reciprocal integration of global operations...

RECIPROCAL INTEGRATION OF GLOBAL OPERATIONS STRATEGY INTO

RESOURCE ALLOCATIONS BY TECHNOLOGY RANKINGS

ENEGEP’2012 KEYNOTE, BRAZIL 2012-10-17

Background and Objective

The growing role of technology cannot be underestimated nowadays as it brings vast number of opportunities for business development, growth and strengthen of the competitive advantages, ICT!

Knowledge and technology requirements should be taken into account in resource allocations for operations strategies. Tekhne, in Greek means know how i.e. how to use a technical tool.

Resource Based View of the Firm (Wernerfelt 1984) and Sustainable Competitive Advantage (SCA, by ‘resources that can’t be mimicked in operations’, Barney 1990’s)

The study tries to find out operations strategies by ‘Sense and Response’ (S&R) resource allocations and vice versa (reciprocally) to achieve Sustainable Competitive Advantage (SCA) in a dynamic business environment - - Constructive Research Approach in Business Science (Kasanen, Lukka, Siitonen, 1993).

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STR FOG

VISIO

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Dynamic Capabilities, Turbulent Business Environment

Market

Changes

Changes in

Firm’s

Business

Environment

Database 1

Database 2

Dynamic Capabilities

Market

Changes

Strategic

Capability

Innovativeness

& resources

Operational

excellence

Business

Results

HOW?

•Decentralized decision making

process

* Mass customization

* Modularity

* Flow Technology

* R&D Output

Actions

Actions

Actions

Actions

Sustainable Competitive Advantage (SCA)

Strategy Operation Strategy

S&R Future Strategy

Sustainable Competitive Advantage

SCA

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The First Case companies from Finland (more soon)

The investigation was based on analysis of the following companies:

TEAK (Leading Technology and Training Center in Scandinavia, www.teakoy.fi, a couple of

slides enclosed),

The Switch (components for renewable energy /wind and solar, www.theswitch.com) and

Vacon (power electronics; frequency converters for drives etc, www.vacon.com).

The chosen research method was survey; the interviewee focus group consisted of the

highly experienced respondents with high level of expertise.

Nevertheless, the main limitation of the research is the small sample – little number of

participants.

Creating the correlation (1)

What might be the competitive operations and technology strategies in the

global race for Finland when the world economy is growing especially in Asia

(‘China Effect’)?

The study tries to find out the operations strategies by ‘Sense and Response’

(S&R) resource allocations and vice versa. Miles & Snow (Miles, Snow, 1978

and Takala, 2007) competitive categories (prospector, analyzer, defender or

reactor) might be integrated into S&R resource and technology allocations by

the attributes of S&R based OP (striving for operations strategies)

questionnaire utilized in RAL Model (Takala, 2007) according to the influence of

the Cost, Time, Quality or Flexibility attributes to OP performance.


The fig demonstrates the spreading of the attributes evaluating Operations performance (OP

questionnaire) in a company among the key sections of RAL model.


The importance of different technological levels (Basic, Core or Spearhead), in technology-based

businesses, affects a lot the strategy implementation by the knowledge required, and supports the

company’s success in the competitive category chosen. The figure below shows technology

rankings for every OP attribute when the same total value (100%) has assumed to be given for all

of them (in practice different total values have to be introduced from general strategies).

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Basic % Core % Spearhead %

Expectations vs. Experiences

The average level of expectations are higher than the actual level of experiences, which means thatthe stated targets were not fully achieved.

The op. competitiveness can be built by Sand Cone layers by the performance gaps ‘in the rightorder’ (Takala et al Management Decision 2005).

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Average of expectation Average of experiences

The CFI’s prehistory

Digital Signal Correction (Analogy)

The core idea of the critical areas

development, proposed by Dr. Josu

Takala. The scheme demonstrates

the instability of the attributes

affecting the business performance

of a company in time.

Sense and Repond (example)

SENSE & RESPOND QUESTIONNAIRE COMPANY:

Expectations ExperiencesDirection of Development,

expectations (future)

Direction of Development,

experiences (past)Compared with competitors

Knowledge/technology requirement

ATTRIBUTES (1-10) (1-10) Worse Same Better Worse Same Better Worse Same Better Basic % Core % Spearhead %

Knowledge & Technology Management

Training and development of the company's personnel

Innovativeness and performance of research and development

Communication between different departments and hierarchy levels

Adaptation to knowledge and technology

Knowledge and technology diffusion

Design and planning of the processes and products

Processes & Work flows

Short and prompt lead-times in order-fulfilment process

Reduction of unprofitable time in processes

On-time deliveries to customer

Control and optimization of all types of inventories

Adaptiveness of changes in demands and in order backlog

Organizational systems

Leadership and management systems of the company

Quality control of products, processes and operations

Well defined responsibilities and tasks for each operation

Utilizing different types of organizing systems (projects, teams, processes...)

