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
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’ 1920s
GOVERNMENT SUPPORT 1934 - 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
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 (autoroutes)
Location (restaurants)
Price
Loyalty cards
Qualifiers
Location (restaurants)
Price
Loyalty cards
Cleanliness
Décor
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)
Location (autoroutes)
Location (restaurants)
Price
Loyalty cards
Qualifiers
Location (restaurants)
Price
Loyalty cards
Cleanliness
Décor
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
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
© 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
X2
X1
Y1
Y2
Y3
Performance measure B
X
X3
Performance measure B
Performance measure B
“Natural” Frontier
of Performance
X
Z
Y
Performance measure A
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
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
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
good
Service
Cost
bad
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
vs.
Cost of
providing
service
vs.
Cost of
providing
service
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
good
Capital
expenditure
bad
Service
bad
Degree and
number of
service checks
vs.
Average
waiting time
for service
Capital cost of providing
vs. extra physical capacity or
automated processes
Ability to keep
vs.
waiting time short
even in peak periods
Range of
services
offered
vs.
Capital cost of
purchasing computer
diagnostics equipment
Capital cost of providing
extra capacity for peak
loading
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
good
Capital
expenditure
Service
bad
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
good
Working
capital
Service
bad
bad
Level of parts
inventory kept in
stock
vs.
Ability to replace
part without any
delay
good
good
Working
capital
Cost
bad
bad
Level of parts
inventory kept in
stock
vs.
Cost of arranging for
out of stock part to be
delivered
good
good
Capital
expenditure
Working
capital
bad
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
versus
Cost
versus
Capital
expenditure
versus
versus
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
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
Operational
cost of credit
information
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
Investment in
multi-function
system
Capital
investment in
‘retail’ system
Range of
services
possible
3rd trade-off
4th trade-off
Retail loans on-site
investment
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
A
Quality of service
Specific
Ideal
performance
B
Superficial
Limited
Broad
Range of services
© Nigel Slack and Michael Lewis 2003
High
Low
Cost of providing services
Specific
Quality of service
A
Ideal
Ideal
performance
performance
C
Superficial
A
Quality of service
Specific
Ideal
performance
C
Superficial
Limited
Broad
Range of services
© Nigel Slack and Michael Lewis 2003
High
Low
Cost of providing services
Specific
Quality of service
A
Ideal
performance
D
C
Superficial
A
Quality of service
Specific
Ideal
performance
D
C
Superficial
Limited
Broad
Range of services
© Nigel Slack and Michael Lewis 2003
High
Low
Cost of providing services