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Developing an Operations Strategy:

Deploying Resources, Processes and Operations

Dr Simon Croom.

Smartlink Fellow, University of South Australia

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Overview

• We tend to see strategic success as all about markets, products and services.

• We forget that we rely on our processes, as well as those of our suppliers, collaborators and distributors.

• Many businesses now recognise that strategic capabilities are determined by HOW they develop, produce and deliver goods and services to their customers.

• This session focuses on strategic development• It will provide some basic Principles to help you improve

strategic performance

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What is ‘OPERATIONS’ Strategy?

“The strategic direction and development of

the resources and processes which produce

and deliver products and services to

customers”.

Operations Strategy,

By Nigel Slack & Michael Lewis

Pearson Publishing

http://www.booksites.net/download/slack/download.htm

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IT The clash between the nature of external markets and the nature of internal resources

Market Requirements are….

Dynamic

Heterogeneous

Ambiguous

Operations Resources are….

Difficult to change Technically constrained

Complex

BT3

Princip

le

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Link Strategy With

Operations

Give an Operations Advantage

Externally supportive

Adopt best Practice

Correct the Worst

Problems

Increasing contri

bution of o

peratio

ns

Internally supportive

Externally neutral

Internally neutral

The strategic role of operations can be defined by its aspirations (after Hayes and Wheelwright)

STAGE 1 STAGE 2 STAGE 3 STAGE 4

The ability

to Implement

The ability

to support Strategy

The ability

to Drive

strategy

Stop holding the

organisation back

Be as good as

competitors

Be clearly the best in

the industry

Redefine the industry’s

expectations

Princip

le

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The 3 key attributes of operations

Operations Contribution

Implementing

Supporting

Driving

be Dependable

Operationalise strategy

explain Practicalities

be Appropriate

Understand strategy

Contribute to decisions

be Innovative

provide Foundation of strategy

Develop long-term Capabilities

The Strategic Role of the Operations Functions

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ITOperations can kick-start two virtuous cycles

Understanding of the processes

Competencies embedded in the

operation

Capabilities enhance innovation and improvement

World Class Operations

Competitiveness Strong marketing

High margin

Investment

Developing the resources which let the operation’s performance stay ahead of the competition

Developing customers’ competitors’ and stockholders; perceptions and expectations

Internal and ExternalPrincip

le

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Co

mp

etit

iven

essSpeed

Flexibility

Cost

Dependability

Quality

The operations function can provide a competitive advantage through its performance at the five competitive objectives

Being RIGHT

Being FAST

Being ON TIME

Being ABLE TO CHANGE

Being PRODUCTIVE

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Co

mp

etit

iven

ess

How is each performance objective being viewed?

QualityThe onset of “Total Quality Disillusionment” ISO 9000 sweeps the world (except Japan!)

Dependability Being monitored by customers

FlexibilityLong term technology flexibility proving difficult to achieveMore closely defined - “rigid flexibility”

Cost

Increasing cost pressuresOvercoming the volume and variety effectsNew ways of looking at costs

Speed

Value added methodology increasingly powerfulMajor benefit of BPRReturn of the JEDI

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ITC

om

pet

itiv

e O

bje

ctiv

es a

re

pri

ori

tize

d b

y

CU

ST

OM

ER

S a

nd

CO

MP

ET

ITO

RS

Co

mp

etit

iven

ess

Quality

Speed

Dependability

Flexibility

Cost

The first task of an Operations Strategy is to clarify the relative priorities of the competitive objectives

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ITOperations Strategy Decision Areas Determine Resource Deployment

Operations Policies are shaped by

COMPETENCIES and CONSTRAINTS

Resource Deployment

Capacity Structure

Process Technology

Supply Network

Development and Organisation

ISSUES -

• CAPACITY

• LOCATION

• FOCUS & SEGMENTATION

• L/T FORECASTS

ISSUES -

ISSUES -

ISSUES -• DEVELOPMENT RATE

• AUTOMATION

• SIZE

• INTEGRATION

• IN OR OUT-HOUSE DEVELOPMENT

• VERTICAL INTEGRATION

• SUPPLIER DEVELOPMENT

• DEVELOPMENT CHAINS

• STRATEGIC VALUE FACILITATION

• RESPONSIBILITY RELATIONSHIPS

• IMPROVEMENT STRATEGIES

• PERFORMANCE & CONTROL

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Cost

Co

mp

etit

ive

Ob

ject

ives

ar

e p

rio

riti

zed

by

CU

ST

OM

ER

S a

nd

C

OM

PE

TIT

OR

S

Mar

ket

Co

mp

etit

iven

essQuality

Speed

Dependability

Flexibility

Operations strategy is defined by the intersections of performance objectives and substrategies

