0526-management theory & practice asnmnt 1, q-1

8/8/2019 0526-Management Theory & Practice Asnmnt 1, Q-1

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Question # 1

Why Is It Important To Examine Management From Different Perspectives And What Do You

Achieve From This Examination? Describe Management In A New Perspective (E.g.

Management Means Being In Changer).

A NEW PERSPECTIVE OF OPERATIONS MANAGEMENT1. The Productivity FrontierPorters (1985) productivity frontier (the sum of all practices at any given time that enable anorganisation to meet specific value/ cost requirements) is a useful approach if we wish to identifyspecific value based opportunities and to make effective responses. A firm can improve its valueproposition by increasing the non-price value delivered for relatively lower cost. Conversely, thevalue proposition can be decreased by lowering the non-price value delivered and by increasingcosts. This second outcome will occur if a firm continually neglects customer needs.

The usefulness of Porters productivity frontier can be extended by identifying value segments (thatis, combinations of non-price/ price value combinations). As can be seen by the second diagram,

these segments range from specialist one off products to

commodity based products.A specialist one-off product is produced when amanufacturer produces a certain product that exactlymeets the requirements of only one customer. A premiumprice is paid for the one-off, customised product. Themanufacturer will organise their operations arounddelivering the maximum non-price value.

Commodity based products are mass-produced productsthat deliver relatively low non-price value and charge anaccordingly low price. This company intends to flood the

market with its products so that they are profitable. Thecompany will organise itself around delivering largevolumes for low cost.

Mass Customisation is more or less a middle groundbetween the previous two extremes. Mass customisationaims to select a few market segments that require somenon-price value for an appropriate price. The company wilorganise itself around understanding the needs of themarket segments it intends to serve and design its valueproposition for each segment. With the emergence of newtechnologies, this kind of business design is becoming

easier to achieve. This is leading to consistent outwardshifts in the productivity curve for a number of industries.

2. Marketing

Customised products

Strongcorporate

branding

Extensive/

relationship

based

activities

Operations

Customerdirected R &

D

Dedicated

manufacturi

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Dedicated customer

services

with agreed

performanc

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objectives
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Value Based Differentiation: Organisational Implications

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Customise

dValueDelivery


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Source: Walters (2002)

The above diagram illustrates the productivity frontier with relevant marketing and operational

implications.

3. Product Platforms


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Product platforms are now widely used in manufacturing as a way to mass customise products.The process involves creating a universal product hub, which is known as the product platform. Thecomponents of the product platform are common throughout a number of products that thecompany manufactures. Then, newly constructed product platforms are sent to each sub productline to be further customised by adding new attributes to the platform. The finished products arethen produced for the end user.

The implications for this kind of technique are drastic reductions in costs through volume purchaseslesser need for multiple production facilities, easier customisation of products and easiermaintenance.

For example, in car manufacturing, a number of components are universal to all cars. The parts thathe customer wont notice, such as the gearbox, the engine, the drive train, the body etc. can be

commonly used throughout a number of different lines with further customisation performed at laterstages throughout the production process. At Ford, they might have common gearboxes, engines,wheels, and steering mechanisms for the Fairlaine, the Falcon, and the Falcon Utility, however, aseach product goes through the production process, they each are altered to become the finalproducts.

4. Value Positioning in an Organisational Context


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The above diagram summarises the activities of the value chain.

5. Competitive AdvantageAccording to Kay (1993), Competitive Advantage is equal to:

Kay (1993)reasons that acompanyscompetitiveadvantage canbe judged by assessing the above ratio.

Competitive advantage is determined by capabilities, and these vary. Kay (2000) identifies twocategories: distinctive capabilities such as institutional sanctioned items; patents, copyrights,statutory monopolies, etc. but also feature powerful idiosyncratic characteristicsbuilt bycompanies in competitive markets. These are; strong brands, patterns of supplier and/ or customerelationships, specialist skills, knowledge and processes. Reproducible capabilities can be created(or purchased or leased) by any company with reasonable management skills, skills of observationand financial resources. Both process and product technology are reproducible.

