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CAN UNCERTAINTY BE MANAGED?              Pallav Vikash Chatterjee         Competitive Strategy1|Page
INDEX OF CHAPTERSChapter     Description                                  Page NoChapter 1   Uncertainty                  ...
INDEX OF FIGURESFigure                                                                            Page No.Figure 1.1    Ch...
Figure                                                                     Page No.Figure 6.16   Relative Process Score Ma...
Chapter 1. Uncertainty1.1 The Dimensions of Uncertainty1.1 (i) Characteristics of UncertaintyUncertainty exists in all are...
Therefore, apart from the two dimensions of business environment uncertainty – changes inorganization’s business environme...
1.2 Defining UncertaintyThere are many definitions of uncertainty in the literature, which essentially takes differentview...
Figure 1.2 Selection of various methods of research to understand reality - Adapted fromArbnor & Bjerke (1997))The definit...
Chapter 2. Managing Uncertainty: GenericResponses2.1 The generic response frameworks provide answers to the questions of m...
2.2 Framework of Response Based on Contingency Effect (Systems Approach)Contingency theory argues (e.g. Burns and Stalker,...
Corporate Culture Characteristic               Family                   Eiffel Tower                Guided missile        ...
managed by parallel nodes in the supply chain structure which can take care of the suppliesshould one among the alternativ...
has while facing uncertain situations. This also anxiety and boosts confidence of seniormanagers. Delphi technique of arri...
Chapter 3. Managing Product & ProcessVariations3.1 Organization face uncertainty in two broad ways, as suggested by empiri...
While the industries like automotive, airlines manufacture etc have relatively larger        Product Life Cycle (PLC) and ...
Figure 3.1 – Technology evolution in the industry from one technology to nextAlso technological advancement is a result of...
Figure 3.3 Products – Process Change MatrixThe generic positions are as follows dependant on the uncertainty environment i...
High Specialization to ensure economies        Standard rules & procedures        Mass ProductionThe key business strategy...
opportunity to the organization to build highly flexible platforms of process capabilities orknow-how over a period of tim...
Chapter 4. Managing Uncertainty in Projects    “There are known knowns; there are things we know we know. We also know the...
4.2 Components of Project UncertaintyTheory suggests that each project has an uncertainty profiles constituting various le...
4.3 Managing Uncertainty4.3 (i) Managing VariationIn projects subject to variations, the variations should be budgeted int...
the top management of the company to ensure speedy decisions and quick action as and whenthe fundamental assumptions of th...
Chapter 5. Systems Approach to UncertaintyManagement: SAP-LAP Synthesis        5.1 Systems Approach        System Approach...
networked structures of supply-chains, often the systems approach is used in        mitigating and managing supply chain u...
5.2 SAP-LAP Approach        SAP-LAP is an integrative framework which comprises of 6 components, The        Situation to b...
Chapter 6. Case Study: Uncertainty Management(Using Ex-Ante Strategy / Systems Approach)*In summers of 2011, a multination...
a) Floods, earthquake or natural calamities / disasters.    b) Fire accidents, riots, political disturbances leading to te...
•   S5: Widely spread service dealer network and due to niche market policy low        component consumption per dealer, r...
•   A5: Engineering teams - Quality assurance, R&D & service functions for determining        component requirements, prod...
SummaryThe key processes involved in supply chain design for risk mitigation are as follows (figure –6.3)                 ...
Learning                  L1* Crisis Management Strategy                      Inventory decision by taking strategic trade...
Summary (figure – 6.5)                                     Suggested Actions          A1* Making a safety policy, safety d...
1. Self-interaction matrices (Binary & Interpretive)    a. Situation (Binary and Interpretive – figure 6.7)    External   ...
Interpretive matrix (figure – 6.9)        External                                                                        ...
d. Learning Issues (figure – 6.11)        External                                           Internal                     ...
2. Assessment Matrices    a. Situation Elements (figure – 6.14)                                     Situation Elements    ...
c. Processes (figure – 6.16)                                                                  Key Competitors             ...
39 | P a g e                                                                                     Differentiation & eff ect...
b. Actor-Performance    Binary (figure – 6.19)                     A1              1                   1                1 ...
c. Process - Learning    Binary (figure – 6.21)                       P1           1                1            1        ...
Interpretive (figure – 6.24)                                                     Development       L1*        Synergy     ...
Uncertainty Management
Uncertainty Management
Uncertainty Management
Uncertainty Management
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Uncertainty Management

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Managing Uncertainty , various perspectives and a case study using SAP-LAP. 1) Product-Process Change Compulsions in the industry perspective 2) Project Management Perspective 3) Systems Perspective

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Uncertainty Management

  1. 1. CAN UNCERTAINTY BE MANAGED? Pallav Vikash Chatterjee Competitive Strategy1|Page
  2. 2. INDEX OF CHAPTERSChapter Description Page NoChapter 1 Uncertainty 5Chapter 2 Managing Uncertainty: Generic Responses 9Chapter 3 Managing Product & Process Variations 14Chapter 4 Managing Uncertainty in Projects 20Chapter 5 Systems Approach to Uncertainty Management 24Chapter 6 Case Study: Ex-Ante Strategy 27Annexure Bibliography 462|Page
  3. 3. INDEX OF FIGURESFigure Page No.Figure 1.1 Change Continuum over various variables 6Figure 1.2 Selection of various methods of research to understand reality 8Figure 2.1 Corporate Culture 11Figure 3.1 Technology evolutions in the industry from one technology to next 16Figure 3.2 Double loop learning 16Figure 3.3 Products – Process Change Matrix 17Figure 4.1 Knowing the uncertainty profile of the project 21Figure 4.2 Managing Uncertainties In Projects 23Figure 5.1 A Risk model in an example supply chain 24Figure 5.2 Developing Risk Scores 25Figure 5.3 Risk Management Plan development 25Figure 6.1 Case Study: Situation Paradigm 29Figure 6.2 Case Study: Actors Matrix 30Figure 6.3 Case Study: Processes Matrix 31Figure 6.4 Case Study: Learning Matrix 32Figure 6.5 Case Study: Actions Matrix 33Figure 6.6 Case Study: Performance Matrix 33Figure 6.7 Situations: Binary & Interpretive 34Figure 6.8 Actors: Binary 34Figure 6.9 Actors: Interpretive 35Figure 6.10 Processes 35Figure 6.11 Learning Issues: Binary & Interpretive 36Figure 6.12 Suggested Actions: Binary & Interpretive 36Figure 6.13 Performance Areas: Binary & Interpretive 36Figure 6.14 Situation Elements 37Figure 6.15 Actors Score Matrix 373|Page
  4. 4. Figure Page No.Figure 6.16 Relative Process Score Matrix 38Figure 6.17 Situation-Actor: Binary Cross Interaction Matrix 38Figure 6.18 Situation-Actor: Interpretive Cross Interaction Matrix 39Figure 6.19 Actors-Performance Binary Cross Interaction Matrix 40Figure 6.20 Actors-Performance Interpretive Cross Interaction Matrix 40Figure 6.21 Process-Learning: Binary Cross Interaction Matrix 41Figure 6.22 Process-Learning: Interpretive Cross Interaction Matrix 41Figure 6.23 Learning-Actions: Binary Cross Interaction Matrix 41Figure 6.24 Learning-Actions: Interpretive Cross Interaction Matrix 42Figure 6.25 Actions-Performance: Binary Cross Interaction Matrix 42Figure 6.26 Actions-Performance: Interpretive Cross Interaction Matrix 43Figure 6.27 Process-Performance: Cross Interaction Matrices 43Figure 6.28 Actors-Performance: Cross Interaction Matrices 434|Page
