Operations strategy: a decision and evaluation framework

Published on December 6, 2012 Reviewed on October 31, 2016   57 min

Other Talks in the Series: Operations Strategy

0:00
Welcome to the first lecture on Operations Strategy. My name is Jan Van Meighem and I am a professor at the Kellogg School of Management at Northwestern University. Our university is located in Evanston, Illinois, near the city of Chicago in the United States. Today, we will talk about the decision and evaluation framework for operations strategy.
0:28
We will start this lecture by explaining what we mean by operations in general and then specifically what is meant by the concept of operations strategy. We will do so by introducing a few examples and during the discussion, also discuss the principles of value maximization and alignment. These two principles are at the core of the framework that we will use for operations strategy. That framework will be useful to guide decisions that managers must make, as well as to evaluate an existing or a new operations strategy.
1:13
When you hear the word, operations, what do you think of? What do people in general think of? What comes to mind first? Perhaps, a picture like this which is taking us back to the dawn of the Industrial Revolution, on the shop floor of a factory. However, the point that we want to make in this lecture is that operations is much more than what this picture is conveying and for that, it is useful to think about where the word operations comes from? It actually stems from the word "opus" which means in Latin, "work." In other words, operations is about anywhere that work is performed.
2:02
Aside from the traditional setting of manufacturing, a lot of us are working in service operations. This includes setting such as Zara, Zara is a retail chain, originally started in Spain and the secret of Zara's success is what we would call, fast fashion. Zara was build around the strategy which means the goal to bring new designs, garments, from design to rack, in a matter of weeks. Another setting where operations is very important is in the health-care sector. We are all familiar of going to see a doctor or a health-care provider and we all undergo a certain process from the perspective of a patient. We are interested in asking how is this process structured and how can it be improved?
3:10
To answer that question, we'd like to come up with a framework that is broadly applicable, which means it's applicable both to manufacturing and service operations. Such a framework should allow us to answer a variety of questions such as, for example, if we look at two companies that we are probably familiar with, we have the postal service and we have another company that is in that same business space of moving packages from point A to point B, for example, FedEx. Which one of these two companies has the better operations? To put that in perspective, the postal service in the United States is under tremendous pressure. It is forecasted to lose $18.6 billion by the year 2015. Therefore, it is considering reducing its workforce by more than 30,000 people and also closing down several locations. A question we may ask, can the United States Postal Service learn something from how FedEx runs its operations?
4:30
A second example of a question that the framework should help us answer concerns the airline industry. You may be familiar with the airline Southwest. And it stands out for various reasons but one of which that lately has become very important is the fact that they say, bags fly free. This is an important aspect because according to a study of consumer reports, what annoys travelers most is additional baggage fees. So here we must ask why is it that Southwest would follow this kind of policy, while other airlines such as, for example, American Airlines have a strategy to charge for a luggage? We will try to answer that question using the framework that we will develop soon.
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Operations strategy: a decision and evaluation framework

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