Sometimes a firm’s operations strategy can change an industry. Look at space satellites. They can be expensive – very expensive. And in the early days of space missions, only superpowers could afford to develop and launch them. The conventional wisdom was that space was such a hostile environment that satellites would have to be constructed using only expensive, specially developed components. Yet in the late 1970s this assumption was challenged by Sir Martin Sweeting, who then was study- ing for his PhD at the University of Surrey in the UK. The aerospace research team in the Electrical Engineering Department at the University of Surrey had built its first satellite using commercial off-the-shelf components. It was about as big as two microwave ovens, weighing in at 72 kg (by contrast, some of the satellites being launched by government space agencies were as large as a London double-decker bus). It was launched in 1981 with the help of NASA. The team followed this up in 1984 with a second satellite that they built in just six months. A year later Sur- rey Satellite Technology Limited (SSTL) was formed. The firm’s vision was to open up the market for space explo- ration by pioneering the use of small and relatively cheap, but reliable, satellites built from readily available off-the- shelf components. It was a revolutionary idea. Now SSTL is the world’s leading small satellite company, and has delivered space missions for a whole range of applications including Earth observation, science, communications and in-orbit technology demonstration. The company is at the forefront of space innovation, exploiting advances in tech- nologies and challenging conventions to bring affordable space exploration to international customers. The com- pany, which employs more than 500 staff, has launched over 40 satellites and is based across four sites in south- east England. Since 2014 SSTL has been an independent company within the Airbus Defence and Space group.
How has SSTL achieved this success from such small beginnings? Partly because it was an early player in the market, having the vision to see that there would be a market for small satellites that could serve the ambi- tions of smaller countries, companies, research groups and even schools. But in addition, it has always been innovative in finding ways of keeping the cost of build- ing the satellites down. SSTL pioneered the low-cost, low-risk approach to delivering operational satellite mis- sions within short development timescales and with the capability that potential customers wanted. Particularly
important was the company’s use of commercial off-the- shelf technology. In effect, using industry-standard parts meant exploiting the (often enormous) investments by consumer-electronics companies, auto-part manufactur- ers and others who had developed complex components for their products. Even if this sometimes limited what a satellite could do, it provided the scale economies that would be impossible if they were designing and making customised components from scratch. ‘We were being parasitic, if you like,’ admits Sir Martin.
However, not all commercially available components made for terrestrial use are up to coping with conditions in space, which is a hugely important issue. Reliability is essential in a satellite. (It’s difficult to repair them once in space.) And even though off-the-shelf components and systems have become increasingly reliable, they must be rigorously tested to make sure that they are up to the severe conditions found in space. Knowing which bits can be used and which cannot is an important piece of knowledge. Yet, although individual components and systems are often bought off the shelf, the company does most of its operations activities itself. This allows SSTL to provide a complete in-house design, manufacture, launch and operation service, as well as a range of advice, analy- sis and consultancy services. ‘What distinguishes us is our vertically integrated capability, from design and research to manufacturing and operations,’ says Sir Martin. ‘We don’t have to rely on suppliers, although of course we buy-in components when that is advantageous.’ And innovation?
It’s still as important as it was at the company’s start.
Paul Fleet/Alamy Stock Photo
(and indeed the text as a whole): to show how, by using the principles of operations strategy, all parts of any business (and all functions of a business) can contribute effectively to the over- all success of that business. So the idea of ‘operations strategy’ has two different but related
2.1 Diagnostic question: Does the operation have a strategy?
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meanings. The first is concerned with the operations function itself, and how it can contribute to strategic success. The second is concerned with how any function can develop its resources and processes to establish its strategic role.
Look at the case example on SSTL. They exhibited several important characteristics that one finds in many successful companies. First, they were innovative in how they exploited the potential of emerging technologies. They realised that, with clever design, relatively inexpen- sive components could achieve a large part of what far more costly components could. Second, SSTL linked the development of their operations to a well-defined idea of what their customers wanted. All aspects of their operations strategy had clear customer benefits. Third, they learned from their experience. A key part of SSTL’s core knowledge is which components can stand up to conditions in space. Finally, and most significantly, they actually did have an operations strategy; they realised the importance of strategically directing their operations resources. SSTL did not ignore the strategic potential of their operations resources and processes.
