Operations Strategy – Student Study Guide
CHAPTER 11
OPERATIONS DEVELOPMENT AND IMPROVEMENT
Introduction
Perhaps one of the more significant developments within operations management and operations strategy over the last several years has been the refocusing of the subjects from simply designing and managing operations towards improving them. Of course, operations managers have always been concerned with improving their operations processes. Even under the old paradigms of design, planning and controlling operations, the objective way always to make things better, or at least stop them from getting worse. What is still relatively unusual is for this increased emphasis on improvement to be viewed from a strategic perspective. This chapter does this in two ways. First, it distinguishes between the two common philosophies of improvement, namely breakthrough improvement and continuous improvement. Second, it provides a strategic framework within which the various aspects of an improvement strategy can be fitted. Not surprisingly this framework adopts the market requirements and operations resource capability model.
Key points
· Two stereotypical approaches to improvement are often discussed by authorities on operations improvement. These are;
· breakthrough improvement – sometimes called innovation-based improvement, where significant and often radical changes are made;
· continuous improvement – where small incremental changes are made on a continuing basis.
· Chapter 11 discussed both these approaches to improvement and cites Business Process Reengineering (BPR) as a typical example of breakthrough improvement and Total Quality Management (TQM) as a typical example of continuous improvement.
· Remember that these are both stereotypes of improvement. They are not mutually exclusive. Very few organizations can afford to avoid some form of major improvement (breakthrough) project over a period of years. At the same time, few organizations would claim that they have no interest in improving on a more continuous basis.
· While both approaches to improvement can be used simultaneously, the degree of process change can govern the balance between the two approaches. The chapter identifies four degrees of process change. These are;
· modification – minor realignment of activities;
· extension – redesign of sequence or routing between activities;
· development – redefinition of purpose or role of activities;
· pioneer – novel or radical change.
· The more extensive the degree of process change (development or pioneer) the more the need for breakthrough approaches to improvement. See the figure below.
Direct, develop and deploy
· The majority of the chapter is taken up in expanding the “three Ds” strategic improvement model. This proposes three sets of activities which any operations function must develop in order to take a strategic approach to improvement. These three sets of activities are as follows:
· direct – understand the intended competitive position of the organization in its marketplace so as to let that direct the operations resources and processes;
· develop – within the operations function develop an understanding of the resources and processes so as to enhance their overall capability;
· deploy – make sure that operations capabilities are fully understood by the organization so that potentially advantageous changes in market position can be made.
· In fact a fourth set of activities completes the loop, the development of market strategy. This is seen by the model as the choice of a specific market position (or sets of market positions) within the potential scope of feasible market positions dictated by the operations capabilities.
· The first “D” in the three Ds model is “direct”, and the chapter discusses three activities under this heading. The first activity is that of performance measurement. Performance measurement is a topic in its own right and is only briefly described in the chapter. To learn more about this topic you should consult one of the many books on the subject. The second activity is that of benchmarking. Again this is a big subject in its own right, and again there are plenty of books that take the topic further. The third issue discussed under the “direct” heading is that of importance-performance mapping. This is a particularly useful, though very simple, approach to prioritizing performance objectives. Remember though, it is not a prescriptive device, nor is it objective. As described in the chapter, it is simply a way of formalizing subjective perceptions, still an important activity.
· The second “D” is concerned with “developing” operations capabilities. Two issues are discussed under this heading. The first is that of the learning, or experience, curve. The second, and more important issue is that of process knowledge and control. Essentially, the “develop” stage is one of building knowledge. The chapter discusses how process control (specifically Statistical Process Control, SPC) is increasingly seen as a mechanism for learning about a process and thereby extending process knowledge.
· The third D concerns “deploying” capabilities into the marketplace. In other words, any capability developed within an operation that is not leveraged into the marketplace at some stage is a wasted capability. Indeed, some authorities hold that capabilities that are not used will wither away. Chapter 11 uses a well-known model based on Hayes and Wheelwright’s work to calibrate the extent to which operations capabilities are influential in setting market position. This four-stage model is presented at a relatively abstracted level. However, it can be operationalized.
· Hayes and Wheelwright first probably their four stage model to be a broad brush conceptual tools whose main point was to demonstrate that operations should think about the extent of their contribution to the company’s competitiveness. But it can form the basis of an analysis tool that can be used to calibrate the extent to which an operations function can deploy its capabilities (if it has any). One way of doing this is to deconstruct the elements of how Hayes and Wheelwright describe each stage. Their descriptions mainly cluster around five issues. Namely,
· The way the operation relates with its external customers and the way it manages its internal customer relationships.
· The degree to which it has an understanding and knowledge of its operations practices.
· The way it links operations processes and resources with competitive strategy, and
· The degree of innovation shown within the operations function.
