MGSM890 Management Session 3 The Strategic Role of Facilitator: Dr. Jonathan Farrell 1 This Evening s Program The Concept of Strategy Competitive Dimensions of How does Strategy fit with the organisation s Corporate Strategy? Management and Services Service Strategy Case Study Oxygen Business Solution 2
y What is Strategic Planning? The allocation of resources to programmed activities calculated to achieve a set of business goals in a dynamic competitive environment. * Source: Daniel H. Gray. Uses and Misuses of Strategic Planning Harvard Business Review.. January - February 1986 3 What is the role of the operations function? as implementer as supporter as driver Strategy Strategy Ops Ops implements strategy Ops supports strategy Strategy drives strategy 4
The Strategic Role of the Function The 3 key attributes of operations Implementing Supporting Driving Contribution be Dependable Operationalise strategy explain Practicalities be Appropriate Understand strategy Contribute to decisions be Innovative provide Foundation of strategy Develop long-term Capabilities 5 The strategic role of operations can be defined by its aspirations (Hayes and Wheelwright) Give an Advantage Link Strategy With Adopt best Practice Be as good as competitors Increasing contribution of operations Be clearly the best in the industry Redefine the industry s expectations Externally supportive Internally supportive Externally neutral Correct the Worst Problems Stop holding the organisation back STAGE 1 STAGE 2 STAGE 3 STAGE 4 The ability to Implement The ability to support Strategy The ability to Drive strategy Internally neutral 6
How can the contribution of the operations function be assessed? Neutral Supportive Internally Stage 1 Objective is to minimize the negative impact of operations. Stage 3 Objective is for operations to provide credible support for the business strategy. Stage 2 Stage 4 Externally Objective is for operations to help the business maintain parity with its competitors. Objective is for operations to provide a source of competitive advantage. 7 The operations function can provide a competitive advantage through its performance at the five competitive objectives Being RIGHT Being FAST Being ON TIME Competitiveness Flexibility Being ABLE TO CHANGE Being PRODUCTIVE 8
What do the terms quality, speed, dependability, flexibility and cost mean in the context of operations? Which enables you to do things cheaply (cost advantage)? Which enables you to change what you do (flexibility advantage)? Which enables you to do things quickly (speed advantage)? Enables you to do things on time (dependability advantage)? Being able to do things right (quality advantage)? 9 The benefits of excelling Minimum price, highest value Quick delivery Fast throughput Minimum cost, maximum value Reliable operation Dependable delivery Error-free processes Ability to change Flexibility Error-free products and services Frequent new products, maximum choice 10
An operation contributes to business strategy by achieving five "Performance Objectives" Doing things RIGHT Doing things FAST Doing things ON TIME CHANGING what you do Doing things CHEAPLY Gives Gives Gives Gives Gives a QUALITY advantage a SPEED advantage a DEPENDABILITY advantage a FLEXIBILITY advantage a COST advantage 11 Hospital means different things in different operations Patients receive the most appropriate treatment Treatment is carried out in the correct manner Patients are consulted and kept informed Staff are courteous, friendly and helpful Bus company Automobile plant All assembly is to specification The product is reliable All parts are made to specification The product is attractive and blemish-free Supermarket The buses are clean and tidy The buses are quiet and fume-free The timetable is accurate and user-friendly Staff are courteous, friendly and helpful The store is clean and tidy Décor is appropriate and attractive Goods are in good condition Staff are courteous, friendly and helpful 12
has several meanings, the two most common are as the specification of a product or service Eg. Lower Hurst Farm produces organic meat raised exclusively on its own farm as the conformance with which the product or service is produced Eg. Quick service restaurants like McDonald s buy less expensive meat 13 Irrespective of a product or service s specification quality, producing it so it conforms to its specification consistently brings benefits to any operation Externally -- it enhances the product or service in the market, or at least avoids customer complaints Internally -- it brings other benefits to the operation It prevents errors slowing down throughput speed It prevents errors causing internal unreliability and low dependability It prevents errors causing wasted time and effort, therefore saving cost 14