Code of conduct and security of data and information

Information systems

Information systems support the business processes

Visibility of information in information systems

Availability of information in information systems

Quality & reliability of information in information systems

Usability and functionality of information systems

SENSE AND RESPOND QUESTIONNAIRE

This questionnaire measures organization's opinions about business performance of the company. All boxes must be filled in

order to form a useable answer.

Explanations:

Expectations = What is the level of expectations for an attribute in a scale of 1-10

Experiences = What is the level of experiences for an attribute in a scale of 1-10

Direction of development (future) = Direction of development compared to the situation expected 1 year after this questionnaire

Direction of development (past) = Direction of development compared to the situation 2 years before this questionnaire

Compared with competitors = Level of experiences compared to the competitors

Knowledge/technology requirement = evaluate how the required technology is divided between basic-, core- and spearhead technologies. The row total should be 100 %.

Critical Factor Index (CFI)

‘The CFI method is a measurement tool to indicate which

attribute of a business process is critical and which is not, based

on the experience and expectations of the company’s employees,

customers or business partners’. (Ranta, Takala, 2007)

Balanced Critical Factor Index (BCFI) is a modified CFI index for the

most critical factors affecting the operational performance.

BCFI is a strategic decision-making technique. In the current

business environment fast adaptation and development can be

considered as one of the most important strengths (Fast / Agile

Implementation of Strategy).

Analytical models –Sense & Respond

o Critical factor index (CFI)

- Purpose is to find the critical attributes for new resource allocations in the business processes.

- The smaller the value the more critical the attribute.

Figure. Critical Factor Index (CFI). (Ranta & Takala IJSS 2007)

Technology rankings: the general formulas (future period)

RED ATTRIBUTES, when dominating technology is:

- Basic technology => (B)CFI / (B% / 100);

- Core technology => (B)CFI * (C% / 100)2;

- Spearhead technology => (B)CFI * (SH% / 100)3.

YELLOW ATTRIBUTES, when dominating technology is:

- Basic technology => (B)CFI * (B% / 100);

- Core technology => (B)CFI / (C% / 100);

-Spearhead technology => (B)CFI / (SH% / 100)2.

GREEN ATTRIBUTES, when dominating technology is:

- Basic technology => (B)CFI / (B% / 100);

- Core technology => (B)CFI * (C% / 100)2;

- Spearhead technology => (B)CFI * (SH% / 100)3.

NOTE: The dominating technology is one with value more than 43%; in case all of the technology

levels are less than 43% the one with the biggest value is dominating.

Teak is…Education&Technology for Wood and Furniture

从事以下木业与家具方面的专业教育从事以下木业与家具方面的专业教育从事以下木业与家具方面的专业教育从事以下木业与家具方面的专业教育

• carpenters and joiners木工和细木工木工和细木工木工和细木工木工和细木工

• Upholstery内饰内饰内饰内饰

• surface finishing表面精加工表面精加工表面精加工表面精加工

• restoration家具修复复原家具修复复原家具修复复原家具修复复原

TEAK: BCFI’s & Technology (future)

The arrows on the top of the columns show the direction of attributes change in case of

application both of BCFI results, the arrows’ color relates attributes with the critical (red and

yellow) or non-critical (green) category. The same logic is further used in similar type of graphics.

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BCFIs & Technology (2011-2015)

TEAK: Spread of technology levels

The figure demonstrates the importance rate of technology levels for every attribute. The

information is useful as it helps to understand additional ways of performance control and

improvement for every listed attribute.

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Basic (%) Core (%) Spearhead (%)

CASE W: BCFI’s & Technology (future)




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Case W: Spread of technology levels




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CASE D: BCFI’s & Technology (future)




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Case D: Spread of technology levels




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Case D: Implication-variability coefficients; challenging!

The following figure shows the level of deviation between the participants’ responses. In other

words, it is the separated summaries of variability coefficients for Technology, Experiences and

Expectations rankings given by the respondents. The lower the value of an attribute the more

reliable the result is.

