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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).
P
D A
STR FOG
VISIO
α
β
γ
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
α
β
γ
P
D A'α
'β
'γ
'P
'D
'A
nα
nβ
nγ
nP
nD
nA
LL
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.
Creating the correlation (2)
The fig demonstrates the spreading of the attributes evaluating Operations performance (OP
questionnaire) in a company among the key sections of RAL model.
Creating the correlation (3)
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).
0,00
25,00
50,00
75,00
100,00
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).
0,00
2,50
5,00
7,50
10,00
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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2,50
5,00
7,50
10,00
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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.
0,00
25,00
50,00
75,00
100,00
Basic (%) Core (%) Spearhead (%)
CASE W: 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.
0,00
1,50
3,00
4,50
6,00
▼▼ ▼
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▲
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BCFIs & Technology (2011-2015)
Case W: 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.
0,00
25,00
50,00
75,00
100,00
Basic % Core % Spearhead %
CASE D: 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.
0,00
1,00
2,00
3,00
4,00
▼▼ ▼
▼
▼
▼
▼ ▼
▲
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▲
▲
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▲ ▲ ▲
▲
BCFIs & Technology (2011-2015)
Case D: 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.
0,00
25,00
50,00
75,00
100,00
Basic % Core % Spearhead %
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.
0,00
0,75
1,50
2,25
3,00
Technology IMPL
Sustainable Competitive Advantage (SCA)
Strategy Operation Strategy
S&R Future Strategy
Sustainable Competitive Advantage
������� � 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
Sustainable Competitive Advantage (SCA)
Strategy Operation Strategy
S&R Future Strategy
Sustainable Competitive Advantage
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, josu.takala@uwasa.fi
(Research Prof sabbatical, 2012-13, Professoripooli/Finland)
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