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Introduction

The Open University — Mon, 11 May 2009 12:08:48 GMT

This unit is adapted from the Open University course Business operations: delivering value (T883_1), which is about the essence of any enterprise – that core set of processes needed to convert various resources (such as materials, money and the effort of people) into outputs (such as manufactured goods and/or delivered services) that provide value to customers and other stakeholders. The effective design and management of these processes is of critical importance to all organisations, public or private, large or small, manufacturing or service-based

This unit comprises: the transformation process model of operations; a video case study illustrating the importance of effective operations management; and guidance on making a business case for the improvement of an operation.

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Learning outcomes

The Open University — Mon, 11 May 2009 12:08:48 GMT

By the end of this unit you should be able to:

make an effective business case for a change to an operations activity or similar using appropriate written and/or oral forms of communication;
show the widespread utility of operations management principles at all levels across all types of organisation;
introduce a transformation model of operations management, with stakeholder value as the principle output;
provide models, concepts and techniques to assist in the analysis of operations systems, especially as these relate to the strategic objectives of the organisation;
use the transformation model to discuss the nature of operations and operations management;
explain the benefits of taking the ‘process view’ of the organisation.

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1 Putting the unit in context

The Open University — Mon, 11 May 2009 12:08:48 GMT

This unit, taken from T883 Business operations: delivering value, is concerned with the management of ‘processes’ – the organised set of resources and related activities that are essential for the delivery of goods and/or services to customers. These processes or ‘operations’ form the very essence of any enterprise, and it is critically important that they are managed well to be effective and efficient.

The full course consists of three main blocks of study:

Block 1: Operations, technology and stakeholder value
Block 2: Operations by design
Block 3: Improving operations

These are supported by: a set book, Operations Management by Slack, Chambers and Johnston; a collection of video- and text-based case studies; a reader, Operations Management – A Strategic Approach edited by Bettley, Mayle and Tantoush; and four resource packs:

Systems thinking
Managing people in organisations
Financial appraisal
Making the case

There are also associated assessment materials – assignments and an examination.

This OpenLearn unit provides you with the following three distinct extracts (lightly edited to remove irrelevant cross-referencing and the like) from the course materials:

Business operations: a process view. Sections 1 and 2 of Block 1 provide an introduction to the process view of operations management and include the text-based case study, ‘A day in the life of Frederic Godé, Operations Manager, BonPain’.
An operations management video case study: Vue cinemas. This is an approximately 10-minute video case study on Vue, a UK-based multiplex cinema chain, with brief accompanying notes.
Making the case. Sections 1 and 2 of the Making the Case resource pack provide advice on putting together an effective business case for a process improvement.

The course team hopes you will find this material useful and stimulating in its own right, and an attractive ‘taster’ for the full course.

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2 An introduction to the process view of business operations

The Open University — Mon, 11 May 2009 12:08:48 GMT

As we touched on in Section 1, the course that this unit is taken from is concerned with how best to manage the set of business processes that are directly responsible for converting a variety of resources (such as materials, money and the effort of people) into outputs (such as manufactured goods and/or delivered services).

This part of the unit deals with the strategic aspects of these operations management issues, covering:

why the operations function is so critically important to the organisation;
what the organisation should be seeking to achieve from effective management of its business processes; and
the crucial role played by the design of the operations system.

To start, here are three examples of ‘operations’ in the words of their managers:

A supermarket manager

We serve customers in the locality – provide them with the range of goods they want at prices they find attractive and at times that fit in with their other commitments. This particular branch is a large one and we carry a wide range of goods – lots of different lines including food, household goods, clothing. The logistics of keeping everything stocked is a critical aspect – a lot of this is handled by our computer systems. Staffing is important too – making sure we have enough checkout staff at peak times, enough people keeping the shelves filled. Opening hours have extended a lot in recent years but we don't do 24-hour opening here – there just wasn't the demand to justify the costs at this branch.
Managing facilities to keep costs down is also important – we've had an energy management initiative and we have targets of consumption to meet. A recent suggestion has been a similar waste management programme, as it costs us to dispose of waste as well as losing the value of the mostly food products that end up in the waste bins or skips.

