Internal and external benefits of excelling at each performance objectives PDF

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Internal and external benefits of excelling at each performance objectives Cost

Speed

Quality

Flexibility

Dependability

Strategy is defined as ‘The direction and scope of an organisation over the long term which achieves advantages in a changing environment through its configuration of resources with the aim of fulfilling stakeholder expectations. (Johnson et al. 2005)’ Strategy deals with long term objectives, and plans the path needed in order to achieve those goals, without stressing individual activities. There are 4 broad strategic objectives: Costs, Revenue, Capital Employed and Future Investment. However, long-term strategy goals cannot be reached without operations strategy, the day to day tasks and activities of the operation. These have a vital strategic impact, and the implementation of the operations resources is vital to a company’s sustained success, dealing with the market and what the operation has to do to meet current and future challenges, and gain competitive advantage. There are four perspectives on operations strategy: Top down perspective – operations strategy should interpret higher level strategy. Decisions are taken by the top management, which set the overall strategic direction of the company. Each function of the organisation needs to consider what part it plays in contributing to the strategic objective. E.g. all departments work toward quality. Bottom-up perspective – operations strategy should learn from day to day experience. Decisions are taken over time with ideas from all functions of the company or from customers. The organisation learns from experience, The Market Requirements Perspective – the market an organisation operates in influences the operations function to support its market position. The position is influenced by the market environment (customers and competitors) The Operations Resource – operations strategy should build on operations capabilities. This perspective implies a good understanding of an organisation’s capabilities. The organisation competes on operations resources, processes, routines and capabilities. Slack et al. (2007) state that there are 5 operations objectives by which organisations can measure their operations performance: Cost, Quality, Speed, Dependability and Flexibility. However, trying to excel in all five objectives may lead to confusion, because multiple objectives may conflict. Skinner (1969) pioneered the concept of ‘trade-off’, meaning that a company may sacrifice performance in one objective to achieve performance in other E.g. (Ryanair compromising on quality for cost). Therefore, organisations need to decide which objective is given priority, organisations being highly unlikely to succeed at all operations objectives. Quality Reeves and Bednar (1994) state that quality can have four values: excellence, value, conformance to specifications, and meeting and/or exceeding customers’ expectations. Greasley (2008) states that from an operations viewpoint, quality is related to how closely to product or service meets the specification required by the design, or the ‘quality of conformance’. The quality of conformance depends on specification which can either by hard (the physical aspects and features) and soft (service aspects such as attentiveness or friendliness, depending on interpersonal interactions). The major external benefits of excelling at this performance objective are that the services will have high specifications, and their delivery will be error-free. Internally, excelling at quality means error-free processes, internal reliability, and ultimately lower costs, which translate into a higher profit margin. Speed Speed is the time between the beginning of an operations process and the end. It can be both internal e.g. the time period between receiving the raw material and the moment they are fully processed and external e.g. the time it takes for a customer to receive a tourist brochure. The actual time is the time period of the production of a product or service. The internal benefits of excelling at speed are that bottlenecks and queues are avoided, and that the time delivery of a service or product to consumers is shorter, therefore overheads (such as storage and electricity) are

reduced. Externally, excelling at speed means that customers queue less and that their requests are being responded quickly, increasing customer satisfaction. Dependability Dependability refers to meeting a promised delivery time for a product or service given to a customer. It can be measured either by the percentage of customers that receive the goods or services on time, or by subtracting the actual delivery time from the due delivery time, which is the time requested by the customer or quoted by the operation. In this case, dependability is zero if the delivery on time, positive if early and negative if late. Nevertheless, in some cases it can be better if the goods or services are delivered on time, than earlier. I.e. seafood for an event. Internally, excelling at dependability means more internal stability, both higher confidence in the organisation and lower production costs. Externally, it gives organisations the opportunity to compete on a very reliable delivery time. Flexibility Flexibility is the ability of an organisation to change what it does quickly, to produce a greater variety of products or services or operate at different output values. Flexibility can be measured in terms of range (how much the operation can be changed) or response (how fast the operation can be changed). Different types of flexibility can be observed: Product or service flexibility: introduce new products/services Mix flexibility: provide a wide range of product/services Volume flexibility: change the output (seasonal fluctuations in tourism) Delivery flexibility: ability to react to changes in delivery dates Internally, excelling at flexibility makes an organisation have better responses to unpredicted events and to accommodate a wide variety of consumer requests. The external benefits are the ability to provide new products and services to meet consumer demand. Cost Cost is the most important performance objectives, the ability of producing at a low cost translating into lower prices for customer, low prices being a strong tool used to gain competitive advantage, being universally attractive. An organisation has 3 categories of cost: Operating expenditure: labour, rent, bills Capital expenditure: buildings, land, machinery Working capital: difference between inflows and outflows of cash If an organisation has excellent operations performance in cost, it can gain competitive advantage by offering their products/ services to consumer at a low price. Internally, low costs mean higher profit margins. Ultimately, if an organisation has excellent operations performance in any of the 5 objectives, it will benefit of massive benefits, both internal and external. Nevertheless, competitive priorities need to be determined on which to base the operations strategy....