  5. 5. Chapter 1. Uncertainty1.1 The Dimensions of Uncertainty1.1 (i) Characteristics of UncertaintyUncertainty exists in all areas of life, and humans react to it in various ways. Human behaviorin the presence of uncertainty is not always rational. Nonetheless efforts can be made tounderstand the possible range of such behavior so that it can be managed as appropriately aspossible. Organizational efforts are needed to be able to reflect on such behavior in order toeffectively be able to manage uncertainty faced. The management of these extraordinary,uncertain situations has become a discipline in its own right over the past decade ,particularly in a business context, but increasingly also in a social setting (Hillson & Webster2005).The above classical statement elaborates two aspects about uncertainty. Firstly, uncertaintyhas two dimensions – uncertainty in the environment & organization’s response to suchuncertainty. Secondly, the importance of the organization’s range of responses in terms of itsbehavior under uncertainty which highlights the importance of analytics to assess uncertainsituations and their impact on the organization, organization culture that determines itsresponses to uncertainties, flexibility & management style of the organization. To answer tothe question of whether Uncertainty can be managed these two aspects have eclecticimportance in the organization’s ability to manage risk arising out of the uncertainty andturbulence in the business environment.1.1 (ii) Uncertainties in a continuum of dimensionsIf we dissect organizational work, we observe that the organizational work (or in other wordsthe business process) can be categorized into two broad categories although a mix betweenthe two categories may exist in a continuum, one is a regular repetitive routine work that theorganization undertakes which is stable in nature and other is a project based activity that theorganization undertakes. The organization undertakes project-based activity because it cannot produce or achieve the benefits by doing routine things and the expected benefits derivedfrom the project outweighs the risks. So on one end of the organization’s style of businesscan be categorized as relatively stable & routine with relatively lesser frequency of changewhile on the other end of the continuum lies a highly dynamic nature of work manifest inProject based organizational activity.Further, on product or services front, that the organization delivers to its customers it can alsobe dissected and categorized on a continuum where in one extreme lay products or serviceswith relatively stable and long life-cycles with less frequency of changes while on theextreme end there are products and service which demand fast-cycles of changes owing todynamic industry patterns.5|Page
  6. 6. Therefore, apart from the two dimensions of business environment uncertainty – changes inorganization’s business environment & expected response range of the organization, there aretwo other dimensions which needs to be carefully evaluated to assess its ability to manageuncertainty, that is the relative dynamism in its products & services and also as well , thedynamism in its organizational processes.To summarize therefore, we conclude four dimensions which vary along with a continuum ofuncertainty and certainness that holds the key to management of uncertainty. 1. Dynamism in External Business Environment 2. The Organizational Response in Face of stimuli of change in environment. 3. Product & Services Dynamism 4. Process Dynamism Variable Stable Dynamic Environment Placid / Predictable Turbulent Internal Response Simple Complex Product Low Variation High Variation Processes Routine Project Based Figure 1.1 – Change Continuum over various variables1.1 (iii) Environmental UncertaintyMiliken (1987) specifies three types of environmental uncertainty, viz., a) State uncertainty : referring to uncertainty in predicting how environment itself will change b) Effect uncertainty : referring to difficulty in predicting the impact of the environmental changes on the organization c) Response uncertainty: refers to the difficulty in assessing what choices or responses are available to the organization in the face of an uncertainty.This segregation of uncertainty into the above three typology is very useful in the sense ofunderstanding the behavior of uncertainty in multi-dimensional perspective and laysemphasis on the influence of the actors involved in the process of managing uncertainty in anorganization, specially those who form a dominant coalition in the organization (thoseresponsible to make strategic choices and the path that the organization chooses).6|Page
  7. 7. 1.2 Defining UncertaintyThere are many definitions of uncertainty in the literature, which essentially takes differentview points on the way uncertainty is understood and interpreted1.2 (i) Information ViewGalbraith (1977: 36-7) takes the information processing approach and defines uncertainty asthe difference in the amount of information needed to perform the task and the amount ofinformation already possessed by the organization1.2 (ii) Choice ApproachBurns & Stalker (1961: 112) defines uncertainty as the ignorance of the person who isconfronted with a choice about the future in general, and in particular about the outcomeswhich may follow from any of his possible lines of action1.2 (iii) Interpretation ApproachMarach (1994: 174) defined uncertainty as imprecision in the estimates of futureconsequences conditional on present action1.2 (iv) Uncertainty in terms of Positivism or Hermeneutic ParadigmFurther study of literature and theory of science suggests that there are many views oflooking at management of uncertainty as a research problem to be solved and in essence thereare different causal understandings of uncertainty. Like for instance, Arbnor & Berke (1997)propose three methodological approaches in business research - The analytical approach - The systems approach - The actors approachSince there are different views about the reality dependant on different paradigms taken ondeveloping understanding and interpretation, there are different approaches taken inunderstanding of uncertainty as well. While the Positivist approach views reality as concreteand conformable to laws the Hermeneutic approach sees reality as a manifestation of humanintentionality, their perceptions and differing interpretations. While Analytical approach ofresearch is applied in developing understanding about reality or a natural phenomenon it isthe underlying Actors who need to be studied to develop understanding in complex humanbehavior that defines the cause-effect of the reality.7|Page
  8. 8. Figure 1.2 Selection of various methods of research to understand reality - Adapted fromArbnor & Bjerke (1997))The definitions of uncertainty varies due to different views and paradigms taken tounderstand the phenomenon, while the Information approach of the definition takes theconcrete view of the problem of uncertainty and attempts to define uncertainty as absence ordeficit of information which other-wise exists. On the other hand, the choice approach ismore inclined towards the system view of the organization where the consequences in termsof impact on the organization is dependent on the choices the organization makes and lack ofunderstanding of the possible impact each choice would have on the organization is seen asuncertainty. Yet on the other end, the actors approach sees uncertainty as a result ofimprecision in predicting human behavior in terms of interpretation of reality and in terms ofpossible response to external environment, therefore uncertainty is dependant on the actorsinvolved in the situation.8|Page
  9. 9. Chapter 2. Managing Uncertainty: GenericResponses2.1 The generic response frameworks provide answers to the questions of managinguncertainty in case of its first two dimensions (see section 1.1 (ii)) 1. Dynamism in External Business Environment 2. The Organizational Response in Face of stimuli of change in environment. 3. Product & Services Dynamism 4. Process DynamismThe dynamism or turbulence in external business environment necessitates the organizationto tailor itself to the external environment, while it is important for the organization to chooseits approach of how to deal with turbulent environment, the responses determines its impactof the choices made to deal with such turbulence. There are three generic responseframeworks, as the research on the subject suggests, they principally deal with the aspects oftailoring the organization to the need of the environment and the choice that the organizationhas on the philosophy of how it would choose its decisions alternatives. The threeframeworks that apply are a) response based on contingency effect b) information seekingresponse and c) response based on sense-making behavior (or interpretation).Regarding managing other dimensions of uncertainty, viz. the changes in the product /services in the industry or the changes due to technology / processes in the competitivelandscape require further framework in addition from these three generic strategies.The first framework is essentially a systems based approach that views an organization as asystem of inter-related complex structures that determines its behavior of responses as anoutcome and therefore the need of tailoring the structure of the organization according to theclass of uncertainty.The second framework is an analytical approach towards uncertainty, which essentially dealswith elaborate information seeking and processing of such information to arrive at the choiceof alternatives that are available to the organization in course of its business while facinguncertainties and turbulence.The third and last framework is essentially and actors based approach which essentiallyfocuses on the social and cultural notions that exists in an organization and their complexinter-relations in organization decision making. This framework essentially focuses on thepeople element and rather treats uncertainty in an emergent response behavior of theorganization.9|Page
