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  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Learning Objectives • List and briefly discuss the primary ways that business organizations compete • List five reasons for the poor competitiveness of some companies. • To understand how customer wants and needs drive strategic thinking in a firm, and their consequences in designing and managing operations within the value chain. • To learn the five major competitive priorities important to business success, and what they mean for operations. • Define the term strategy and explain why strategy is important for competitiveness.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Learning Objectives • Discuss and compare organizational strategy and operations strategy, and explain why it is important to link the two. • To understand the process of strategic planning at the organizational level and its relationship to operations strategy. • To understand how operations strategy can support and drive the achievement of organizational objectives, and to learn the key elements of an operations strategy. • To understand the operations design choices and infrastructure decisions from the perspective of defining an operations strategy, and tradeoffs that need to be made in developing a viable operations strategy.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Learning Objectives • Describe and give example of time-based strategies. • Define the term productivity and explain why it is important to organizations and to countries. • A Framework for Manufacturing Strategy • List some of the reasons for poor productivity and some ways of improving it. • To be able to identify and understand the seven decisions areas in Hill’s operations strategy framework. • To be able to analyze a real organization's operations strategy and apply the strategy development framework.
  • 2-4 Competitiveness: How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services
  • 2-5 Businesses Compete Using Marketing  Identifying consumer wants and needs  Pricing  Advertising and promotion
  • 2-6 Businesses Compete Using Operations  Product and service design  Cost  Location  Quality  Quick response
  • 2-7 Businesses Compete Using Operations  Flexibility  Inventory management  Supply chain management  Service and service quality  Managers and workers
  • 2-8 Why Some Organizations Fail  Too much emphasis on short-term financial performance  Failing to take advantage of strengths and opportunities  Neglecting operations strategy  Failing to recognize competitive threats
  • 2-9 Why Some Organizations Fail  Too much emphasis in product and service design and not enough on improvement  Neglecting investments in capital and human resources  Failing to establish good internal communications  Failing to consider customer wants and needs
  • 2-10 Mission/Strategy/Tactics How does mission, strategies and tactics relate to decision making and distinctive competencies? Strategy TacticsMission
  • 2-11 Strategy  Mission  The reason for existence for an organization  Mission Statement  States the purpose of an organization  Goals  Provide detail and scope of mission  Strategies Plans for achieving organizational goals  Tactics  The methods and actions taken to accomplish strategies
  • 2-12 Planning and Decision Making Mission Goals Organizational Strategies Functional Goals Finance Strategies Marketing Strategies Operations Strategies Tactics Tactics Tactics Operating procedures Operating procedures Operating procedures Figure 2.1
  • 2-13 Strategy Example Rita is a high school student. She would like to have a career in business, have a good job, and earn enough income to live comfortably Mission: Live a good life  Goal: Successful career, good income  Strategy: Obtain a college education  Tactics: Select a college and a major  Operations: Register, buy books, take courses, study, graduate, get job Example 1
  • 2-14 Examples of Strategies  Low cost  Scale-based strategies  Specialization  Flexible operations  High quality  Service
  • 2-15 Strategy and Tactics  Distinctive Competencies The special attributes or abilities that give an organization a competitive edge.  Strategy Factors  Price  Quality  Time  Flexibility  Service  Location
  • 2-16 Banks, ATMsConvenienceLocation Disneyland Nordstroms Superior customer service Service Burger King Supermarkets Variety Volume Flexibility Express Mail, Fedex, One-hour photo, UPS Rapid delivery On-time delivery Time Sony TV Lexus, Cadillac Pepsi, Kodak, Motorola High-performance design or high quality Consistent quality Quality U.S. first-class postage Motel-6, Red Roof Inns Low CostPrice Examples of Operations Strategies Table 2.2
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Understanding Customer Wants and Needs A Japanese professor, Noriaki Kano, suggested three classes of customer requirements: Dissatisfiers: requirements that are expected in a good or service. If these features are not present, the customer is dissatisfied, sometimes very dissatisfied. Satisfiers: requirements that customers say they want. Exciters/delighters: new or innovative good or service features that customers do not expect. Examples?