· The figure below ‘At what stage is your operation?’ fleshes this idea out. It takes each element and attempts to describe the nature of each as they progress from Stage 1 through to Stage 4. So, for example, in terms of relationship with internal and external customers, Stage 1 operations are continually managing crises, Stage 2 operations are concentrating on establishing appropriate performance monitoring systems, Stage 3 are using the performance monitoring systems as a basis for improvement, while Stage 4 are exploring new ways of developing internal and external relationships through an in-depth understanding of internal and external customers and suppliers operations.
STAGE 1 /STAGE 2
/STAGE 3
/STAGE 4
Relationship with internal and external customers / · Frequently lets down internal and external customers (who regard them as frustrating their own improvement efforts).· The operation spends much time rectifying the results of its own failures.
Crisis relationship / · The operation’s performance meets the minimum standards expected by internal and external customers.
· The operation only rarely lets down customers but adds little of positive value.
Performance monitoring relationship / · The operation starts to exceed customers’ expectations.
· Frequent discussion with internal and external customers as to the appropriateness of performance standards.
· Joint planning of continuous improvement of performance with customers.
Improvement of relationship / · Operations understands the needs and expectations of customers’ customers and exceeds them.
· Continual exploration of novel operation practice linked to customers’ future needs.
Creative relationship
Understanding of operations practice / · Relatively little exchange of ideas with other internal operations.
· Operations management has little knowledge of alternative ways of designing and running their type of operation.
· Operations staff are rarely included in discussing the incorporation of outside ideas.
· Little knowledge of ‘what makes the operation tick’.
General dissatisfaction with operations practice / · Regular exchange of ideas and performance with other internal operations within the organization.
· Other similar external operations used to provide benchmarks of performance and practice.
· Operations staff consulted on suitability of outside ideas.
· Process knowledge allows deviations from standard to be monitored.
Trying to position appropriate operations practice / · Operations management takes on facilitator role in helping other internal operations.
· Operations staff are concerned with how to adapt external ideas in order to make them more appropriate.
· Process knowledge gives ability to control performance.
Continuous improvement of operations practice / · Operations monitor external environment to predict their future market conditions, labor and technology requirements.
· Process knowledge gives ability to predict behavior under novel conditions.
· Operations take responsibility for reshaping competencies and expectations of whole supply network.
Forward looking operations practice
Links with competitive strategy / · Most people in the operation are not aware of the role of their operation within the organization and its objectives.
· Operations managers find difficulty in identifying the trade-offs that they are required to manage.
Simplistic but little understood objectives / · Operations management are aware that appropriate operations performance will differ in different operations, but are unclear how to change operations practice to reflect different objectives.
· Performance trade-offs are known but there is no clear idea of how to overcome them.
Starting to focus on key objectives / · All operations staff understand the relative importance of operations objectives and can debate their implications.
· Key performance trade-offs are identified and improvement strategies put in place to overcome them.
Clear explicit link between strategy and operations practice / · Operations have taken a leading role in shaping competitive strategy.
· Operations are seen as the prime source of the capabilities which competitors find difficult to imitate.
· Performance objectives are ‘trading-off’ at a significantly higher level than competitors.
Strategy driven by unique operations capabilities
Innovation within the operation / · Operations management sees responsibility for innovations as being outside the operation.
· “We could do much better if it wasn’t for the others in the organization”.
· Operations is creative only in trying to fix the worst problems.
‘Band Aid’ capabilities / · Operations management do take on full responsibility for implementing new ideas and exhibit flexibility and creativity in getting things ‘up and running’.
· Only minor ‘tinkering’ with methods rather than developing entirely new approaches.
Project management capabilities / · New approaches to operations practice developed from within the operation.
· New approaches are based on a sound understanding of the skills needed to meet market needs and work within resource constraints.
Interpreting ‘strategy to operations’ capabilities / · Operations at the forefront of ‘changing the rules of the game’.
· Innovations timed to give maximum competitive advantage.
Learning to network capabilities
This, of course, is not a precise instrument. It is only intended to help to give an indication of where an operation is on the four-stage scale.
Hints on answering the Customer Service at Kaston Pyral case exercise
· This case illustrates two specific and one general set of issues that are topical in many types of operation. The two specific issues are those of increasing internationalization and (often along with that) increasing consolidation into large units of capacity. The more general issue is that of operations improvement.
· The case contains both general statements of the company’s strategy along with a description of its decision to concentrate its call center operations on to three sites worldwide.
· Try thinking about the information in the case under the three headings of
· Direct,
· Develop,
· Deploy.
· Use the quantitative data to draw an importance-performance matrix for the New Jersey survey.
· Also try plotting a learning curve relating associate hours per call against cumulative volume of calls processed.
· Do you think there is alignment between the CEOs final statement and what seems to be happening in terms of operations improvement in the call centers?
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