Process View
&
Strategy
Based on the Book: Managing Business Process Flow.
Processes
Product or services must meet customer expectations; physical (
comfort, safety, convenience), psychological (relaxation, peace
of mind), social and spiritual, and they must do so within a
budget.
Business processes provide products and services: new car
financing, producing an engine, making a hamburger,
delivering a book from Amazon to a customer, teaching a
course.
How do organizations categorize customer expectations?
How they develop processes capabilities to fulfill customer
expectations?
What Metrics are used to measure?
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
2
Process view
Process view: any organization or any part of an organization is
Input  Process  Output
Inputs: tangible or intangible items that flow into the process from
the environment: natural or processed resources, parts and
component, energy, data, customers, money, etc.
Outputs are any tangible or intangible items that flow from the
process back into the environment: products, energy,
information, served customers, cash, etc..
Raw material  Manufacturing Process  Finished goods
Data  Accounting Process  Financial Statements
Accounts Receivable  Billing Process  Cash
Unsatisfied customer demand  Transformation Process 
Satisfied customer demand
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
3
Five Elements of the Process View
Information
structure
Inputs
(natural or
processed
resources, parts
and component,
energy, data,
customers, cash,
etc.)
Process View & Operations Strategy
Process
Management
Network of
Activities and Buffers
Outputs
Goods
Services
Flow Unit
Human & Capital
Resources
Ardavan Asef-Vaziri
August , 2013
4
Flow Unit: The Item to be analyzed
A flow unit may be a unit of input, such as customer order, or a
unit of output such as finished product, or the value of input or
output.
Process
Flow Unit
Input-Output Transformation
To
From
Order fulfillment
Orders
Receipt of an order
Delivery of product
Outbound logistics Products
End of production
Delivery to customer
Supply cycle
Supplies
Issuing a purchase order
Receipt of the supplies
Customer service
Customers Unsatisfied customer
Satisfied customer
Product R&D
Projects
Recognition of the need
Launching the project
Cash cycle
Cash
Expenditure (costs)
Collection of revenue
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
5
Product Attributes & Process Competencies
Customers  Define product attributes.
Operation Managers  Create process competencies to meet
and exceed customer expectations.
Product Attribute (External)
Price
Process Competency
(Internal)
Cost
Response time
Flow time
Variety
Flexibility
Quality
Quality
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
6
Product Attributes
Product Price (cost for customer): purchase price service, maintenance,
repair, insurance, and disposal costs. Total cost of ownership.
Product Delivery-response time: total time before receiving the product.
Is the product on shelves, in a distribution center, or somewhere
along the production line. Also reliability in response time.
Reliability in response time? Low standard deviation.
Product Variety: the choices offered to the customer: At a lower level;
options offered for a particular model, colors, styles. At a higher
level; number of product lines and product families.
Product Quality: the degree of excellence, how well the product works.
Features (what it can do), Performance (how well it functions),
Reliability, Serviceability (how quickly), Aesthetics, Conformance to
expectations. Reliability in quality? Quality over time; consistent
quality.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
7
Customer Value Proposition
Customer Value Proposition: a set of benefits that the firm offers
to customers.
Order Qualifiers: Characteristics that convince customers to
consider the product. Order Winners: Characteristics that
convince customers to buy the product. They differ among
market segments.
Customers purchase based on the value they derive from a
product. It is the greatest amount a customer is willing to pay
(the reservation price). If this value > price, the customer enjoys
positive net value (consumer surplus). Customers will buy the
products that offers highest consumer surplus.
Zara's business is design/manufacture/distribution/retailing.
Zara differentiates itself by timely fashion for the masses.
CVP  timely yet limited variety at modest cost and quality.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
8
Process Competencies
Process cost: the total cost of producing and delivering outputs.
Remove non-value adding activities and buffers.
Process flow time: the total time to transform a flow unit from
input into output. Effective layout and smooth material flow.
Remove variability in arrival rate, processing rate, and quality.
No starvation or blockage. No defect and re-work.
Process flexibility: the ability to produce and deliver a variety of
products at high and low production volume.  cross trained
workers + general purpose equipment + short set-up time +
delayed differentiation, Job-Shop layout or U-shaped layout +
small batch size.
Process quality: the ability to produce and deliver quality
products. Effective design as well as production that conforms
to design. Quality at source.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
9
Operations Management
Operations management



