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Operational Excellence The origin of Operations Management and its strategic impact

Prof.dr.ir. Marcel van Assen

Structure of this master class

• Definition of OpX & strategic impact of OM/OpX

• Physics of OpX

• OpX for Services vs Industry

• Lean six sigma for OpX

• Implementation of OpX

Objectives

• Understand the origins of OpX and the efficiency paradigm

• Contemporary approach impacts strategy and financial

performance

• Know that OpX is a multi-disciplinary discipline Understand the physics of OpX (hard side): dynamics & variability

Understand human dynamics of OpX: leadership

• Understand the differences and similarities of industrial

environments and services

• Optimization and BPM & the use of lean and six sigma

tools

What is Operational Excellence? Proposition: • The objective of Operational excellence is to achieve the

lowest costs: cost cutting. • The focus is primarily on ultimate efficiency and the highest

productivity. • Quality must be realized against the lowest costs.

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What is Operations Management?

• The management area concerning the production and supply of goods, information and services,

• With the responsibility to realize efficient and effective operations.

• Het comprises… • the management of people (incl. capacity, skills and

knowledge) and resources (incl. capital, materials and technology),

• The distribution of goods and services to the final customer, and

• The analysis of queuing systems

Source: Wikipedia

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Origins of Operations Management • Adam Smith (1723–1790): Founder of the division of work with his

book An Inquiry into the Nature and Causes of the Wealth of

Nations (1776)

• Henry Ford (1863–1947) and Frederick Winslow Taylor (1856–

1915) are considered the founders of scientific management with

the book The principles of scientific management (1911):

1. Detailed analysis and improvement of work methods.

2. Thorough selection, training and development of employees.

3. The development of procedures and the standardization of

processes and activities.

4. The division of work and responsibilities between employees

and management

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Modern Times (1936)

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Strategy as an outside-in positioning dilemma

Competitive advantage (supply side)

Low Cost Uniqueness of product

Cost focus Differentiation focus

Cost leadership Differentiation

Small

Broad

targetCompetitive

Scope

(market side) Stuck in

the middle

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Market demands have changed dramatically since the sixties

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Figure 1.2 Market factors impacting on operations of Western

organizations Source: Goodman, M. (1995) Creative Management, Hemel Hempstead: Prentice Hall, p. 38

Simple trade-off models are not appropriate (anymore)

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CustomerIntimacy

OperationalExcellence

ProductLeadership

Minimal performance level

in the industryPeformance level

of market leaders

X

Modern flexibility requirements How many varieties are there of the BMW 7-series?

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High

Profitability

Low

Costs

Low Unit

Costs

High

Throughput

Less

Variability

High

Utilization

Low

Inventory

Quality

Product

High

Sales

Many

products

Fast

Response

More

Variability

High

Inventory

Low

Utilization

Short

Cycle Times

High Customer

Service

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Hierarchy of (conflicting) operational objectives

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Het interne dilemma bij streven naar winst uit zich in de paradox tussen: exploitatie versus exploratie, ofwel doelmatig versus doeltreffend, ofwel efficiëntie versus effectiviteit

I II

III IV

Eff

icie

nc

y /

ex

plo

ita

tio

n

Effectivity / exploration

Focus on exploration of new

value added activities

Focus on exploration of new

value added activities

Focus op initiatieven gericht op exploitatie

(Operational Excellence)

In-class Group assignment “Putting the service-profit chain to work”

• Why and/or when is a service-delivery system strategic?

• What are the prerequisites for a service-delivery system

to be strategic?

• How is this related to operational excellence

• Is dit model geldig in een non-profit

situatie en waarom wel/niet?

The links in the Service profit chain

Internal

service

quality

Employee

satisfaction

Employee

retention

Employee

productivity

External

service

value

Customer

satisfaction

Customer

loyalty

Revenue

growth

Profitability

-Workplace design

-Job design

-Employees selection and development

-Employee rewards and recognition

-Tools for serving customers

-Service concept:

results for customers

-Service designed and

delivered to meet targeted

customers’ need

-Retention

-Repeat business

-Referral

The links in the Service profit chain

Service

Delivery

Drivers

Results

World class service-providers understand the links

between their operational drivers and the business

results – there is a cause and effect chain between

operational drivers and business performance

The links in the Service profit chain

Employee

satisfaction

Employee

attraction

Customer

satisfaction

Customer

loyalty

Performance

Service

Delivery

Drivers

Results network

The links in the Service profit chain

Leadership

Vision

Concept

People

&

Culture

Strategy

Process

Planning &

coordination

Information

&

technology

Service

Delivery

Drivers network

Results

Employee

satisfaction

Employee

attraction

Customer

satisfaction

Customer

loyalty

Performance

Leadership

Vision

Concept

People

&

Culture

Strategy

Process

Planning &

coordination

Information

&

technology

Service

Delivery

The links in the Service profit chain Drivers network

Results network

Dupont-scheme

Verbeteren van de operational renewal en Continuous operational improvement.

Grote verbeteringen (operational renewal) en C.I. in kleine stapjes (operational improvement)

What is Operational Excellence? Proposition: • The objective of Operational excellence is to achieve the

lowest costs: cost cutting. • The focus is primarily on ultimate efficiency and the highest

productivity. • Quality must be realized against the lowest costs.

No, Operational Excellence… • focuses on an excellent production and service-

delivery system – the excellent exploitation of an integrated operating model/system to make and deliver the products and/or services;

• with the objective to maximize operational profit (not a sole focus on cost);

• is based on excellent Operations Management; • is basically a technical discipline, but so-called soft

disciplines like a culture of continuous improvement and leadership are also important.

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