Danone’s path to B Corporation 2
Stage 4 Give an
2.3 Diagnostic question: Does operations strategy align with market requirements (outside-in)?
2.3 Diagnostic question: Does operations strategy align
2.3 Diagnostic question: Does operations strategy align with market requirements (outside-in)?
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• Flexibility – the ability to vary or adapt the operation’s activities to cope with unexpected circumstances or to give customers individual treatment, or to introduce new products or services.
• Cost – producing goods and services at a cost that enables them to be priced appropriately for the market, while still allowing a return to the organisation (or, in a not-for-profit organ- isation, giving good value to the taxpayers or whoever is funding the operation).
The exact meaning of performance objectives is different in different operations
Different operations will have different views of what each of the performance objectives actu- ally mean. Table 2.2 looks at how two operations, an insurance company and a steel plant, define each performance objective. For example, the insurance company sees quality as being at least as much about the manner in which their customers relate to their service, as it does about the absence of technical errors. The steel plant, on the other hand, while not ignor-
ing quality of service, primarily emphasises product-related technical issues.
Although they are selecting from the same pool of factors, which together constitute the generic performance objective, they will emphasise different elements.
Sometimes operations may choose to re-bundle elements using slightly dif- ferent headings. For example, it is not uncommon in some service operations OPERATIONS PRINCIPLE
Operations performance objectives can be grouped together under quality, speed, dependability, flexibility and cost.
Insurance company
Performance objectives
Steel plant Aspects of each performance
objective include:
Aspects of each performance objective include:
• Professionalism of staff
• Friendliness of staff
• Accuracy of information
• Ability to change details in future
Quality • Percentage of products conform- ing to their specification
• Absolute specification of products
• Usefulness of technical advice
• Time for call centre to respond
• Prompt advice response
• Fast quotation decisions
• Fast response to claims
Speed • Lead time from enquiry to quotation
• Lead time from order to delivery
• Lead time for technical advice
• Reliability of original promise date
• Customers kept informed
Dependability • Percentage of deliveries ‘on-time, in-full’
• Customers kept informed of delivery dates
• Customisation of terms of insur- ance cover
• Ability to cope with changes in circumstances, such as level of demand
• Ability to handle wide variety of risks
Flexibility • Range of possible sizes, gauges, coatings, etc.
• Rate of new product introduction
• Ability to change quantity, com- position and timing of an order
• Premium charged
• Arrangement charges
• ‘No-claims’ deals
Cost • Price of products
• Price of technical advice
• Discounts available Table 2.2 Aspects of performance objectives for two different kinds of operations
to refer to ‘quality of service’ as representing all the competitive factors we have listed under quality, speed and dependability (and sometimes aspects of flexibility). For example, information network operations use the term ‘qual- ity of service’ (QoS) to describe their goal of providing guarantees on the ability of a network to deliver predictable results. This is often specified as including uptime (dependability), bandwidth provision (dependability and flexibility), latency or delay (speed of throughput) and error rate (quality). In practice, the issue is not so much one of universal definition but rather consistency within one, or a group, of operations. At the very least it is important that individual companies have it clear in their own minds how each performance objective is to be defined.
The relative priority of performance objectives differs between businesses
The idea behind the outside-in perspective is that businesses that compete in different ways should want different things from their operations functions.
Therefore, not every operation will apply the same priorities to its performance objectives. There should be a clear logical connection between the competitive stance of a business and its operations objectives. For example, a business that competes primarily on low prices and ‘value for money’ should place empha- sis on operations objectives such as cost, productivity and efficiency; one that competes on a high degree of customisation of its services or products should place an emphasis on flexibility, and so on. Many successful companies understand the importance of making this connection between their message to customers and the operations performance objectives that they emphasise.
Order-winners and qualifiers
A particularly useful way of determining the relative importance of competitive factors is to distinguish between what have been termed ‘order-winners’ and
‘qualifiers’. Figure 2.6 shows the difference between order-winning and quali- fying objectives in terms of their utility, or worth, to the competitiveness of the organisation. The curves illustrate the relative amount of competitiveness (or attractiveness to customers) as the operation’s performance varies.
Figure 2.6 Order-winners and qualifiers: order-winners gain more business the better they are performed; qualifiers are the ‘givens’ of doing business
Low High
Negative Positive
Neutral
Achieved performance Order-winners
Qualifiers
Competitive benefit derived from the performance objective
Qualifying level of performance OPERATIONS PRINCIPLE
The interpretation of the five performance objectives will differ between different operations.
OPERATIONS PRINCIPLE The relative importance of the five performance objectives depends on how the business competes in its market.
OPERATIONS PRINCIPLE
Operations strategy should reflect the requirements of the business’s markets.
2.3 Diagnostic question: Does operations strategy align with market requirements (outside-in)?
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Order-winners
– are those things that directly and significantly contribute to winning business. They are regarded by customers as key reasons for purchasing the product or service.Raising performance in an order-winner will either result in more business or improve the chances of gaining more business. Order-winners show a steady and significant increase in their contribution to competitiveness as the operation gets better at providing them.
Qualifiers
– may not be the major competitive determinants of success, but are important in another way. They are those aspects of competitiveness where the operation’s performance has to be above a particular level just to be considered by the customer. Performance below this ‘qualifying’ level of performance may disqualify the operation from being considered by customers. But any further improvement above the qualifying level is unlikely to gain the company much competitive benefit. Qualifiers are those things that are generally expected by customers. Being great at them is unlikely to excite customers, but being bad at them can disadvantage the competitive position of the operation.Different customer needs imply different objectives
If, as is likely, an operation produces goods or services for more than one customer group, it will need to determine the order-winners and qualifiers for each group. For example, Table 2.3 shows two ‘product’ groups in the bank- ing industry. Here the distinction is drawn between the customers who are looking for banking services for their private and domestic needs, and the cor- porate customers who need banking services for their (often large) businesses.
The product/service life cycle influence on performance objectives
One way of generalising the market requirements that operations need to fulfil is to link them to the life cycle of the products or services that the operation is producing. The exact form of
Performance objective Retail banking Corporate banking
Products Personal financial services such as loans and credit cards
Special services for corporate customers
Customers Individuals Businesses
Product range Medium but standardised, little need for special terms
Very wide range, many need to be customised
Design changes Occasional Continual
Delivery Fast decisions Dependable service
Quality Means error-free transactions Means close relationships Volume per service type Most services are high volume Most services are low volume Profit margins Most are low to medium, some
high
Medium to high
Order-winners Price
Accessibility Speed
Customisation Quality of service Reliability
Qualifiers Quality
Range
Speed Price Performance objectives empha-
sised within the processes that produce each service
Cost Speed Quality
Flexibility Quality Dependability Table 2.3 Different banking services require different performance objectives OPERATIONS PRINCIPLE
Different customer needs imply different priorities of performance objectives.