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Understanding Customer Wants and Needs • Basic customer expectations - dissatisfiers and satisfiers – are generally considered the minimum performance level required to stay in business and are often called order qualifier. • Order winners are goods and service features and performance characteristics that differentiate one customer benefit package from another, and win the customer's business. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Understanding Customer Wants and Needs • Search attributes are those that a customer can determine prior to purchasing the goods and/or services. These attributes include things like color, price, freshness, style, fit, feel, hardness, and smell. • Goods such as supermarket food, furniture, clothing, automobiles, and houses are high in search attributes. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Understanding Customer Wants and Needs • Experience attributes are those that can only be discerned after purchase or during consumption or use. • Examples of these attributes are friendliness, taste, wearability, safety, fun , and customer satisfaction. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Understanding Customer Wants and Needs • Credence attributes are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consumption. • Examples would include the expertise of a surgeon or mechanic, the knowledge of a tax advisor, or the accuracy of tax preparation software. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western How Customers Evaluate Goods and Services Source: Adapted from V. A. Zeithamel, “How Consumer Evaluation Processes Differ Between Goods and Services,” in J. H. Donnelly and W. R. George, eds., Marketing in Services, published by the American Marketing Association, Chicago, 1981, pp. 186–199.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Customers evaluate services in ways that are often different From goods such as: • Customers seek and rely more on information from personal sources than from non-personal sources when evaluating services prior to purchase. • Customers use a variety of perceptual features in evaluating services. Customers normally adopt innovations in services more slowly than they adopt innovation in goods. • Customers perceive greater risks when buying services than when buying goods. • Dissatisfaction with services is often the result of customers’ inability to properly perform or co-produce their part of the service. These insights help to explain why it is more difficult to design services and service processes than goods and manufacturing operations. Operations Strategy
  • • End of Session 1
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Competitive Priorities • Competitive advantage denotes a firm’s ability to achieve market and financial superiority over its competitors. • Competitive priorities represent the strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western • Cost • Quality • Time • Flexibility • Innovation Competitive Priorities Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Competitive Priorities • Every organization is concerned with building and sustaining a competitive advantage in its markets. • A strong competitive advantage is driven by customer needs and aligns the organization's resources with its business opportunities. • A strong competitive advantage is difficult to copy, often because of a firm’s culture, habits, or sunk costs. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Competitive Priority -- Cost • Almost every industry has a low price market segment. • Low-cost strategy firms: Honda Motor Co., Marriott's Fairfield Inns, Merck-Medco On-line Pharmacy, Southwest Airlines, and Wal- Mart's Sam's Club. • Southwest Airlines is one of the few airlines that have been profitable during the 2001-2005 period. A low cost strategy can reshape industry structure such as in the airline industry (see OM Spotlight: Southwest Airlines). Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Competitive Priority – Quality PIMS Associates, Inc., a subsidiary of the Strategic Planning Institute, for example, found that • Businesses offering premium quality goods usually have large market shares and were early entrants into their markets. • Quality is positively and significantly related to a higher return on investment for almost all kinds of market situations. • A strategy of quality improvement usually leads to increased market share, but at a cost in terms of reduced short-run profitability. • High goods quality producers can usually charge premium prices. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Interlinking Quality and Probability Performance
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Competitive Priority – Quality Competitive strategies often led to tradeoffs between quality and cost; some company strategies are willing to sacrifice quality in order to develop a low cost advantage. Consider the story of Schlitz Brewing Company below. • In the early 1970s, Schlitz Brewing Company, the second largest brewer in the United States, began a cost-cutting campaign. It included reducing the quality of ingredients in their beers by switching to corn syrup and hop pellets and shortening the brewing cycle by 50 percent. • In the short term, it achieved higher returns on sales and assets than Anheuser-Bush (and the acclaim of Wall Street analysts). • But customers do recognize inferior products. Soon after, market share and profits fell rapidly. • By 1980 Schlitz's sales had declined 40 percent, the stock price fell from $69 to $5, and the company was eventually sold. Operations Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Time • Time is perhaps the most important source of competitive advantage. • Customers demand quick response, short waiting times, and consistency in performance. • Many firms use time as a competitive weapon to create and deliver superior goods and services such as Charles Schwab, Clarke American Checks, CNN, Dell, FedEx, and Wal-Mart.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Time • Reductions in processing (flow) time serve two purposes. • First, they speed up work processes so that customer response is improved. Deliveries can be made faster, and more often on-time. • Second, reductions in processing time can only be accomplished by streamlining and simplifying processes and value chains to eliminate non-value- added steps such as rework and waiting time.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Time • Processing (flow) time reductions often drive simultaneous improvements in quality, cost, and productivity (see OM Spotlights on Hyundai Motor Co. and Procter & Gamble).