6. Kays Added ValueKay (1993) introduces the concept of added value as the key measure of corporate success anddefines it thus:

Added value is the difference between the (comprehensively accounted) value of a firms output

and the (comprehensively accounted) cost of the firms inputs. In this specific sense, adding value iboth proper motivation of corporate activity and the measure of its achievement.

Kay calculates added value by subtracting from the market value of an organisations output thecost of its inputs:

Revenues - (Wages + Salaries + Materials + Capital Costs) = Added Value

He suggests that added value is a measure of the loss, which would result to national income andthe international economy if the organisation ceased to exist:

Adding value, in this sense, is the central purpose of business activity. A commercial organisationwhich adds no value whose output is worth no more than the value of its inputs in alternative uses

has no long-term rationale for existence.

Added value in this context includes depreciation of capital assets and also provides for areasonable return on invested capital. Calculated this way, added value is less than operatingprofit, the difference between the value of the output and the value of materials and labour inputsand capital costs. It also differs from the net output of the firm: the difference between the value ofits sales and materials costs (no labour or capital costs). We have explored Kays measure ofcompetitive advantage earlier.

Kay then argues that the value created by the value chain is accrued throughout each stage of thevalue chain, based on the cost and revenue management by each value chain participant. The sumof the net value created by the value created by each participant is equal to the total value added

for the end-user.


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7. Basic Process Decisions Based on Volume and Variety

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vol

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The diagram above illustrates the recommended production processes for a given combination ofvolume and variety. This is a similar concept to Porters Productivity Frontier.

Disconnected flow is otherwise known as one-off or jobbing and involves producing highlycustomised products for very few customers. Production facilities that are used for this kind ofproduction are usually very specialised and are only converted to a different configuration withlong lead times. A premium price is charged for the outputs of this kind of production process.

Disconnected line production involves producing products that are relatively customised. Theproduction process involves setting up a number of production modules that produce some ofthe product, with the majority of the product still being customised. A premium price is oftencharged for this process as well, although more scope exists for price led competition. Forexample, a surfboard manufacturer uses the same equipment and inputs to produce surfboardsbut each surfboard is customised to a riders specific requirements.

Connected Line Flow production involves producing products that are mostly the same excepfor a small amount of customisation. Using this process, most of the production line is standard,with only a small portion remaining for the purposes of customisation. Price led competition ismore predominant as a result of this form of production. For example, the larger carmanufacturers use this form of production to produce large-volume cars that require little

customisation.

Continuous flow production involves mass-producing large quantities of the same product.Production lines dont have any scope for customisation and advantages are realised througheconomies of scale and asset usage intensity. Price led competition is the result of this kind ofproduction process. For example, oil companies and other raw materials producers use this formof production.

8. Adding Value Strategy Options to the Process/ Choice Decision


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This diagram combines competitive dynamics with operational factors and shows the resulting valuproposition.

9.


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Operations

Processes

Introducing the Notion of Distributed Assets to Value Led Operations StrategyDecisions


Depending on the competitive situation the company aims for, the ownership of the process andprocess infrastructure used to produce the value is an important consideration. The above diagramshows the recommended level of production process ownership, based on the intended valueproposition and the production method itself.

100% ownership is recommended when the production process is a disconnected flow and thevalue proposition is based on exclusive customisation. 100% ownership involves no outsourcingsince all production is performed in-house.

Conversely, total outsourcing is recommended for a price determinant value proposition and acontinuous flow production process. This is because no profit can be made in this situation withoutsufficient economies of scale or volume.

10. Process Management Extends Beyond Departments Within Organisations to IncludeExternal Organisations


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11. Generic Value Chain Processes


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0526-management theory & practice asnmnt 1, q-1

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