Structure the processes competencies in the direction of
the customer value proposition.
Develop measures to evaluate the effectiveness and
efficiency of the processes.
Apply methods and techniques to improve process
performance.
By measurement we find the relationship between controllable
process competencies and desired product attributes, and will
be able to set appropriate performance standards.



Financial performance measures
External performance measures
Internal performance measures
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
10
Financial Measures
Absolute measures:

revenues, costs, operating income, net income
C
Net Present Value (NPV) =  1  r 
T

t
t 0
t
Relative measures:


ROI, ROE
ROA =
EBIT  Tax
Average Total Assets
Survival measure:

cash flow
They are lagging, aggregate, and result oriented than action
oriented. Link financial measures with external measures
which track customer satisfaction with output and internal
measure that track operational effectiveness.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
11
External measures
External measures customer satisfaction/ dissatisfaction
with output.
Customer satisfaction: does the product meet and exceed
customer expectations in the four dimensions.
Customer dissatisfaction: number of warranty repairs, product
recalls, field failures.
Weakness: are aggregate (not on individual customers), result
oriented (not action oriented), lagging (not leading).
External measures must be linked to internal measures that track
operational effectiveness and the process manager can control.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
12
Internal measures
Process managers do not directly control financial measures and
external measures. They need internal operational measures that
are detailed, can be directly controlled, and are linked with
financial and external measures.
Internal performance can then become the predictor of customer
satisfaction/dissatisfaction, and financial performance.
Customers: on time flight. Internal goal: average arrival /
departure delays not exceed 15 minutes. Customer: Answer
the phone. Internal goal: answer in less than 30 second in 95%
of times.
Customer: More options models and options. Internal goal: 30
minutes set up time to switch from one product to another.
Cross trained workers can do more than one task.
Customer: Quality. Internal goal: Failure rate less than 1 in
100000.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
13
Competitive Product Space
Competitive Product Space: A representation of the firm’s
product portfolio in the four dimensional space: Q, C, Var., Res.
Variety
High
Another firm: expensive and
customized products.
B
One firm: low cost and
standardized products
A
Low
Low
High
Responsiveness =1/Flow Time
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
14
Strategic Positioning
Defines those positions that the firm wants to occupy in its
competitive product space. The current position and direction.
A firm must ensure that
its competitors are not
able to imitate its chosen
position. An sculpture
not a block.
Responsiveness
High
B
It is harder for competitors
to imitate an array of
interlocked activities.
A
Low
Low
Process View & Operations Strategy
Price Efficiency = 1/Price
Ardavan Asef-Vaziri
August , 2013
High
15
Product Attributes – Process Competencies
Shouldice Hospital in Canada, focus on
hernia operations. Standardized
repeatable surgical procedure, in an
outpatient environment, very high quality
at a low price. Do not accept patients with
any risk factor (blood Pressure, allergic, ..)
or for any thing except hernia.
Corolla: flow shop, decentralized assembly plants close to
market, short flow time, low cost.
Ferrari: job shop, only a single plant in Italy, longer flow time,
high cost.
McMaster-Carr: a materials, repair, and operations (MRO)
product distributor, a process with high flexibility, high
quality, short response time, but at a high price.
Henry Ford https://www.youtube.com/watch?v=S4KrIMZpwCY
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
16
High Utilization
Bright sunlight + a genetic predisposition  people in India
vulnerable to cataracts. Millions unable to access or afford
treatment go blind in their 50s. Aravind hospital started by
treating paying patients and using the profits to offer free care to
those who could not afford it. Still the service was not accessible
to patients who could not afford transportation and required a
relative to accompany them. Aravind added its own buses and a
group of assistants who accompanied patients and worked