External and internal benefits Flexibility On-specification products and services 15 means different things in different operations Hospital The time between requiring treatment and receiving treatment kept to a minimum The time for test results, X-rays, etc. to be returned kept to a minimum Bus company The time between customer setting out on the journey and reaching his or her destination kept to a minimum Automobile plant Minimizing the time between dealers requesting a vehicle of a particular specification and receiving it Minimising the time to deliver spares to service centres Supermarket Minimising the time for the total transaction of going to the supermarket, making the purchases and returning The immediate availability of goods 16
again has different interpretations externally and internally Externally it means the elapsed time between a customer asking for a product or service and getting it (in a satisfactory condition) It often enhances the value of the product or service to customers Internally -- it brings other benefits to the operation It helps to overcome internal problems by maintaining dependability It reduces the need to manage transformed resources as they pass through the operation, therefore saving cost 17 External and internal benefits Short delivery lead-time Flexibility On-specification products and services 18
Hospital means different things in different operations Proportion of appointments which are cancelled kept to a minimum Keeping appointment times Test results, X-rays, etc. returned as promised Automobile plant On-time delivery of vehicles to dealers On-time delivery of spares to service centres Bus company Keeping to the published timetable at all points on the route Constant availability of seats for passengers Supermarket Predictability of opening hours Proportion of goods out of stock kept to a minimum Keeping to reasonable queuing times Constant availability of parking 19 Externally -- it enhances the product or service in the market, or at least avoids customer complaints Internally -- it brings other benefits to the operation It prevents late delivery slowing down throughput speed It prevents lateness causing disruption and wasted time and effort, therefore saving cost 20
External and internal benefits Short delivery lead-time Reliable delivery Flexibility On-specification products and services 21 Flexibility has several distinct meanings but is always associated with an operation s ability to change Change what? The products and services it brings to the market Product/service flexibility The mix of products and services it produces at any one time Mix flexibility The volume of products and services it produces Volume flexibility The delivery time of its products and services Delivery flexibility 22
Hospital Flexibility means different things in different operations Introducing new treatments A wide range of treatments The ability to adjust the number of patients treated The ability to reschedule appointments Automobile plant The introduction of new models A wide range of options The ability to adjust the number of vehicles manufactured The ability to reschedule manufacturing priorities Bus company The introduction of new routes and excursions A large number of locations served The ability to adjust the frequency of services The ability to reschedule trips Supermarket The introduction of new goods A wide range of goods stocked The ability to adjust the number of customers served The ability to get out-of-stock items 23 Flexibility External and internal benefits Short delivery lead-time Reliable delivery Flexibility On-specification products and services Frequent new products/services Wide range Volume and delivery changes 24
Hospital Bought-in materials and services means different things in different operations Technology and facilities costs Staff costs Automobile plant Bought-in materials and services Technology and facilities costs Staff costs Bus company Bought-in materials and services Staff costs Technology and facilities costs Supermarket Bought-in materials and services Technology and facilities costs Staff costs 25 The cost of producing products and services is obviously influenced by many factors such as input costs, but two important sets are.. The 4 V s volume variety variation visibility The internal performance of the operation at quality speed dependability flexibility 26
External and internal benefits Short delivery lead-time Reliable delivery Flexibility On-specification products and services Frequent new products/services Wide range Volume and delivery changes 27 External and internal benefits Low price, high margin, or both Short delivery lead-time Reliable delivery On-specification products and services Flexibility Frequent new products/services Wide range Volume and delivery changes 28
Polar diagrams for a taxi service versus a bus service Taxi service Bus service Flexibility 29 Polar diagrams for a proposed police performance method Required performance Reassurance Actual performance Efficiency Crime reduction Working with criminal justice agencies Crime detection 30
Polar diagrams for Newspaper Collection (NC) and General Recycling (GR) services Newspaper Collection service General Recycling service Flexibility 31 strategy is different from operations management Time scale Level of analysis management Short-term for example, capacity decisions Demand 1-12 months Micro level of the process strategy Long-term for example, capacity decisions Demand 1-10 years Macro level of the total operation Level of aggregation Level of abstraction Detailed For example Can we give tax services to the small business market in Antwerp? Concrete For example How do we improve our purchasing procedures? Aggregated For example What is our overall business advice capability compared with other capabilities? Philosophical For example Should we develop strategic alliances with suppliers? 32
