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Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
Operations Strategy Leeds School of Business
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Operations Strategy Leeds School of Business

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  • 1. Operations Strategy Leeds School of Business University of Colorado Boulder, CO Professor Stephen Lawrence
  • 2. Factories at Asnieres Seen from the Quai de Clichy – Van Gogh
  • 3. Summary of OPERATIONS MANAGEMENT
  • 4. Operations – 80-90% Hidden
  • 5. Transformation Definition INPUTS OUTPUTS Materials Goods Labor Transformation Processes Capital Services Knowledge
  • 6. Added Value Model Cost Finance Accounting Information Systems Profit! People and Organization Marketing Operations Added Value for Customer adapted from Porter, Competitive Advantage, Free Press, 1985
  • 7. The Value Equation Performance Value price Quality Timeliness Flexibilit y Innovation Value price Q T F I Value P
  • 8. Evolution of Operations Strategy
  • 9. Operations in the 50‟s & 60‟s  Germany, Japan, Europe, and Asia – Industrial infrastructure destroyed in WWII  U.S. without significant international competition – 1945 to 1970  “The problem of production has been solved.” – John Kenneth Gailbraith – noted economist, 1950‟s  Operations largely ignored, not “strategic”
  • 10. “Manufacturing: Missing Link in Corporate Strategy” Wickham Skinner, Harvard Business Review, May-June 1969  Corporate management abdicates manufacturing strategy to low levels – Viewed as requiring technical skills – Morass of petty details  Companies become saddled with noncompetitive production systems  Strategic manufacturing issues involve – Plant and equipment – Production Planning and control – Labor and staffing – Product design and engineering – Organization and management “Manufacturing: Missing Link in Corporate Strategy,”Wickham Skinner, Harvard Business Review, May-June 1969
  • 11. “The Focused Factory” Wickham Skinner, Harvard Business Review, May-June 1974  Observations of 50+ factories – There are many ways to compete besides low cost – A factory cannot perform well on every yardstick – Factories were provided with inconsistent objectives – Focus on cost and efficiency rather than other measures  Problem: Too many factories try to do too much  Solution: The focused factory – Simplicity and repetition breed competence – Focus on relative competitive ability – Limit scope of factory‟s responsibilities – Limit overhead, focus on production “The Focused Factory,”Wickham Skinner, Harvard Business Review, May-June 1974
  • 12. “Why Japanese Factories Work” Robert Hayes, Harvard Business Review, Jul-Aug 1981  Toured eight plants at six Japanese companies  What I did not see – Few modern structures, robots, quality circles – Aside: Toyota, GM, and NUMMI (1984)  What I did see – Clean orderly workplaces – Almost total absence of inventory – “root of all evil” – Stability and continuity in manufacturing processes • Bottlenecks eliminated, machines & people not overloaded • Continuous equipment monitoring, preventative maintenance • No-crisis atmosphere – “Pursuing the last grain of rice” approach to quality – Long term commitment to employer, employees, customers “Why Japanese Factories Work,”Robert Hayes, Harvard Business Review, Jul-Aug 1981