  10. 10. 2.2 Framework of Response Based on Contingency Effect (Systems Approach)Contingency theory argues (e.g. Burns and Stalker, 1961; Lawrence and Lorsch, 1967;Galbraith, 1977) that there requires different organizational fits to cope and manageuncertainties dependent on the position on various dimensions of uncertainty. For instance,for relatively placid external business environment, there requires to have incrementalchanges to adapt to slow changes in the environment that the firm deals with. While there aresituations when the firm or an organization deals with turbulent environment where theorganization should develop culture & organization behavior in such a way that it can quicklyadapt & implement radical changes which are necessitated to cope with environmentalflexibility (Tushman and Romanelli, 1985)Based on the contingency theory, the organization must respond by fitting their organizationby building in required capabilities to manage them. For instance, greater flexible structure isrequired to manage complex environmental uncertainties that they face. The organizationmay decide to form their organization based on the industry environment of uncertainty thatthey face, for example: - Hierarchical organization ; or - Divisional structure; or - Amoeba structure of organization; or - Network structure of organization; or - Matrix structure of organization; orAlso, with structures the corporate cultures also need to be tailored according to the responsecapabilities required to cope with the changes in the environment, decision structures in theorganization tailored according to the needs that the business environment dynamics require.The cultures in the organization can be any of the following forms (see exhibit below) - Family oriented culture; or - Eiffel tower metaphor ; or - Guided missile metaphor; or - Incubator10 | P a g e
  11. 11. Corporate Culture Characteristic Family Eiffel Tower Guided missile IncubatorRelationships Diffuse relationships Specific role in Specific tasks in Diffuse, spontaneousbetween to organic whole to mechanical system of cybernetic system relationships growingemployees which one is bonded required interaction targeted on shared out of shared creative objectives processAttitude toward Status is ascribed to Status is ascribed to Status is achieved by Status is achieved byauthority parent figures who superior roles that are project group members individual exemplifying are close and distant yet powerful who contribute to creativity and growth powerful targeted goalWays of thinking Intuitive, holistic, Logical, analytical, Problem centered, Process oriented,and learning lateral and error- vertical, and rationally professional, practical, creative, ad hoc, correcting efficient cross-disciplinary inspirationalAttitudes toward Family members Human resources Specialists and experts Co-creatorspeopleWays of changing “Father” changes Change rules and Shift aim as target Improvise and attune course procedures movesWays of Intrinsic satisfaction Promotion to greater Pay or credit for Participation in themotivating and in being loved and position, larger role performance and process of creatingrewarding respected Management by job problems solved new realities Management by description Management by Management by subjective objectives enthusiasmCriticism and Turn other cheek, Criticism is accusation or Constructive task- Improve creative idea,conflict resolution save other’s face, do irrationalism unless there related only, then admit not negate it. not lose power game are procedures to error and correct fast arbitrate conflicts Figure 2.1 – Corporate CultureThe contingency approach suggests that the organization copes with uncertainty creatingcertain parts within it specially to deal with it, while making other parts specializing in otheractivities where there are conditions of certainty or near certainty. The uncertain environmentnecessitates a need for more flexible structures in order to increase responsiveness (Burns andStalkers, 1961; Thomson, 1967)The ‘law of requisite variety’ (Ashby, 1960) argues that the organizations need to developgreater complexity where they are facing uncertain and turbulent environments. A verypertinent example of this case is the networked structure of complex supply chains where therisks of uncertain supplies owing to variety of factors are mitigated by a complex chain ofsourcing of materials. The network structure mitigates risks arising out of uncertainties are11 | P a g e
  12. 12. managed by parallel nodes in the supply chain structure which can take care of the suppliesshould one among the alternative nodes fails to deliver as per the requirements of the supplychain. The complexity helps in mitigating risks of failure arising out of environmentalturbulence.Unstructured or semi-structured organizations tend to deal with uncertainties orenvironmental turbulence much more effectively by developing flexible and evolvingapproaches to situations including rapid scanning of the environment and rapid action inresponse to changes. Therefore the organization fit, is very important to deal withuncertainties and the organization response is contingent to what the situation demands.Therefore the contingent approach to uncertainty management is more about flexibility andfitting the organization to the need arising due to the level of changes that businessenvironment witnesses and therefore the levels of uncertainties the organization witnesses.2.3 Framework of Response Based on Information Seeking Approach (AnalyticalApproach)This framework assumes the information view towards uncertainty (section 1.2 (i); definitionof uncertainty). The framework suggests managing uncertainty on the basis of informationgathering. The framework therefore aims to seek out greater degree of awareness about theenvironment, more and better information and therefore mitigating the risk arising out of theuncertainties that are generated due to lack of information.Organizations need to develop strategies and activities to collect, analyse and use more andbetter information on the assumption that this will help them deal with the environmentaluncertainty and also help them clarify the choices open to them to manage such uncertainties.Therefore, using this approach the organization enables itself to a greater extent to have betterand more accurate predictions towards the possible environmental situations and thereforemake informed and better choices to manage uncertainty.Pertinent example for such risk mitigating strategies to manage uncertainty could be seen indata-analytics utilized by retailers to predict trends in shopper-behavior and thereforecustomize their offerings in their stores to the customers. Mega Retailers like Amazon, E-Bay& Walmart etc are actively utilizing data-mining & advanced analytics on a continual basis toassess shopper trends. The decisions of pricing, store-location, staffing, inventory, logisticsand supply chain are based on the data collected and gathered. The retailers respond to themarket level changes dynamically to ensure optimum resource utilization, profitability andcompetitive advantage.2.4 Framework of Response Based on Sense-Making Behavior (Actors Approach)‘This approach assumes that information alone cannot be adequate in responding touncertainty, since interpretation, sense-making & social construction is more influential in thesettings of uncertainty’ (Weick, 1995: 177). The approach therefore is about developingconcurrent interpretation and assessment of different choice alternatives that the organization12 | P a g e
