Chapter 7. Complexity in Service Operations Management

Transcription

1 Chapter 7 Complexity in Service Operations Management

2 Introduction The cost of complexity often exceeds the value of variety, eroding profitability. Too many companies have embraced customization in the name of growth without adapting their operating model to balance the necessary cost tensions that result. In essence, companies have outgrown their operating model, thereby risking their business resilience. The solution lies in adapting the DNA of the organization to identify, isolate, and optimize complexity.

3 What is complexity? It is the natural by-product of organic growth in today s marketplace. All service companies contend with the same challenge of increasing sales volumes through customization while increasing profitability by ensuring the customization is affordable and customer-valued. But most have failed to find the right trade-off. They either reengineer supply or they manage demand. If neither approach works, they often try next to bury the complexity by outsourcing it.

4 Tailored Business Stream (TBS) The objective of TBS approach is to identify and isolate complexity within a system, originally applied to component parts, it has also been successfully applied to processes, manufacturing and recently in service industries. Now companies applying the principles of TBS to the organization itself with great success. Using TBS, companies break down their operating model into a number of streams.

5 Tailored Business Stream (TBS) Commonly used set of streams is: 1. Basic and stable 2. Selectable options 3. Custom solutions

6 How TBS works? Service industries are applying the TBS methodology to manage the complexity of their business models in which, retail financial services firms have steadily shifted lower-value customer support functions from the branch to centralized service agents and ultimately, to Interactive Voice Response and web-based applications, reducing the cost at each step. Cont..

7 How TBS works? To manage complexity effectively, companies need to limit service variety to that which generates incremental value. Variety that does not cover its complexity costs must be eliminated, standardized, modularized, or managed through tools like TBS. Companies intent on leveraging the best of complexity need to adopt a holistic, interactive and iterative view. They need to quantify both the value of variety and the cost of complexity and then determine ways to enhance both. Cont..

8 How TBS works? Researcher has explored following the characteristics of service complexity and identifies 76 potential factors that distinguish a complex from a simple service across the dimensions of markets and products, technologies, production processes, administration and management ecosystem.

9 Different Types of Service Complexity Different types of service complexities have been identified based on the nature and the source of complexity and uses to interpret and analyze the 76 potential dimensions of complexity. Service complexity is often cited as a factor that affects the rewards and challenges associated with the adoption of a servitization strategy. Yet there is no clear definition of what a complex service is. Cont..

10 Different Types of Service Complexity The logic of complexity science is straightforwardly applied, which suggests that a system is complex when it consists of many parts that interact in ways that heavily influence the probabilities of later events., often resulting in emergent properties. It must be considered that complexity in services can originate from many other sources than the service system. Cont..

11 Different Types of Service Complexity The focus was to capture concrete and practical features of service complexity rather than reviewing and discussing theoretical definitions of the concept, as pragmatic features build upon theoretical definitions and can, in addition embody empirical evidence. The domains sampled were: product design, marketing, operation management, organizational design, and information processing. The disciplines which are not directly linked to the scope of review, like physics, biology, social sciences politics, chemistry, geology etc were exclude.

12 Service Complexity Factors There are many factors emerging from the literature, market and products. Some important are as follows: The needs and wants for the service are very heterogeneous among the firm s customers. The customer requirements for the service are difficult to interpret. The timing and level of customer demand for the service are uncertain. The service contains highly interrelated sub-services. The service requires a high degree of customer knowledge. Cont..

13 Service Complexity Factors The service is offered according to sophisticated options (New technologies and infrastructure). The service incorporates a variety of distinct knowledge bases, skills and competencies. The delivery network for the service involves different parties that depend on each other to accomplish their tasks. The service process requires intensive input of human labor. Tolerance on the time it takes to produce the service is low.

14 Complexity Management Complexity is a natural consequence of a company s success. AS companies grow, they enter new markets, expand their product lines and set out to conquer new customer segments. Each decision makes rational sense, but in aggregate, they create exponential growth of the nodes - points where business units, functions, geographies and layers of management have to interact to make and execute critical decision. Cont..

