Performance objective B Time trade-offs and targeting

Performance objective B Time, trade-offs and targeting ? Performance objective A Strategic Reconciliation Operations Resources OPERATIONS STRATEGY Market Requirements Topics in operations strategy treated in this chapter © Nigel Slack and Michael Lewis 2003

The “technological” specification of its product/service? PRODUCT/SERVICE TECHNOLOGY MARKETING The way it positions itself in its market? OPERATIONS The way it produces its goods and services? Where does the business get its competitive advantage? © Nigel Slack and Michael Lewis 2003

PRODUCT / SERVICE TECHNOLOGY OPERATIONS MARKETING PRODUCT SERVICE TECHNOLOGY PRODUCT / SERVICE TECHNOLOGY MARKETING OPERATIONS The contribution of each area will change over time © Nigel Slack and Michael Lewis 2003

STRATEGIES OF VOLKSWAGENWERK 1920 - 1992 BEFORE 1948 FERDINAND PORSHE - ‘PEOPLES CAR’ 1920 s GOVERNMENT SUPPORT 1934 - PLANT ON STREAM 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 1949 - 1958 INTENDED STRATEGY REALIZED CAR IDEAL FOR POST WAR CONDITIONS RAPID EXPANSION IN VOLUME NO NEW MODELS (WORK ON NEW MODEL HALTED IN 1954) © Nigel Slack and Michael Lewis 2003

1959 INCREASED COMPETITION AND CHANGES IN TASTES RESPONSE - INCREASED ADVERTISING - DESIGN STARTED FOR 1500 ORIGINAL STRATEGY UNCHANGED IN ESSENTIALS 1960 - 1964 1500 MODEL INTRODUCED SALES INCREASED BUT PROFITS SQUEEZED 1965 - 1975 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 1976 - 1989 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 © Nigel Slack and Michael Lewis 2003

1990 - 1996 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 1997 - 2000 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 © Nigel Slack and Michael Lewis 2003

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 © Nigel Slack and Michael Lewis 2003

Operations Resources 1946 -1951 Implementing strategy 1952 -1958 Continuity of strategy 1959 -1964 Minor change and continuity 1965 -1970 Searching for viable strategy Strategic Reconciliation Building up capacity and capability Simple design Systemisation of resources and processes Minor reconfiguration for new model Fragmented acquisition of new resources Standardized design Market Requirements Emerging, any working vehicle Maturing, simple robust vehicle More sophisticated performance, quality New 1500 model Multiple new designs Uncertain rejection of VW traditional products Market requirements, operations resources and strategic reconciliation at VW for half a century © Nigel Slack and Michael Lewis 2003

Operations Resources 1971 -1975 Emergent strategy 1976 -1989 Continuing with minor changes 1990 -1996 Major change (internal) Adapt best practices from enlarged group Accommodate new models and acquisitions Drastic reconfiguration to increase efficiency, reduce costs Continuous 1997 -2000 process Implementing improvement and cost strategy reduction Strategic Reconciliation Market Requirements Clarifying around style, quality and variety Defined range Segmentation around performance, style and variety Product development paths Design for low-cost manufacture Common product platforms Increasingly competitive around price Branding with price, quality, and style Market requirements, operations resources and strategic reconciliation © Nigel Slack and Michael Lewis 2003 at VW for half a century

Realised Strategy Deliberate Strategy Intended Strategy Unrealized Strategy Emergent Strategy Mintzberg’s concept of emergent strategy © Nigel Slack and Michael Lewis 2003

Order winners and qualifiers Competitive Benefit Positive Order Winners Neutral Qualifiers Negative Low © Nigel Slack and Michael Lewis 2003 Achieved Performance High

Adding ‘Delights’ Competitive Benefit Positive Delights Order Winners Neutral Qualifiers Negative Low © Nigel Slack and Michael Lewis 2003 Achieved Performance High

Delights become order winners and order winners become qualifiers Competitive Benefit Positive Delights Order Winners Neutral Qualifiers Negative Low © Nigel Slack and Michael Lewis 2003 Achieved Performance High

What service dimensions are delight, order winners and qualifiers – now, and in the future? Today Delights Order Winners Qualifiers © Nigel Slack and Michael Lewis 2003 Tomorrow

Budget Hotel Chain Today Delights Tomorrow Central reservation Order Winners Central reservation Location (autoroutes) Location (restaurants) Price Loyalty cards Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Décor Service © Nigel Slack and Michael Lewis 2003 ?

Budget Hotel Chain Today Delights Tomorrow Price Central reservation Order Winners Central reservation Location (autoroutes) Location (restaurants) Price Loyalty cards Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Décor Service © Nigel Slack and Michael Lewis 2003 ?