Manager of a printing services firm

We provide the full range of services – everything from copying a dog-eared black and white photo of someone's granny through to 4-colour printing of a thousand copies of a glossy brochure. We're in the town centre, so we have quite a bit of what you might call passing trade – we're useful when the office photocopier breaks down, for example!
Most of our business comes from regular clients. We have a few quite large contracts with companies who use us for almost all their printing except low-volume photocopying. For example, for one customer, we are currently working on their training manuals – 200 loose-leaf pages in a customised ring binder. They provide us with the content electronically and we do the rest. We're also working on a marketing leaflet for them – that's the design of the leaflet as well as the production.
At the moment we've more work than we can handle comfortably on the design side, as we've only one person who can really use the software properly. But at the same time we could do with more high-quality printing jobs – we spent a lot of money on printing equipment last year and it needs to earn its keep. You always want more business, but it doesn't take much to tip the balance – the phone could ring now and if one of our regulars wanted a large job doing quickly we'd be pushed – but we'd manage it somehow because they need to know they can rely on us.

Dental practice manager

Smooth running of the practice revolves mainly around scheduling appointments appropriately, and staffing. That involves matching clients to the dentist and to a lesser extent to the equipment and the room. We have some specialist equipment available in just one of the treatment rooms. There is a certain amount of emergency work to be fitted in at short notice but otherwise the length of appointments is fairly predictable, and we keep to time pretty well.
I suppose the main problems arise from staffing. Unexpected absences can create a lot of problems as it is usually difficult to cover the work of one dentist or hygienist at short notice and I really hate having to cancel appointments – but sometimes there's no option.
Patients failing to turn up for appointments is a perennial issue for us, but two years ago we started ringing people to remind them of their appointment one or two days beforehand and that improved things a bit. So we always make sure we have full contact details for patients – home and work telephone numbers if possible.

As these examples illustrate, any enterprise exists in order to provide a set of particular benefits to its customers. This is just as true for a dental practice as it is for a printing services firm, for a university as for a manufacturing unit or a supermarket. The outputs are on the face of it very different (filled teeth, printed products, sold grocery items) but the ultimate aim, satisfied customers, is the same in each case. Each enterprise operates a particular set of processes. In the case of dental practice operations, these include the scheduling of appointments, the dental operations themselves such as the filling of teeth, updating of patient records – linked and coordinated activities that together result in the ‘product’, that is, some combination of goods and services. The effectiveness and efficiency of these processes determine how well the enterprise satisfies not just its customers but also its other stakeholders (defined as any individual or group with an interest – financial or otherwise – in the organisation and its activities). For example, owners seek profits and/or growth in capital value; employees seek remuneration and job security; government seeks compliance with regulation, or satisfactory delivery of a public service. The overarching goal of business operations can be thought of as the delivery of these various types of ‘value’, although the emphasis in formal definitions of operations management is on delivering products to customers. One definition is:

Operations management is concerned with the design, planning, control and improvement of an organisation's resources to produce goods or services for customers.
(Johnston et al., 2003, p. 15)

And operations have been defined in the following terms:

At the heart of every organisation are the activities that make its products. These activities are the operations. To put it simply, the operations describe what the organisation does … operations are the activities that are primarily concerned with making an organisation's products.
(Waters, 2002, p. 4)

or more simply:

Operations transform inputs to outputs.
(p. 5)

Effective operations systems don't just happen. Whether or not stakeholders gain the value they seek from an operation depends on the design of the operations systems and the ways in which those systems are operated. In other words operations management is about both ‘doing the right things’ and ‘doing things right’.

The way in which customers benefit from operations is via the products. Goods and services need to be designed to provide the features that customers want. These are often at least partly, and sometimes entirely, a function of the processes involved in making and delivering the products. Clearly, the quality of the printed items produced by the print service firm, for example, is directly affected by the printing processes employed. Internet-based services such as travel booking or music download consist almost entirely of the processes involved (the exchanges of information in the form of digital data). Consequently, product and process are closely intertwined concepts, and operations processes are critical in ensuring that products achieve customer satisfaction.

Technology plays an increasingly important role in operations systems and is strongly associated with both product and process. Advances in technology and new ways of applying technology to meet the demands of the market place give rise to entirely new products as well as new ways of producing and providing traditional goods and services. Advanced manufacturing processes, the internet, and other aspects of information and communications technologies do not just enhance existing processes, they offer radically different ways of doing business and innovative ways of creating value for all stakeholders. Computerised manufacturing processes, for example, have provided the means of ‘mass customisation’ whereby an individual item can be tailor-made for a particular customer, but without the prohibitively high process costs that traditional techniques would have required. An understanding of how technology can best be deployed – designed or selected, implemented and managed – to serve operations is therefore crucial to effective design and management of operations systems.

