OPERATIONS MANAGEMENT

JAN ALBERT VAN MIEGHEM

A.C. Buehler Professor
Kellogg School of Management at Northwestern University
 Process View & Strategy Module

§ Two key paradigms:

1. Process view of Operations ⇔ What is operations?

2. Strategic role of Operations ⟹ What is operational excellence?

§ Aligning strategy and operations:

q Strategic vs Operational Focus
q Relationship between process choice and strategy
q Shouldice Hospital
q Wriston Manufacturing
 Course: Goals and Overview
§ Operations as a managerial integration function
§ Evaluation and Improvement

Ø Course is structured to answer:

1. What is an improvement?
® Strategic role of ops
2. Where target improvements?
® Identify metrics by linking process flows with financial flows
3. How improve?
® Improve each operational metric

© J. A. Van Mieghem
What does the word “operations” mean to you?
What is Operations?

OPUS (Latin) = WORK

“The planning and execution of work”*

“Creation and delivery of products and services”*

* Van Mieghem, J.A., and Allon, G. Operations Strategy: Principles and Practice 2nd edition, Dynamic Ideas, 2015.
3 Views of Operations

Competencies

Operations
Resources Strategy Processes

Max NPV

Ø Operations strategy is a plan for developing resources and configuring processes

such that the resulting competencies maximize NPV

© J. A. Van Mieghem
More choice
(selection,
variety)

Lower cost
A process is a well-structured transformation of inputs into outputs
Information structure

Network of
Inputs Activities and Buffers Outputs
Flow units/Entities
(customers, data, Goods
material, cash, etc.) Services

Processing Resources
3 Flows: Labor & Capital

Information flow Primary workflow Cash flow

© J. A. Van Mieghem (goods & services)
Understand the
process > map >
improve
Fedrick Winslow Wallace

© J. A. Van Mieghem
Job Requisition Process at U.S. Department of State

Vacant Review/approve Send advertisement

Create position
position Position description questionnaire to HM
description (1 day)
(5 days) (5 days)

• Establish grade level • Define Specialized skills

• Define duties & responsibilities Draft shell of
• Sends job analysis
• Determine clearance level vacancy
announcement
Hiring Manager (2 days)
• Completes job analysis
• Assigns duration of vacancy
HR Representative • Adds specialize skills (KSAs)

Build vacancy
Send package to HM Review/approve
announcement (PD, Select KSA
(PD, KSAs, and Requirements
KSAs, and questions) questions (3 days)
questions) (1 day) package (7 days)
(4 days)
• Select 10-15 questions
• Grants access to question
• Assign point value
library

HM approves full
announcement Posts position to
(1 day) USA Jobs (1 day)
Swimlane Map highlights cross-functional work:
Wheelchair Seating Center (Sally Taylor, PT, DPT)

© J. A. Van Mieghem
Wheelchair Seating Center Process
Sally Taylor, PT, DPT (EMBA132)

© J. A. Van Mieghem
Example: The Process view of Pediatric Dentistry
One possible path (“workflow, pathway”) for Dental Prophylaxis
(“Prophy”)

Ø How map the process (all paths) in practice?

Questions to ask when adopting a process view
1. Where are the process boundaries? What is the input and output?

2. What is the flow unit or the unit of analysis?

3. “Attach yourself to the flow unit” and record its process steps
through the process. We call this the primary workflow.

4. Who does the work? What are the resources for each activity?

5. What information is required to perform each activity? Where

does this information come from? This specifies the information
flow (dashed lines).

6. Last, what is the cash flow?

Collect data

© J. A. Van Mieghem
The activity transitions with frequency > 10

© J. A. Van Mieghem
ED Process Flow of staff/chart and patients
Decide Patient
Walk-in Triage Severity Waiting
Room
Staff/
Chart Registration
Returned
to triage bin
Request Bed
Wait Wait for
bed located Triage Nurse
to locate transfer
Allocate to sec
A/C or B
Patient
transferred
Yes
Triage Nurse
Updated by Reviewed by Brings Patient
Admit? Wait for
lab/test Nurses/Doc nurses/doc Section To Section
results Rack

No Patient seen
by nurse/doc Patient in
Discharge Patient
rack discharged ED Bed
Software development processes

© J. A. Van Mieghem
Value Stream Map highlights improvement areas in
end-to-end process

© J. A. Van Mieghem
Value Stream Map & Flow Time efficiency

© J. A. Van Mieghem
Advantages of Adopting a Process View of
Organizations
– Applies to any organization
– Applies at any level
– “horizontal,” i.e., across functions, view of the organization in contrast to
the usual vertical views along the lines of functional departments
q Highlights externalities
q Highlights integration and problems
– Is always “customer aware” and focused on outcomes
– Fair process … powerful leadership tool

§ Key Property: focus on flows rather than snapshots

– Rationalized management (vs. fighting fires)
– Focus on process rather than people has higher likelihood of leading to
cooperation and significant improvement
→ the process view is a unified, customer-centric model of the organization
that facilitates analysis and improvement in a systematic manner
Operational Excellence:
(1) Achieving Alignment
A good operation
structures the processes and resources to
align
the operational competencies
with the needs of the customer(s)

