Operations Performance. Time, Trade-offs and Targeting.

Operations Performance

Time, Trade-offsand

Targeting

The relative importance of the market requirements and operations resource perspectives change over time,

how performance objectives trade-offs between each other and

operations focus can lead to exceptional performance

TRADE-OFFS

Performance objective APerf

orm

ance

obje

ctiv

e B

?Relative

importance of the

Operations Resource

perspective

Relative importance

of the Market

Requirements

perspective

Broad strategic objectives for a parcel delivery operation applied to stakeholder

groupsSociety

Increase employmentEnhance community well-beingProduce sustainable productsEnsure clean environment

CustomersAppropriate product or service specificationConsistent qualityFast deliveryDependable deliveryAcceptable price

SuppliersContinue businessDevelop supplier capabilityProvide transparent information

ShareholdersEconomic value from investmentEthical value from investment

EmployeesContinuous employmentFair payGood working conditionsPersonal development

Com

peti

tiveness

The operations function can provide a competitive advantage through its

performance at the five competitive objectives

Quality

Being RIGHT

Speed Being FAST

Dependability

Being ON TIME

Cost Being PRODUCTIVE

Being ABLE TO CHANGE

Flexibility

Internal and external benefits of excelling in each performance objective

‘Installed’ product/service fully

operational

End of coreprocessing

Start of coreprocessing

Request for product/service

Receipt ofinformation

Request forinformation

Awareness of need

MilestoneHospital Software producerPresentatio

n of symptoms

Visit to doctor for advice and

tests

Test information confirms diagnosis

Decide on surgery

Enter hospital for surgery

Procedure successfully

completed

Patient fully recovered

Installation time

Waiting time

Enquiry time

Core processing time

Customer decision time

Enquiry decision time Asks for

specification and estimates

Receives proposal

Places order

Start of design and coding

Software ‘completed’

Software fully debugged and working

Customer decides new software is needed

Significant ‘milestone’ times for the delivery of two products/services

First/Business-class cabin,airport lounges, pick-up service

Economy cabin

Wealthy people, businesspeople, VIPs

Travellers (friends and family), vacation takers, cost-sensitive business travel

Wide range, may need to be customised

Standardised cabin

Relatively high Relatively low

Relatively low volume Relatively high volume

Medium to high Low to medium

First/Business class Economy class

Customisation, extra service, comfort features, convenience

Quality (specification andconformance), Flexibility, Speed

Price, acceptable service

Cost, Quality (conformance)

Services

Customers

Service range

Rate of service innovation

Volume of activity

Profit margins

Main competitive factors

Performance objectives

Different product groups require different performance objectives

Polar diagrams are particularly useful when summarizing any company’sperformance objectives.

Cost General recycling service

Polar diagram for Newspaper Collection (NC) and General Recycling (GR)

services

Dependability

FlexibilityQuality

Newspaper collection service

Speed

ReassuranceActual

performance

Crime reduction

Crime detection

Working with criminal justice

agencies

Required performance

Efficiency

Polar diagram for a proposed police performance method

The effects of the product/service life cycle on operations performance objectives

Sale

s volu

me

Customers

Competitors

Dominant operations

performance objectives

Introduction into

market

Growth in market

acceptanceMaturity of

market, sales level off Decline as

market become

saturatedInnovators

Early adopters

Bulk of market

Laggard

Likely order winners

Few /none

Increasing numbers

Stable numbers

Declining numbers

Product/service specification

Availability Low priceDependable supply

Low price

Likely order qualifiers

QualityRange

PriceRange

RangeQuality

Dependable supply

FlexibilityQuality

SpeedDependabilityQuality

CostDependability

Cost

The effects of the product/service life cycle on the organisation

Sale

s volu

me

Introduction Growth Maturity Decline

Likely order winners

Product/service characteristics, performance or novelty

Availability of quality products/services

Low priceDependable

supply

Low price

Likely qualifiers

QualityRange

Price Range

QualityRange

Dependable

supply

Dominant operations

performance objectives

FlexibilityQuality

SpeedDependabilityQuality

CostDependability

Cost

Delights become Order winners and Order winners become Qualifiers

Adding DelightsOrder Winners gain more business the better you are

Low HighNegative

Positive

Neutral

Achieved performance

Com

peti

tive b

enefit

Time

Delights

Order winners

Qualifiers

Qualifiers are the ‘givens’ of doing business

What performance objectives are Qualifiers, Order Winners and Delights ?