  • 13. “Competing Through Manufacturing” Wheelwright and Hayes, Harvard Business Review, Jan-Feb 1985  How effectively do companies use operations?  Continuum of four stages – Stage 1: Internally Neutral • Minimize negative impact of operations – Stage 2: Externally Neutral • On par with competitors – Stage 3: Internally Supportive • Provide credible support to business strategy – Stage 4: Externally Supportive • Ops used to create competitive advantage “Competing Through Manufacturing,”Wheelwright & Hayes, Harvard Business Review, Jul-Aug 1985
  • 14. “Frugal Manufacturing” Schonberger, Harvard Business Review, Sep-Oct 1987  U.S. manufacturing an “extravagance of scale” – Too many U.S. plants are too large, too complex  Achieve a frugal focus – Improve/adapt conventional machines before automation – Don‟t abrogate manufacturing strategy to lower levels, vendors – Improve capability to modify, customize, & simplify – Consider bigger and faster equipment with caution – Automate only when benefits are clear – Factories within factories – Split plants when they become too large  These ideas came to be know as “lean” manufacturing “Frugal Manufacturing,”Schonberger, Harvard Business Review, Jul-Aug 1985
  • 15. Manufacturing Operations Strategy  Emerging consideration of other means of competition – Garvin, “Competing on the Eight Dimensions of Quality,” HBR 1988 – Stalk, “Time – The Next Source of Competitive Advantage,” HBR 1988 – Stalk, Evans, and Schulman, “Competing on Capabilities,” HBR 1992 – Upton, “What Really Makes Factories Flexible?” HBR 1995 – Gilmore and Pine, “Four Faces of Mass Customization,” HBR 1997  Emerging consideration of service operations – Heskett, “Lessons of the Service Sector,” HBR 1987 – Reichheld and Sasser, “Zero Defections: Quality Comes to Services,” HBR 1990 – Schlesinger and Heskett, “The Service-Driven Service Company,” HBR 1991
  • 16. Emerging Issues of Ops Strategy  Management of KNOWLEDGE  Supply chain management  Outsourcing and offshoring  Education and training – Moving up the food chain  Focus on core competencies versus  Economies of scale
  • 17. Implementing Operations Strategy: Four Views
  • 18. Implementing Operations Strategy 1. Strategy as Evolutionary Search 2. Strategic Differentiation 3. The Balanced Scorecard 4. Business Performance Excellence
  • 19. Strategy as Evolutionary Search
  • 20. Beinhocker “On the origin of strategies,” The McKinsey Quarterly, November 4, 1999.
  • 21. The Origin of Strategies  “Evolution across a population is nature’s trick for mastering uncertainty. Businesses can use it to.”  Complex systems exhibit – Emergent patterns of behavior – Punctuated equilibrium – Path dependence  Can‟t rely on patterns and predictions Beinhocker, “On the origin of strategies,” The McKinsey Quarterly, Number 4, 1999.
  • 22. Evolutionary Fitness Landscapes  Business strategy similar to evolutionary survival – Companies = Species – Business Strategies = Gene Combinations – Combination of genes (strategies) determine fitness  Some combinations work (survival)  Others don‟t work (extinction)  Fitness landscape changes constantly Beinhocker, “On the origin of strategies,” The McKinsey Quarterly, Number 4, 1999.
  • 23. “Rugged Fitness Landscape” Beinhocker, “On the origin of strategies,” The McKinsey Quarterly, Number 4, 1999.
  • 24. Rules for Evolutionary Search  Never sit still  Search in parallel  Search strategies – Marginal “hill climbing” (evolutionary) – Dramatic “pogo stick” jumps (revolutionary) – Use both  Devote some resources to risky experimentation  “Can we afford not to?” vs. “Can we afford to?” Beinhocker, “On the origin of strategies,” The McKinsey Quarterly, Number 4, 1999.
