MBA - 7th Module - Operations Strategy

ASSIGNMENT QUESTION

Discuss the operation management of your current work place. Identify key operational strategy that drives your unit.

1. Identify and discuss current performance level and your recommendation for improvement.
2. Outline an implementation plan to achieve your recommendations.
   Table of Content
   
   

   No	Description	Page
   	Assignment Question	3
   	Acknowledment	5
   	Executive Summary	6
   1.0	Introduction	7
   2.0	Short history of operation strategy	8
   2.1	Distinctive Competencies	9
   2.1.1	Price/Cost	9
   2.1.2	Quality	9
   2.1.3	Service	11
   2.1.4	Flexibility	11
   2.1.5	Tradeoffs	12
   3.0	Property Development Industry	12
   3.1	Operation Management in Property Development Industry	12
   3.1.1	Delivering quality home	12
   3.1.2	Ease the buying process	13
   3.1.3	Customer first policy	14
   4.0	Conclusion	18
   5.0	Reference	19

   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   ACKNOWLEDGEMENT
   
   
   
   
   I am highly indebted to Mr MA Jagadish for his guidance and lectures as well as for providing necessary information regarding the assessment & also for his support in completing this assignment.
   
   
   EXECUTIVE SUMMARY
   
   
   Operations are, about the day-to-day creation and delivery of products and services whereas operations strategy is concerned with the specific decisions which shape and develop the long-term direction of the operation. This paper shows the types of operation strategy being used in a Property Development’s industry with some suggestions on improving in area needed.
   
   
   This paper also discuss on types of distinctive competitive being used in operation strategy.
   
   
     
    1.0 INTRODUCTION
   Companies and organizations making products and delivering, be it for profit or not for profit rely on a handful of processes to get their products manufactured properly and delivered on time. Each of the process acts as an operation for the company. To the company this is essential. That is why managers find operations management more appealing. Operations strategy is to provide an overall direction that serves the framework for carrying out all the organization’s functions.
   Have you ever imagined a car without a gear or the steering wheel? Whilst, what remains of an utmost importance to you is to drive the locomotive from one location to another for whatever purpose you wish, but can only be made possible with each and every part of the car working together and attached.
   Organizations behave in the same manner. The company has an ultimate goal of delivering goods to a client, but the processes of designing, manufacturing, analyzing and then finally being delivered are the driving forces for the company's success. All these chunks of works processes that collectively define a bigger purpose, the operations for that particular organization. The more effective these processes or operations would be, the more productive and profitable the business would be.
   Why operations strategy:
   ·         Takes a strategic, end-to-end process-based view of the business and operating model.
   ·         Identifies areas for step-change improvement and leverages insights to enhance operating model design and strategic process alignment.
   ·         Leverages unique approaches (including prime value chain analysis) to drive opportunities for strategic cost reduction and improved customer service.
   Some of the major long-term issues addressed in operations strategy include;
   •         How large do we make our facilities?
   •         What type of process(es) do we install to make the products or provide services?
   •         What will our supply chain look like?
   •         What will be the nature of our workforce?
   •         How do we ensure quality?
   2.0 SHORT HISTORY OF OPERATION STRATEGY
   
   
   In the period following World War II, corporate strategy in North America was usually
   developed by the marketing and finance functions within a company. With the high
   demand for consumer products that had built up during the war years, companies could sell
   virtually everything they made at comparatively high prices. In addition, there was very
   little international competition. They could not even satisfy their own markets, let alone
   export globally. The main industrial competition to North America at that time, Europe,
   was devastated by the war.
   
   
   Within the business environment that existed at that time, the manufacturing or operations
   function was assigned the responsibility of producing large quantities of standard
   products at minimum costs, regardless of the overall goals of the firm. To accomplish this,
   the operations function focused on obtaining low-cost, unskilled labour and installing
   highly automated assembly-line-type facilities.
   
   
   With no global competition and continued high demand, the role of operations management
   (that is, to minimize costs) remained virtually unchanged throughout the 1950s
   and early 1960s. By the late 1960s, however, Wick Skinner of the Harvard Business
   School, who is often referred to as the grandfather of operations strategy, recognized this
   weakness among U.S. manufacturers. He suggested that companies develop an operations
   strategy that would complement the existing marketing and finance strategies. In one of
   his early articles on the subject, Skinner referred to manufacturing as the missing link in
   corporate strategy.
   
