CHAPTER 2

( ORGANIZING OPERATIONS FOR COMPETITION )

OVERVIEW
Before we can begin to think about organizing and managing operations, we need to understand
how the firm wants to interact with its environment. In particular, we need to understand what makes a
customer buy a product – in general, and ours in particular, and how that may be changing. The impetus
to buy a particular product is influenced by the environment in which the customer and the company
exist. We therefore need to also look at the ways in which firms organize for and conduct business. Out
of this we will develop a model of how firms might want to organize and operate in the new environment.
We call this the fast-response organization (FRO).

KEYNOTES/OUTLINE

Satisfying the Customer: the Dimension of Competition

Selling Price (product cost): most prices are market-driven, and customers are price-sensitive.
Costs therefore must be tightly controlled.

Quality: customers expect high-quality products. Quality does, though, have several dimensions,
and the appropriate dimensions must be managed.

Dependability: An organization must be able to honor its commitments. Customer want peace of
mind and are wary of companies that they cannot trust. They want dependable producers.

Flexibility: Customer needs and preferences are continually evolving. Hence, flexibility is
important if the firm is to respond quickly to changes in the marketplace. There are several types of
flexibility:

PRODUCT FLEXIBILITY is the firm’s ability to quickly develop new products and modify
existing ones to meet changing market requirements.

PROCESS FLEXIBILITY is the ability to produce a broad range of products, switch from one
product to the next quickly and easily, incorporate new or revised products, and handle variations
in the raw materials used.

INFRASTRUCTURE FLEXIBILITY is the ability of the firm to adapt itself and its
organizational structure to changes.

AGGREGATE FLEXIBILITY is the ability of the firm to respond quickly to specific

environmental uncertainties. It is the sum of the above flexibilities.

Time: customers value time. Products must be designed, produced, and delivered quickly.

Service: this includes a capacity for product variety, a commitment to each customer as an
industry entity, helping customers install their products, and providing after-sales support.
 Service is highly correlated with market share. Customers appreciate the provision of service
before and after the sale.
These six competitive dimensions are all important, but their relative importance depends on the
product and its market – and may change overtime. These dimensions are not inherently
incompatible, though, and reinforce each other. Those firms that compete simultaneously along
all six dimensions will have an advantage over those firms that compete on fewer dimensions.

FAST-RESPONSE ORGANIZATION AND TOTAL QUALITY MANAGEMENT

A fast-response organization is one built around the six dimension of competition. Such
an organization is capable of using different combinations of these dimensions to address the
needs of customers in different markets.

Note that there is an inherent relationship between responsiveness and total quality
management. FROs must have successfully implemented the TQM philosophy, and successful
implementation of TQM must result in fast-response operations.

BUILDING BLOCKS OF FAST-RESPONSE ORGANIZATIONS

There are four structural prerequisites for building FROs.

 Emphasis on continuous improvement throughout the organization

 Investment in research and development

 The adoption of advanced product, process, and organizational/managerial

technologies

 The integration/coordination of activities throughout the value chain.

No one structural prerequisite is more important than any other. All four must be satisfied.

CONTINUOUS IMPROVEMENT: Focus on eliminating non-value-added activities. Their

elimination reduces costs and increases the speed in which products are developed and produced. This
increases the speed of feedback, leading to quicker improvements in product quality.

Continuous improvement is a series of small, incremental long-term and undramatic changes. It

is a part of the FRO’s philosophy of dynamic evolution . it is also the heart of Kaizen- requiring
managers and workers to focus on improvement.

Creating the right environment requires senior management commitment and involvement, a
simple companywide program that provides training and gives workers power and responsibility, and
performance measurement system designed to measure and support continuous improvement efforts.

RESEARCH AND DEVELOPMENT ( R & D ) : Shrinking product life cycles and fragmenting
markets mean that a firm must continually improve its ability to introduce a steady stream of new and
revised products quickly and successfully.

BASIC RESEARCH attempts to expand the frontiers of knowledge.

APPLIED RESEARCH focuses on solving general problems and generating inventions that have a high
probability of being used within the firm.

DEVELOPMENT efforts are required to transform inventions discovered during basic and applied
research into commercially successful innovations.

ADOPTION OF ADVANCED TECHNOLOGY: Technology is the total body of knowledge brought to

the transformation process. There are three components:

Hardware is the physical structure and logical layout of equipment.

Software is the set of rules, guidelines, and algorithms for using the hardware to carry out a task.

Brain ware is the reason, the purpose, and the justification of using, expanding, and developing the
technology in a particular way.

The TECHNOLOGY SUPPORT NET (TSN) refers to the organizational, administrative, and cultural
structures ( such as work rules, task rules, required skills, and work content ) needed to make the
technology work. Any technology that changes a firm’s TSN will have a substantial impact on the way in
which the firm produces goods and services.

TECHNOLOGY DEVELOPMENT. Historically, technology was labor-substituting and forced labor

specialization – all for efficiency or cost reduction in a mass-market industries. Now the emphasis is on
symbiotic relationships between operators and machine; operators need a broader range of skills and
knowledge, supported by specialists and managers who also have a broader ranges of skills and
knowledge.

ADVANCED OPERATING TECHNOLOGIES. Computer technology has led to the development of

soft automation that has been replacing fixed, or hard automation – used primarily in repetitive
manufacturing operations. Flexibility is the focus but it’s not the only benefit. Other benefits include
reductions in direct manufacturing cost, lead times, WIP inventory, quality costs, floor space, and design
engineering costs.

Integration of People and Systems: This needs to be achieved along the value chain; at this
level it is often called ENTERPRISE INTEGRATION. This is the most challenging of the four
structural prerequisites to operationalize and institutionalized. Within the firm there are three
types of integration.

HIERARCHICAL INTEGRATION joins together the corporate, business, and plant

operations, encouraging a greater sense of coordination and more efficient decision-making
process.

HORIZONTAL INTEGRATION integrates across functional boundaries. Synchronization of

functional activities allows a firm to concentrate on value-added activities and to re-engineer its
business processes. The ability to achieve this form of integration depends in part on the
structure of the organization at all levels. This might best be achieved through a team structure.
VERTICAL INTEGRATION is the span of processes over which the firm has influence or
control. This influence may extend beyond the firm’s boundaries to other parts of the value
chain. Downstream integration allows a firm to better understand and support customers.
Upstream , or backward integration focuses on the relationship between suppliers and the firm.

INTEGRATING OPERATIONS depend on the firm’s structure and organization, the information
systems, and the people. Of these, the people are the most crucial. In a flatter organization (as
an FRO will be), hierarchical integration is easier to achieve than in the case in multilevel
organizations. This is because in the latter functional silos can exist independent of each other.
Removing layers will also help horizontal integration, primarily because decision-making will be
forced to lower levels in the organization. While this is where the people with knowledge
required to make decisions actually reside,, they do not have the skills to make decisions.
Training in group decision making and involvement of all those groups affected by the decision
in making the decision will automatically force improved horizontal integration. In turn, those at
higher levels become support and knowledge managers.

Note that customer- driven strategy dives the emphasis placed on the structural prerequisites,
which in turn influence the weight placed on each of the six dimensions of competition. The
success or failure of translating the strategy is determined by the level of customer satisfaction
generated, as measured by sales.

Prepared by: Mr. Romano D. Flores

Instructor