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Prof. Rushen Chahal
Prof. Rushen Chahal
Strategic Management
Slides, Examples and Graphs
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Prof. Rushen Chahal
Performance objective A
Performanceobje
ctiveB
Operations
Resources
Market
RequirementsOPERATIONS
STRATEGY
Strategic
Reconciliation
?
Topics in operations strategy treated in this chapter
Time, trade-offs and targeting
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Prof. Rushen Chahal
PRODUCT/SERVICE
TECHNOLOGY
MARKETING OPERATIONS
Where does the business get its competitive
advantage?
The technological
specification of its
product/service?
The way it positions
itself in its market?
The way it produces its
goods and services?
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Prof. Rushen Chahal
OPERATIONS
PRODUCT / SERVICE
TECHNOLOGY
MARKETING
OPERATIONS
PRODUCT / SERVICE
TECHNOLOGY
OPERATIONS
MARKETING
PRODUCTSERVICE
TECHNOLOGY
The contribution of each area
will change over time
MARKETING
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Prof. Rushen Chahal
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 - 1958INTENDED STRATEGY REALIZED
CAR IDEAL FOR POST WAR CONDITIONS
RAPID EXPANSION IN VOLUME
NO NEW MODELS (WORK ON NEW MODEL HALTED IN 1954)
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1960 - 1964
1500 MODEL INTRODUCED
SALES INCREASED BUT PROFITS SQUEEZED
1965 - 1975PRESSURES 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
1959
INCREASED COMPETITION AND CHANGES IN TASTES
RESPONSE - INCREASED ADVERTISING
- DESIGN STARTED FOR 1500ORIGINAL STRATEGY UNCHANGED IN ESSENTIALS
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1990 - 1996
INCREASING PRESSSURE ON COSTS FROM JAPANESE MANUFACTURERS
GERMAN LABOUR COSTS AND EXCHANGE RATE ARE DISADVANTAGEOUSLATTERLY EUROPEAN RECESSION INCREASES PRESSURE
COST CUTTING MEASURES - EAST EUROPEAN PLANT - AGGRESSIVE
PURCHASING
1997 - 2000
DEVELOPING SEPARATE BRANDING STRATEGIES TO OCCUPY DIFFERENT
MARKET SEGMENTSDEVELOP SEPARATE PRODUCTS FROM COMMON PLATFORMS TO
REDUCE COST
CONTINUE AGGRESSIVE COST REDUCTION AND PROCESS IMPROVEMENT
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MINTZBERGS CONCEPT OF EMERGENT STRATEGIES
NOT ALL INTENDED STRATEGIES ARE REALISED
and ...
NOT ALL REALISED STRATEGIES ARE INTENDED
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
DELIBERATIVE STRATEGIES
UNREALISED
STRATEGIES
EMERGENT
STRATEGIES
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Market
Requirements
Strategic
Reconciliation
Operations
Resources
Emerging,
any
workingvehicle
Maturing,
simple
robust
vehicle
More
sophisticated
performance,
quality
Uncertain
rejection of
VW traditional
products
Building up
capacity and
capability
Systemisation
of resources
and
processes
Minor
reconfigura-
tion for new
model
Fragmented
acquisition
of new
resources
Multiple
new
designs
New
1500
model
Standardized
design
1946-1951
Implementing
strategy
1952-1958
Continuity
of strategy
1959-1964
Minor
change and
continuity
1965-1970
Searching
for viable
strategy
Simple
design
Market requirements, operations resources and strategic reconciliationat VW for half a centur
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Prof. Rushen Chahal
Clarifying
around
style,
quality andvariety
Segmentation
around
performance,
style and variety
Increasingly
competitive
around price
Branding
with
price,
quality,
and style
Adapt best
practices from
enlargedgroup
Accommodate
new models
and
acquisitions
Drastic
reconfiguration to
increase
efficiency, reduce
costs
Continuous
process
improvement
and cost
reduction
Common
product
platforms
Design for
low-cost
manufacture
Product
development
paths
Defined
range
1971-1975
Emergentstrategy
1976-1989
Continuing
with minor
changes
1990-1996
Major
change
(internal)
1997-2000
Implementing
strategy
Market
Requirements
Strategic
Reconciliation
Operations
Resources
Market requirements, operations resources and strategic reconciliationat VW for half a century
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Intended
Strategy
Realised
Strategy
Deliberate
Strategy
Mintzbergs concept of emergentstrategy
Unrealized
Strategy
Emergent
Strategy
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Order winners and qualifiers
Low High
Negative
Order Winners
Qualifiers
Positive
Neutral
Achieved Performance
CompetitiveBenefit
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Prof. Rushen Chahal
Adding Delights
Low High
Negative
Order Winners
Qualifiers
Positive
Neutral
Achieved Performance
CompetitiveBenefit
Delights
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Prof. Rushen Chahal
Low High
Negative
Order Winners
Qualifiers
Positive
Neutral
Achieved Performance
CompetitiveBenefit
Delights
Delights become order winners and orderwinners become qualifiers
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What service dimensions are delight, order
winners and qualifiers now, and in the future?