   
   Subsequent work in this area by researchers at the Harvard Business School, including
   Abernathy, Clark, Hayes, and Wheelwright, continued to emphasize the importance of
   using the strengths of a firm’s manufacturing facilities and people as a competitive weapon
   in the marketplace, as well as taking a longer-term view of how to deploy them.
   
   

   2.1 DISTINCTIVE COMPETENCIES

   Distinctive competence is defined as the characteristic of a given product/service or its producing firm that causes the buyer to purchase it rather than the similar product/service of a competitor. It is generally accepted that the distinctive competencies are cost/price, quality, flexibility, and service/time. Various experts include other competencies, such as location, but these can usually be categorized within one of the generally accepted four. Some experts also feel that innovation is quickly becoming a fifth distinctive competency, if it hasn't already. It should be noted that a firm's position on the product-process matrix is a controlling factor for the manufacturing mission and the firm's competitive priority or priorities.

   2.1.1 PRICE/COST.

   What comes to our mind when we want to shop for groceries?, price and convenience. Supermarket and Hypermarket nowadays like Tesco, Carrefour and Giant never stop competing themselves on who is offering the lowest. A firm competing on a price basis is able to provide consumers with an in-demand product at a price that is competitively lower than what offered by firms producing the same or similar good/service. In order to compete on a price basis, the firm must be able to produce the product at a lesser cost or be willing to accept a smaller profit margin. Firms with this competency are generally in a position to mass produce the product or service, thereby giving the firm economies of scale that drive the production cost per unit down considerably. Thereby, AirAsia makes a huge profit being the lowest fare airline and lead the entire airline industry.

   2.1.2 QUALITY

   David Garvin lists eight dimensions of quality as follows:
   
   • Performance. Performance refers to a product's primary operating characteristics. For an automobile this could mean fast acceleration, easy handling, a smooth ride or good gas mileage. For a television it could mean bright color, clarity, sound quality or number of channels it can receive. For a service this could merely mean attention to details or prompt service.
   • Conformance. Conformance is the degree to which a product's design and operating characteristics meet predetermined standards. When a manufacturer utilizing coils of steel receives a shipment from the mill, it checks the width of the coil, the gauge (thickness) of the steel, the weight of the coil, and puts a sample on a Rockwell hardness tester to check to ensure that the specified hardness has been provided. Receiving inspection will also check to see if specified characteristics are met (e.g., hot-rolled, pickled, and oiled). Services may have conformance requirements when it comes to repair, processing, accuracy, timeliness, and errors.
   • Features. Features are the bells and whistles of a product or service. In other words, characteristics that supplement the basic function of the product or service. Desirable, but not absolutely necessary, features on a VCR include four heads, slow-motion capability, stereo or surround sound, split screens or inset screens, and 365-day programming ability. Service examples include free drinks on an airline flight or free delivery of flowers.
   • Durability. Durability is defined as mean time until replacement. In other words, how long does the product last before it is worn out or has to be replaced because repair is impossible? For some items, such as light bulbs, repair is impossible and replacement is the only available option. Durability may be had by use of longer life materials or improved technology processes in manufacturing. One would expect home appliances such as refrigerators, washer and dryers, and vacuum cleaners to last for many years. One would also hope that a product that represents a significant investment, such as an automobile, would have durability as a primary characteristic of quality.
   • Reliability. Reliability refers to a product's mean time until failure or between failures. In other words, the time until a product breaks down and has to be repaired, but not replaced. This is an important feature for products that have expensive downtime and maintenance. Businesses depend on this characteristic for items such as delivery trucks and vans, farm equipment and copy machines since their failure could conceivably shut down the business altogether.
   • Serviceability. Serviceability is defined by speed, courtesy, competence and ease of repair. This can be an extremely important characteristic as witnessed by the proliferation of toll-free hot lines for customer service. A number of years ago, a major television manufacturer advertised that its product had its "works in a box." This meant that the television set was assembled out of modular units. Whenever there were problems with the set, a repairman making a house call simply had to replace the problem module, making the product easily and quickly serviceable.
   • Aesthetics. A product's looks, feel, smell, sound, or taste are its aesthetic qualities. Since these characteristics are strictly subjective and captive to preference, it is virtually impossible to please everyone on this dimension.
   • Perceived Quality. Perceived quality is usually inferred from various tangible and intangible aspects of the product. Many consumers assume products made in Japan are inherently of high quality due to the reputation of Japanese manufacturers, whereas 50 years ago, the perception was the complete opposite. Other characteristics such as high price or pleasing aesthetics may imply quality.
   Firms competing on this basis offer products or services that are superior to the competition on one or more of the eight dimensions. Obviously, it would be undesirable if not impossible for firms to compete on all eight dimensions of quality at once. This would be prohibitively expensive, and there are some limitations imposed by trade-offs that must be made due to the nature of the product. For example, a firm may sacrifice reliability in order to achieve maximum speed.

