories

Split plants when they become too large

These ideas came to be know as lean manufacturing

Frugal Manufacturing,Schonberger, Harvard Business Review, Jul-Aug 1985


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Manufacturing Operations Strategy

Emerging consideration of other means of competition

Garvin, Competing on the Eight Dimensions of Quality,HBR 1988

Stalk, Time The Next Source of Competitive Advantage, HBR 1988

Stalk, Evans, and Schulman, Competing on Capabilities,HBR 1992

Upton, What Really Makes Factories Flexible?HBR 1995

Gilmore and Pine, Four Faces of Mass Customization,HBR 1997

Emerging consideration of service operations

Heskett, Lessons of the Service Sector,HBR 1987

Reichheld and Sasser, Zero Defections: Quality Comes to Services,HBR 1990

Schlesinger and Heskett, The Service-Driven Service Company,HBR 1991


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Emerging Issues of Ops Strategy

Management of KNOWLEDGE

Supply chain management

Outsourcing and offshoring

Education and training

Moving up the food chain

Focus on core competencies versus

Economies of scale


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ImplementingOperations Strategy:

Four Views


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Implementing Operations Strategy

1. Strategy as Evolutionary Search

2. Strategic Differentiation

3. The Balanced Scorecard

4. Business Performance Excellence


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Strategy as

Evolutionary Search


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Beinhocker On the origin of strategies,

The McKinsey Quarterly, November 4, 1999.


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The Origin of Strategies

Evolution across a population is naturestrick for mastering uncertainty. Businesses

can use it to. Complex systems exhibit

Emergent patterns of behavior

Punctuated equilibrium

Path dependence

Cant rely on patterns and predictions

Beinhocker, On the origin of strategies,The McKinsey Quarterly, Number 4, 1999.


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Evolutionary Fitness Landscapes

Business strategy similar to evolutionary survival

Companies = Species

Business Strategies = Gene Combinations Combination of genes (strategies) determine fitness

Some combinations work (survival)

Others dont work (extinction)

Fitness landscape changes constantly



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Rugged Fitness Landscape



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Rules for Evolutionary Search

Never sit still

Search in parallel

Search strategies Marginal hill climbing (evolutionary)

Dramatic pogo stick jumps (revolutionary)

Use both

Devote some resources to risky experimentation

Can we afford not to? vs. Can we afford to?



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Strategic

Differentiation


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Treacy and Wiersema,Discipline of Market Leaders, 1997


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Models for Strategic Differentiation

Operational Excellence

Low/Best Total Cost

Best Total Solution

Customer Intimacy

Product Leadership

Best Products / Product Innovation


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Provide unmatchable combination of price,quality, delivery, and ease of purchase

Execute extraordinarily well Value proposition is guaranteed best total

cost and hassle-free service

Processes are optimized and streamlined tominimize costs

Culture abhors waste, rewards efficiency

Organizational heroes are in operations


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Focus on Productivity & Price

Quality means consistency, conformance,and reliability

Timeliness means on-time delivery

P

IFValue

TQ


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Best Total Solution

Deliver to specific customer needs, not broadmarket requirements

Intimately know customers; know exactly what

products and services they need Continually tailor products and services to specific

customers at reasonable prices

Customer loyalty a key asset; cultivaterelationships rather than pursue transactions

Give customers more than they expect, constantlyupgrade product offerings

Organizational heroes are in marketing & sales


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Best Total Solution

Focus on Timeliness & Flexibility

Timeliness means delivering on-demand Flexibility means the customer is always right

Quality means service

P

IValue

FTQ


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Product Leadership

Continually push products into unknown areas

Strive to provide leading edge products or new

applications for existing products Commercialize new products quickly

Business processes engineered for speed

Relentlessly pursue product innovation Willing to quickly obsolete existing product

Organizational heroes are engineers & scientists


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Product Leadership

Focus on product Innovation Quality means performance, features, and

aesthetics Timeliness means rapid new product

introductions and planned obsolescence

P

FValue

ITQ


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Without Strategic Differentiation

Operations

Focuses on price, and consistent quality

Marketing

Focuses on giving customers what they want

Engineering (R&D, product development)

Focuses on innovative new products

No consistent focus; organizationaldysfunction; declining profits

Employees work harder & harder to achieve

less and less


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Differentiation Life Cycle

Product

Leadership

Best Total

SolutionOperational

Excellence


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Balanced Scorecard


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Kaplan & Norton, The Balanced Scorecard, 1996.


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Balanced Scorecard

InternalBusiness

Measures

Innovation &

Learning

Measures

CustomerMeasures

FinancialMeasuresHow do customers

see us?

How do we lookto shareholders?

At what must

we excel?How to improve

& create value?