Delights
Order Winners
Qualifiers
Today Tomorrow
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Prof. Rushen Chahal
Delights
Order Winners
Qualifiers
Today Tomorrow
Budget Hotel Chain
Central reservation
Location (autoroutes)
Location (restaurants)
Price
Loyalty cards
Central reservation
Location (autoroutes)
Location (restaurants)
Price
Loyalty cards
Cleanliness
Dcor
Cleanliness
Dcor
Service
?
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Prof. Rushen Chahal
Delights
Order Winners
Qualifiers
Today Tomorrow
Central reservation Price
Location (autoroutes)
Location (restaurants)
Price
Loyalty cards
Central reservation
Location (autoroutes)
Location (restaurants)
Location (restaurants)
Price
Loyalty cards
Cleanliness
Dcor
Cleanliness
Dcor
Service
?
Budget Hotel Chain
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Prof. Rushen Chahal
Delights
Order Winners
Qualifiers
Central reservation
Location (autoroutes)
Location (restaurants)
Location (restaurants)
Price
Loyalty cards
Cleanliness
Decor
Price
What aspects of service
will form tomorrowsdelights, order winners
and qualifiers?
What new capabilities
will operations need todevelop to deliver
these?
More, smaller sites
Cheap landcosts
Build at lowcost
Operate atlow cost
Search processesFlexible design
Low fixed costsStandardization
Low overheads
Low labor costsNew technology
Partnership deals withrestaurants
Budget Hotel Chain
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Prof. Rushen Chahal
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 arewilling to sacrifice one performance objective to
achieve excellence in another.
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Competitive
Objective
A
Competitive
Objective
B
Model II: Pivot and Function(Slack, 1991)
Competitive
ObjectiveA
Competitive
Objective
B
Model I: Function(Skinner, 1992:
Hayes and Pisano, 1996)
Two ways of illustrating the trade-off concept
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Prof. Rushen Chahal
Performance measure AP
erformancemeas
ureB
Performance measure AP
erformancemeasureB
Performance measure AP
erformancemeasureB
Natural Frontier
of Performance
X
Y
Three schools of trade-off thought
Its all about positioning
(e.g. Skinner)
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)
Y1Y2
Y3
X3X2
X1
X
Z
Y
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Prof. Rushen Chahal
Trade-off changed because improved
system attributes have enabled both A
and B to be improved without
changing their relative position
Pivot
Base +
Base
A B
Trade-off changed because improved
system attributes have enabled A to
be improved without reduction in B
Pivot
Base +
Base
A
B
Trade-off changed because A is now
required to have higher performance but
system attributes have not improved so
performance of B is lower.
Pivot
Base
A
B
Pivot
Base
AB
Original trade-off
ImproveNet improvement in performance because trade-off is overcome
Reposition
Changeinrelativeperform
anceofcompetit
ive
objectives
Repositioning vs.improvement
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Prof. Rushen Chahal
vs.
vs.
vs.
Service Cost
good
bad
good
bad
Degree and
number of
service checks
Cost of
providing
service
Average
waiting timefor service
Cost of
providingservice
Ability to keep
waiting time short
even in peak periods
vs.Cost of
providing
service
Range of
servicesoffered
Cost of
providingservice
Examples of services vs. cost trade-offs
at an auto quick fit center
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Prof. Rushen Chahal
vs.
vs.
vs.