  13. 13. has while facing uncertain situations. This also anxiety and boosts confidence of seniormanagers. Delphi technique of arriving on business forecasts and decision making is onesuch approach used by industry, where there are concurrent interpretations of the scenarioand development of decision alternatives done with experts in the organization. This is amore hermeneutic approach (see section 1.2 (iv), on different paradigms of research) andstresses on understanding the knowledge rather than stressing on explanatory knowledgeabout the reality facing the organization. Further, the Hermeneutic paradigm is moreappropriate in the complex interactions in the social structures and interpreting reality as amanifestation of human intentionality.The approach focuses not just on gathering information but also ensuring concurrence in theorganization in interpretation of the information to decide the future course of action.Ambiguity, which is the lack of clarity or having two or more interpretations of the samesituation, is a problematic phenomenon for an organization dealing with uncertainty andfocussing on utilizing available information to reduce ambiguity by developing concurrencein response choices and therefore predictability in the organization response, the impact ofthe response in face of uncertainty.13 | P a g e
  14. 14. Chapter 3. Managing Product & ProcessVariations3.1 Organization face uncertainty in two broad ways, as suggested by empirical research.Firstly changes that lead to change in products or services brought about because of shiftingconsumer tastes and preferences, new geographic areas or markets entered and / ornecessitated by competition moves. Secondly, changes in technology that necessitateschanges in the operational processes through which the organization carries out its business.Summarily therefore, the two broad uncertainties are as below a) Product Changes b) Process ChangesThe above two changes as discussed in section 1.1 (ii) varies along the continuum of changefrom being stable and placid environment where changes are too little or too few to a highlydynamic environment where the changes are rapid and frequent.3.2 Product ChangesProduct changes are brought about by following drivers a) Shifts in consumer tastes and preferences. These are determined by changing switching costs among substitutes and innovations in the market-place that necessitates the organization to keep up or keep itself ahead of the market-place in product innovation. The product changes referred to in this section includes services as well, unless otherwise mentioned. Also there are complementary industries as well that determine the relevance of the product. For instance, under the Oil crisis in the USA, entire home grown automobile industry in the US faced the heat of slow-down because of the pre-dominantly gas-guzzling products that it had to offer to the market-place while there was a significant shift from gas-guzzlers to more fuel efficient and frugal Japanese Cars. There was a crisis of Titanic proportions faced by automotive giants like General Motors, Ford & Chrysler in face of the crisis in the complementary industry of Oil. The pressures led to auto-manufacturers aggressively spend on R&D and New Product Development (NPD) activities to ensure that they ensure product changes to keep up with the shift in consumer preferences. Further, similar pressures of uncertainty are felt in Information Technology & telecommunications landscape with frequent disruptive innovations leading to absolute change in consumer tastes and therefore rendering older products irrelevant.14 | P a g e
  15. 15. While the industries like automotive, airlines manufacture etc have relatively larger Product Life Cycle (PLC) and gestation periods on products, industries like IT, Wireless telephony etc have relatively shorter PLCs and higher innovation cycles. In automotive industry, there is a slow but discernible trend towards environment consciousness, rising preference towards fuel economy and stringent emission standards, whereas, in Information Technology / Telephony there are massive shifts in quick space of time (e.g., Moore’s law of doubling of computing speed and cut-down of computing costs to half of previously existing standards every eighteen months). The above two examples provide the understanding of range of variation in uncertainties in product changes across a continuum of stable to dynamic. b) New Markets. A company may choose by necessity to enter new markets, and as the classic Ansoff’s decision making matrix suggests there are situations when an organization may feel the need of evolving right strategies for market development, which may involve Old product-New market strategy or market extension strategy or New Product-New Market or the Market Diversification strategies as necessitated by the competitive realities. The Market Diversification strategy necessitates new products in the new markets and helps the organization to diversify its market concentration risk and product concentration risks and therefore reduce dependencies that may threaten its competitive advantage. c) Competitor Moves. A competitor may be continuously innovating or following an imitation strategy, in either case there is a risk of dilution of competitive advantage and therefore long term sustained advantage that the organization enjoys. As the law of nemesis correctly foretells that today’s competitive advantage may render itself as tomorrow’s strategic inflexibility. Therefore, in light of competitive moves, it is necessary to continuously innovate in terms of products / services and bring about new offerings that lead the organization ahead in terms of competition.3.3 Process Changes With rapid advent of technology, it is imperative on the organization to keep up with the latest technological advance to keep itself abreast in competition. Further, technological advances provides the learning curve advantage to the organization resulting in lower operational costs, economies of scope and scale, product superiority in terms of performance etc. over a period of time. Therefore innovation, both in terms of incremental as well as rapid are important in the competitive landscape (see exhibit).15 | P a g e
  16. 16. Figure 3.1 – Technology evolution in the industry from one technology to nextAlso technological advancement is a result of learning curve effects on the economies of anorganization resulting in lowering in average costs and therefore higher profitability, bettercompetitive advantages. These forces necessitate change in technology & processes.Figure 3.2 – Double loop learning, to evolve new approaches (technologies) in use to carryout business: Kolb’s learning cycle, modified with a double loop (Argyris and Shön, 1978)3.4 The Change MatrixOne such generic strategy framework to manage product and process changes can be depictedas below. Where in each of the quadrant applicable to the relevant uncertainty situation asdepicted in the matrix there are suggested decision alternatives to manage with the situation16 | P a g e
  17. 17. Figure 3.3 Products – Process Change MatrixThe generic positions are as follows dependant on the uncertainty environment in Product &Processes Change dynamics faced by the organization Quadrant I : Stable Product and Stable Process Changes Quadrant II: Dynamic Product and Dynamic Process Changes Quadrant III: Dynamic Product and Stable Process Changes Quadrant IV: Stable Product and Stable Process ChangesFor each of the above generic positions there are different strategies3.4 (i) Quadrant I StrategyThe Quadrant I scenario is about an environment which has stable and relatively less frequentproduct changes while also on process / technology front as well the environment doesn’t callfor frequent changes, therefore the process environment is stable. Under such scenarios, thestrategies suggested are essentially standardization and focus on scale economies. Thesuggested strategies to effectively manage profitable and ensure competitive advantage are asfollows. Standardized Products Centralized Decision making17 | P a g e
