Performance objective B

Time, trade-offs and targeting

Performance objective A

Strategic
Reconciliation
Operations
Resources

OPERATIONS
STRATEGY

Market
Requirements

Topics in operations strategy treated in this chapter

Nigel Slack and Michael Lewis 2003

The technological
specification of its
product/service?

PRODUCT/SERVICE
TECHNOLOGY

MARKETING
The way it positions
itself in its market?

OPERATIONS
The way it produces its
goods and services?

Where does the business get its competitive

advantage?
Nigel Slack and Michael Lewis 2003

PRODUCT / SERVICE
TECHNOLOGY

OPERATIONS
MARKETING

PRODUCT
SERVICE
TECHNOLOGY

PRODUCT / SERVICE
TECHNOLOGY

MARKETING
OPERATIONS
MARKETING

OPERATIONS

The contribution of each area

will change over time
Nigel Slack and Michael Lewis 2003

STRATEGIES OF VOLKSWAGENWERK
1920 - 1992
BEFORE 1948
FERDINAND PORSHE - PEOPLES CAR 1920s
GOVERNMENT SUPPORT 1934 - PLANT ON STREAM
1939
1939 WAR - PLANT TURNED TO PRODUCTION OF WAR VEHICLES
1948 NORDHOFF PUT IN CHARGE
1948
NORDHOFF TAKES HALF A STRATEGY - PEOPLES CAR
ADDS EMHPASIS ON QUALITY, TECHNICAL, EXPORT, SERVICE STANDARDS
1949 - 1958
INTENDED STRATEGY REALIZED
CAR IDEAL FOR POST WAR CONDITIONS
RAPID EXPANSION IN VOLUME
NO NEW MODELS (WORK ON NEW MODEL HALTED IN 1954)

Nigel Slack and Michael Lewis 2003

1959
INCREASED COMPETITION AND CHANGES IN TASTES
RESPONSE - INCREASED ADVERTISING
- DESIGN STARTED FOR 1500
ORIGINAL STRATEGY UNCHANGED IN ESSENTIALS
1960 - 1964
1500 MODEL INTRODUCED
SALES INCREASED BUT PROFITS SQUEEZED
1965 - 1975
PRESSURES OF COMPETITION BECOME SEVERE
NEW STRATEGY FROM AUDI - FRONT WHEELED DRIVE, STYLISH,
WATERCOOLED
OTHER LINES DROPPED
PRODUCTION RATIONALISED ON WORLD BASIS
MARKETING EMPHASISED PERFORMANCE, RELIABILITY AND SERVICE
1976 - 1989
GOLF ESTABLISHED AS MARKET LEADER
CONTINUED EMPHASIS ON TECHNICAL EXCELLENCE
OLD DESIGNS PERIODICALLY FASHIONABLE
MAIN EUROPEAN COMPETITOR SEEN AS FIAT
SOME PRESSURE FROM JAPANESE MANUFACTURING
Nigel Slack and Michael Lewis 2003

1990 - 1996
INCREASING PRESSSURE ON COSTS FROM JAPANESE MANUFACTURERS
GERMAN LABOUR COSTS AND EXCHANGE RATE ARE DISADVANTAGEOUS
LATTERLY EUROPEAN RECESSION INCREASES PRESSURE
COST CUTTING MEASURES - EAST EUROPEAN PLANT - AGGRESSIVE
PURCHASING
1997 - 2000
DEVELOPING SEPARATE BRANDING STRATEGIES TO OCCUPY DIFFERENT
MARKET SEGMENTS
DEVELOP SEPARATE PRODUCTS FROM COMMON PLATFORMS TO
REDUCE COST
CONTINUE AGGRESSIVE COST REDUCTION AND PROCESS IMPROVEMENT

Nigel Slack and Michael Lewis 2003

MINTZBERGS CONCEPT OF EMERGENT STRATEGIES

NOT ALL INTENDED STRATEGIES ARE REALISED
and ...
NOT ALL REALISED STRATEGIES ARE INTENDED

DELIBERATIVE STRATEGIES

UNREALISED
STRATEGIES

EMERGENT
STRATEGIES

Emergent strategies derive from the shared understanding of managing the

resources of the organization
The concept of emergent strategies therefore has a particular significance
for operations strategy
Nigel Slack and Michael Lewis 2003

Operations
Resources
1946-1951
Implementing
strategy

1952-1958
Continuity
of strategy

1959-1964
Minor
change and
continuity
1965-1970
Searching
for viable
strategy

Strategic
Reconciliation

Building up
capacity and
capability

Simple
design

Systemisation
of resources
and
processes

Minor
reconfiguration for new
model

Fragmented
acquisition of
new
resources

Standardized
design

Market
Requirements
Emerging,
any
working
vehicle

Maturing,
simple
robust
vehicle

More
sophisticated
performance,
quality

New
1500
model

Multiple
new
designs

Uncertain
rejection of
VW traditional
products

Market requirements, operations resources and strategic reconciliation

at VW for half a century

Nigel Slack and Michael Lewis 2003

Operations
Resources
1971-1975
Emergent
strategy

1976-1989
Continuing
with minor
changes
1990-1996
Major
change
(internal)

