Selected Ch3 & Ch4 PPTs

1. Selected Ch3 & Ch4 PPTs

2. OM2 CHAPTER 3 MEASURING PERFORMANCE IN OPERATIONS DAVID A. COLLIER AND JAMES R. EVANS

3. Chapter 3 Measuring Performance in Operations Why Measure Performance? Managers make many important decisions that affect how an organization provides value to its customers. To know if decisions are effective and to guide the organization on a daily basis, they need a means of understanding performance at all levels of the organization, as well as in operations.

4. Chapter 3 Measuring Performance in Operations What is Measurement? Measurementis the act of quantifying the performance criteria (metrics) of organizational units, goods and services, processes, people, and other business activities.

5. Exhibit 3.1 The Scope of Business and Operations Performance Measurement

6. Chapter 3 Measuring Performance in Operations • Linking Internal and External Performance Measures • Managers must understand the cause and effect linkages between key measures of performance. These relationships often explain the impact of operational performance on external results. • The quantitative modeling of cause and effect relationships between external and internal performance criteria is called interlinking.

7. Chapter 3 Measuring Performance in Operations Designing Performance Measurement Systems in Operations What makes a good performance measurement system for operations? Good performance measures are actionable,providing the basis for decisions at the level at which they are applied. A systematic process is required to generate useful operational performance measures.

8. Chapter 3 Measuring Performance in Operations • Models of Organizational Performance • Malcolm Baldrige National Quality Award Framework • Balanced Scorecard • Value Chain Model • Service-Profit Chain Model

9. Chapter 3 Measuring Performance in Operations • Malcolm Baldrige National Quality Award Framework • Organizations receive the awards in each of the categories of manufacturing, small business, service, nonprofit education, and health care. • Primary purpose of the program is to provide a framework for performance excellence through self-assessment to understand an organization’s strengths and weaknesses, thereby setting priorities for improvement. • www.baldrige.gov

10. Malcolm Baldrige National Quality Award Model of Organizational Performance Exhibit 3.3

11. Chapter 3 Measuring Performance in Operations The Balanced Scorecard Model Consists of four performance perspectives: • Financial • Customer • Innovation and Learning • Internal

12. Exhibit 3.4 The Balanced Scorecard Performance Categories and Linkages Source: Kaplan R. S., and Norton, D. P., “The Balanced Scorecard—Measures That Drive Performance,” Harvard Business Review, January–February 1992, p. 72.

13. OM2 CHAPTER 4 OPERATIONS STRATEGY DAVID A. COLLIER AND JAMES R. EVANS

14. Chapter 4 Operations Strategy • Competitive Priorities • Competitive advantage denotes a firm’s ability to achieve market and financial superiority over its competitors. • Competitive priorities represent the strategic emphasis that a firm places on certain performance measures and operational capabilities within a value chain.

15. Chapter 4 Operations Strategy Understanding Customer Requirements A Japanese professor, Noriaki Kano, suggested three classes of customer requirements: Dissatisfiers: requirements that are expected in a good or service. If these features are not present, the customer is dissatisfied, sometimes very dissatisfied. Satisfiers: requirements that customers say they want. Exciters/delighters: new or innovative good or service features that customers do not expect. Examples?

16. Chapter 4 Operations Strategy • Understanding Customer Requirements • Basic customer expectations—dissatisfiers and satisfiers—are generally considered the minimum performance level required to stay in business and are often called order qualifiers. • Order winners are goods and service features and performance characteristics that differentiate one customer benefit package from another, and win the customer's business.

17. Chapter 4 Operations Strategy • Understanding Customer Requirements • Search attributes are those that a customer can determine prior to purchasing the goods and/or services. These attributes include things like color, price, freshness, style, fit, feel, hardness, and smell. • Goods such as supermarket food, furniture, clothing, automobiles, and houses are high in search attributes.

18. Chapter 4 Operations Strategy • Understanding Customer Requirements • Experience attributes are those that can be discerned only after purchase or during consumption or use. • Examples of these attributes are friendliness, taste, wearability, safety, fun, and customer satisfaction.