How is operations strategy different from operations management? Management Strategy Product/service design Product/service innovation Process design Layout Technology Job design Capacity management Planning & Control JIT MRP Inventory control control Process technology strategy Human resource strategy Capacity location, planning and dynamics Organisation and systems development Supply network strategy Performance and improvement strategy 33 The four perspectives on operations strategy Top - down Perspective resources Perspective What operations resources can do What the business wants operations to do strategy What day-to-day experience suggests operations should do Bottom - up Perspective Market requirement Perspective What the market position requires operations to do 34
Top-down and bottom-up perspectives of strategy Corporate strategy Business strategy strategy Emergent sense of what the strategy should be Operational experience 35 The top - down perspective of operations strategy Corporate strategy decisions What business to be in, i.e. how diversified to be? What businesses to acquire and what to divest? How to allocate cash to different businesses? How to manage the relationships between different businesses? Business strategy decisions Defining the mission of the business such as: - growth targets - return on investment - profitability targets - cash generation Setting the way that the business wishes to compete in its markets Functional strategy decisions What role to play in contributing to the strategic objectives of the business? How to translate business and competitive objectives into functional objectives? How to manage the function s resources so as to achieve functional objectives? What performance improvement priorities to establish? 36
The strategy hierarchy Corporate strategy Key strategic decisions What business to be in? What to acquire? What to divest? How to allocate cash? Influences on decision making Economic environment Social environment Political environment Company values and ethics Business strategy What is the mission? What are the strategic objectives of the firm? How to compete? Customer/market dynamics Competitor activity Core technology dynamics Financial constraints Functional strategy How to contribute to the strategic objectives? How to manage the function s resources? Skills of function s staff Current technology Recent performance of the function 37 The impact of the product life cycle Stage Volume Customers Introduction Growth Maturity Decline Low Rapid growth High and level Declining Innovators Early adopters Bulk of market Laggards Competitors Few/none Increasing number Stable number Declining number Variety of product or service High customisation Increasingly standardised Emerging dominant types Commodity standardisation Likely order winners Performance or novelty Availability of quality products and services Low price, dependable supply Low price Likely order qualifiers, product range Price, product range Product range, quality Dependable supply performance objectives Flexibility 38
The effects of the product/service life cycle on the organisation ation Sales volume Volume Customers Competitors Variety of product/ Service design Likely order winners Likely qualifiers Introduction Growth Maturity Decline Product/service first Product/service gains Market needs start to Market needs largely introduced to market market acceptance be fulfilled met Slow growth in sales Innovators Few/none Possible high customisation or frequent design changes Product/service characteristics, performance or novelty Range Dominant Flexible operations performance objectives Rapid growth in sales volumes Early adopters Increasing numbers Increasingly standardised Availability of quality products/services Price Range Sales slow down and level off Bulk of market Stable number Emerging dominant types Low price Dependable supply Range Sales decline Laggards Declining numbers Possible move to commodity standardisation Low price Dependable supply 39 Different competitive factors imply different performance objectives Competitive factors If the customers value these... Low price High quality Fast delivery Reliable delivery Innovative products and services Wide range of products and services The ability to change the timing or quantity of products and services Performance objectives Then, the operations will need to excel at these... Flexibility (products/services) Flexibility (mix) Flexibility (volume and/or delivery) 40