Operations Policies are shaped by

COMPETENCIES and CONSTRAINTS

Resource Deployment

Development and

Organization

Supply Network

Process Technology

Capacity Structure

Operations Strategy

Princip

le

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Cost

Co

mp

etit

ive

Ob

ject

ives

ar

e p

rio

riti

zed

by

CU

ST

OM

ER

S a

nd

C

OM

PE

TIT

OR

S

Mar

ket

Co

mp

etit

iven

essQuality

Speed

Dependability

Flexibility

Operations strategy is defined by the intersections of performance objectives and substrategies

Operations Policies are shaped by

COMPETENCIES and CONSTRAINTS

Resource Deployment

Capacity Structure

Process Technology

Supply Network

Development and

Organization

key

key

key

key

key

key

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How to ensure a strategic Fit

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IT Prioritizing Objectives

Priorities should be determined by ......

The

IMPORTANCE

of eachcompetitive

objective

Your

PERFORMANCE

in each of thecompetitive

objectives

IMPROVEMENT PRIORITIES

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ITC

ompe

titi

veB

enef

it

Achieved performance

ORDER-WINNINGOBJECTIVES

+ve

neutral

-ve

Low High

qualifyinglevel

QUALIFYINGOBJECTIVES

Com

peti

tive

Ben

efit

Achieved performance

+ve

neutral

-ve

Low High

LESS IMPORTANTOBJECTIVES

Com

peti

tive

Ben

efit

Achieved performance

+ve

neutral

-ve

Low High

Princip

le

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Low High

Negative

Positive

Neutral

Achieved Performance

Co

mp

etit

ive

Ben

efit

Time

Delights become Order winners and Order winners become Qualifiers

Delights

Adding Delights

Order Winners

Order Winners gain more business the better you are

Qualifiers

Qualifiers are the “givens” of doing businessPrincip

le

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A method for identifying our ‘strategic’ operations priorities

• Identify what is important to customers

• Assess how well we perform

• Relate our performance to customer’s or market requirements

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For this product group does this performance objective ......

1 - Provide a crucial advantage with customers

2 - Provide an important advantage with most customers

3 - Provide a useful advantage with most customers

ORDERWINNINGOBJECTIVES

4 - Need to be up to good industry standard

5 - Need to be around median industry standard

6 - Need to be within close range of the rest of the industry

QUALIFYINGOBJECTIVES

7 - Not usually important but could become more so in future

8 - Very rarely rate as being important

9 - Never come into consideration

LESSIMPORTANTOBJECTIVES

9 Point Importance Scale

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PRICE

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

1 2 3 4 5 6 7 8 9

1 2 3 4 5 6 7 8 9

X

X

X

X

X

X

X

X

X

IMPORTANCE to Customers

DOC. SERVICE X

Temperature controlled - Overnight serviceExa

mple

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For this product group is achieved performance ........

1 - Consistently considerably better than our nearestcompetitor

2 - Consistently clearly better than our nearest competitor

3 - Consistently marginally better than our nearest competitor

BETTERTHANCOMPETITORS

4 - Often marginally better than most competitors

5 - About the same as most competitors

6 - Often close to main competitors

SAMEASCOMPETITORS

7 - Usually marginally worse than main competitors

8 - Usually worse than most competitors

9 - Consistently worse than most competitors

WORSETHANCOMPETITORS

9 Point Performance Scale

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COST

SERVQUAL (DISN.)