Budget Hotel Chain What aspects of service will form tomorrows delights, order winners and qualifiers? Delights Price What new capabilities will operations need to develop to deliver these? Cheap land Search processes Flexible design costs Build at low Low fixed costs cost Standardization Operate at low cost Order Winners Central reservation Location (autoroutes) Location (restaurants) Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Decor © Nigel Slack and Michael Lewis 2003 Low overheads Low labor costs New technology More, smaller sites Partnership deals with restaurants

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. ” © Nigel Slack and Michael Lewis 2003

Competitive Objective A 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 © Nigel Slack and Michael Lewis 2003

Three schools of trade-off thought Y Performance measure A “It’s all about positioning” (e. g. Skinner) © Nigel Slack and Michael Lewis 2003 X 2 X 1 Y 2 Y 3 Performance measure B X X 3 Performance measure B “Natural” Frontier of Performance X Z Y Performance measure A “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)

Repositioning vs. improvement Improve Change in relative performance of competitive objectives Reposition Net improvement in performance because trade-off is overcome A B Pivot 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 A A B B Pivot 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. © Nigel Slack and Michael Lewis 2003 Pivot Base + Base Trade-off changed because improved system attributes have enabled A to be improved without reduction in B

good Service Cost bad 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 vs. Cost of providing service Examples of services vs. cost trade-offs at an auto quick fit center © Nigel Slack and Michael Lewis 2003

good Capital expenditure bad 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 vs. extra physical capacity or automated processes Ability to keep Capital cost of providing vs. waiting time short extra capacity for peak even in peak periods loading Range of services offered vs. Capital cost of purchasing wider range of equipment Examples of services vs. capital expenditure at an auto quick fit center © Nigel Slack and Michael Lewis 2003

good Capital expenditure Service bad Capital cost of vs. providing computer diagnostic equipment Cost of providing service Examples of cost vs. capital expenditure at an auto quick fit center © Nigel Slack and Michael Lewis 2003

good Working capital Service bad Level of parts inventory kept in stock vs. Ability to replace part without any delay good Working capital Cost bad Level of parts inventory kept in stock vs. Cost of arranging for out of stock part to be delivered good Capital expenditure Working capital bad Level of parts inventory kept in stock vs. Capital expenditure on storage space Examples of working capital related trade-offs at an auto quick fit center © Nigel Slack and Michael Lewis 2003

Service versus Cost versus Capital expenditure versus Working capital Trade-off categories © Nigel Slack and Michael Lewis 2003

Performance objective B Extended performance frontier Area Q Z X Area P Y Natural performance frontier Performance objective A Reconciliation as improvement by pushing back the performance frontier of a trade-off © Nigel Slack and Michael Lewis 2003

Variety Trade-off curve of operation designed for narrow range of activities only ‘Normal’ operation trade-off frontier zone 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 © Nigel Slack and Michael Lewis 2003

Operation A Market segment A Operation B Market segment B Operation C Market segment C Market and operations segmentation matched Operation A Operation B Operation C Market segment B Market segment C Market and operations segmentation not matched Segmentation of markets and operations resources © Nigel Slack and Michael Lewis 2003 Market segment A

Army 1 Island Army 2 Burning bridges behind you increases commitment but reduces flexibility © Nigel Slack and Michael Lewis 2003

Operations Resources Strategic reconciliation Market Requirements Clarity of objectives Appropriate resources Learning and improvement Clearly focused resources but but Structural vulnerability Limited capabilities Risk of market change Focused operations can exhibit positive and negative characteristics in both market and operations perspectives © Nigel Slack and Michael Lewis 2003 Clearly targeted market

Response time Utilisation of staff 1 st trade-off Staff scheduling in retail loans Capital investment in ‘retail’ system 3 rd trade-off Speed and quality of information 2 nd trade-off Level of service purchased from credit agency Operations cost and speed of service Investment in multi-function system Retail loans on-site investment Operational cost of credit information Range of services possible 4 th trade-off Insurance IT system investment Three trade-offs in the Call Center example © Nigel Slack and Michael Lewis 2003

Specific Ideal performance Quality of service A B Superficial Limited Broad Range of services © Nigel Slack and Michael Lewis 2003 A Quality of service Specific Superficial Ideal performance B High Low Cost of providing services

Specific Quality of service A Ideal performance C Superficial Limited Broad Range of services © Nigel Slack and Michael Lewis 2003 A Quality of service Specific Superficial Ideal performance C High Low Cost of providing services

Specific Quality of service A Ideal performance D C Superficial Limited Broad Range of services © Nigel Slack and Michael Lewis 2003 A Quality of service Specific Superficial Ideal performance D C High Low Cost of providing services