Order-winning, qualifying and less important competitive factors Order-winning factors Competitive benefit Qualifying factors Competitive benefit Less important factors Competitive benefit +ve +ve +ve Neutral Neutral Neutral -ve Performance -ve Qualifying level Performance -ve Performance 41 Competitor activity can affect the relative importance of performance objectives Original Strategy Order winners Fast delivery Competitor s Strategy Order winners Qualifiers Fast delivery range Price Qualifiers Performance objectives Range price Performance objectives and flexibility Alternative Strategy 1 Order winners Qualifiers Performance objectives Fast delivery range Price and flexibility Alternative Strategy 2 Order winners Qualifiers Performance objectives Faster delivery Range price Alternative Strategy 3 Order winners Qualifiers Performance objectives Price Fast delivery range 42
Relative importance of performance objectives The influence of the organisation s customers The influence of the organisation s competitors The relative importance of each performance objective to the operation The stage of the organisation s products and services in its life cycle 43 Market requirements and resources perspectives of strategy Strategic Reconciliation Resources OPERATIONS STRATEGY Market Requirements strategy reconciles the requirements of the market with the capabilities of operations resources 44
strategy is.. the decisions which shape the long-term capabilities of the company s operations and their contribution to overall strategy through the on-going reconciliation of market requirements and operations resources 45 Customer Needs Performance Objectives Market Positioning Competitors Actions Required performance Understanding markets The market perspective on operations strategy 46
Tangible and Intangible Resources Capabilities Strategy Decision Areas Processes Understanding resources and processes Strategic decisions The operations resource perspective on operations strategy 47 Tangible and Intangible Resources Customer Needs Capabilities Strategy Decision Areas Performance Objectives Market Positioning Processes Competitors Actions Understanding resources and processes Strategic decisions Required performance Understanding markets strategy is the strategic reconciliation of market requirements with operations resources 48
Resources Market Requirements What you HAVE What you DO What you WANT What you NEED in terms of operations capabilities to maintain your capabilities and satisfy markets from your operations to help you compete to compete in the market Strategic Reconciliation 49 The operations strategy matrix Resource usage Specialised quality monitoring equipment can be developed at one location Performance objectives Flexibility Increases scale on one site allows simultaneous production of different products Focusing all manufacture at one site reduces cost Common planning and control allow urgent orders to be given priority Performance monitoring systems give early notice of missed deadlines Market competitiveness Structural decisions Strategic decisions Infrastructural decisions 50
The technological specification of its product/service? PRODUCT/SERVICE TECHNOLOGY The way it positions itself in its market? MARKETING OPERATIONS The way it produces its goods and services? Where does the business get its competitive advantage? 51 PRODUCT / SERVICE TECHNOLOGY OPERATIONS MARKETING PRODUCT / SERVICE TECHNOLOGY PRODUCT / SERVICE TECHNOLOGY MARKETING OPERATIONS MARKETING OPERATIONS The contribution of each area will change over time 52
How operations strategies are put together Identify what is wanted in the market place. Establish how well the operation performs versus its competitors. Identify what the operation needs to do better. Identify how the operation could do these things better. Implement the strategy. 53 The challenge of operations strategy formulation An operations strategy should be: Appropriate... Comprehensive... Coherent... Consistent over time... 54
An implementation agenda is needed When to start? Where to start? How fast to proceed? How to co-ordinate the implementation programme? 55 strategy decision areas and their impact New product/service development Vertical integration strategy Facilities strategy Technology strategy Workforce and organisation strategy Capacity adjustment strategy Supplier development strategy Inventory strategy Planning and control systems Improvement process strategy Failure prevention and recovery Q S D F C 56
The nature and content of operations strategy The content of operations strategy The process of operations strategy A statement of the principles and policies which guide the operation s activities The way in which the guiding principles and policies are developed Prioritised performance objectives for each product/service group Strategies for each decision area Design Planning and control Improvement 57 Case Study Oxygen Business Solutions 58
Oxygen Business Solutions Some Interesting Discussion Points Focus versus Customer Focus Service Level Agreements Providing Customer Oriented Services Defining Services The of Services Service Delivery the Reliance on Resources 59 Where is Oxygen Business Solutions Now? Services: Business Systems Outsourcing (particularly SAP) Accounts Payable Outsourcing Business Consulting 250 staff in Sydney, Melbourne & Auckland 28 Clients in addition to CHH 60