Adapt best
practices from
enlarged
group
Accommodate
new models
and
acquisitions

Drastic
reconfiguration to
increase
efficiency, reduce
costs

Continuous
1997-2000
process
Implementing improvement
and cost
strategy
reduction

Strategic
Reconciliation

Market
Requirements
Clarifying
around
style,
quality and
variety

Defined
range

Segmentation
around
performance,
style and variety

Product
development
paths

Design for
low-cost
manufacture

Common
product
platforms

Increasingly
competitive
around price

Branding
with
price,
quality,
and style

Market requirements, operations resources and strategic reconciliation

Nigel Slack and Michael Lewis 2003
at VW for half a century

Realised
Strategy

Deliberate
Strategy

Intended
Strategy

Unrealized
Strategy

Emergent
Strategy

Mintzbergs concept of emergent

strategy

Nigel Slack and Michael Lewis 2003

Order winners and qualifiers

Competitive Benefit

Positive

Order Winners
Neutral

Qualifiers

Negative
Low

Nigel Slack and Michael Lewis 2003

Achieved Performance

High

Adding Delights

Competitive Benefit

Positive

Delights

Order Winners
Neutral

Qualifiers

Negative
Low

Nigel Slack and Michael Lewis 2003

Achieved Performance

High

Delights become order winners and order

winners become qualifiers

Competitive Benefit

Positive

Delights

Order Winners
Neutral

Qualifiers

Negative
Low

Nigel Slack and Michael Lewis 2003

Achieved Performance

High

What service dimensions are delight, order

winners and qualifiers now, and in the future?
Today
Delights

Order Winners

Qualifiers

Nigel Slack and Michael Lewis 2003

Tomorrow

Budget Hotel Chain

Today
Delights

Tomorrow

Central reservation

Order Winners

Central reservation
Location (autoroutes)

Location (autoroutes)
Location (restaurants)
Price
Loyalty cards

Qualifiers

Location (restaurants)
Price
Loyalty cards
Cleanliness
Dcor

Cleanliness
Dcor
Service
Nigel Slack and Michael Lewis 2003

Budget Hotel Chain

Today
Delights

Tomorrow
Price

Central reservation

Order Winners

Central reservation
Location (autoroutes)
Location (restaurants)

Location (autoroutes)
Location (restaurants)
Price
Loyalty cards

Qualifiers

Location (restaurants)
Price
Loyalty cards
Cleanliness
Dcor

Cleanliness
Dcor
Service
Nigel Slack and Michael Lewis 2003

Budget Hotel Chain

What aspects of service
will form tomorrows
delights, order winners
and qualifiers?

Delights

Order Winners

Price

Central reservation
Location (autoroutes)
Location (restaurants)

Qualifiers
Location (restaurants)
Price
Loyalty cards
Cleanliness
Decor
Nigel Slack and Michael Lewis 2003

What new capabilities

will operations need to
develop to deliver
these?
Cheap land
costs
Build at low
cost

Search processes
Flexible design

Operate at
low cost

Low overheads
Low labor costs
New technology

Low fixed costs

Standardization

More, smaller sites

Partnership deals with
restaurants

Trade-offs

Do you want it good, or do you want it

Tuesday?
No such thing as a free lunch.
You cant have an aircraft which flies at the
speed of sound, carries 400 passengers and
lands on an aircraft carrier. Operations are just
the same. (Skinner)
Trade-offs in operations are the way we are
willing to sacrifice one performance objective to
achieve excellence in another.

Nigel Slack and Michael Lewis 2003

Competitive
Objective
A

Competitive
Objective
A

Competitive
Objective
B

Competitive
Objective
B

Model I: Function
(Skinner, 1992:
Hayes and Pisano, 1996)

Model II: Pivot and Function

(Slack, 1991)

Two ways of illustrating the trade-off concept

Nigel Slack and Michael Lewis 2003

Three schools of trade-off thought

Performance measure A
Its all about positioning
(e.g. Skinner)

Nigel Slack and Michael Lewis 2003

X2
X1

Y1

Y2

Y3

Performance measure B

X3

Performance measure B

Performance measure B

Natural Frontier
of Performance

X
Z
Y

Performance measure A

Performance measure A

Must aim to be good at

everything
(e.g. Schonberger)

You have to choose when

to reposition and when to
overcome trade-offs
through improvement
(e.g. Hayes and Pisano)

Repositioning vs.improvement
Improve
Change in relative performance of competitive
objectives

Reposition

Net improvement in performance because trade-off is overcome

A
B
A

Pivot

Pivot

Base +
Base

Base

Trade-off changed because improved

system attributes have enabled both A
and B to be improved without
changing their relative position

Original trade-off

A
A

B
B
Pivot
Base

Trade-off changed because A is now

required to have higher performance but
system attributes have not improved so
performance of B is lower.

