Operations Strategy Student Study Guide

CHAPTER 11
OPERATIONS DEVELOPMENT AND IMPROVEMENT

Introduction

Perhaps one of the more significant developments within operations management and
operations strategy over the last several years has been the refocusing of the subjects
from simply designing and managing operations towards improving them. Of course,
operations managers have always been concerned with improving their operations
processes. Even under the old paradigms of design, planning and controlling
operations, the objective way always to make things better, or at least stop them from
getting worse. What is still relatively unusual is for this increased emphasis on
improvement to be viewed from a strategic perspective. This chapter does this in two
ways. First, it distinguishes between the two common philosophies of improvement,
namely breakthrough improvement and continuous improvement. Second, it provides
a strategic framework within which the various aspects of an improvement strategy
can be fitted. Not surprisingly this framework adopts the market requirements and
operations resource capability model.

Key points

Two stereotypical approaches to improvement are often discussed by authorities

on operations improvement. These are;

breakthrough improvement sometimes called innovation-based

improvement, where significant and often radical changes are made;

continuous improvement where small incremental changes are made on a

continuing basis.

Chapter 11 discussed both these approaches to improvement and cites Business

Process Reengineering (BPR) as a typical example of breakthrough improvement
and Total Quality Management (TQM) as a typical example of continuous
improvement.

Remember that these are both stereotypes of improvement. They are not mutually
exclusive. Very few organizations can afford to avoid some form of major
improvement (breakthrough) project over a period of years. At the same time, few
organizations would claim that they have no interest in improving on a more
continuous basis.

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Operations Strategy Student Study Guide

While both approaches to improvement can be used simultaneously, the degree of

process change can govern the balance between the two approaches. The chapter
identifies four degrees of process change. These are;

modification minor realignment of activities;

extension redesign of sequence or routing between activities;
development redefinition of purpose or role of activities;
pioneer novel or radical change.

The more extensive the degree of process change (development or pioneer) the
more the need for breakthrough approaches to improvement. See the figure below.

Degree of process change

Modification Extension Development Pioneer

Continuous
improvement Breakthrough
improvement

Direct, develop and deploy

The majority of the chapter is taken up in expanding the three Ds strategic

improvement model. This proposes three sets of activities which any operations
function must develop in order to take a strategic approach to improvement. These
three sets of activities are as follows:

direct understand the intended competitive position of the organization in its

marketplace so as to let that direct the operations resources and processes;

develop within the operations function develop an understanding of the

resources and processes so as to enhance their overall capability;

deploy make sure that operations capabilities are fully understood by the
organization so that potentially advantageous changes in market position can
be made.

In fact a fourth set of activities completes the loop, the development of market
strategy. This is seen by the model as the choice of a specific market position (or
sets of market positions) within the potential scope of feasible market positions
dictated by the operations capabilities.

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Operations Strategy Student Study Guide

The first D in the three Ds model is direct, and the chapter discusses three
activities under this heading. The first activity is that of performance
measurement. Performance measurement is a topic in its own right and is only
briefly described in the chapter. To learn more about this topic you should consult
one of the many books on the subject. The second activity is that of
benchmarking. Again this is a big subject in its own right, and again there are
plenty of books that take the topic further. The third issue discussed under the
direct heading is that of importance-performance mapping. This is a particularly
useful, though very simple, approach to prioritizing performance objectives.
Remember though, it is not a prescriptive device, nor is it objective. As described
in the chapter, it is simply a way of formalizing subjective perceptions, still an
important activity.

The second D is concerned with developing operations capabilities. Two

issues are discussed under this heading. The first is that of the learning, or
experience, curve. The second, and more important issue is that of process
knowledge and control. Essentially, the develop stage is one of building
knowledge. The chapter discusses how process control (specifically Statistical
Process Control, SPC) is increasingly seen as a mechanism for learning about a
process and thereby extending process knowledge.

The third D concerns deploying capabilities into the marketplace. In other

words, any capability developed within an operation that is not leveraged into the
marketplace at some stage is a wasted capability. Indeed, some authorities hold
that capabilities that are not used will wither away. Chapter 11 uses a well-known
model based on Hayes and Wheelwrights work to calibrate the extent to which
operations capabilities are influential in setting market position. This four-stage
model is presented at a relatively abstracted level. However, it can be
operationalized.

Hayes and Wheelwright first probably their four stage model to be a broad brush
conceptual tools whose main point was to demonstrate that operations should think
about the extent of their contribution to the companys competitiveness. But it can
form the basis of an analysis tool that can be used to calibrate the extent to which an
operations function can deploy its capabilities (if it has any). One way of doing this
is to deconstruct the elements of how Hayes and Wheelwright describe each stage.
Their descriptions mainly cluster around five issues. Namely,
The way the operation relates with its external customers and the way it manages
its internal customer relationships.
The degree to which it has an understanding and knowledge of its operations
practices.
The way it links operations processes and resources with competitive strategy, and
The degree of innovation shown within the operations function.