Kaplan and Norton, The Balanced Scorecard Measures that Drive Performance, Harvard Business Review, Jan/Feb 1992.


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Financial Measures

Survive

Cash flow

SucceedQuarterly sales growth

Operating income

ProsperIncreased market share

ROE



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Customer Measures

New Products

Percent of sales from new products

Percent of sales from proprietary products

Benefits

Quality

Timeliness

Flexibility

Value



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Internal Measures

Technological capability

Proprietary capabilities

ProductivityTraditional productivity measures

Internal quality

Scrap and reject rates New product introduction

Schedule vs. plan



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Innovation & Learning

Technology leadership

Time to develop next generation

Time to market

New product introduction vs. competition

Process improvement

Cost reduction, quality improvement

Improved customer service



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Balanced Scorecard

Internal

Business

Measures

Innovation &

Learning

Measures

Customer

Measures

Financial

MeasuresHow do customers

see us?

How do we lookto shareholders?

At what must

we excel?

How to improve

& create value?

Vision

and

Strategy?



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Business Performance

Excellence (BPE)


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Dr. Jeff Luftig,Leeds School of Business


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Typical Structure w/Out An

Integrated Policy

Deployment System

Initial Result Achieved After

Implementing a Policy

Deployment System

Final Result Achieved After

Implementing a Policy

Deployment System

Purpose of Policy Deployment:Establishing the Point of the Compass


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Steps of Policy Deployment

Create Vision, Mission, and Value Proposition

Vision looks out 5-10 years

Mission looks out 3-5 years

Value Proposition explains why customers willpurchase from us instead of competition

Decide upon a Model for Strategic Differentiation

Develop key performance measurements that willrealize the Mission, Vision, and Value Proposition

Deploy to the organization

Easy to say, hard to accomplish!


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Rules for Vision & Mission

1. Never state anything that you do not

intend to measure, and subsequently

allocate resources to achieve.2. If it is critical to your organization,

always state it.

3. Never state anything that makes themanagement team look foolish.


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Metal Surface FinisherVision

The vision of ABC is to be regarded as among the best surface finishers

in the country for the services we choose to provide.

Mission

Achieve near-term profitability by providing high quality surface finishing and

related technical services to companies where surface finishing is significant

to the success of their businesses, while maintaining environmentally sensitive

and safe operations.

Value Proposition

ABC provides surface finishing with the highest product quality and value-added

technical services, to deliver the lowest total cost solution for our customers.

Strategic Differentiation

Operational Excellence -- Provide customers with reliable products or services at

competitive prices and delivered with minimal difficulty or inconvenience.


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Models for Strategic Differentiation


Low/Best Total Cost

Best Total SolutionCustomer Intimacy

Product Leadership

Best Products / Product Innovation


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Metal Surface FinisherVision

The vision of ABC is to be regarded as among the best surface finishers

in the country for the services we choose to provide.

Mission

Achieve near-term profitability by providing high quality surface finishing and

related technical services to companies where surface finishing is significant

to the success of their businesses, while maintaining environmentally sensitive

and safe operations.

Value Proposition

ABC provides surface finishing with the highest product quality and value-added

technical services, to deliver the lowest total cost solution for our customers.

Strategic Differentiation

Operational Excellence -- Provide customers with reliable products or services at

competitive prices and delivered with minimal difficulty or inconvenience.


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Construct Analysis

Constructs Level I CPM's

Regarded as among the bestsurface finishers in the country

Reputation withtarget customers

Lowest total cost solution Profit

Near-term profitability Costs

Revenues

High quality surface finishing Product quality

Highest product quality

Environmentally sensitiveoperations

Environmentcompliance

Safe operations Safety compliance


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Fault Tree Construction

Vision/Mission/Value Prop

Level I CPMs

Level II

Level III

Level IV


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CPM Breakdown

Revenue

Revenue by production line

Revenue by customer Costs

Costs by production line

Costs by operator

Costs by product type Costs by customer

Continue for all Level I CPMs


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Issues & Problems with BPE

Difficult to understand, explain in places

Still relies on managerial judgment and

insight!

Cannot fix a bad top-level strategy

More difficult to implement than it looks

Cannot overcome poor implementation

HARD WORK!


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The Promise of BPE

We have the tools:

JIT, TOC, SPC, MRP, ERP, EOQ, ABC,

Many other TLAs (three letter acronyms)

Too often we have a hammer looking for

something to poundanything!

BPE works to constructively focus effortson profitability and success!


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Benefits of BPE

BPE PolicyDeployment

Launched


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Operations Strategy

Leeds School of Business

University of Colorado

Boulder, CO

Professor Stephen Lawrence

operations strategy leeds school of business2497

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