   2.1.3 SERVICE

   Service can be defined in a number of ways. Superior service can be characterized by the term customer service or it could mean rapid delivery, on-time delivery, or convenient location.

   2.1.4 FLEXIBILITY

   Firms may compete on their ability to provide either flexibility of the product or volume. Firms that can easily accept engineering changes (changes in the product) offer a strategic advantage to their customers. This can also apply to services. A number of years ago, a well-known fast food restaurant advertised "hold the pickles, hold the lettuce, special orders don't upset us," which meant that ordering a non-standardized version of the product would not slow down the delivery process. Also, some firms are able to absorb wide fluctuations in volume allowing customers with erratic demand the luxury of not holding excessive inventories in anticipation of change in demand. Another example is DELL which provides flexibility by allowing its customer to order what exactly they need without the need to buy in package.

   2.1.5 TRADEOFFS

   Firms usually focus on one distinctive competency (rarely more than two). For some competencies there are tradeoffs involved. An automobile manufacturer producing a product that is considered to be of high quality (leather seats, real wood trim, and an outstanding service package) will not be able to compete on a cost/price basis as the cost of manufacture prohibits it. An automotive parts house would like to keep their customers happy by offering the lowest prices possible. However, if the automotive parts house also wants to be able to fill almost every single order from walk-in customers, it must maintain an extensive inventory. The expense of this inventory could preclude the parts house from offering prices competitive with other similar firms not choosing to provide this level of service. Therefore, one parts house is competing on the basis of service (but not cost/price) while the other is competing of the basis of cost/price (but not service). The customer may have to wait a few days to get the desired part; if the customer cannot wait, he or she can pay more and purchase the part immediately from the competitor.
   3.0 PROPERTY DEVELOPMENT INDUSTRY
   The property industry involves the planning, design and construction, buying and selling, development and management of property. It is the sector where finance and the built environment meet.
   
   
   3.1 OPERATION MANAGEMENT IN PROPERTY DEVELOPMENT INDUSTRY
   
   
    3.1.1 DELIVERING QUALITY HOME
   
   
   One of most important role of a property developer is to deliver the home to customer in good condition and if possible to be a defect free home even after the expiration of Defect Liability Period (DLP). DLP is a certain time period (mostly 18-24 months from vacant possession) given to customer, any defect reported between that period of time shall be rectified free of charge (FOC) by the developer. This condition will be stated in Sale and Purchase Agreement (SPA). This practice is strongly followed by Gamuda Land Sdn Bhd.
   
   
   To deliver a defect free home, good material and skilled manpower shall be used in the constructing process. When developers expand their cost, then the price of the house should increase as well. Price per square feet for a good quality home could easily reach RM400-500. Will this be desirable to current prospect customers, can house buyers afford to pay the handsome price for their dream home? Well, there is always the selected group to purchase certain type of properties in Malaysia. Can a high cost home guarantee its quality? Here is where many people make mistake, by aligning quality with price. Therefore, house buyers should be particular in choosing the type of home by knowing the type of material used for building (normally provided in SPA), do some survey on the previous house completed by the developer and the land being used for the development.
   
   
   And being developer, earning customer’s trust is like securing profits for the next future projects. Hence to earn a good branding, property developers should carefully choose their material, smartly squeeze their cost and construct customer’s home as per promised. A director in PJ Development Berhad choose to own one house from every project that the company launches and makes sure all material used and final piece of the house is exactly how it was promised. “What you see is what you get” is a concept practiced by developers in UK whereby developers construct a show unit without extra decorations, furniture and fittings. What customer sees in the show house is exactly what they would be getting after construction complete.
   
