© Nigel Slack and Michael Lewis 2003

Level 1 - Fit

This chapter examines the third level of the operations strategy process – risk

Level 2 - Sustainability

Level 3 - Risk

Align resources with requirements

Develop sustainable competitive advantage

Include impact of uncertainty In

crea

sin

g c

om

ple

xity

© Nigel Slack and Michael Lewis 2003

Lev

el o

f m

arke

t re

qu

irem

ents

Level of operations resource capability

Real fit over time (‘requirements evolve and capabilities evolve’)

Line

of fit

A

External operational risk (Market needs exceeding current level of capability means risk of failing to satisfy the market)

Internal operational risk

(excess capability for current market needs means risk

of unexploited capabilities)

B

© Nigel Slack and Michael Lewis 2003

Lev

el o

f m

arke

t re

qu

irem

ents

Level of operations resource capability

Pure operations risk

Line

of fit

Ay1

x1

B

y2

x2

© Nigel Slack and Michael Lewis 2003

Lev

el o

f m

arke

t re

qu

irem

ents

Level of operations resource capability

Speculative operations-related risk

Line

of fit

Dy4

x3

C

y5

y3

x5 x4

E

F

© Nigel Slack and Michael Lewis 2003

CAUSATIVE

EVENT(S)

NEGATIVE

CONSEQUENCE

Risk and the operations transformation model

© Nigel Slack and Michael Lewis 2003

Lev

el o

f m

arke

t re

qu

irem

ents

Level of operations resource capability

Speculative operations-related risk at Monsanto (1985-1998)

Line

of fit

Hy8

I

G

y7

y6

x6 x7

1985 1998

© Nigel Slack and Michael Lewis 2003

20 25 30 35 40 45 50 55 600

Line A

Line B

Age and risk-taking profile

5.00

4.00

3.00

Incr

easi

ng

ly r

isk

aver

se

Age

© Nigel Slack and Michael Lewis 2003

Lev

el o

f m

arke

t re

qu

irem

ents

Level of operations resource capability

Subjective operations failure

Line

of fit

L

Ky10

x8

Jy9

x9 x10

© Nigel Slack and Michael Lewis 2003

CAUSATIVEEVENT(S)

(corroded storage tank leaks)

NEGATIVE CONSEQUENCE

The influence of context on causative events and negative consequences

(?)

OPERATING CONTEXT

© Nigel Slack and Michael Lewis 2003

Specific operations process concerns

Specific event

Specific stakeholder concerns

Generic stakeholder concerns

1. The direct (physical and temporal

proximity etc.) negative consequences of an operational incident.

The negative consequences for the

entire operations process. Might be

separated from specific incident by

space and time.

2.

3. The negative consequences for immediate stakeholders (i.e. staff, managers, customers, neighbours). Prone to greater subjective interpretation.

The negative consequences for all

possible stakeholders. This

might include generic groups such as

‘concerned citizens’, politicians and media.

4.

Layers on context for understanding negative consequences

© Nigel Slack and Michael Lewis 2003

Causative event(s)

Negative consequences

Mitigation

RecoveryPrevention

Three risk control strategies

© Nigel Slack and Michael Lewis 2003

[1]

[4]

[2]

[5]

[3]

[6]

Min

or

Maj

or

Loose Tight

Degree of coupling in the operation

Cau

sal e

ven

t (f

ailu

re)

Potential crisis

Probable control

through mitigation

Coupling, mitigation and recovery

© Nigel Slack and Michael Lewis 2003

A X

B

Y

Very undesirable: low pay-off and high risk

Very desirable: high pay-off and

low risk

Spread of pay-offs

for decision

The risk-return diagram

© Nigel Slack and Michael Lewis 2003

HIGH

LOW

2 yearsTodayTime

Val

ue

of

firm P

rob

abili

ty

HighLow

mean

Uncertainty cone and outcome distribution Based on Amram and Kulatilaka, 1999)

© Nigel Slack and Michael Lewis 2003

Operational assets and capabilities

Cone of external

uncertainty

Cone of uncertainty for

investment

Assets and capabilities modifying exposure to uncertainty