19. Chapter 4 Operations Strategy • Understanding Customer Requirements • Credence attributes are any aspects of a good or service that the customer must believe in, but cannot personally evaluate even after purchase and consumption. • Examples would include the expertise of a surgeon or mechanic, the knowledge of a tax advisor, or the accuracy of tax preparation software.

20. Chapter 4 Operations Strategy • Customers evaluate services in ways that are often different from goods, such as: • Customers seek and rely more on information from personal sources than from non-personal sources when evaluating services prior to purchase. • Customers use a variety of perceptual features in evaluating services. • Customers normally adopt innovations in services more slowly than they adopt innovation in goods. • Customers perceive greater risks when buying services than when buying goods. • Dissatisfaction with services is often the result of customers’ inability to properly perform or co-produce their part of the service. • These insights help to explain why it is more difficult to design services and service processes than goods and manufacturing operations.

21. Chapter 4 Operations Strategy Competitive Priorities • Cost • Quality • Time • Flexibility • Innovation

22. Chapter 4 Operations Strategy • Competitive Priorities • Every organization is concerned with building and sustaining a competitive advantage in its markets (see BMW). • A strong competitive advantage is driven by customer needs and aligns the organization's resources with its business opportunities. • A strong competitive advantage is difficult to copy, often because of a firm’s culture, habits, or sunk costs.

23. Chapter 4 Operations Strategy • Competitive Priority – Cost • Almost every industry has a low price market segment. • Low-cost strategy firms: Honda Motor Co., Marriott's Fairfield Inns, Merck-Medco On-line Pharmacy, Southwest Airlines, and Wal-Mart's Sam's Club. • Southwest Airlines is one of the few airlines that have been profitable during the 2001-2005 period. A low cost strategy can reshape industry structure such as in the airline industry (see Southwest Airlines).

24. Chapter 4 Operations Strategy • Competitive Priority – Quality • PIMS Associates, Inc., a subsidiary of the Strategic Planning • Institute, found that: • Businesses offering premium quality goods usually have large market shares and were early entrants into their markets. • Quality is positively and significantly related to a higher return on investment for almost all kinds of market situations. • A strategy of quality improvement usually leads to increased market share, but at a cost in terms of reduced short-run profitability. • High goods quality producers can usually charge premium prices.

25. Exhibit 4.2 Interlinking Quality and Profitability Performance

26. Chapter 4 Operations Strategy • Competitive Priority – Time • Time is perhaps the most important source of competitive advantage. • Customers demand quick response, short waiting times, and consistency in performance. • Many firms use time as a competitive weapon to create and deliver superior goods and services, such as Charles Schwab, Clarke American Checks, CNN, Dell, FedEx, and Wal-Mart.

27. Chapter 4 Operations Strategy • Competitive Priority – Flexibility • Mass customization is being able to make whatever goods and services the customer wants, at any volume, at any time for anybody, and for a global organization, from any place in the world.

28. Chapter 4 Operations Strategy • Competitive Priority – Innovation • Innovationis the discovery and practical application or commercialization of a device, method, or idea that differs from existing norms. • Innovations in all forms encapsulate human knowledge.

29. Chapter 4 Operations Strategy • Pal’s Strategic Planning Process • Values are attitudes and policies for all employees to follow that direct the journey to achieving the organization’s vision. • Values are reinforced through conscious and subconscious behavior at all levels of the organization.

30. Chapter 4 Operations Strategy • Pal’s Strategic Planning Process • The strategic mission of a firm defines its reason for existence. • The strategic vision describes where the organization is headed and what it intends to be. • Pal’s strategic vision is • Vision Statement • To be the preferred quick service restaurant in our market achieving the largest market share by providing: • The quickest, friendliest, most accurate service available • A focused menu that delights customers • Daily excellence in our product, service, and systems execution • Clean, organized, sanitary facilities • Exceptional value

31. Chapter 4 Operations Strategy • Pal’s Operations Strategy • What kind of an operations strategy might a company like Pal’s Sudden Service have? What are the OM implications? • The quickest, friendliest, most accurate service available. • A focused menu that delights customers. • Daily excellence in product, service, and systems execution. • Clean, organized, sanitary facilities. • Exceptional value.