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Flexibility • Mass customization requires companies to align their activities around differentiated customer segments and design goods, services, and operations around flexibility. • High-levels of flexibility might require special strategies such as modular designs, interchangeable components, and postponement
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Flexibility • Flexible operations require sharing manufacturing lines and specialized training for employees. • Flexible operations may also require attention to outsourcing decisions, agreements with key suppliers, and innovative partnering arrangements, because delayed shipments and a complex supply chain can hinder flexibility.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Flexibility • Mass customization is being able to make whatever goods and services the customer wants, at any volume, at any time for anybody, and for a global organization, from any place in the world.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Flexibility • Examples include  Sign-tic company signs that are uniquely designed for each customer from a standard base sign structure,  business consulting,  Levi’s jeans that are cut to exact measurements,  personal Web pages,  estate planning,  Harley-Davidson bikes,  cell phones customized in different colors, sizes, and shapes,  personal weight training programs, and  modular furniture that customers can configure to their unique needs and tastes.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Innovation • Innovation is the discovery and practical application or commercialization of a device, method, or idea that differs from existing norms. • Innovations in all forms encapsulate human knowledge.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Innovation • Innovations take many forms such as Physical goods such as telephones, automobiles, refrigerator s, computers, optical fiber, satellites, and cell phones. Services such as self-service, all-suite hotels, health maintenance organizations, and Internet banking.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Competitive Priority -- Innovation Innovations take many forms such as  Manufacturing such as computer-aided design, robotic automation, and smart tags.  Management practices such as customer satisfaction surveys, quantitative decision models, and Six Sigma).
  • 2-42  Economic conditions  Political conditions  Legal environment  Technology  Competition  Markets Key External Factors
  • 2-43  Human Resources  Facilities and equipment  Financial resources  Customers  Products and services  Technology  Suppliers Key Internal Factors
  •  End of session 2 2-44
  • 2-45 Operations Strategy  Operations strategy – The approach, consistent with organization strategy, that is used to guide the operations function.
  • 2-46 Strategic OM Decisions Decision Area Affects Product and service design Costs, quality liability and environmental Capacity Cost structure, flexibility Process selection and layout Costs, flexibility, skill level, capacity Work design Quality of work life, employee safety, productivity Location Costs, visibility Quality Ability to meet or exceed customer expectations Inventory Costs, shortages Maintenance Costs, equipment reliability, productivity Scheduling Flexibility, efficiency Supply chains Costs, quality, agility, shortages, vendor relations Projects Costs, new products, services, or operating systems Table 2.4
  • 2-47 Quality and Time Strategies  Quality-based strategies  Focuses on maintaining or improving the quality of an organization’s products or services  Quality at the source  Time-based strategies  Focuses on reduction of time needed to accomplish tasks
  • 2-48 Time-based Strategies JAN FEB MAR APR MAY JUN Planning Processing Changeover On time! Designing Delivery
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning • Strategy is a pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole. • Effective strategies develop around a few key competitive priorities - such as low cost or fast service time - which provide a focus for the entire organization, and exploit an organization’s core competencies - the strengths unique to that organization.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning • Strategic planning is the process of determining long-term goals, policies, and plans for an organization. • The businesses in which the firm will participate are often called strategic business units (SBUs), and are usually defined as families of goods or services having similar characteristics or methods of creation. • Strategy is the result of a series of hierarchical decisions about goals, directions, and resources.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning Most large organizations have three levels of strategy: • Corporate strategy is necessary to define the businesses in which the corporation will participate and develop plans for the acquisition and allocation of resources among those businesses.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning Most large organizations have three levels of strategy: • A business strategy defines the focus for SBUs. The major decisions involve which markets to pursue and how best to compete in those markets; that is, what competitive priorities the firm should pursue.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning Most large organizations have three levels of strategy: • A functional strategy is the set of decisions that each functional area - marketing, finance, operations, re search and development, engineering, and so on - develops to support its
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning • The operations strategy is how an organization’s processes are designed and organized to produce the type of goods and services to support the corporate and business strategies.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning • Managers recognize that the value (supply) chain can be leveraged to provide a distinct competitive advantage, and that operations is a core competency for the organization. • Whoever has superior operational capability over the long term is the odds-on-favorite to win the industry shakeout.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Strategic Planning Process • Strategy development refers to a company's approach, formal or informal, for making key long-term business decisions. • The process typically takes into account customer and market requirements, the competitive environment, industry structure and non-industry competitors, financial and societal risks, human resource capabilities and needs, technological capabilities, and supplier capabilities.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Pal’s Strategic Planning Process Pal’s Strategic Planning Process, which is performed annually, focuses on a two-year planning horizon. The major steps are as follows: Step 1 - Gather and Analyze Strategic Performance Data Step 2 - Review/Analyze Existing Strategic Directions and Documents Step 3 - Revise/Develop Strategy