  18. 18. High Specialization to ensure economies Standard rules & procedures Mass ProductionThe key business strategy under such scenario is Cost minimization. Under such scenarioalso, it is literally impossible to maintain status-quo in product and technology for a long timeand therefore there arises need of change in products and processes. However, under suchcircumstances, the cost of change is very high. In case of product changes the entire processof production is rendered obsolete. Furthermore, process changes are very complicated,raising error rates and increase unit costs. Therefore the best alternative to stabilize thebusiness operations, it is imperative for the organization to build in some amount offlexibility in the products and processes and limit product variety.3.4 (ii) Quadrant II StrategyQuadrant II is about dynamic product changes and dynamic process changes at the sametime. If there are very rapid changes in products, the rate of process change also equals therate with which changes in products are introduced. Such a situation when product changesare very rapid, there needs to be equally rapid changes in the process with which the productsare produced.The suggested strategy of uncertainty management under such situations is as below Short production runs Small volumes planned for each product Constant Innovation in Product & Process to maintain competitive edge. Building the “Idea” organization, focusing on new ideas and innovation rather than being strictly cost-focussed. Decentralized organization Limited rules and procedures Distributed technology of providing specialized knowledge independently3.4 (iii) Quadrant III StrategyQuadrant III highlights the scenario when there are dynamic product changes and stableprocess changes. Over a period of time, there are patterns which are visible in the otherwiseseemingly unpredictable product changes at the outset. These patterns when recognized give18 | P a g e
  19. 19. opportunity to the organization to build highly flexible platforms of process capabilities orknow-how over a period of time.The strategies adopted under such situations are Mass-customization Flexible manufacturing systems Incremental process innovations or continuous improvement (Kaizen principle) Highly networked organization structure with interchangeable, inter-compatible units or teams networked with each other, building in flexibility in terms of human resource capabilities. The key strategy is to build flexibility and variety in the products produced, while also at the same time maintaining specialization to a certain extent. Platform strategy of automobile companies, Group Technology for manufacture of high variety of goods through similar processes (e.g., Heavy Electricals Industry) are such example.3.4 (iv) Quadrant IV StrategyThe Quadrant IV relates to a situation when there are stable products while the processeschange dynamically in the environment. Rapid process changes Continuous improvement design, focusing on rapid and continous improvement in processes utilizing learning experience of product characteristics. Team structure in the organization to ensure collaborative work culture focusing on process changes implementation Cross-Functional-Teams (CFTs) to work on process change plans & product improvement plans Process-innovation in Invention Design & Process Efficiency in Mass Production Design Mass-production strategy19 | P a g e
  20. 20. Chapter 4. Managing Uncertainty in Projects “There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.” Donald Rumsfeld, US Defence Secretary, 2001-064.1 As elaborated in section 1.1 (ii), the operations of an organization varies in one veryimportant aspect on the basis of routine & repetition in the nature of operations. In one casewhen the nature of operations are routine and repetitive, as in for example, in amanufacturing organization it is the repetitive nature of the work which enhances learningabout the characteristics of the process and therefore higher level of learning about theprocesses and therefore lesser unpredictability. Whereas, project based nature of work israther on the other end riskier and less predictable in its nature. Therefore a separate attentionneeds to be given in managing uncertainty in a Project based environment.The above observation of Mr. Donald Rumsfeld is prophetically right while managinguncertainties. The real worry for a manager lies in Unknown-Unknowns or “unks-unks” ascolloquially termed, that often comes out as surprise and adding to the risk element in aproject.Projects can be defined as a unique interrelated set of tasks with a beginning, and an end anda well defined outcome. The commonly used definition of the project assumes that every onecan identify the tasks at the outset, provide contingency alternatives and keep to the sameoverall project vision throughout. These assumptions are quite fair to certain extent in routineor well-understood projects but not for innovative projects or novel projects where therealways looms the possibility of Unknown-Unknowns, the term as Mr. Donald Rumsfeld hadfamously coined, which threatens to build risks revolving around the project. Thecharacteristics of uncertainty in projects are primarily due to the inter-related nature of thesequence of activities involved in the project. As completion of one constituent activitydetermines the start and finish of the next set of activities, the overall uncertainty in theproject is the net summation of the uncertainties involved with each constituent activity.While, the planners conceive and plan the project on the basis of inter-relatedness of theconstituent activities the possibilities of uncertainties which are not known possess thehighest risk. There can be four kinds of uncertainties involved, based on the matrix ofprediction level possibilities of occurrence of uncertainties and prediction level of thepossible impact of the uncertainties on the final outcome. Therefore we can summarize thevarious levels of uncertainties as “known-knowns”, “known-unknowns”, “unknown-knowns”and “unknown-unknowns” ; it is the last kind which poses the highest risk. It is the“unknown-unknowns” which Donald Rumsfeld was referring to.20 | P a g e
  21. 21. 4.2 Components of Project UncertaintyTheory suggests that each project has an uncertainty profiles constituting various levels of thedifferent kinds of constituent uncertainties those are involved. The constituents are atdifferent levels of prediction difficulties starting with variation with most predictableuncertainties, Foreseen Uncertainty, Unforeseen Uncertainty & finally Chaos.4.2 (i) Variation: Variation comes from many small influences and yields a range of valueson a particular activity. Activity ABC, may take a time of 40-45 weeks where the range ofvariation is clearly known based on experience and known factors which may cause thedelays, for example. The project plan is detailed and stable under situations of variation andthe variation is built in the budgets to manage the uncertainty.4.2 (ii) Foreseen Uncertainty: Foreseen Uncertainties are identifiable and understoodinfluences on the outcome of the project, however the probabilities of occurrences of suchuncertainties are not known. While variation which comes from combined small influencesforeseen uncertainties are distinct and may require full-blown risk management andalternative plans in the event of occurrence of such uncertain events, that may pose risk to theproject.4.2 (iii) Unforeseen Uncertainty: In case of unforeseen uncertainty, as the name itselfsuggests, there can’t be any way to determine and identify such uncertainties during theproject planning. There are no contingencies prepared as the team either is not aware of suchuncertainties or treats such uncertainties are so less likely that they are not accounted for inthe project planning.4.2 (iv) Chaos: Whereas even projects with unforeseen uncertainty environment start withfairly stable project plans, the projects with Chaos cannot. Even the basic structure of theproject plan doesn’t exist and is uncertain. For example, when there is very high level oftechnology turbulence, or when the project is research not development. Often the projectoutcome is different from the intial intended outcome. Figure 4.1 – Knowing the uncertainty profile of the project21 | P a g e
