OPERATIONS STRATEGY STUDY GUIDE - Pearson Education



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 |

|Relation|Frequently lets down internal and |The operation’s performance meets |The operation starts to exceed |Operations understands the needs |

|ship |external customers (who regard |the minimum standards expected by |customers’ expectations. |and expectations of customers’ |

|with |them as frustrating their own |internal and external customers. |Frequent discussion with internal |customers and exceeds them. |

|internal|improvement efforts). |The operation only rarely lets |and external customers as to the |Continual exploration of novel |

|and |The operation spends much time |down customers but adds little of |appropriateness of performance |operation practice linked to |

|external|rectifying the results of its own |positive value. |standards. |customers’ future needs. |

|customer|failures. | |Joint planning of continuous | |

|s | | |improvement of performance with | |

| | | |customers. | |

| | | | | |

| | |Performance monitoring |Improvement of relationship |Creative relationship |

| |Crisis relationship |relationship | | |

|Understa|Relatively little exchange of |Regular exchange of ideas and |Operations management takes on |Operations monitor external |

|nding of|ideas with other internal |performance with other internal |facilitator role in helping other |environment to predict their |

|operatio|operations. |operations within the |internal operations. |future market conditions, labor |

|ns |Operations management has little |organization. |Operations staff are concerned |and technology requirements. |

|practice|knowledge of alternative ways of |Other similar external operations |with how to adapt external ideas |Process knowledge gives ability to|

| |designing and running their type |used to provide benchmarks of |in order to make them more |predict behavior under novel |

| |of operation. |performance and practice. |appropriate. |conditions. |

| |Operations staff are rarely |Operations staff consulted on |Process knowledge gives ability to|Operations take responsibility for|

| |included in discussing the |suitability of outside ideas. |control performance. |reshaping competencies and |

| |incorporation of outside ideas. |Process knowledge allows | |expectations of whole supply |

| |Little knowledge of ‘what makes |deviations from standard to be | |network. |

| |the operation tick’. |monitored. | | |

| | | | | |

| |General dissatisfaction with | |Continuous improvement of | |

| |operations practice |Trying to position appropriate |operations practice |Forward looking operations |

| | |operations practice | |practice |

|Links |Most people in the operation are |Operations management are aware |All operations staff understand |Operations have taken a leading |

|with |not aware of the role of their |that appropriate operations |the relative importance of |role in shaping competitive |

|competit|operation within the organization |performance will differ in |operations objectives and can |strategy. |

|ive |and its objectives. |different operations, but are |debate their implications. |Operations are seen as the prime |

|strategy|Operations managers find |unclear how to change operations |Key performance trade-offs are |source of the capabilities which |

| |difficulty in identifying the |practice to reflect different |identified and improvement |competitors find difficult to |

| |trade-offs that they are required |objectives. |strategies put in place to |imitate. |

| |to manage. |Performance trade-offs are known |overcome them. |Performance objectives are |

| | |but there is no clear idea of how | |‘trading-off’ at a significantly |

| | |to overcome them. | |higher level than competitors. |

| |Simplistic but little understood | |Clear explicit link between | |

| |objectives | |strategy and operations practice |Strategy driven by unique |

| | |Starting to focus on key | |operations capabilities |

| | |objectives | | |

|Innovati|Operations management sees |Operations management do take on |New approaches to operations |Operations at the forefront of |

|on |responsibility for innovations as |full responsibility for |practice developed from within the|‘changing the rules of the game’. |

|within |being outside the operation. |implementing new ideas and exhibit|operation. |Innovations timed to give maximum |

|the |“We could do much better if it |flexibility and creativity in |New approaches are based on a |competitive advantage. |

|operatio|wasn’t for the others in the |getting things ‘up and running’. |sound understanding of the skills | |

|n |organization”. |Only minor ‘tinkering’ with |needed to meet market needs and | |

| |Operations is creative only in |methods rather than developing |work within resource constraints. | |

| |trying to fix the worst problems. |entirely new approaches. | | |

| | | |Interpreting ‘strategy to | |

| | | |operations’ capabilities |Learning to network capabilities |

| |‘Band Aid’ capabilities |Project management 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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Breakthrough improvement

Continuous improvement

Degree of process change

Pioneer

Development

Extension

Modification

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