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Pal’s Strategic Planning Process Step 4 - Deploy Objectives and Action Plans Step 5 - Review Progress and Results Step 6 - Continually Evaluate and Improve Strategic Planning Process The next step is to translate business strategy into operations strategy, policies, and resource allocation plans.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Pal’s Strategic Planning Process • The strategic mission of a firm defines its reason for existence. • The strategic vision describes where the organization is headed and what it intends to be. Pal’s strategic vision is
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Pal’s Strategic Planning Process • Values are attitudes and policies for all employees to follow that direct the journey to achieving the organization’s vision. • Values are reinforced through conscious and subconscious behavior at all levels of the organization.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Pal’s Strategic Values are
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Operations Strategy • An operations strategy defines how an organization will execute its chosen business strategies. • Developing an operations strategy involves translating competitive priorities into operational capabilities by making a variety of choices and trade-offs for design and operating decisions.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Operations Strategy • An operations strategy defines how an organization will execute its chosen business strategies. • Operating decisions must be aligned with achieving the desired competitive priorities. • For example, if corporate objectives are to be the low cost and mass market producer of a good then adopting an assembly line type of process is how operations can help achieve this corporate objective.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Pal’s Operations Strategy What kind of an operations strategy might a company like Pal’s Sudden Service have? What are the OM implications? • The quickest, friendliest, most accurate service available. • A focused menu that delights customers. • Daily excellence in product, service, and systems execution. • Clean, organized, sanitary facilities. • Exceptional value.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Professor Terry Hill’s Strategy Development Framework Operations design choices are the decisions management must make as to what type of process structure is best suited to produce goods or create services. (See Exhibits 4.4 and 4.5)  Types of processes and alternative designs  Supply chain integration and outsourcing  Technology  Capacity and Facilities (size, timing, location)  Inventory  Trade-off Analysis
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Hill’s Strategy Development Framework Source: T. Hill, Manufacturing Strategy: Text and Cases, 2nd ed., Burr Ridge, IL: Irwin Publishers, 1994, p. 28
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Professor Terry Hill’s Strategy Development Framework Infrastructure focuses on the non-process features and capabilities of the organization (see Exhibits 4.4 and 4.5) and includes the  workforce,  operating plans and control systems,  quality control,  organizational structure,  compensation systems,  learning and innovation systems, and
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Four Key Decision Loops in Terry Hill’s Generic Strategy Framework
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Support Services • Support services often represent 30 to 70 percent of the cost of being in business (see Exhibit 4.6). • Each support service requires at least one process to create and deliver its output or outcome. • Support service processes cost money, influence customer satisfaction, and consume time. • Lack of management attention to support service processes occurs both in goods-producing and service- providing organizations. • Support services offer a significant opportunity for improvement in organizational effectiveness that translates to bottom line savings.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Examples of Support Process
  • • End of session 3
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Operations Strategy Prof. Hill’s Strategy Framework Applied to McDonald’s • McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness and value, so that we make every customer in every restaurant smile. To achieve our vision, we focus on three worldwide strategies: (1) Be The Best Employer (2) Deliver Operational Excellence (3) Achieve Enduring Profitable Growth • Customer Benefit Package Design and Strategy (see Exh. 4.7) • Strategy Development for McDonald’s (see Exhibit 4.8)
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western McDonald’s Customer Benefit Package
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Applying the Hill’s Strategy Development Framework to McDonald’s (slide 1)
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Applying the Hill’s Strategy Development Framework to McDonald’s (slide 2)
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Solved Problem #1 – Health Club CBP & Strategy Healthy Mind and Body Food Personal Trainer Massage Services Diet and Nutrition Exercise Classes Child Care Swim Lessons Strategy: We strive to provide our customers with superior: customer convenience (location, food, communication, schedules, etc.) clean facilities, equipment, uniforms, parking lot, and the like friendly professional staff that care about you ways to improve and maintain your body and mind's health and well being. Mission: The mission of our health club is to offer many pathways to a healthy living style and body.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Solved Problem #1 – Health Club CBP & Strategy Healthy Mind and Body Food Personal Trainer Massage Services Diet and Nutrition Exercise Classes Child Care Swim Lessons Competitive Priorities: #1 Priority – many pathways to healthy living and a healthy body (design flexibility), #2 – friendly professional staff and service encounters (service quality), #3 everything is super clean (goods and environmental quality), #4 – customer convenience in all respects (time), #5 – price (cost). How to win customers? Providing a full service health club with superior service, staff, and facilities.