   
   This concept is very good and should be practiced by all property developers in Malaysia.
   
   
   3.1.2 EASE THE BUYING PROCESS
   
   
   Buying a house is a big investment for us but unfortunately most first time buyers are unaware on the hidden cost that will comes along apart from the 10% down payment. Such extra cost includes legal fees for Sale & Purchase Agreement, legal fees for loan documentation, stamp duty for SPA, loan and memorandum of transfer.
   
   
   In our daily hectic lifestyle, seldom we have time to call in lawyer’s office and banks to comply all the documentation needed to buy house. This is where a third party agent come in, offering multiple services to ease house buyers time and energy by charging a sum. Most of people don’t mind paying the agent to settle the documentation part for them as complying legal documentation is very complicated time consuming.
   
   
   Here is where developers should play their role as agents. If we see recent property sales technique includes ‘free legal, free stamp duty, developer interest bearing scheme (dibs) and guaranteed rental return scheme. Free legal means developer bares the legal cost charges by the solicitor. Normally there will be an agreement of understanding between the developer and solicitors. Developer interest bearing scheme means purchasers don’t have to pay the interest charges by the financier during the whole construction period, mostly about 3 years. The interest charged by bank for the whole construction period will be paid by the developer. Developers normally will calculate and make estimation on such cost earlier and will include it in the selling price. Another famous sales technique is called ‘guaranteed rental return scheme’. This type of scheme is normally applicable to serviced apartment where the purchaser is truly an investor and not buying for own stay. With this scheme, an investor would know how much return he can expect in short and long term period of time.
   
   
   In what way a house buyer is benefiting from all these ‘extra’ offers by property developer? House buyers could save time and money when they purchase a property from developer who offers these types of schemes/promotions.
   
   
   3.1.3 CUSTOMER FIRST POLICY
   
   
   It’s amazing, especially to industry experts, how many companies these days continue to make a fundamental marketing mistake before the ink is even dry on their business cards.
   They come up with a “perfect” product or service, then set out to develop the business and marketing strategies behind it. It’s the strategic equivalent of building a house before drawing the blueprints.
   It sounds like a cliché, but success in today’s competitive marketplaces still means putting the customer first, and that starts with doing their homework up front. They need to go beyond typical research of industries, markets, competition and other statistics to a more interactive, in-depth analysis of specific customer segments (theirs and their competitors).
   Some customers are clearly more valuable than others. Customer segmentation is a critical tool for helping the company maximize profitability among all customer groups. The key, according to Jill Griffin, president of the Austin, Texas-based Griffin Group and author of Customer Loyalty (Jossey-Bass, 2nd Edition, 2002), is “…to help companies identify their most profitable customers (emphasis added) and help them meet or exceed their customer-experience expectations—all the while also providing the appropriate marketing offers and customer service to the rest of your customers.”
   It doesn’t matter what type of house they sell. The customers will vary greatly in both value and behaviour, from the house they buy to the frequency of purchases to the amount of money they typically spend.
   In the past, segmentation was typically based solely on the attributes of the potential customer: demographics, psychographics, specific attitudes, etc. Today, the model has moved to more value-based segmentation, which focuses on the revenue factor in the equation.
   Paul Calthrop, Vice President of management consulting firm Bain & Co., explains the strategy of following this forward-thinking, revenue-based model.
   “We need to start with the customers’ value to us," he explains. "We need to answer the questions, ‘Where do we make our money?’ and ‘Who are our high-value customers?’ Only then do we have a sound basis from which to move forward. Now we can understand the profile of these different customer segments. We can dig deep, knowing we are digging where the money is.”
   Once our company has clearly defined customer segments (potential or current), it can use that information to tailor specific products, marketing programs and support offers across our customer base. Its goal is to obtain and retain customers in the most profitable way possible.
   A robust database is a key factor in customer-segmentation success. The more information we gather and store about customers, the more effectively we can profile and address their specific needs. In the past, this type of analysis was the domain of large industries such as telecommunications, finance and retail, but today, according to Calthrop “…any company committed to customer-database development is well positioned to effectively segment its customers.” Mr Tan Chee Kian, Chairman of Shaftsbury Capital often says “ a man with most database is the richest man of all”, this applies greatly to property development industry.
   Taking care of the “big dogs”—and beyond.
   Of course, every company is different, but for most, a small percentage of customers will ultimately represent a high percentage of profits. This high segment includes the customers we want to focus your efforts on most precisely, all the way from technology and product offerings to human resources allocations. We don’t just want to meet these valuable customers’ expectations; we want to exceed them with every interaction.
   At the same time, a small fraction (hopefully a very small fraction) of our customers actually detract from our company’s profitability, the low segment. Just so you know, it’s completely acceptable to “fire” these customers if we have the data to support the decision.
   The middle segment is where things get exciting and opportunities abound. Here, we’ll find both sides of the customer-retention equation: the greatest chance for customer development, alongside the greatest risk of attrition. It’s absolutely critical that we remain focused on this important customer segment, even as we prioritize our top-profit customers. Our goal is to convert these customers into the top level “big dogs”.
   A powerful database is where it all begins
   To segment customers effectively; we need a comprehensive view of customer data. A typical implementation involves data warehousing and marketing-automation applications. Many companies have also adopted advanced data-mining tools, helping even non-technical to access transaction-level data.
   Industry experts have noted the evolution of advanced customer-segmentation tools from outsourced consulting deliverables to dedicated, in-house efforts.
   Aaron Zornes, an analyst at META Group, notes: “Enterprise marketing managers generally prefer to keep their customer data in-house today, merge it with accounting and sales figures, and run queries from their own desktops.”
   In the past, companies were fortunate to collect data on 5–10 segmented groups. Today, technology helps marketers define customer “micro segments”, quickly tracking as segments change and new categories develop.
   There are five things we need to do to begin segmenting our customers for maximum profitability.
   • Determining what data to collect—and how to collect it
   • Consolidating data typically stored in disparate information systems
   • Developing statistical algorithms/models to help sort customer segments
   • Establishing collaboration with Marketing, Customer Service and IT leaders
   • Implementing a robust networking infrastructure
   Sophisticated databases, marketing-automation tools and segmentation models are important. Companies also need customer-segmentation experts to accurately analyze customer models and develop effective marketing and service strategies.
   Customer segmentation isn’t easy, just like anything else that requires hard work and offers performance-based results. At the same time, it’s among the best tools for developing and retaining long-term customers.
   