15 Complexity Management There are five forms of complexity that are highly interrelated: strategy, customer, product, organization and process, including IT. Most clients engage consultants to address the single most visible symptom of complexity. The complexity in a big organization emanates mainly from the nodes. Reducing complexity at the nodes create between three and four times as much value as the traditional approaches to rightsizing and functional excellence.

16 Complexity Management A useful way of analyzing the level of complexity in a company and separating complexity that s beneficial from complexity that hurts the business- is to begin from a base zero. A manufacturer with only one product would still need a supply chain, a factory, a distribution network and a sales and marketing function. It could greatly simplify its IT systems, its distribution and sales efforts and its forecasting.

17 Where Complexity Comes from? Complexity is a by-product of business decisions that are sound and rational. Everyday customer service people are creating new processes to better address customers problems. CEOs in a recent survey identified complexity as the primary challenge they face. Faced with such concerns, most companies try to take actions. Teams attack product-line complexity, organizational complexity and complexity in IT systems.

18 Fight complexity Different kinds of complexity really are interrelated and creates a web of opportunity. It s hard to get results by attacking just one aspect of the business. An attack on complexity in one part of the business can establish a beachhead for rooting it out elsewhere. The result of such a multipronged approach, ultimately, is a truly focused company and the results that last. Cont..

19 Fight complexity A focused company differs from the typical company on five important dimensions: strategy, customers, products, organization and processes, including IT. It s tough and usually fruitless to simplify any one dimension alone. If you move from one to the next you get a powerful multiplier effect and the results are both dramatic and durable.

20 Focused Strategy Average company: Invests to win in every element of its business. Focused company: Invests to identify and strengthen core capabilities. A company s core business comprises its most profitable customers, unique and most differentiated assets and capabilities, and most important products and channels. A company with a focused strategy adds new businesses or enters new markets which reinforces the core. Cont..

21 Focused Strategy A focused strategy immediately creates opportunities for simplification in virtually every area of the business. It helps to recognize who are the core customers. It allows to determine which products will most appeal to those customers and which are unnecessary. It enables to create an organizational structure that supports the right set of business and markets. It encourages the development of a culture focused on quick, effective decision-making and execution.

22 Focus on Customers Average company: Has plenty of data about its customers but struggles to find insights it can act on. Focused company: Knows its core customers and designs its business around those customers needs. Companies that know their customers well can create a focused value proposition, tailoring product decisions, pricing, channels and so on. They can eliminate portions of the offering which do not addresses their needs. They simplify processes to customers interactions easier and faster.

23 Focused Products Average company: Provides options( and carries sufficient inventory) to appeal to everyone. Pushes supply-driven innovation on the market. Focused company: Gives its core customers exactly what matters to them. It equally disciplined in releasing new products and in trimming those that customers no longer value. Market demand pulls innovation. Companies regularly add new products, options, features and line extensions for reasons that usually seem good at the time.

24 Focused Organization Average company: Designs its organizational structure to support existing processes. Focused company: Designs its organizational structure to support critical decisions. The characteristics of a focused organization is that it makes and executes its most important decisions well, quickly and without undue effort, which requires a high degree of simplicity at three different levels. Cont..

25 Focused Organization 1. The overall organization needs a clear structure tied to the company s strategy without too many nodes or points of interaction among functions and units. 2. Each unit needs a minimum number of layers and appropriate managerial spans, and the organization needs a simple way of ensuring that the right people are in the right jobs. 3. The organizational culture- has to facilitate good decision-making and execution.

26 Focused Processes and IT Average company: Redesigns processes to maximize functional efficiency. Aligns its IT systems to support existing processes. Focused Company: Redesigns to maximize integrated process efficiency. Aligns IT systems with business objectives. Business processes and IT systems link a company s strategy to its everyday operations. If the strategy, product line or organization is unduly complex, processes will be unduly complex and vice versa. Cont..

27 Focused Processes and IT People report that they waste a lot of time. Products are late to market. IT systems cement process complexity in place, and so the two are closely linked. Companies trying to fix their processes often run up against that time-honored response from IT, but our systems won t support it.