  • Operations Management, 2e/Ch. 4 Operations Strategy ©2007 Thomson South-Western Solved Problem #1 – Health Club CBP & Strategy Example Health Club Processes • The food ordering and supply, preparation, delivery, and clean up processes define the food service value chain. • The childcare process includes rigorous procedures for checking children in and out of the childcare area. • The swimming lesson process includes a sign-up phase, potential participant medical examination phase, and a series of classes taught by certified swimming instructors who are trained in emergency services such as CPR. • The personal trainer process requires high design flexibility since each exercise and training program is customized to the individual.
  • 79 Kaplan and Norton’s Generic Strategy Map In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Productivity Strategy is generally made up from two components: 1. Improve cost structure: Lower direct and indirect costs 2. Increase asset utilization: Reduce working and fixed capital
  • 80 Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Financial Perspective, the Revenue Growth Strategy is generally made up from two components: 1. Build the franchise: Develop new sources of revenue 2. Increase customer value: Work with existing customers to expand relationships with company
  • 81 Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Customer Perspective, there are three ways suggested as means of differentiating a company from others in a marketplace: 1. Product leadership 2. Customer intimacy 3. Operational excellence
  • 82 Kaplan and Norton’s Generic Strategy Map (Continued) In the Kaplan and Norton’s Generic Strategy Map, under the Learning and Growth Perspective, there are three principle categories of intangible assets needed for learning: 1. Strategic competencies 2. Strategic technologies 3. Climate for action
  • 83 Operations Strategy Framework Customer Needs New product : Old product Competitive dimensions & requirements Quality, Dependability, Speed, Flexibility, and Price Operations & Supplier capabilities R&D Technology Systems People Distribution Support Platforms Financial management Human resource management Information management Enterprise capabilities Operations and Supplier Capabilities R&D Technology Systems People Distribution
  • 84 Steps in Developing a Manufacturing Strategy  1. Segment the market according to the product group  2. Identify product requirements, demand patterns, and profit margins of each group  3. Determine order qualifiers and winners for each group  4. Convert order winners into specific performance requirements
  • 85 Service Strategy Capacity Capabilities  Process-based – Capacities that transforms material or information and provide advantages on dimensions of cost and quality  Systems-based – Capacities that are broad-based involving the entire operating system and provide advantages of short lead times and customize on demand  Organization-based – Capacities that are difficult to replicate and provide abilities to master new technologies
  • 2-86 Productivity  Productivity  A measure of the effective use of resources, usually expressed as the ratio of output to input  Productivity ratios are used for  Planning workforce requirements  Scheduling equipment  Financial analysis
  • 2-87 Productivity  Partial measures  output/(single input)  Multi-factor measures  output/(multiple inputs)  Total measure  output/(total inputs) Productivity = Outputs Inputs
  • 2-88 Productivity Growth Current Period Productivity – Previous Period Productivity Previous Period Productivity Productivity Growth =
  • 2-89 Measures of Productivity Table 2.4 Partial Output Output Output Output measures Labor Machine Capital Energy Multifactor Output Output measures Labor + Machine Labor + Capital + Energy Total Goods or Services Produced measure All inputs used to produce them
  • 2-90 Units of output per kilowatt-hour Dollar value of output per kilowatt-hour Energy Productivity Units of output per dollar input Dollar value of output per dollar input Capital Productivity Units of output per machine hour machine hour Machine Productivity Units of output per labor hour Units of output per shift Value-added per labor hour Labor Productivity Examples of Partial Productivity Measures Table 2.5
  • 2-91 Example 3 7040 Units Produced Cost of labor of $1,000 Cost of materials: $520 Cost of overhead: $2000 What is the multifactor productivity? Ans. 2.0 units per dollar of input
  • 2-92 Example 3 Solution MFP = Output Labor + Materials + Overhead MFP = (7040 units) $1000 + $520 + $2000 MFP = 2.0 units per dollar of input
  • 2-93 Process Yield  Process yield is the ratio of output of good product to input  Defective product is not included in the output  Service example:  Ratio of cars rented to cars available to rent
  • 2-94 Factors Affecting Productivity Capital Quality Technology Management
  • 2-95  Standardization  Quality  Use of Internet  Computer viruses  Searching for lost or misplaced items  Scrap rates  New workers Other Factors Affecting Productivity
  • 2-96  Safety  Shortage of IT workers  Layoffs  Labor turnover  Design of the workspace  Incentive plans that reward productivity Other Factors Affecting Productivity
  • 2-97 Outsourcing  Higher productivity in another company is a key reason organizations outsource work  Improving productivity may reduce the need for outsourcing
  • 2-98 Improving Productivity  Develop productivity measures  Determine critical (bottleneck) operations  Develop methods for productivity improvements  Establish reasonable goals  Get management support  Measure and publicize improvements  Don’t confuse productivity with efficiency
  • End of session 4 2-99