  22. 22. 4.3 Managing Uncertainty4.3 (i) Managing VariationIn projects subject to variations, the variations should be budgeted into the overall projectplan unless otherwise done, the project will be leading to unnecessary fire-fighting putting ondrain to resources and compromising on the final outcome. In such situations there needs tobe put buffers of variation ranges in the constituent activities, a critical path be formed for theoverall project. For managing such uncertainties, the manager must closely monitor theadvance of the project and the variations should be kept under explainable limits. The bufferssuch kept in the project plan owing to the variation nature of the uncertainties should betreated as a bargaining chip for the negotiation process of the project plan, on the contrarythey should be established with scientific explanation of the variation, using statistical chartsand historical data.4.3 (ii) Managing Foreseen UncertaintiesIgnorance to foreseen uncertainties is a sure recipe of disaster; In such projects subject toforeseen uncertainties the approach needs to follow is to develop contingency plans in placewith careful evaluation of each such foreseen uncertainty that looms over the project. Onecommon & effective approach for managing and developing right contingency plan forforeseen uncertainty is the decision-tree approach. The branches of the decision trees wouldlead the manager to assess the impact of each scenario on the overall project outcome. Withdecision-tree approach in planning will enable the manager to plan and set-out contingencyactivities to be in place for each such branched out scenario to occur.4.4 (iii) Managing Unforeseen UncertaintiesIt is difficult to plan for unforeseen occurrences, while they can have significant on theoverall behavior of the project progress, it is important to have the right strategy in place formanaging this constituent uncertainty element in the project. Since the uncertainties undersuch scenario cannot be predicted, the manager should follow the approach of an evolvingstrategy rather than a planned strategy. As the project proceeds and the events unfold, re-visiting , planning and fine-tuning the action plan of the project, bit-by-bit and in smallpieces, so that the objectives are delivered to the closest and contingencies closely kept undercheck.4.4 (iv) Managing ChaosChaos call for constant change. Under the scenario of chaos, the manager must constantlyassess, define and redefine the project based on the learnings developed in the due course ofprogression of the project. Learning provides the feedback loop to correct and redefine theproject itself. Under Chaos, in order to ensure success fundamental changes need to bebrought in the basic assumptions the project is implemented. There has to be alternativeapproaches, newer assumptions developed either sequentially or parallel, as and when thesituation necessitates. Success under chaos requires great degree of flexibility, empowermentand hard decisions to be made. Also, under such situations there needs to be involvement of22 | P a g e
  23. 23. the top management of the company to ensure speedy decisions and quick action as and whenthe fundamental assumptions of the project need to be changed. Figure 4.2: Managing Uncertainties In Projects: MIT Sloan Management Review (Winter 2002)23 | P a g e
  24. 24. Chapter 5. Systems Approach to UncertaintyManagement: SAP-LAP Synthesis 5.1 Systems Approach System Approach is considering a business as a simple-system with cause and effect relationship, with the operational processes and activities that the firm undertakes as the one that converts inputs into outputs. The system approach of managing risks is analyzing the business ecosystem as a system that responds to the stimuli of the environment and therefore results into variations in the output. Any flux in the business environment as an input would resultantly impact the overall output of the business, which eventually will affect the Economic Value Added (EVA). As shown in the below exhibit that explains the risk model of a supply-chain due to various environmental (internal & external) factors resulting into the overall impact on the EVA. Figure 5.1 - A Risk model in an example supply chain (J.Oehmen et al., Feb 2009) The system approach deals with carefully analyzing each uncertainty element and associated risks attached to the overall performance. Owing to the inter-linkages and24 | P a g e
  25. 25. networked structures of supply-chains, often the systems approach is used in mitigating and managing supply chain uncertainties. The situations of uncertainties are analyzed and the risks arising due to them are found out and classified. The impacts of those risks are understood and evaluated. The probabilities of each such risks are found out, the risks are weighted with the probabilities of occurrence and based on the same prioritization is done by developing a prioritization score. Figure 5.2 Developing Risk Scores The system approach is based on the understanding that the complex inter- relationships underlying in the structure of business systems determine the pattern of behavior of the system leading to the events that determine the impact of uncertainty. SAP-LAP synthesis is one such tool to understand the impacts of complex inter- relationships Figure 5.3 – Risk Management Plan development25 | P a g e
  26. 26. 5.2 SAP-LAP Approach SAP-LAP is an integrative framework which comprises of 6 components, The Situation to be dealt with, The Actors involved in the situation – they can be both internal as well as external, the Processes dealing with the situation which again can be both internal and external, the key Learning issues, the Actions to be initiated post acquiring these learnings, the Performance areas in terms of KRAs (Key Result Areas) or objectives to be achieved. The framework involves study of SAP & LAP issues with help of three types of matrices Self interaction matrices Cross interaction matrices Assessment matrices The framework of SAP-LAP analysis can be utilized in any managerial context; however in this work we utilize this framework in context of after-market services supply chain risk management. The steps involved in the processes are Define elements in SAP-LAP Select relevant matrices Develop scales and assess the elements in framework Develop binary as well as interpretive self-interaction matrices Develop binary as well as interpretive cross-interaction matrices Interpret the relationships Drawing Conclusions.26 | P a g e
  27. 27. Chapter 6. Case Study: Uncertainty Management(Using Ex-Ante Strategy / Systems Approach)*In summers of 2011, a multinational company faced losses to the extent of $30 million in aprovidential incident of fire in their central after-market components warehouse. Most ofthe components that were stored in their warehouse were primarily meant for after-marketservice purposes. Also, lot of essential materials meant for marketing and internal-consumption purposes were damaged or lost in the accident. The cause of fire was un-known, but assessments suggest that it could have caused due to voltage surges in powersupplies and some materials due to their inflammable nature had caused the fire to spreadto proportions that resulted in approximately 80% of the ware-house getting destroyed.The MNC being based offshore and are present in the country with their niche offeringsportfolio are managing operations through their subsidiary operations. With foreignsourcing of about approximately 10% (by unit volume) of their critical proprietorycomponents, with large lead times, inventories of over three months are maintainedexclusively for after-market consumptions. While there are over three hundred line-itemswhich are fast moving maintenance components for after-market purposes are essentiallyof indigenous origins, however inventory levels of month equivalent are maintained foreffectively maintaining a first-fill ratio of over 80% (orders which are executed completelyon first picking itself) and balance after-market orders getting executed with a delay ofmaximum of two weeks. The management till the incident was quite impressive with over95% service ratio. However, with the incidence of the accident the serving ratio dippeddrastically generating practically a waiting period in repairs across the market. The impactof the incident was of very high veracity as the company was flooded with accumulatedbacklog orders and the much unexpected nature of the accident had resulted delays inserving the after-market needs.After-market divisions are essentially dealing with components for post-sales maintenancedemand. Also the companies in India are contractually obliged to provide free of costmaintenance for first two years for warranty purposes and legally obliged to provide for theafter-market supplies for next five year for the goods sold, even if the product they had soldhas been withdrawn from the market. While the revenues from after-market supplies alsoadd to the bottom-line of, it also has impact on the competitiveness of the organization.MNCs with large lead times in aftermarket component supplies and lesser predictability intheir service levels often find themselves being rated poorly among the users affecting saleswhich form nearly about 90% of their total revenues. Therefore the performance in after-market though in itself contributes to a smaller portion to the overall revenues, indirectlyimpacts the largest revenue source of the organization –sales and thereby has straightcorrelation with the economic value that they create.There are other situations also that may result into similar outages or disruptions in after-market supplies, some of them covering the entire range of SKUs in after-marketcomponents while some of them resulting in critical shortages in some SKUs alone;however, there can be high impacts on company’s brand image, sales or financials. Theimportant and likely such situations may be as follows (non-exhaustive list)27 | P a g e