   
   4.0 CONCLUSION
   
   
   Business needs a smooth platform to perform to the highest and ripe the most profit. In order to have the smooth platform, it should have a good operating strategy which also make them distinctive competency among other businesses.
   
   
   In property development industry, delivering a quality home, ease the buying process and maintaining customer first policy, will help the company to fly its flag higher.
   
   
   
   
   
   
   
   
   
   
   
   
   THE END
   
   
   5.0 REFERENCE
   
   
   Wikimedia Project. Operation Strategy/What is Operation Strategy. Available from
   http://en.wikibooks.org/wiki/Operations_Strategy/What_is_operations_strategy%3F/Operations_strategy
   
   
   Accenture. Operation Strategy. Available from
   http://www.accenture.com/us-en/Pages/service-process-innovation-operations-strategy-summary.aspx
   
   
   Cara Operations Limited, Operation Strategy. Available from
               http://highered.mcgraw-hill.com/sites/dl/free/0070922837/158533/sample_ch2.pdf
   
   
   Garvin, David A. "Competing on the Eight Dimensions of Quality." Harvard Business     Review, November-December 1987, 10109.
   Hill, Terry. Manufacturing Strategy: Text and Cases 3rd ed. Homewood, IL: Irwin, 2000.
   Lewis, Michael A., "Analysing Organisational Competence: Implications for the Management     of Operations," International Journal of Operations and Production Management, Vol.          23, No. 7, 2003, 73156.
   Neilslen-Englyst, Linda, "Operations Strategy Formation Continuous Process," Integrated             Manufacturing Systems, Vol. 14, No. 8, 2003, 67785.
   Wheelwright, Steven C., and Robert H. Hayes. "Competing Through Manufacturing."      Harvard Business Review, January-February 1985, 9909.
   eNotes. Operation Strategy. Available from
               http://www.enotes.com/operations-strategy-reference/operations-strategy
   
   
   Survey method. Pre-marketing segmentation: Why customers comes first. Available from
               http://www.surveymethods.com/glossary/article_premarketing_seg_l.aspx