© J. A. Van Mieghem
Operational Excellence:
(2) Max delivered value (Supply chain surplus)

Delivered value of process =

benefit to process customers – total process cost

Benefit driven by
customer value
Price p Variety V
(cost of (choice,
ownership) customization)

Quality Q: Time T:
•of product or outcome •Rapid, reliable delivery
•of service •New product development

“The only real constant in retail is customers’ desire for

lower prices, better selection, and convenience,” Jeffrey P. Bezos testimony 7/29/2020
Designing Operations Strategy and Structure
Framework
1. What is our strategic position: how do we compete &
provide value in the market?
competitive q What is the value proposition to our customers?
strategy Ø Rank (p, T, Q, V) → value vector (or set?)
Price, Time, Quality, Value

Strategic focus
2. Given our strategic position, what must operations do
particularly well?
operational q Which competencies must ops develop?
competencies Ø Rank (c, T, Q, Flex) → competency vector (or set?)

Operational focus
3. Given needed competencies, how should operations
resources & processes be structured to develop
Resources competencies that support strategy?
& Processes Ø Resource & Process choice and management
Operational Excellence:
Shouldice Hospital

SHOULDICE. HERNIA REPAIR FOR A LIFETIME. GUARANTEED.

Our 99% lifetime success rate for repairing primary inguinal hernias sets the gold
standard.

© J. A. Van Mieghem
Wriston Manufacturing

© J. A. Van Mieghem
Wriston’s HED Division Plant Network
Exhibit 2A
Total Burden Rates
(total overhead cost / direct labor cost)
7
6
5
4
3
2
1
0 Sandusky, Essex, Detroit, Saginaw, Lima, Lebanon, Tiffin, Fremont, Maysville,
OH Canada MI MI OH PA OH OH KY

Free capacity and Throughput

$200

$150

$100

$50

$0
Sandusky, Essex, Detroit, Saginaw, Lima, Lebanon, Tiffin, Fremont, Maysville,
OH Canada MI MI OH PA OH OH KY
© J. A. Van Mieghem
Which option do you recommend?
1. Close Detroit and transfer its products to other plants.

2. “Buying a few necessary tools to maintain the facility would

probably cost $2M annually. We could probably keep Detroit
running at its current level of profitability another 5 to 10
years before it completely falls apart. Then we’ll have to
decide whether to build a new plant or close down the Detroit
plant.”

3. Build a new low-volume plant to replace Detroit.

Operational Excellence:
(3) The Efficient Frontier
§ Recall the two fundamental strategies:
1. Doing the same things as rivals but better
2. Doing different things

Customization
efficient
frontier

Cost efficiency

§ Focused, tailored operations are more competitive than generics

§ What is your plan to get to or push out the frontier?

© J. A. Van Mieghem
The Concept of Operational Focus
Flexibility Any emergency
(responsiveness) healthcare value prop
World-class ED
efficient frontier =
current state of best practice
One process
delivering two
different value Specialty non-emergent
vectors healthcare value prop
(general hospital)

Shouldice Hospital

Cost efficiency

§ A focused operation delivers one customer value proposition (i.e., same

customer value vector or priority ranking for all customers): assets and
processes are optimized and have an aligned competency vector
§ Focus does not imply standardization: ED is focused on providing timeliness
and flexibility to patient needing emergency care
© J. A. Van Mieghem
 Summary: Process View & Strategic Role
§ Operations is the process of bringing goods and services to customers
q Process view = viewing an organization as a transformation of inputs into outputs through a network of
activities and buffers, utilizing resources, IT and mgt > MAP the process!
§ A good operation maximizes value or supply chain surplus
q A strategic framework for operations for increasing the value of operations by aligning the competencies of
the operations structure (resources & processes) with corporate strategy

§ Operational excellence = align + maximize delivered value + stay on the frontier

§ Aligning strategy and operations can be achieved through:

q Focus:
o Strategic focus = concentrating on one customer value vector (Price, Time, Quality, Variety)
o Operational focus = concentrating on one process competency vector (Cost, Speed,Quality,Flex)
o Alignment = value vector and competency vector are aligned
q Process choice
§ Cases:
q Shouldice Hospital
q Wriston Manufacturing
Group Assignment: Apply course concepts and tools [don’t
write just a generic improvement story].
§ In preparation for the group meeting, identify, individually, an
organization or unit that could be improved by applying the strategic
framework and using the concept of operational focus. In the group,
discuss each of the examples brought forward by the group
members. Select one example and describe it in writing. Recall: the
objective is to apply our course concepts and tools [not just a generic
improvement story].
§ Slide 1: describe the organization and context
§ Slide 2: describe the customer value proposition in terms of price, Quality,
time, Variety/Choice/Customization add other dimensions if needed
§ Slide 3: describe the resources and processes of the organization’s operating system
§ Slide 4: evaluate to which extent the value proposition is aligned with competencies or strengths of the
operating system
§ Slide 5: propose actions to improve alignment using strategic and operational focus. (If there are
competitors, can you estimate how your actions would improve the organization’s position relative to the
competitors and the efficient frontier?)
§ Slide 6: summarize the potential benefits and liabilities;
§ Slide 7: summarize the learning insights you gained from this example.