  28. 28. a) Floods, earthquake or natural calamities / disasters. b) Fire accidents, riots, political disturbances leading to temporary snapping of logistics. c) Seasonal surges in demand of certain range of components – for example, during rainy season there is a surge of rusting complains, leading to surge of certain components. d) Sudden demand of some specific component for product campaigns or to keep up with the warranty obligations – essential for customer satisfaction and legal compliances.The MNC in the subject of this case study, have outsourced the logistics of after-marketsupplies to a national level carrying & forwarding agency (Distributor) that offers its servicesof account management and logistics with over 100 service dealers across the country. Thedistributor in turn engages with 3PL service providers at national level for managing thelogistics of supplies across to the 100 points of consumption of these supplies.The management of the organization is working out a risk mitigation plan to ensure smoothcontinuity of after-market business which is critical for ensuring customer satisfaction,company image and growth in after-market services business. The organization not onlyplans to ensure mitigation of risks such as the fire accident which has happened recently,but also other issues that may have high impact on smooth continuity of business, ensureprofitability of operations. A good risk mitigation and management strategy will fulfil theseobjectives and will also help the image of the company providing good serviceability andreliability of its products through responsive after-sales services as after-market suppliesform a very important aspect of after-sales. In this study we propose to do a SAP-LAPsynthesis of the problem in the context of after-market supplies of the company andpropose & evaluate solutions for risk management and mitigation. Also, we propose toapply force-field method to evaluate the supporting and restraining forces applicable onimplementation of any such strategy.SAP-LAP synthesisSAP-LAP analysis as described in previous section involves starting with identifying currentSituations, study the Actors involved and the Processes involved. Subsequently, the analysisdeals with analysis of Learning issues, suggested Actions and Performance objectives.Prevalent Situation • S1: MNC is a niche market player with over 100 service dealers • S3: Customer responsiveness improvement required for customer satisfaction. • S2: High competition in Indian industry, the segments where the company operates in. • S4: Sourcing from foreign vendors has lead times of over 3 months. Any disruption or incidents like fire in warehouse, inbound issues may result in issues of responding to market requirements and affect service-ratio for orders, recovery for which may take time of over 6 months.28 | P a g e
  29. 29. • S5: Widely spread service dealer network and due to niche market policy low component consumption per dealer, resulting into LTL issues in logistics rendering small regional transporters unviable. • S6: In order to contain administration expenses and to remain cost-competitive the down-stream function of service dealer account management & logistics have been outsourced to a national distributor. Resulting, low control & visibility of field operations & higher lead time in information flowSummaryThe summary of situation issues are listed with denotations are as mentioned in the belowtable. (figure – 6.1) Situation Paradigm S1 Niche market player with 100 service dealers Customer responsiveness required for customer S2 satisfaction S3 High competition in Indian industry High lead times in sourcing esp. foreign vendors. S4 Disruption leads to large response times Thinly spread after-market components consumption S5 per service dealer, due to LTL issues small transporters cannot be used for logistics Downstream functions - logistics, dealer account management S6 delegated to national level distributor – Distributor Control & Information lead time Figure 6.1Main Actors • A1: Top Management of the company as the main decision makers. • A2: Purchase function team for terms and conditions with suppliers. • A3: Marketing function team for drawing up marketing strategies, cost and value propositions for products, services and after-market supplies of components. • A4: Production function for drawing up production schedules, together with after- sales function procurement schedules are decided.29 | P a g e
  30. 30. • A5: Engineering teams - Quality assurance, R&D & service functions for determining component requirements, product up-gradations & updates, etc. • A6: Components team for managing of warehouse and inventory operations. • A7: National distributor, responsible for service dealer account management, order generation, order management & logistics. • A8: Service dealers, for right ordering policy, inventory decision, order frequency and quality of forecasts.Summary (figure – 6.2) Actors A1 Top Management A2 Purchase function A3 Marketing team A4 Production team A5 Engineering teams A6 Inventory administration team A7 National level distributor A8 Service dealers - 100 nos. Figure 6.2Processes • P1: Procurement process – choice of suppliers; indigenization. • P2: Service and Components marketing Strategy • P3: Warehouse management & administration - up-keep, material handling, software etc. • P4: Inventory management system at service dealers30 | P a g e
  31. 31. SummaryThe key processes involved in supply chain design for risk mitigation are as follows (figure –6.3) Processes P1 Procurement process – Localization P2 Marketing Strategy P3 Warehouse management & administration Service dealer - inventory management P4 systems Figure 6.3Learning Issues • L1*: Crisis management strategy is missing. In absence of such practices, any disruptive event can paralyze smooth functioning of the supply chain. • L2*: Inventory decisions in supply chain -decisions on the basis of strategic trade-off between flexibility v/s cost-efficiency, cost-leadership v/s differentiated services in service supply chain. • L3*: Prediction and forecasting surges in demand or expected shortages • L4*: Training and service dealer up-gradation • L5*: Competition benchmarking and positioning for after-sales services for competitive advantage.SummaryThe summary learning issues in risk management decision of the organization arementioned as below (figure – 6.4).31 | P a g e
  32. 32. Learning L1* Crisis Management Strategy Inventory decision by taking strategic trade- L2* off, flexibility v/s efficiency, cost leadership v/s differentiation L3* Forecasting for surges in demand, shortages L4* Training , dealer service level up-gradation L5* Competition benchmarking Figure 6.4Suggested Actions • A1*: Safety (Fire Safety, Earthquake safety, Flooding safety etc) policy, drills to enhance responsiveness to such crisis situation to contain damage and loss to property. • A2*: Increasing localization of components. • A3*: Cross functional crisis management team for analysis of field level product performance and failure analysis statistics to determine and forecast & draw up quick response strategy for after-sales supplies requirements in crisis situation. • A4*: Multiple ware-houses at different locations across the country nearer to the points of consumption for diversifying and hedging risk arising due to criticality of one centralized warehouse. • A5*: Regional stockists for CF&A and warehousing requirements to cater to regional consumption requirements.32 | P a g e
  33. 33. Summary (figure – 6.5) Suggested Actions A1* Making a safety policy, safety drills A2* Increasing localization - purchase policy A3* CFT on crisis management A4* Multiple warehouses, company owned at strategic locations Regional stockists, CF&A to facilitate smaller order quantities A5* and improved field responsiveness Figure 6.5Expected Performance: • P1*: Improved responsiveness of the after-market supply chain & reduced probability of disruption of components activities – Crisis preparedness • P2*: Enhanced customer satisfaction • P3*: Improved competitive advantage of the companySummary (figure – 6.6) Performance P1* Crisis Preparedness & Improved responsiveness P2* Localization %age (Degree of localization) P3* Improved competitiveness, market share Figure 6.633 | P a g e