Delights

Order winners

Qualifiers

Today Tomorrow

… and in the future ?

???

What is the operation doing today to develop the capabilities which will provide the ‘Delights’ of the future ?

The illustration of how performance objectives change over time used is that of VW.

One could then identify the various phases that the business may have gone through and the associated changes in the relative importance of performance objectives.

The VW Group operates 45 production plants in eleven European countries and a further seven countries in the Americas, Asia and Africa.

Around the world, more than 336,000 employees produce over 21,500 vehicles or are involved in vehicle-related services on every working day.

Operations strategy of volkswagenwerk

1920–2004Before 1939•Ferdinand Porshe - ‘People’s 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 – people’s car•Adds emphasis on quality, technical, export, service standards

1949–1958•Intended strategy realised•Car ideal for post-war conditions•Rapid expansion in volume•No new models (work on new model halted in 1954)

1959–1964•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 service1976–1989•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

1990–1996•Increasing pressure 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 purchasing1997–2000•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 2001•Modify common platform policy to ease brand erosion

2002/5•Renewed cost pressures focus attention on input costs also hit by scandals!!2006•Sales recovering, speculation over Russian plant

1946–1951Implementing

strategy

Building up capacity and capability Simple design

Standardised design

Systemisation of resources andprocess

Emerging, any

working vehicle

Maturing, simple robust vehicle

Minor reconfiguration for new model

Maturing, sophisticated

performance, quality

New 1500 model

Operations resources

Market requirement

s

1952–1958Continuity of

strategy

1959–1964Minor change and continuity

Strategic reconciliation

Market requirements, operations resources and strategic reconciliation at VW over 70

years

1965–1970Search for

viable strategy

Fragmented acquisition of new resources

Multiple new designs

Defined rangeAdapt best practices from enlarged group

Uncertain rejection of VW

traditional products

Clarifying around style, quality and

variety

Accommodate new models and acquisitions

Segmentation around performance, style

and variety

Product development

paths


Market requirement

s

1971–1975Emergent strategy

1976–1979Continuing with minor changes



years

1990–1996Major change

(internal)

Drastic reconfiguration to increase efficiency, reduce costs

Design for low- cost

manufacture

Common product

platforms

Continuous process improvement and cost reduction

Increasingly competitive

around price

Branding with price, quality,

andstyle

Lean process improvement and more low-cost locations

Increasingly competitive around

price and innovationModular design


Market requirement

s


strategy


strategy



years

Trade-offs

‘Do you want it good, or do you want it on 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.’

‘Trade-offs are all in the mind. Look at how we used to think about the trade-off between cost and quality when buying automobiles. It was assumed that you had to spend money in order to get a car without defects. The Japanese showed us that it is perfectly possible to get great quality for a low price at the same time. In fact, achieving an error-freeproduction process actually reduced the cost of manufacturing the vehicle and therefore reducedthe price that could be charged. It’s the same with all other types of trade-off isn’t it?’

Performance objectives differ for different operations with different strategies.

An obvious way of demonstrating this is to take two well-known companies in different parts of the same sector competing in different ways.

This is evident by contrasting a well-known low-cost airline such as Ryanair with Virgin Atlantic’s upper class service.

X

Cost efficiency

Vari

ety

A

C

D

B

The ‘efficient frontier’ A

X C

D

Cost efficiencyVari

ety

B

The new ‘efficient frontier’

B1

The ‘efficient frontier’ view

Improvement through focus increases vulnerability to shifts in the market

Cost efficiency

Vari

ety

Focus strategies can change the trade-off curve from convex to concave

Island

Army 1

Army 2

You are commanding Army 1, the objective is to capture the island. Army 2 has the

same objective

Island

Army 1

Army 2

Burning your bridges

In sum, there are four issues related to operations performance

There are five ‘generic’ performance objectives. However, it may be noted that one may introduce a broader perspective on operations performance at this point, including aspects of corporate social responsibility (CSR) and so on.•The relative importance of these performance objectives changes over time. The Volkswagen (VW) example illustrates this over a number of decades. • There are trade-offs among the various performance objectives. The ‘efficient frontier’ concept may illustrate this. • Focusing an operation on a very small number of performance objectives can lead to superior performance in those objectives. This is the classic ‘focused factory’ idea that Skinner raised several decades ago. Of course, it applies equally to non-manufacturing operations.

How Tactical Factors & Contingency Issues Influence an Operations Strategy

Operations Performance. Time, Trade-offs and Targeting.

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