Operations management, then, is fundamentally about the management of processes – that is, their design, planning, operation and control – and for this reason is sometimes referred to as business process management. The implications of taking this process-based view of operations will be explored more fully in Section 3.

Whatever terminology is used, the unit team's stance is that operations is a key function, one of fundamental and strategic importance to the enterprise. Indeed, for the purposes of this unit at least, the unit team wants to place operations in the ‘starring’ role, with the other functions such as finance or marketing as support – essential but not the defining characteristics of the organisation. This view is probably at odds with most perceptions of operations. Operations tasks are often treated as the backstage activities, with marketing or strategy more usually in the limelight taking the plaudits of the audience. Operations is the area that marketing and strategy blame when things are not going well! This unit puts the design and management of the business processes making up the operations function centre-stage. You can decide whether this is deserved after you have studied this unit.

Perhaps you work in a finance, IT, marketing or some other non-operations function. If you are studying this unit as a taster for the full course, and wondering whether it is indeed the right choice for you, then fear not! Everyone is an operations manager (or business process manager) and this field offers principles and practices relevant to every department as well as to the organisation as a whole. The marketing department's ‘products’, for example, might include demand forecasts, leads, and sales figures, rather than goods or services designed for external customers. In effect the marketing, finance, IT and other departments have internal customers for their outputs, as well as being concerned to a greater or lesser extent in satisfying external customer needs. Operations principles, or business process management principles, apply at the level of the department as well as to the enterprise overall. And many operations managers have job titles other than ‘operations manager’ that reflect the specific nature of their operations – transport manager, service manager and so on.

Activity 1

Write your own ‘mini-case’ along the lines of the earlier examples but based on an organisation or department that you know well. Aim to identify the main outputs, the key processes responsible for producing them, and some of the problems that face managers of these processes.

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3.1 Introduction

The Open University — Mon, 11 May 2009 12:08:48 GMT

The purpose of this section is to address the following interlinked questions:

Just what do we mean by business operations?
Why is it so important?
Where does technology fit in?

I begin answering these questions with a discussion of how best to represent operations activities, making the case for the process view of the organisation. This leads to discussion of the nature and scope of the operations management function based on a model of the transformation process.

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3.2 Business operations: function or process?

The Open University — Mon, 11 May 2009 12:08:48 GMT

Traditionally, an enterprise's activities are organised according to a structure based on the well-known business functions: marketing, purchasing, finance, human resources, research and development (R&D), operations, and so on. The exact function title varies from organisation to organisation, but each function has its own more or less well-defined sphere of activity. It carries out its various tasks and passes on information or artefacts to other functions for them to work on. For example, marketing provides the demand forecasts that operations then plans to fulfil, while finance provides the costing information that product design uses to cost a new product. The traditional view of operations is to consider it as the function responsible for the fulfilment of customer requirements. Strategists decide what will fulfil customers' needs, marketers are responsible for determining customer needs and communicating with customers, but it is operations that must make sure customers actually get the goods and services. The rationale for organisation on these lines is that each function requires specialist knowledge and skills that it is unrealistic to expect any single unit of the organisation to possess, and without which the various activities could not be undertaken with the required degree of competence. Problems with this approach lie in the discontinuities that tend to occur at the interfaces between functions. The tendency is for each function to act in relative isolation from the other.

In industry, it's known as a ‘throw things over the wall’ model. And a lot of firms are still working that way. You have a problem and you give it to engineering to solve. Then they throw the solution over the wall to industrial design who is supposed to make it pretty. And then they throw it over the wall to manufacturing and they tear their hair out figuring out how to produce it at a profit. Then they throw it over the wall to marketing who has to create a demand. Then sales gets it and they say, ‘Oh, my god, how are we going to sell this?’
(Bally, quoted in Czetli, 1999)

The alternative view is the so-called process view of the organisation. This is claimed to have benefits over the traditional functional view because it focuses on what needs to happen to satisfy the customer, irrespective of whether the tasks involved are the responsibility of marketing or operations or finance or some other function. Analysis of business processes, rather than functions, allows identification and elimination of wasteful practices, those that do not ‘add value’ (i.e. contribute to the benefits perceived by the customer), and the entire system can be optimised to produce the desired outputs from the customer's point of view. This often requires radical redesign of the way things are done and is the essence of lean thinking and business process re-engineering concepts. Figure 1 illustrates how different functions contribute to a single business process in a contract R&D company.

Figure 1 Example of cross-functional business process in a contract R&D company. The extent of shading represents extent of involvement in each activity

Functions still have a role under the process view of the organisation, as the following quote illustrates.