  • 25. Strategic Differentiation
  • 26. Treacy and Wiersema, Discipline of Market Leaders, 1997
  • 27. Models for Strategic Differentiation  Operational Excellence – Low/Best Total Cost  Best Total Solution – Customer Intimacy  Product Leadership – Best Products / Product Innovation
  • 28. Operational Excellence  Provide unmatchable combination of price, quality, delivery, and ease of purchase  Execute extraordinarily well  Value proposition is guaranteed best total cost and hassle-free service  Processes are optimized and streamlined to minimize costs  Culture abhors waste, rewards efficiency  Organizational heroes are in operations
  • 29. Operational Excellence Value Q T F I P Focus on Productivity & Price  Quality means consistency, conformance, and reliability  Timeliness means on-time delivery
  • 30. Best Total Solution  Deliver to specific customer needs, not broad market requirements  Intimately know customers; know exactly what products and services they need  Continually tailor products and services to specific customers at reasonable prices  Customer loyalty a key asset; cultivate relationships rather than pursue transactions  Give customers more than they expect, constantly upgrade product offerings  Organizational heroes are in marketing & sales
  • 31. Best Total Solution Value Q T F I P  Focus on Timeliness & Flexibility  Timeliness means delivering on-demand  Flexibility means “the customer is always right”  Quality means service
  • 32. Product Leadership  Continually push products into unknown areas  Strive to provide leading edge products or new applications for existing products  Commercialize new products quickly  Business processes engineered for speed  Relentlessly pursue product innovation  Willing to quickly obsolete existing product  Organizational heroes are engineers & scientists
  • 33. Product Leadership Value Q T F I P Focus on product Innovation  Quality means performance, features, and aesthetics  Timeliness means rapid new product introductions and planned obsolescence
  • 34. Without Strategic Differentiation  Operations – Focuses on price, and consistent quality  Marketing – Focuses on giving customers what they want  Engineering (R&D, product development) – Focuses on innovative new products  No consistent focus; organizational dysfunction; declining profits – Employees work harder & harder to achieve less and less
  • 35. Differentiation Life Cycle Product Leadership Best Total Solution Operational Excellence
  • 36. Balanced Scorecard
  • 37. Kaplan & Norton, The Balanced Scorecard, 1996.
  • 38. Balanced Scorecard Financial How do we look Measures to shareholders? How do customers see us? Internal Customer Business Measures Measures At what must we excel? Innovation & How to improve Learning & create value? Measures Kaplan and Norton, “The Balanced Scorecard – Measures that Drive Performance,” Harvard Business Review, Jan/Feb 1992.
  • 39. Financial Measures  Survive – Cash flow  Succeed – Quarterly sales growth – Operating income  Prosper – Increased market share – ROE Kaplan and Norton, “The Balanced Scorecard – Measures that Drive Performance,” Harvard Business Review, Jan/Feb 1992.
  • 40. Customer Measures  New Products – Percent of sales from new products – Percent of sales from proprietary products  Benefits – Quality – Timeliness – Flexibility  Value Kaplan and Norton, “The Balanced Scorecard – Measures that Drive Performance,” Harvard Business Review, Jan/Feb 1992.
  • 41. Internal Measures  Technological capability – Proprietary capabilities  Productivity – Traditional productivity measures  Internal quality – Scrap and reject rates  New product introduction – Schedule vs. plan Kaplan and Norton, “The Balanced Scorecard – Measures that Drive Performance,” Harvard Business Review, Jan/Feb 1992.
  • 42. Innovation & Learning  Technology leadership – Time to develop next generation  Time to market – New product introduction vs. competition  Process improvement – Cost reduction, quality improvement – Improved customer service Kaplan and Norton, “The Balanced Scorecard – Measures that Drive Performance,” Harvard Business Review, Jan/Feb 1992.
  • 43. Balanced Scorecard How do we look Financial to shareholders? Measures How do customers see us? ? Vision Internal Customer and Business Measures Measures Strategy At what must Innovation & we excel? How to improve Learning & create value? Measures Kaplan and Norton, “The Balanced Scorecard – Measures that Drive Performance,” Harvard Business Review, Jan/Feb 1992.
  • 44. Business Performance Excellence (BPE)
  • 45. Dr. Jeff Luftig, Leeds School of Business
  • 46. Purpose of Policy Deployment: Establishing the „Point of the Compass‟ Typical Structure w/Out An Initial Result Achieved After Final Result Achieved After Integrated Policy Implementing a Policy Implementing a Policy Deployment System Deployment System Deployment System
  • 47. Steps of Policy Deployment  Create Vision, Mission, and Value Proposition – Vision looks out 5-10 years – Mission looks out 3-5 years – Value Proposition explains why customers will purchase from us instead of competition  Decide upon a Model for Strategic Differentiation  Develop key performance measurements that will realize the Mission, Vision, and Value Proposition  Deploy to the organization – Easy to say, hard to accomplish!
