Performance objective A

1. Strategic Reconciliation Market Requirements OPERATIONS STRATEGY Operations Resources Performance objective B Performance objective A Time, trade-offs and targeting ? Topics in operations strategy treated in this chapter

2. The “technological” specification of its product/service? PRODUCT/SERVICE TECHNOLOGY OPERATIONS MARKETING The way it positions itself in its market? The way it produces its goods and services? Where does the business get its competitive advantage?

3. PRODUCT / SERVICE TECHNOLOGY PRODUCT / SERVICE TECHNOLOGY OPERATIONS MARKETING PRODUCT SERVICE TECHNOLOGY MARKETING OPERATIONS MARKETING OPERATIONS The contribution of each area will change over time

4. 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)

5. 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

6. 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

7. 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

8. Operations Resources Strategic Reconciliation Market Requirements Emerging, any working vehicle Building up capacity and capability 1946-1951 Implementing strategy Simple design Systemisation of resources and processes Maturing, simple robust vehicle 1952-1958 Continuity of strategy Standardized design 1959-1964 Minor change and continuity More sophisticated performance, quality Minor reconfigura-tion for new model New 1500 model 1965-1970 Searching for viable strategy Uncertain rejection of VW traditional products Fragmented acquisition of new resources Multiple new designs Market requirements, operations resources and strategic reconciliation at VW for half a century

9. Operations Resources Strategic Reconciliation Market Requirements Clarifying around style, quality and variety Adapt best practices from enlarged group 1971-1975 Emergent strategy Defined range Accommodate new models and acquisitions 1976-1989 Continuing with minor changes Segmentation around performance, style and variety Product development paths Drastic reconfiguration to increase efficiency, reduce costs 1990-1996 Major change (internal) Design for low-cost manufacture Increasingly competitive around price Continuous process improvement and cost reduction Branding with price, quality, and style 1997-2000 Implementing strategy Common product platforms Market requirements, operations resources and strategic reconciliation at VW for half a century

10. Realised Strategy Deliberate Strategy Intended Strategy Unrealized Strategy Emergent Strategy Mintzberg’s concept of emergent strategy

11. Order winners and qualifiers Positive Order Winners Neutral Competitive Benefit Qualifiers Negative Low High Achieved Performance

12. Adding ‘Delights’ Positive Delights Order Winners Neutral Competitive Benefit Qualifiers Negative Low High Achieved Performance

13. Delights become order winners and order winners become qualifiers Positive Delights Order Winners Neutral Competitive Benefit Qualifiers Negative Low High Achieved Performance

14. What service dimensions are delight, order winners and qualifiers – now, and in the future? Today Tomorrow Delights Order Winners Qualifiers

15. Budget Hotel Chain Today Tomorrow Delights 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 ?

16. Budget Hotel Chain Today Tomorrow Delights 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 ?

17. Budget Hotel Chain What aspects of service will form tomorrows delights, order winners and qualifiers? What new capabilities will operations need to develop to deliver these? Delights Price Search processes Flexible design Cheap land costs Build at low cost Low fixed costs Standardization Low overheads Low labor costs New technology Operate at low cost Order Winners Central reservation Location (autoroutes) Location (restaurants) More, smaller sites Partnership deals with restaurants Qualifiers Location (restaurants) Price Loyalty cards Cleanliness Decor

18. 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.”

19. 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

20. Performance measure B Performance measure B Performance measure A Performance measure A Three schools of trade-off thought “Natural” Frontier of Performance X3 X2 X X1 X Z Performance measure B Y Y3 Y Y2 Y1 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) “It’s all about positioning” (e.g. Skinner)

21. Repositioning vs.improvement Improve Net improvement in performance because trade-off is overcome A B A B Pivot Pivot Base + Base Base Trade-off changed because improved system attributes have enabled both A and B to be improved without changing their relative position Original trade-off Reposition Change in relative performance of competitive objectives A A B Pivot B Pivot Base + Base 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. Trade-off changed because improved system attributes have enabled A to be improved without reduction in B

22. good bad vs. vs. vs. Cost good Service bad Degree and number of service checks Cost of providing service Average waiting time for service Cost of providing service Ability to keep waiting time short even in peak periods Cost of providing service vs. Range of services offered Cost of providing service Examples of services vs. cost trade-offs at an auto quick fit center

23. good bad good Capital expenditure Service bad Degree and number of service checks Capital cost of purchasing computer diagnostics equipment vs. Capital cost of providing extra physical capacity or automated processes Average waiting time for service vs. Ability to keep waiting time short even in peak periods Capital cost of providing extra capacity for peak loading vs. Range of services offered Capital cost of purchasing wider range of equipment vs. Examples of services vs. capital expenditure at an auto quick fit center

24. good bad good Capital expenditure Service bad Capital cost of providing computer diagnostic equipment Cost of providing service vs. Examples of cost vs. capital expenditure at an auto quick fit center

25. good good good good bad bad bad Working capital Service bad Level of parts inventory kept in stock Ability to replace part without any delay vs. good Working capital Cost bad Level of parts inventory kept in stock Cost of arranging for out of stock part to be delivered vs. good Capital expenditure Working capital bad Capital expenditure on storage space Level of parts inventory kept in stock vs. Examples of working capital related trade-offs at an auto quick fit center

26. Service versus Cost versus versus Capital expenditure versus versus versus Working capital Trade-off categories

27. Extended performance frontier Area Q Z X Performance objective B Area P Y Natural performance frontier Performance objective A Reconciliation as improvement by pushing back the performance frontier of a trade-off

28. Trade-off curve of operation designed for narrow range of activities only ‘Normal’ operation trade-off frontier zone Variety 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

29. Market segment A Market segment A Operation A Operation A Market segment B Market segment B Operation B Operation B Market segment C Market segment C Operation C Operation C Market and operations segmentation matched Market and operations segmentation not matched Segmentation of markets and operations resources

30. Army 1 Island Army 2 Burning bridges behind you increases commitment but reduces flexibility

31. Operations Resources Strategic reconciliation Market Requirements Clarity of objectives Appropriate resources Learning and improvement Clearly focused resources Clearly targeted market but but but Structural vulnerability Risk of market change Limited capabilities Focused operations can exhibit positive and negative characteristics in both market and operations perspectives

32. Operational cost of credit information Response time Speed and quality of information Utilisation of staff 1st trade-off 2nd trade-off Staff scheduling in retail loans Level of service purchased from credit agency Operations cost and speed of service Range of services possible Capital investment in ‘retail’ system Investment in multi-function system 3rd trade-off 4th trade-off Retail loans on-site investment Insurance IT system investment Three trade-offs in the Call Center example

33. Specific Specific A A Ideal performance Ideal performance Quality of service Quality of service B B Superficial Superficial Limited Broad High Low Range of services Cost of providing services

34. Specific Specific A A A A Ideal performance Ideal performance Ideal performance Ideal performance Quality of service Quality of service Quality of service Quality of service C C Superficial Superficial Limited Limited Broad Broad High High Low Low Range of services Range of services Cost of providing services Cost of providing services

35. Specific Specific A A A A Ideal performance Ideal performance Ideal performance Ideal performance D D Quality of service Quality of service Quality of service Quality of service C C Superficial Superficial Limited Limited Broad Broad High High Low Low Range of services Range of services Cost of providing services Cost of providing services