  34. 34. 1. Self-interaction matrices (Binary & Interpretive) a. Situation (Binary and Interpretive – figure 6.7) External Internal External Internal adds multiplies influences 0 1 0 1 1 S1 - risk - risk risk S1 adds contributes contributes multiplies 1 1 1 1 S2 uncertainty to risk to risk risk S2 adds adds 0 1 1 S3 - risk uncertainty S3 adds adds 1 1 S4 uncertainty risk S4 adds 1 S5 uncertainty S5 S6 S6 Figure 6.7 b. Actors (Binary & Interpretive) Binary matrix (figure – 6.8) External Internal 0 0 0 1 1 1 1 A1 0 0 1 1 1 0 A2 1 1 1 1 1 A3 0 0 1 1 A4 0 0 1 A5 1 1 A6 1 A7 A8 Figure 6.834 | P a g e
  35. 35. Interpretive matrix (figure – 6.9) External Internal Reporting, Reporting, Reporting, Reporting, - - - strategy & strategy & strategy & strategy & A1 Decision Decision Decision Decision Inventory Quality Dependance - - Decision concerns on operation - A2 Control Control Distribution Forecast & & Strategy & Feedback & Scheduling A3 Coordination Coordination Feedback Coordination - - Coordination & Feedback A4 - - Feedback A5 Control Control & & A6 Coordination Coordination Control & Coordination A7 A8 Figure 6.9 c. Processes (figure – 6.10) External Internal External Internal Information Material, Order & Flow & 1 1 1 P1 Order Flow Money flow coordination P1 on cost requirments Information 1 0 P2 Flow - Guidelines - P2 & Process design Order & 1 P3 Money Flow P3 P4 P4 Figure 6.1035 | P a g e
  36. 36. d. Learning Issues (figure – 6.11) External Internal External Internal Support Provides 1 1 1 1 L1* Evidence Synergy Support to meet L1* strategy Provides Provides 1 1 1 L2* Synergy Support Support L2* 1 1 L3* Evidence Synergy L3* Provide 1 L4* Support L4* L5* L5* Figure 6.11 e. Suggested Actions (figure – 6.12) External Internal External Internal Information 0 1 1 0 A1* - Synergy Exchange - A1* 1 1 1 A2* Synergy Synergy Synergy A2* 1 1 A3* Synergy Synergy A3* 1 A4* Precedence A4* A5* A5* Figure 6.12 f. Performance areas (figure - 6.13) Will help 1 0 P1* achieve - P1* 1 P2* Will enable P2* P3* P3* Figure 6.1336 | P a g e
  37. 37. 2. Assessment Matrices a. Situation Elements (figure – 6.14) Situation Elements Current State S1 Niche market player with over 100 service dealers 3 S2 Customer responsiveness required for customer satisfaction 4 S3 High competition in Indian industry 4 High lead times in sourcing esp foreign vendors. Disruption S4 3 leads to large response times Thinly spread after-market components consumption per S5 service dealer, due to LTL issues small transporters can not be 4.5 used for logistics Downstream functions - logistics, dealer account management S6 delegated to national level distributor 4 (Distributor Control of Field Operations) Figure 6.14 b. Actors (figure- 6.15) The assessment is based on feedback from practitioners from industry, on parameters of current situation prevalent. For instance top management has been assessed and given a scaled ranking based on their experience of uncertainties Indian domestic market. The newer OE players being subsidiaries of foreign MNCs score lesser compared to MNCs present in domestic industry for a longer period. Key Competitors Actors Own C1 C2 C3 A1 Top Management 3.0 4.5 3.5 3.0 A2 Purchase function 4.0 Not relevant Not relevant Not relevant A3 Marketing team 3.5 3.5 4.0 4.5 A4 Production team 4.0 4.5 4.0 4.0 A5 Engineering teams 3.5 4.5 3.5 4.5 A6 Warehousing administration team 2.5 4.5 3.5 2.5 National level distributor for spare A7 parts / Spares Distribution 2.5 4.5 3.5 3.0 A8 Service dealers - 100 nos. 3.0 5.0 5.0 3.5 Figure 6.1537 | P a g e
  38. 38. c. Processes (figure – 6.16) Key Competitors Processes Own C1 C2 C3 Procurement process - P1 Localization 4.0 5 5 5 P2 Marketing Strategy 3.0 5 5 5 Warehouse management P3 & administration 2.5 5 4 3 Service dealer - inventory P4 management systems 2.5 5 3 2.5 Figure 6.16 3. Cross Interaction Matrices a. Situation - Actors Binary cross interaction matrix – figure 6.17 Interpretive cross interaction matrix – figure 6.18 Internal External S1 1 0 1 0 0 1 0 1 S2 1 1 1 1 0 1 1 1 S3 1 1 1 0 1 1 1 1 S4 1 1 0 1 1 1 0 1 S5 1 0 1 0 0 1 1 1 S6 1 0 1 0 0 1 0 0 A1 A2 A3 A4 A5 A6 A7 A8 Figure 6.1738 | P a g e
  39. 39. 39 | P a g e Differentiation & eff ective India-Business communication for S1 - - - Market analysis, forecast - Market Coverage Strategy volumes & cost constraint reduction Prioritization strategy- Performance review New supply Cost-benef it constraints team w ork w ith Fill-rate, service ratio Customer response policy Multiple sourcing for sales-loss review S2 chain design - agreement for multi-layered after market for - target setting, functional - Inventory / consumption critical elements customer satisf action and partnerships distribution prioritization of after market KRA setting analysis, ordering policy review requirements Constraint of Competition Warehousing operations Market Share & Competitive cost Respective region S3 competition / profitability Competition constraints - Benchmarking cost reduction strategy, Customer retention considerations market share concerns on localization / design continuity monitoring KRA Localization - technology Integration w ith Regular ordering, Technology transfer Gradual escalation Inventory Decisions - transfer facilitation foreign suppliers, inventory scheduled ordering Figure 6.18 S4 for development of localization, new - Integration w ith suppliers Vendor development, and ordering policyf or - for high lead time parts, of local sourcing base vendor development (VMI) Quality Review for foreign sourced consumption forecast domestic suppliers components Engaging 3PL, mik routing New transport policy / Minimum Order Netw ork strategy in key cities, multiple Dealer administration, S5 alternatively volume - - - Quantity, Volume review and correction w arehouses in strategic training & dealer systems expansion strategy build-up locations Partnership review Distributor relations S6 Partnership & Agreement - - - - - and recommendation & alignment A1 A2 A3 A4 A5 A6 A7 A8
  40. 40. b. Actor-Performance Binary (figure – 6.19) A1 1 1 1 0 A2 1 0 1 0 A3 1 1 0 0 A4 1 1 1 0 A5 1 1 1 0 A6 1 1 1 0 A7 0 1 1 1 A8 0 1 1 1 P1 P2 P3 P4 Figure 6.19 Interpretive (figure – 6.20) Approvals on Business Performance A1 - cost / benefit basis Strategy - vision Review Procurement Speed to fulfill A2 - - decisions po requirements Marketing A3 Cost/Price targets - - strategy Ordering / Bill of Budget Synergy A4 Materials - - confirmation, synergy in forecasts Schedules Quality review Quality feedback Quality standards A5 information - Quality review as per marketing sharing on market After-market Ordering / Matl Administration A6 support, network - reqiuremnt plan order management speed to market response Synergy/information Dealer training, Negotiation, Purchase A7 - sharing , dealer service Order - gross level performance review improvement Policy adherence, Synergy, information Policy adherence A8 - alignment with sharing, ordering alignment marketing objective P1 P2 P3 P4 Figure 6.2040 | P a g e
  41. 41. c. Process - Learning Binary (figure – 6.21) P1 1 1 1 0 1 P2 1 1 1 1 1 P3 1 1 1 1 0 P4 1 1 1 1 1 L1* L2* L3* L4* L5* Figure – 6.21 Interpretive (figure – 6.22) Crisis response Procurement Advance P1 strategy policy development PO - Guidelines Customer Accuracy Feedback P2 Satisfaction Strategic advantage in forecast - KRA Dealer alignment and learning Safety Advance Ordering Advance order, P3 compliance - risk Response Targets Inventory policy synergy - reduction framework Inventory & Integration Improved Market Share, P4 Reliable services Ordering policies, for forecasting Inventory & systems Feedback, Learning aligned targets L1* L2* L3* L4* L5* Figure – 6.22 d. Learnings – Suggested Actions Binary (figure – 6.23) L1* 1 1 1 1 1 L2* 1 1 1 1 1 L3* 1 1 1 1 1 L4* 1 1 1 1 1 L5* 1 1 1 1 1 A1* A2* A3* A4* A5* Figure – 6.2341 | P a g e
  42. 42. Interpretive (figure – 6.24) Development L1* Synergy Support & Support Support Support Influence, Influence, L2* Feedback & Feedback & Synergy, influence Support Support learning Learning Continuity, risk Improved Synergy, Feedback L3* reduction Response Synergy, influence Feedback & support Support Continuity, risk Synergy reduction in L4* reduction Support required Support response time Feedback & Feedback & Feedback & Feedback & Feedback & L5* Learning Learning Learning Learning Learning A1* A2* A3* A4* A5* Figure – 6.24 e. Actions – Performance Binary (figure – 6.25) A1* 1 0 1 A2* 1 1 1 A3* 1 1 1 A4* 1 1 1 External A5* 1 1 1 P1* P2* P3* Figure – 6.2542 | P a g e

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