  • 48. Rules for Vision & Mission 1. Never state anything that you do not intend to measure, and subsequently allocate resources to achieve. 2. If it is critical to your organization, always state it. 3. Never state anything that makes the management team look foolish.
  • 49. Metal Surface Finisher Vision The vision of ABC is to be regarded as among the best surface finishers in the country for the services we choose to provide. Mission Achieve near-term profitability by providing high quality surface finishing and related technical services to companies where surface finishing is significant to the success of their businesses, while maintaining environmentally sensitive and safe operations. Value Proposition ABC provides surface finishing with the highest product quality and value-added technical services, to deliver the lowest total cost solution for our customers. Strategic Differentiation Operational Excellence -- Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience.
  • 50. Steps of Policy Deployment  Create Vision, Mission, and Value Proposition – Vision looks out 5-10 years – Mission looks out 3-5 years – Value Proposition explains why customers will purchase from us instead of competition  Decide upon a Model for Strategic Differentiation  Develop key performance measurements that will realize the Mission, Vision, and Value Proposition  Deploy to the organization – Easy to say, hard to accomplish!
  • 51. Models for Strategic Differentiation  Operational Excellence – Low/Best Total Cost  Best Total Solution – Customer Intimacy  Product Leadership – Best Products / Product Innovation
  • 52. Steps of Policy Deployment  Create Vision, Mission, and Value Proposition – Vision looks out 5-10 years – Mission looks out 3-5 years – Value Proposition explains why customers will purchase from us instead of competition  Decide upon a Model for Strategic Differentiation  Develop key performance measurements that will realize the Mission, Vision, and Value Proposition  Deploy to the organization – Easy to say, hard to accomplish!
  • 53. Metal Surface Finisher Vision The vision of ABC is to be regarded as among the best surface finishers in the country for the services we choose to provide. Mission Achieve near-term profitability by providing high quality surface finishing and related technical services to companies where surface finishing is significant to the success of their businesses, while maintaining environmentally sensitive and safe operations. Value Proposition ABC provides surface finishing with the highest product quality and value-added technical services, to deliver the lowest total cost solution for our customers. Strategic Differentiation Operational Excellence -- Provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience.
  • 54. Construct Analysis Constructs Level I CPM's Regarded as among the best Reputation with surface finishers in the country target customers Lowest total cost solution Profit Near-term profitability Costs Revenues High quality surface finishing Product quality Highest product quality Environmentally sensitive Environment operations compliance Safe operations Safety compliance
  • 55. Steps of Policy Deployment  Create Vision, Mission, and Value Proposition – Vision looks out 5-10 years – Mission looks out 3-5 years – Value Proposition explains why customers will purchase from us instead of competition  Decide upon a Model for Strategic Differentiation  Develop key performance measurements that will realize the Mission, Vision, and Value Proposition  Deploy to the organization – Easy to say, hard to accomplish!
  • 56. Fault Tree Construction Vision/Mission/Value Prop Level I CPMs Level II Level III Level IV
  • 57. CPM Breakdown  Revenue – Revenue by production line • Revenue by customer  Costs – Costs by production line • Costs by operator • Costs by product type • Costs by customer  Continue for all Level I CPMs
  • 58. Issues & Problems with BPE  Difficult to understand, explain in places  Still relies on managerial judgment and insight!  Cannot fix a bad top-level strategy  More difficult to implement than it looks  Cannot overcome poor implementation  HARD WORK!
  • 59. The Promise of BPE  We have the tools: – JIT, TOC, SPC, MRP, ERP, EOQ, ABC, … – Many other TLA‟s (three letter acronyms)  Too often we have a hammer looking for something to pound – anything!  BPE works to constructively focus efforts on profitability and success!
  • 60. Benefits of BPE BPE Policy Deployment Launched
  • 61. Operations Strategy Leeds School of Business University of Colorado Boulder, CO Professor Stephen Lawrence

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