RRBM Strat Nov02 Lesli

8/2/2019 RRBM Strat Nov02 Lesli

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Rolls-Royce Business Managers Program November 2002Washington, DC

Operations Strategy and

Performance Measurement

Doug Blocher Doug Blocher

Operations and DecisionOperations and Decision

Technologies DepartmentTechnologies Department


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Strategy is NOT about doing thingsright,

It is aboutdoing the right things.

What is Strategy?What is Strategy?

Bob Collins, IMD


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What are the right things?

Must have a debate which involves alldisciplines, about how products win orders inthe Market Place, AND, what qualifies us to

be there.Debate must be Specific

Debate is Time Sensitive

Functional area Strategies should supportmarket characteristics.


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Order Winner:Order Winner:

What the customer truly values.The essence of the product orservice. Why the customer wouldchoose you over the competition.

Order Qualifier:Order Qualifier: Some minimumacceptable level of this measure isrequired to even be considered for thebusiness.

Order Winners and Order Qualifiers are discussed in depth in Manufacturing Strategy , Terry Hill, London Business School


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Finding the Order Winner:Finding the Order Winner: FocusFocus

on the Customer on the Customer How are we viewed by our customers?

Customer service reps dont know strategy; top managersdont know customers.*

What do our customers really want or need? Heard? Questioned? Observed? Experienced?

What should we try to deliver? Needed? Possible? Afford? Add Value?

StayFocused

*Staple Yourself to an Order, Harvard Business Review Jul/Aug 92


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Op erations StrategyOp erations Strategy

Market StrategyMarket Strategy

Performance MeasuresPerformance Measures

O rder WinnersO rder Winners

Links between StrategicLinks between Strategic

elements and processeselements and processes

Cor porate or Cor porate or SBU StrategySBU Strategy

Op eration ProcessesOp eration Processesand Tacticsand Tactics


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Functional Strategies?Functional Strategies?

A Market Strategy is notMarketings Strategy. It is the Firms Strategy to compete in a

specific market.

An Operations Strategy is notOperations Strategy It is the firms strategy to competitively

support the market position


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T radeoffs are necessary!T radeoffs are necessary!

Can't be all things to all peopleDifferent (competitive) positions require: different product configurations, different equipment, different employee behavior, different skills, and different management systems.

Many tradeoffs reflectinflexibilities in machinery,

people, or systems.

Porter, What is Strategy Harvard Business Review Nov/Dec 96,and another good read is Porter, Comp etitive Strategy, 80

Cost

Flexibility


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T radeoffs are necessaryT radeoffs are necessaryBut not all are on the efficient frontierBut not all are on the efficient frontier

Cost

Flexibility

High

Low

High Low


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What are the right things?Competitive Priorities for Operations

Operations Levers Be the Low Cost Provider Have the Quickest Delivery Speed Deliver when promised Customization / Variety Able to produce new

products and variations Conformance Quality Quality in terms of Long Term Reliability


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Components of Operations StrategyPorter: H ow will we be different ?

Plant and Equipment Job shop vs Flow shop Special vs General purpose

equipment

Supply Chain Efficient vs Responsive

Labor Custom skills vs Repetitive

tasks

Engineering Support Process engineering vs Product

engineering

Organizational Style Decentralized vs Centralized

Capacity Limits Labor vs Machine Average vs Peak


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StrategyStrategy

A Good strategy should provide focus for everyone be simple enough for everyone to understand always provide a guide for decisions

One must ensure that the strategy isexplicit (as well as correct) beforereal improvement is possible

this often means that it has been interpretedand translated into goals and metrics thus it must be measurable


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Performance Measurement shouldProvide Direction

By looking at a firms keymeasures, one should be able to

determine the firms direction,determine their strategy.

A firm lacking good, consistentmeasures will tend to be going in alldirections.


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PerformancePerformance

MeasurementMeasurement

That which gets measured on a regular basis

(and as a part of the performance appraisal process) , gets attention.

Beware of Gaps

A ppr oximate Measures are better than wrongconvenient measures.

Beware of False Alarms


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MeasurementMeasurementMistakes to AvoidMistakes to Avoid

G ap s exist where there are no measures for areasdeemed strategically important.

Examples: Customer satisfaction, employee involvement,

False Alarms occur where there are detailedmeasures for areas which are not strategicallyimportant.

Examples: many efficiency measures

Incorrect Em phasis (see following graph)

Vollmann and Schmenner, I nternati onal J ournal o f O perati ons & Pr od ucti on Manage ment , 1994


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P erformance vs Im portance:P erformance vs Im portance:Is the Emphasis in the right place?Is the Emphasis in the right place?

Chase and Hayes

Performance

Importance

Trouble

False senseof security


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A Balanced ScorecardA Balanced Scorecard

Customer Perspective How do customers see us?

Internal Perspective What must we excel at?Innovation and Learning Perspective Can we continue to improve and create value?

Financial Perspective How do we look to our stakeholders?

Kaplan and Norton, The Balanced Scorecard, 1996


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Some NonSome Non--financial Measuresfinancial Measures

L ead time for customer order deliveryNumber of CorrectionsAmount of T ime needed to answer a phoneNumber of Com p laintsConformance QualityT ime to Res pond to Change Request

T rained users of ER P p rocess X


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D ifferent L evels Need D ifferentD ifferent L evels Need D ifferentMeasuresMeasures

Measure ments sh oul d be hierarchical

Upper Management

Middle Management

Operational Departments

Will need 2-4 measures

Will need 2-4 per area --

not all the sameWill need 3-5 per dept or

process


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The Heisenberg Uncertainty PrincipleThe Heisenberg Uncertainty Principle of Productivity of Productivity

Y ou cant have measures that aresimultaneously broad and dee p.

The broader the measure of productivity, the less meaningfuland the more arbitrary it is for operations at lower levels inthe organization. The more specific the measure, the moreincomplete and partial it is for the company as a whole.

T he D ilemma: How to choose real-time proxies that helplead action to the overall productivity goal.


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Th e Need for Umbrellas

Dixon, Nanni, and Vollmann,T he New Perf or mance C hallenge

Financial measures for the upper levels of management; properly interpreted physicalmeasures for lower levels.

Progressive managers provide"umbrellas" for those under them so that the "rain" of

financial measures dont drownthem.


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Using The Control BucketUsing The Control Bucket

ou cant kee p measuring everything f orever ...

If a measure is not meeting goal or not showing

the right improvement, then it must be monitoredregularly.If a measure indicates satisfactory performanceover some period of time, it should be placed inthe control bucket and monitored once-in-awhile.If a control measure falls from grace, it should be brought back on the table for regular review.


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Measurement Reminders

1. Link between strategy & action.2. Consistent, simple, visual for all, and attuned

to the customer.

3. Should not necessarily be identical acrosslocations, units, or levels. Comparability is afalse issue its too easy.

4. Should be significantly non-financial in

character 5. Should be well defined and agreed upon

Dixon, Nanni, Vollmann, The New Performance Challenge:Measuring Operations for World-Class Competition, 1990

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RRBM Strat Nov02 Lesli