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 Operations Strategy Student Study Guide

The figure below At what stage is your operation? fleshes this idea out. It takes
each element and attempts to describe the nature of each as they progress from
Stage 1 through to Stage 4. So, for example, in terms of relationship with internal
and external customers, Stage 1 operations are continually managing crises, Stage 2
operations are concentrating on establishing appropriate performance monitoring
systems, Stage 3 are using the performance monitoring systems as a basis for
improvement, while Stage 4 are exploring new ways of developing internal and
external relationships through an in-depth understanding of internal and external
customers and suppliers operations.

STAGE 1 STAGE 2 STAGE 3 STAGE 4

customersand externalwith internalRelationship

Frequently lets down
internal and external
customers (who regard them
as frustrating their own
improvement efforts).
The operation spends much
time rectifying the results of
its own failures.
The operations
performance meets the
minimum standards expected
by internal and external
customers.
The operation only rarely
lets down customers but adds
little of positive value.
The operation starts to
exceed customers
expectations.
Frequent discussion with
internal and external
customers as to the
appropriateness of
performance standards.
Joint planning of continuous
improvement of performance
with customers.
Operations understands the
needs and expectations of
customers customers and
exceeds them.
Continual exploration of
novel operation practice
linked to customers future
needs.

Crisis relationship Performance monitoring Improvement of Creative relationship

relationship relationship

Relatively little exchange of Regular exchange of ideas Operations management Operations monitor external
ideas with other internal and performance with other takes on facilitator role in environment to predict their
practiceoperationsg ofUnderstandin

operations.
Operations management
has little knowledge of
alternative ways of designing
and running their type of
operation.
Operations staff are rarely
included in discussing the
incorporation of outside ideas.
Little knowledge of what
makes the operation tick.
internal operations within the
organization.
Other similar external
operations used to provide
benchmarks of performance
and practice.
Operations staff consulted
on suitability of outside ideas.
Process knowledge allows
deviations from standard to
be monitored.
helping other internal
operations.
Operations staff are
concerned with how to adapt
external ideas in order to
make them more appropriate.
Process knowledge gives
ability to control performance.
future market conditions, labor
and technology requirements.
Process knowledge gives
ability to predict behavior
under novel conditions.
Operations take
responsibility for reshaping
competencies and
expectations of whole supply
network.

General dissatisfaction with Continuous improvement of

operations practice
Most people in the
operation are not aware of the
strategycompetitiveLinks with
Trying to position
appropriate operations
practice
Operations management
are aware that appropriate
operations practice Forward looking operations
practice
All operations staff Operations have taken a
understand the relative leading role in shaping

role of their operation within
the organization and its
objectives.
Operations managers find
difficulty in identifying the
trade-offs that they are
required to manage.
Simplistic but little
understood objectives
operations performance will
differ in different operations,
but are unclear how to
change operations practice to
reflect different objectives.
Performance trade-offs are
known but there is no clear
idea of how to overcome
them.
Starting to focus on key
objectives
importance of operations
objectives and can debate
their implications.
Key performance trade-offs
are identified and
improvement strategies put in
place to overcome them.
Clear explicit link between
strategy and operations
practice
competitive strategy.
Operations are seen as the
prime source of the
capabilities which competitors
find difficult to imitate.
Performance objectives are
trading-off at a significantly
higher level than competitors.
Strategy driven by unique
operations capabilities

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 Operations Strategy Student Study Guide

Operations management Operations management do New approaches to Operations at the forefront

operationwithin theInnovation

sees responsibility for
innovations as being outside
the operation.
We could do much better if
it wasnt for the others in the
organization.
Operations is creative only
in trying to fix the worst
problems.
Band Aid capabilities
take on full responsibility for
implementing new ideas and
exhibit flexibility and creativity
in getting things up and
running.
Only minor tinkering with
methods rather than
developing entirely new
approaches.
Project management
capabilities
operations practice developed
from within the operation.
New approaches are based
on a sound understanding of
the skills needed to meet
market needs and work within
resource constraints.
Interpreting strategy to
operations capabilities
of changing the rules of the
game.
Innovations timed to give
maximum competitive
advantage.
Learning to network
capabilities

This, of course, is not a precise instrument. It is only intended to help to give an

indication of where an operation is on the four-stage scale.

Hints on answering the Customer Service at Kaston Pyral case

exercise

This case illustrates two specific and one general set of issues that are topical in
many types of operation. The two specific issues are those of increasing
internationalization and (often along with that) increasing consolidation into large
units of capacity. The more general issue is that of operations improvement.

The case contains both general statements of the companys strategy along with a
description of its decision to concentrate its call center operations on to three sites
worldwide.

Try thinking about the information in the case under the three headings of

Direct,
Develop,
Deploy.

Use the quantitative data to draw an importance-performance matrix for the New
Jersey survey.

Also try plotting a learning curve relating associate hours per call against
cumulative volume of calls processed.

Do you think there is alignment between the CEOs final statement and what seems
to be happening in terms of operations improvement in the call centers?