Chapter 2 - Operations performance

Operations ‘performance’ means the extent to which an operation accomplishes its objectives.

Figure 2.2

Stage 1: hanya bereaksi saat ada keluhan dari pelanggan

Stage 2: hanya following company

Stage 3: minimum dimiliki perusahaan yang bisa bertahan. Strategi sudah disupport oleh operations

Stage 4: ultimate goal dari corporate strategy, operations sudah bisa mendrive strategic operation

Five generic performance objectives:

Quality -> being RIGHT, co: Mercedes Benz as gold standard in car industry

Speed -> being FAST, co: Citibank saat pertama kali merilis mesin ATM

Dependability -> being ON TIME, co: Toyota dengan konsep just-in-time

Flexibility -> being ABLE TO CHANGE:

Cost -> being PRODUCTIVE

Key questions:

1. What is meant by operations performance?

If one assumes that businesses make strategic decisions regarding their operations because they wish to improve the condition
of their business, then the condition or state of the business can be revealed by its ‘performance’. Therefore, ‘performance’ can
be measured to provide a useful indication of the business’s condition. However, there are two meanings to ‘performance’. The
first, and most common in a strategic context, relates to successful completion, accomplishment, execution, outcome, or result.
The other meaning relates to the process of doing something, for example, a theatrical ‘performance’. Moreover, different ways
of expressing performance may be open to varying degrees of interpretation. Some are relatively ‘objective’; others are open to
interpretation. Also, the nature of performance is likely to be influenced by the reason why measurement is undertaken. When it
is for reasons of operations improvement, a scale such as the Hayes and Wheelwright Four-Stage Model can be useful.

2. How is operations performance judged at a societal level?

Operations should be judged in terms of how they satisfy the various (and varied) objectives of their stakeholders. They are the
people and groups who have a legitimate interest in the operation’s activities. One idea that tries to capture the idea of a broader
approach to assessing an organization’s performance is the ‘triple bottom line’ (TBL, or 3BL), also known as ‘people, plant, and
profit’. It holds that organizations should measure themselves not just on the traditional economic profit, but also on the impact
their operations have on society broadly, and their ecological impact on the environment.

3. How is operations performance judged at a strategic level?

At the strategic level, operations measures tend to be aggregated from, and strongly influenced by, the operational measures.
These aggregated measures are cost, revenue, the use of capital, risk, and the operation’s ability to build capabilities.

4. How is operations performance judged at an operational level?

Because operations strategy is always concerned with addressing customers’ needs, at the operational level the focus is primarily
on the five generic performance objectives of quality, speed, dependability, flexibility and cost. Each of these performance
objectives has both internal and external effects. Externally their relative importance will differ depending on the nature of the
markets served by the operation and/or its products and services. Internally, these objectives can be mutually dependent. One
way of distinguishing between the relative importance of each performance objective is by classifying them as order-winners and
qualifiers, and, more recently, as ‘delights.

5. Does the relative importance of performance objectives vary over time?

Yes, usually. Markets change, and the capabilities of operations resources develop over time. Therefore, not only does the
operations strategy change, the relative importance of its performance objectives will change. In fact, over the long term, the
operations strategies of most enterprises can be seen to vary, either in response to deliberate attempts to change overall strategic
direction or in a more emergent sense, where a consensus of the most appropriate strategic direction forms through accumulated
operational experience.

6. Do operations performance objectives trade-off against each other?

Yes, and no. Yes, trade-offs are always, to some extent, inevitable in that pushing an operation to extremes in one aspect of
performance will inevitably mean a sacrifice in other aspects of performance. Yet trade-offs can, at the margin, be overcome. In
fact, the whole concept of operations performance improvement is, in effect, an attempt to overcome trade-offs. It is therefore the
responsibility of all operations managers to seek ways of overcoming trade-offs. This also holds true when broader trade-offs are
being considered, such as those between corporate social responsibility (CSR) performance and more obviously commercial
aspects of performance.

7. What are the advantages and disadvantages of focused operations?

The benefits of focus include achieving clarity of performance objectives, which aids day-to-day decision-making, developing
resources in a manner appropriate to achieve a narrow set of objectives and the enhanced learning and improvement that derives
from concentrating on a narrow set of tasks. On the other hand, the problems with focus include the dangers inherent if there are
significant shifts in the marketplace, which may leave the operation ‘stranded’ with an inappropriate performance mix, the
reduction in opportunities for economies of scale as operations are segmented internally, and some structural vulnerability
because of the first two issues.