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Level 1 - Fit

Align resources with requirements. Level 1 - Fit. Develop sustainable competitive advantage. Increasing complexity. Level 2 - Sustainability . Include impact of uncertainty. Level 3 - Risk. This chapter examines the third level of the operations strategy process – risk.

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Level 1 - Fit

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  1. Align resources with requirements Level 1 - Fit Develop sustainable competitive advantage Increasing complexity Level 2 - Sustainability Include impact of uncertainty Level 3 - Risk This chapter examines the third level of the operations strategy process – risk

  2. 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) Real fit over time (‘requirements evolve and capabilities evolve’) Line of fit Level of market requirements B A Level of operations resource capability

  3. B y2 x2 Pure operations risk Line of fit Level of market requirements A y1 Level of operations resource capability x1

  4. E F Speculative operations-related risk Line of fit Level of market requirements y4 D y5 C y3 Level of operations resource capability x3 x5 x4

  5. CAUSATIVE EVENT(S) NEGATIVE CONSEQUENCE Risk and the operations transformation model

  6. 1985 1998 Line of fit Level of market requirements H y8 y7 I y6 G Level of operations resource capability x6 x7 Speculative operations-related risk at Monsanto (1985-1998)

  7. 5.00 Line A Increasingly risk averse 4.00 Line B 3.00 0 20 25 30 35 40 45 50 55 60 Age Age and risk-taking profile

  8. Line of fit Level of market requirements y10 K L y9 J Level of operations resource capability x8 x9 x10 Subjective operations failure

  9. OPERATING CONTEXT CAUSATIVE EVENT(S) (corroded storage tank leaks) NEGATIVE CONSEQUENCE (?) The influence of context on causative events and negative consequences

  10. 4. The negative consequences for all possible stakeholders. This might include generic groups such as ‘concerned citizens’, politicians and media. 3. The negative consequences for immediate stakeholders (i.e. staff, managers, customers, neighbours). Prone to greater subjective interpretation. Generic stakeholder concerns Specific stakeholder concerns Specific operations process concerns 1. The direct (physical and temporal proximity etc.) negative consequences of an operational incident. 2. The negative consequences for the entire operations process. Might be separated from specific incident by space and time. Specific event Layers on context for understanding negative consequences

  11. Prevention Recovery Mitigation Three risk control strategies Negative consequences Causative event(s)

  12. [1] Degree of coupling in the operation Loose Tight Major [2] Potential crisis [4] [3] Causal event (failure) Probable control through mitigation [5] [6] Minor Coupling, mitigation and recovery

  13. Very undesirable: low pay-off and high risk A X Spread of pay-offs for decision B Y Very desirable: high pay-off and low risk The risk-return diagram

  14. mean HIGH Probability Value of firm LOW Today Low 2 years High Time Uncertainty cone and outcome distribution Based on Amram and Kulatilaka, 1999)

  15. Cone of uncertainty for investment Operational assets and capabilities Cone of external uncertainty Assets and capabilities modifying exposure to uncertainty

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