remotely with doctors at the hospital to offer diagnosis and
treatment. To keep costs low, Aravind ensures high utilization of
its expensive resources - doctors and surgical equipment.
Surgical equipment is used all day and doctors only focus on
performing surgery with preoperative and postoperative care
largely handled by nurses.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
17
High Utilization
The level of quality has consistently been high enough to attract a
significant number of paying patients. Aravind, the winner of the
2008 Gates Prize for Global Health, served 2.5 million outpatients
and performed 3 hundred thousands cataract surgeries in less
than one year. Despite providing 2/3 of the outpatient visits and
3/4 of the surgeries as free service to the poor, Aravind
generated healthy profits that it used to fund its growth.
The cataract surgery at Aravind, the hernia surgery at Shouldice
Hospital are example of implementing Ford Motor Production
line in healthcare.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
18
Wal-Mart: Average Quality, Low Cost, Low Variety
Inventory turns at retail stores
Wal-Mart: 9.2 times
Target: 6.1
Sales per square foot
Wal-Mart: $425/sqf
Target: $273/sqf
Operations Strategy
– Short flow times
– Low inventory
Operations Structure
–
–
–
–
–
Cross docking
Electronic Data Interchange
Fast transportation system
Focused locations
Communication between
retail stores
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
19
Focused Strategy, Focused Operations
Focused Strategy: Committing to a limited, congruent set of
objectives in terms of demand (product, market) and supply
(input, technologies, and volumes).
A focus process is not limited to a few products.
Focused process: one whose products all fall within a small region
of the 4 dimensional product space.
Plant Within Plant(PWP): The business strategy is diverse. But
the entire business is divided into several mini-plants each with
focused processes. One PWP may focus on low cost, the other
on quick response.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
20
Focus and the Efficient Frontier
World-class
Emergency Room
High
Responsiveness
Efficient frontier
One general
facility
World-class
(non-emergency)
Hospital
Low
High
Process View & Operations Strategy
Cost
Low
Ardavan Asef-Vaziri
August , 2013
21
Operational Effectiveness
What distinguishes an effective business process?
Operational effectiveness: developing operations strategy
(resources, processes, values, competencies) that support the
strategic positioning (customer value proposition) better than
the competitors.
How does effective differ from efficient?
Conventional Management Definition: Effectiveness; doing right
things. Efficiency; doing thing right.
Operations Management Definition:
Cost Efficiency: achieving an output with minimal level
of input and resources.
Effective Process: supports execution of company’s
strategy in the four dimensions of C/Q/T/V.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
22
Strategic Positioning and Operational Effectiveness
Firms located on the same ray share strategic priorities. World
class firms are on the efficient frontier. Efficient frontier is the
minimal curve covering all the current positions in an industry.
High
Efficient
operations
frontier
Responsiveness
A
B
Firms not on the EF, are not on
strict trade-off, they can make
simultaneous improvement on
more than one dimension. They
do not need to trade-off. Firms on
EF need to trade-off.
C
Low
High
Price
Process View & Operations Strategy
Low
Strategic positioning: the
direction of the improvement
from current position; the
position on the EF the
company wants to occupy.
Ardavan Asef-Vaziri
August , 2013
23
Efficient Frontier
Trade-off: decreasing on one dimension to increase on the other
dimension. World class firms also try to push the EF outward.
As technology and management practices advances, the EF
moves upward. But the impact is not the same in all industries.
If I am forced to define Operations Management in one line 
Create a Smooth Flow.
If I have one more line  Understand Trade-off.
When you have smooth flow (i) you have low cost because flow
unites do not have time to collect cost, (ii) you have high
quality because as soon as you observe low quality flow unit
you must stop the production line and you cannot have
smooth flow, and (iii) you are flexible because you do not
have too much inventory and you can go from one product
easily to another one.
Process View & Operations Strategy
Ardavan Asef-Vaziri
August , 2013
24