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0,75

1,50

2,25

3,00

Technology IMPL



S&R Future Strategy


�� 1 �� 0

Case D: Sustainable Competitive Advantage (SCA)

o We are interested in utilizing resource allocations with dynamic capabilities in a way to

understand, if the direction of development is the right one to make sure that we are

following the strategy chozen .

o Therefore the validation is based on several methodologies: open interviews of the

managers/experts, MSI - Manufacturing Strategy Index (Takala, Kamdee, Hirvelä,

Kyllonen, 2007), method of detection a company’s preferable strategy type through utilization

of Sense & Respond resource allocations (Golovko, 2012) and DEA (Data Envelopment

Analysis by numerical Input Output data from the past, not presented in here)

o In principle we can make the analysis based on corresponding angles of the strategic

triangle (Prospector, Analyzer, Defender) with Strategy (S) and Resource Allocation (R)

points of view in different groups of informants to compare different situations

(longitudinally from year to year, between industries / companies / technologies /

products / customer groups / marketing areas etc.) between different

interest/stakeholder groups.

The key area of interest

SCA

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Building the method (2)

The angles need to be measured correspondingly from MSI and S&R

Methodologies so there are two different sets of values in result. MSI refers to

Operation Strategy (S), and S&R refers to Resource Allocation (R).

0,8400

0,8700

0,9000

0,9300

0,9600

Prospector

AnalyzerDefenderα γ

β

Building the method (1)

o The validation is based on responses received from Case D. There are two focus groups for validation in

the company: Group 1 (Global Plant Managers) and Group 2 (Global Purchazing Experts).

o It has been decided to utilize the angles values, as they more accurately reflect the direction of

strategy implementation, therefore may be well monitored. To achieve the necessary level of results

reliability, three methods of validation are proposed to be used: MAPS, RMSE and MAD. Therefore, SCA

is between 0 to 1, the more SCA resulting value, the better.

Where SUMi and angle B (in radians), max π go from alpha, beta and gamma angles corresponding

analysis in Defender, Prospector and Analyzer categories. And, S refers to op strategy (MSI) and R to

S&R (BCFI) resource allocation (either in Past or Future).

MAPE (ABSOLUTE PERCENTAGE ERROR):

SCA = 1 - SUMi (ABSi ((BS-BR) / BS)

RMSE (ROOT MEANS SQUARED ERROR):

SCA = 1 - (SUMi ((BS-BR) / BS)^2)^1/2

MAD (MAXIMUM DEVIATION):

SCA = 1 – MAX (ABSi ((BS-BR) / BS)

Weak Market Test (from the case D)

GROUP MAPE RMSE

I (past)

BS

0.98 0.88

BR

II (past)

BS

0.87 0.66

BR

I (future)

BS

1.00 0.94

BR

II (future)

BS

0.89 0.77

BR

COMBINED (past)

BS

0.97 0.90 0.94

BR

COMBINED (future)

BS

0.95 0.88 0.91



S&R Future Strategy


Conclusions

First Conclusions:

We need to pay attention to the fact that MAPE and RMSE results are quite close toeach other:

- PAST: for Group 1 RMSE demonstrates more sensitivity compared to MAPE, butfor Group 2 we see opposite situation - MAPE is better (RMSE might be toosensitive).

- FUTURE: RMSE shows better result for both Groups 1 and 2; MAPE seems notto be sensitive enough.

The potential of the SCA method is huge The methods proposed and even some newones (like the most dominating/maximum deviation MAD) need to be validated withbigger number of organizations to find out the best formula for strategic directionvalidation

ConclusionThe results about reciprocal movements between operations

strategy and S&R allocations for SCAs seem to work. The

directions in the changes basing on Basic, Core and Spear Head

technologies and SCA analyses are according to interviews

correct.

The variability coefficients - - Implication factors in technology

rankings-- seem mostly to be acceptable (below 1).

The (B)CFI extension by Technology and Knowledge is at the very

early stage of development. It, and some of its modifications like

SCFI for small samples, has been tested only in few case

companies.

Thanks/Comments Qs?/Invitation

We invite you to participate in the global

manufacturing (services) studies for sustainable

competitive advantage SCA with joint

theoretical/case studies and joint

publicatitions!

Prof Josu Takala, [email protected]

(Research Prof sabbatical, 2012-13, Professoripooli/Finland)

reciprocal integration of global operations...

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