How do you judge an operations strategy?
There are some problems in asking this apparently simple question. In most operations man- agement decisions you can see what you are dealing with. You can touch inventory, talk to people, programme machines, and so on. But strategy is different. You cannot see a strategy, feel it or touch it. Also, whereas the effects of most operations management decisions become evident relatively fast, it may be years before an operations strategy decision can be judged to be a success or not. Moreover, any ‘strategy’ is always more than a single decision. Operations strategy will be revealed in the total pattern of decisions that a business takes in developing its operations in the long term. Nevertheless, the question is an obvious starting point and one that must be addressed by all operations.
An operations strategy should take significant stakeholders into account
All operations have stakeholders. They are the people and groups who have a legitimate inter- est in the operation’s strategy. Some are internal (employees); others are external (customers, society or community groups, and a company’s shareholders). External stakeholders may have a direct commercial relationship with the organisation (suppliers and customers); others may not (industry regulators). In not-for-profit operations, these stakeholder groups can overlap.
So, voluntary workers in a charity may be employees, shareholders and customers all at once.
However, in any kind of organisation, it is a responsibility of the operations function to under- stand the (often conflicting) objectives of its stakeholders and set its objectives accordingly.
Yet, although all stakeholder groups, to different extents, will be interested in operations per- formance, they are likely to have very different views on which aspect of performance is impor- tant. Table 2.1 identifies typical stakeholder requirements. But stakeholder relationships are not just one-way. It is also useful to consider what an individual organisation or business wants of the stakeholder groups themselves. Some of these requirements are illustrated in Table 2.1. The dilemma with using this wide range of stakeholders to judge performance is that organisations, particularly commercial companies, have to cope with the conflicting pressures of maximising profitability on the one hand with the expectation that they will manage in the interests of (all or part of) society in general with accountability and transpar- ency. Even if a business wants to reflect aspects of performance beyond its own immediate interests, how is it to do it?
Corporate social responsibility (CSR)
Strongly related to the stakeholder perspective of operations performance is that of corpo- rate social responsibility (generally known as CSR). It is generally taken to mean listening and responding to the needs of a company’s stakeholders, including the requirements of sustainable OPERATIONS PRINCIPLE
Operations strategy should take the requirements of significant stakeholders into account.
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Stakeholder groups What stakeholders want from the operation
What the operation wants from stakeholders
Shareholders Return on investment
Stability of earnings Liquidity of investment
Investment capital Long-term commitment
Directors/top management Low/acceptable operating costs Secure revenue
Well-targeted investment Low risk of failure Future innovation
Coherent, consistent, clear and achievable strategies
Appropriate investment
Staff Fair wages
Good working conditions Safe work environment Personal and career development
Attendance
Diligence/best efforts Honesty
Engagement
Staff representative bodies (e.g.
trade unions)
Conformance with national agreements
Consultation
Understanding Fairness
Assistance in problem solving Suppliers (of materials, services,
equipment, etc.)
Early notice of requirements Long-term orders
Fair price On-time payment
Integrity of delivery, quality and volume
Innovation Responsiveness
Progressive price reductions Regulators (e.g. financial
regulators)
Conformance to regulations Feedback on effectiveness of regulations
Consistency of regulation Consistency of application of regulations
Responsiveness to industry concerns
Government (local, national, regional)
Conformance to legal requirements
Contribution to (local/national/
regional) economy
Low/simple taxation Representation of local concerns
Appropriate infrastructure Lobby groups (e.g. environmen-
tal lobby groups)
Alignment of the organisation’s activities with whatever the group are promoting
No unfair targeting
Practical help in achieving aims (if the organisation wants to achieve them)
Society Minimise negative effects from
the operation (noise, traffic, etc.) and maximise positive effects ( jobs, local sponsorship, etc.)
Support for organisation’s plans Table 2.1 Typical stakeholders’ performance objectives
development, and building good relationships with employees, suppliers and wider society.
This issue of how broader social performance objectives can be included in operations man- agement’s activities is of increasing importance, both from an ethical and a commercial point of view. However, converting the CSR concept into operational reality presents considerable difficulties, although several attempts have been made. For example, the ‘triple bottom line’
approach that we described in the previous chapter is one of the best-known attempts to inte- grate economic, environmental and social impacts.