SERVQUAL (ORDER TAKE)

ENQUIRY LEAD-TIME

DROP QUOTE

WINDOW QUOTE

DELIVERY PERFORMANCE

DELIVERY FLEXIBILITY

VOLUME FLEXIBILITY

1 2 3 4 5 6 7 8 9

1 2 3 4 5 6 7 8 9

X

X

X

X

X

X

X

X

X

PERFORMANCE against Competitors

DOC. SERVICE X

Temperature controlled - Overnight service

*

* Estimated

Example

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betterthan

sameas

worsethan

lessimportant qualifying

orderwinning

1

2

3

4

5

6

7

8

9

123456789

IMPORTANCEFOR

CUSTOMERSLOW HIGH

Volume Flex X

Drop QuoteX

Delivery XWindow QuoteX

Servqual (DISN)X

Doc Service X

XPrice/Cost Delivery Flex

X

X

Servqual (Order Take)

X

Example

Enquiry Lead-Time

PE

RF

OR

MA

NC

EA

GA

INS

T

CO

MP

ET

ITO

RS

GO

OD

BA

D

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CUSTOMERS

betterthan

sameas

worsethan

lessimportant qualifying

orderwinning

1

2

3

4

5

6

7

8

9

123456789

IMPORTANCEFOR

CUSTOMERS

LOW HIGH

PE

RF

OR

MA

NC

EA

GA

INS

T

CO

MP

ET

ITO

RS

GO

OD

BA

D

URGENTACTION

IMPROVE

APPROPRIATE

EXCESS ?

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Budget Hotel Chain

Delights

Order Winners

Qualifiers

Today Tomorrow

Central reservation

Location (autoroutes) Location (restaurants)

Price Loyalty cards

Central reservationLocation (autoroutes)

Location (restaurants) Price Loyalty cards Cleanliness Decor

Cleanliness Decor

Service

?

Example

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Budget Hotel Chain

Delights

Order Winners

Qualifiers

Today Tomorrow

Central reservation

Location (autoroutes) Location (restaurants)

Price Loyalty cards

Central reservationLocation (autoroutes)

Location (restaurants) Price Loyalty cards Cleanliness Decor

Cleanliness Decor

Service

?

Location (restaurants)

Price

Example

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IT Budget Hotel Chain

Delights

Order Winners

Qualifiers

What aspects of service will form tomorrows delights,

order winners and qualifiers?

Price

Central reservation) Location (autoroutes)

Location (restaurants) Price

Loyalty cards Cleanliness

Decor

More, smaller sites

What new capabilities will operations need to

develop to deliver these?

Cheap land costs

Build at low cost

Operate at low cost

Search processesFlexible design

Low fixed costsStandardisation

Low overheadsLow labour costsNew technology

Location (restaurants) Partnership deals with restaurants

Example

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IT 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 ?

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IT Where will you be in the Future?

Delights

Order Winners

Qualifiers

Today Tomorrow

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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.”

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IT Driving Learning & Improvement whilst avoiding Strategic Vulnerability

• Be Clear about your current performance in terms of:– Process Capability– Alignment of resources to customers & markets– Responsiveness of your resources to external

variations– Performance measurement and objectives– Service level agreements, specifications and

targets– Consistency of purpose– Appropriate relationships across your supply chain

and operations network

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IT How can we carry out such a ‘Health Check’?

• Benchmarking against others• Validation against best practice• Evaluation of Strategic Criteria• Audit of the pressures and stresses faced by your

organisation

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What is Stress Point Analysis?

A research tool developed to accommodate the individual context and conditions facing an organisation

• A methodology for highlighting key areas of strategic weakness

• A comparative analysis – benchmarking against others and against best practice

• A customised methodology for an individual audit

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ITStrategic Performance

- Responsiveness of Your Operation

Failure Point

Stress Point

Per

form

ance

‘Force’

Response curve

Desired Capability

Operating Capability

STRESS

KEY To ZONES

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ITThe Causes of Supply Chain and Operations

Stress

• Congruence– Alignment to customer needs, potential degradation of delights– Mismatched relationships with customers and suppliers– Confusion over needs

• Capabilities– Processes are not able to meet the performance targets– Service levels are inappropriate– Capability Not Measured– No laid down process maps or procedures

• Capacity– Poor utilisation, slow response to demand, too many set ups, high

or increasing variety– Low Value Adding content– Low T/E (throughput efficiency)

• Control– High Forecasting Errors– ‘Bullwhip’ across the chain (Forrester Effect)– Resource Scheduling and Inventory inaccuracies

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To AUDIT your Business

• Logon to http://www.supply-chain.org.uk• Click on the SPA Methodology link• Login to the ht2 site using:

– Username SPA**– Password SPA** (Same as your username)

• I will allocate your number• Complete the survey• Your results will be emailed to you in early April as a

benchmark report

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