Nigel Slack and Michael Lewis 2003

Pivot
Base +
Base
Trade-off changed because improved
system attributes have enabled A to
be improved without reduction in B

good

good
Service

Cost

bad

bad
Degree and
number of
service checks
Average
waiting time
for service
Ability to keep
waiting time short
even in peak periods
Range of
services
offered

vs.

Cost of
providing
service

vs.

Cost of
providing
service

vs.

Cost of
providing
service

vs.

Cost of
providing
service

Examples of services vs. cost trade-offs

at an auto quick fit center

Nigel Slack and Michael Lewis 2003

good

good
Capital
expenditure

Service
bad

bad
Degree and
number of
service checks

vs.

Average
waiting time
for service

Capital cost of providing

vs. extra physical capacity or
automated processes

Ability to keep
vs.
waiting time short
even in peak periods
Range of
services
offered

vs.

Capital cost of
purchasing computer
diagnostics equipment

Capital cost of providing

extra capacity for peak
loading
Capital cost of
purchasing wider
range of equipment

Examples of services vs. capital

expenditure at an auto quick fit center

Nigel Slack and Michael Lewis 2003

good

good

Capital
expenditure
bad
Capital cost of
vs.
providing computer
diagnostic equipment

Service
bad
Cost of providing
service

Examples of cost vs. capital

expenditure at an auto quick fit center

Nigel Slack and Michael Lewis 2003

good

good
Working
capital

Service

bad

bad
Level of parts
inventory kept in
stock

vs.

Ability to replace
part without any
delay

good

good
Working
capital

Cost

bad

bad
Level of parts
inventory kept in
stock

vs.

Cost of arranging for

out of stock part to be
delivered

good

good
Capital
expenditure

Working
capital
bad

bad
Level of parts
inventory kept in
stock

vs.

Capital
expenditure on
storage space

Examples of working capital related trade-offs at an auto quick fit center

Nigel Slack and Michael Lewis 2003

Service

versus
versus

Cost
versus

Capital
expenditure
versus

versus
versus

Working
capital
Trade-off categories
Nigel Slack and Michael Lewis 2003

Performance objective B

Extended
performance
frontier

Area Q

Area P

Natural
performance
frontier

Performance objective A
Reconciliation as improvement by pushing back
the performance frontier of a trade-off
Nigel Slack and Michael Lewis 2003

Variety

Trade-off curve of operation

designed for narrow range of
activities only

Normal operation
trade-off frontier zone
B

Cost performance
Trade-off curves are (a) broad representations of a performance frontier
zone; (b) dependent on how the operations have been designed
Nigel Slack and Michael Lewis 2003

Operation
A

Market
segment
A

Operation
B

Market
segment
B

Operation
C

Market
segment
C

Market and operations

segmentation matched

Operation
A

Operation
B
Operation
C

Market
segment
B
Market
segment
C

Market and operations

segmentation not matched

Segmentation of markets and operations resources

Nigel Slack and Michael Lewis 2003

Market
segment
A

Army 1
Island
Army 2

Burning bridges behind you increases

commitment but reduces flexibility
Nigel Slack and Michael Lewis 2003

Operations Resources

Strategic reconciliation

Market Requirements
Clarity of
objectives

Appropriate
resources
Learning and
improvement
Clearly
focused
resources

but

but

but

Structural
vulnerability

Limited
capabilities

Risk of
market
change

Focused operations can exhibit positive and negative

characteristics in both market and operations perspectives

Nigel Slack and Michael Lewis 2003

Clearly
targeted
market

Response
time

Utilisation
of staff
1st trade-off

Staff scheduling in
retail loans

Capital
investment in
retail system

3rd trade-off

Speed and
quality of
information

2nd trade-off

Level of service purchased

from credit agency

Operations cost
and speed of
service
Investment in
multi-function
system

Retail loans on-site

investment

Operational
cost of credit
information

Range of
services
possible
4th trade-off

Insurance IT system
investment

Three trade-offs in the Call Center example

Nigel Slack and Michael Lewis 2003

Specific
Ideal
performance

Quality of service

Superficial
Limited
Broad
Range of services

Nigel Slack and Michael Lewis 2003

Quality of service

Specific

Superficial

Ideal
performance

High
Low
Cost of providing services

Specific

Quality of service

Ideal
Ideal
performance
performance

Superficial
Limited
Broad
Range of services

Nigel Slack and Michael Lewis 2003

Quality of service

Specific

Superficial

Ideal
performance

High
Low
Cost of providing services

Specific

Quality of service

Ideal
performance
D
C

Superficial
Limited
Broad
Range of services

Nigel Slack and Michael Lewis 2003

Quality of service

Specific

Superficial

Ideal
performance
D
C

High
Low
Cost of providing services