ServiceCapital
expenditure
good
bad
good
bad
vs.
Examples of services vs. capital
expenditure at an auto quick fit center
Degree and
number of
service checks
Average
waiting timefor service
Ability to keep
waiting time short
even in peak periods
Range of
servicesoffered
Capital cost of
purchasing computer
diagnostics equipment
Capital cost of providing
extra physical capacity orautomated processes
Capital cost of providing
extra capacity for peak
loading
Capital cost of
purchasing widerrange of equipment
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Prof. Rushen Chahal
Capital
expenditure
good
bad
good
bad
Service
vs.Capital cost of
providing computerdiagnostic equipment
Cost of providing
service
Examples of cost vs. capital
expenditure at an auto quick fit center
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Prof. Rushen Chahal
Working
capital
good
bad
good
bad
Service
vs.Level of parts
inventory kept in
stock
Ability to replacepart without any
delay
Working
capital
good
bad
good
bad
Cost
vs.Level of parts
inventory kept in
stock
Cost of arranging for
out of stock part to be
delivered
Workingcapital
good
bad
good
bad
Capital
expenditure
vs.Level of parts
inventory kept in
stock
Capital
expenditure on
storage space
Examples of working capital related trade-offs at an auto quick fit center
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Prof. Rushen Chahal
Capital
expenditure
CostService
Workingcapital
versus
versusversus
versus versus
versus
Trade-off categories
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Prof. Rushen Chahal
Performance objective A
Performan
ceobjectiveB
Y
X
Extended
performance
frontier
Natural
performance
frontier
Area Q
Area P
Z
Reconciliation as improvement by pushing back
the performance frontier of a trade-off
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Prof. Rushen Chahal
Cost performance
Variety
Normal operation
trade-off frontier zone
Trade-off curve of operation
designed for narrow range of
activities only
Trade-off curves are (a) broad representations of a performance frontier
zone; (b) dependent on how the operations have been designed
B
A
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Prof. Rushen Chahal
Market
segment
A
Market
segment
B
Operation
A
Operation
B
Operation
C
Marketsegment
A
Market
segment
B
Market
segment
C
Operation
A
OperationB
Operation
C
Market and operationssegmentation matched
Market and operationssegmentation not matched
Segmentation of markets and operations resources
Market
segment
C
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IslandArmy 1
Army 2
Burning bridges behind you increases
commitment but reduces flexibility
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Prof. Rushen Chahal
Learning and
improvement
Structural
vulnerability
but butbut
Operations Resources Market RequirementsStrategic reconciliation
Clearly
focused
resources
Appropriate
resources
Limited
capabilities
Risk of
market
change
Clearly
targeted
market
Clarity of
objectives
Focused operations can exhibit positive and negative
characteristics in both market and operations perspectives
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Prof. Rushen Chahal
1st trade-off
Staff scheduling in
retail loans
Response
timeUtilisation
of staff
2nd trade-off
Level of service purchased
from credit agency
Operational
cost of credit
informationSpeed and
quality ofinformation
3rd trade-off
Retail loans on-site
investment
Operations cost
and speed of
serviceCapital
investment in
retail system4th trade-off
Insurance IT system
investment
Range of
services
possibleInvestment in
multi-function
system
Three trade-offs in the Call Center example
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Prof. Rushen Chahal
B
A Ideal
performance
Qualityo
fservice
Limited BroadSuperficial
Specific
Range of services
B
A
Qualityo
fservice
High LowSuperficial
Specific
Cost of providing services
Ideal
performance
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A Ideal
performance
Qualityo
fservice
Limited BroadSuperficial
Specific
Range of services
A
Qualityo
fservice
High LowSuperficial
Specific
Cost of providing services
Ideal
performance
CC
A Ideal
performance
Qualityo
fservice
Limited Broad
Range of services
A
Qualityo
fservice
High Low
Cost of providing services
Ideal
performance
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A Ideal
performance
Qualityo
fservice
Limited BroadSuperficial
Specific
Range of services
A
Qualityo
fservice
High LowSuperficial
Specific
Cost of providing services
Ideal
performance
A Ideal
performance
Qualityo
fservice
Limited Broad
Range of services
A
Qualityo
fservice
High Low
Cost of providing services
Ideal
performance
C C
DD