The problem with functions in most companies today is that they perform the wrong tasks. Purchasing should not purchase. Engineering should not engineer. Production should not produce. In the lean enterprise, functions have two major roles. The first is to serve as a school. They should systematically summarize current knowledge, search for new knowledge, and teach all this to their members, who then spend time on value-creating process teams …
The second role of functions is to develop guidelines – the best practices – for, say, purchasing or marketing and to draw up a roster of those companies eligible to be long-term partners in the value stream …
So who actually performs the tasks that these functions traditionally handled? Cross-functional product-development and production teams should select suppliers, develop products, and oversee routine production activities. The traditional purchasing department, for example, should define the principles of enduring relationships with suppliers, draw up the roster of eligible suppliers, and strive to improve continuously the performance of every supplier. The product-development team should perform the purchasing department's traditional job of deciding to obtain a specific amount of a specific item at a target price from a specific supplier for the life of the product.
(Womack and Jones, 1994, pp. 99–100)

Self-assessment Question (SAQ) 1

Identify one benefit and one drawback of cross-functional development or production teams dealing with their suppliers in the way Womack and Jones describe in the above quote.

Answer

Benefit. The cross-functional team is best placed to make judgements on the suitability of particular suppliers for the purpose they intend. For example, trade-offs between the cost and quality of the supplied service or component are better judged by the team closest to, and directly responsible for, production than by the purchasing department.

Drawback. The ability to draw on past experience of supplier reliability, etc. may be limited in the cross-functional team, whereas the purchasing department has greater knowledge of previous experiences across the organisation. Effective sharing of information between the purchasing department and the cross-functional team is vital to avoid or mitigate this sort of drawback.

In summary, an organisation's business operations can be considered as a set of specifically configured processes that convert a variety of resources (such as materials, components, finance and the effort of the people involved) into products (goods and services) delivered to customers. These processes are made up of activities that may be carried out by various functions or departments or other divisions of the organisation, or by cross-functional teams.

A process can be defined as follows:

a group of resources and activities which add value by turning specific inputs into outputs.
(Slack et al., 2003, p. 102)

This is the basis of the transformation model of operations, which is the subject of the next section.

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3.3 Business operations: a transformation process

The Open University — Mon, 11 May 2009 12:08:48 GMT

The view that operations is the set of processes responsible for producing the organisation's intended outputs from an appropriate range of resource inputs can be represented very simply, as in Figure 2.

Figure 2: Basic transformation model

So, for example, at The Open University operations produces outputs such as course materials and marked assignments from resources that include paper and other materials, computers, academic knowledge, postal and electronic distribution systems.

A very large range of different inputs might well be involved in any given process, and it could be helpful to categorise them as in Table 1.

Table 1: Types of inputs to operations processes

Type of input	Definition	Examples for a printing process
Primary	The resources that the process transforms directly	Paper; Printing inks
Secondary	The resources needed to facilitate the transformation of primary resources into outputs	Printing machine; Operator; Energy to drive the machine; Finance to purchase other resources
Tertiary	The information needed to plan, execute and control the use of primary and secondary resources so that the primary transformation can be carried out	Know-how to operate the machine; Schedule of work for the operator/machine; Specification for the printing work

Activity 2

Choose an organisation on which to base the rest of the activities in this section. It could be the organisation where you work or another one with which you are familiar. Identify two processes that the organisation operates, together with their outputs. For each process, give one example of a primary, secondary and tertiary resource input.

The processes making up the operations function must be designed and executed in a way that is effective in delivering the desired outputs and efficient in the use of resources. The precise nature of the outputs (such as the quality of goods and services) is critical in determining customer satisfaction and therefore essential to maintain the income into the organisation. The way in which the outputs are produced (such as the efficiency of processing that determines the costs incurred by the organisation and the extent of waste production) is also critical to the profitability and viability of the enterprise. Figure 3 shows an expansion of Figure 2 to include additional elements.

Malholtra, MK and Sharma S (2002) Journal of Operations Management, Prentice-Hall International Limited ©

Malholtra, MK and Sharma S (2002) Journal of Operations Management, Prentice-Hall International Limited

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Figure 3: Expanded transformation model

In this figure, products (primary outputs) are shown in terms of the value they provide to stakeholders (usually but not exclusively customers). Products must be designed to provide the benefits that customers want, not just what the suppliers think they want. But customers are not the only stakeholder group. Operations has many stakeholders, including the other business functions and senior management in the organisation. Different stakeholder groups are likely to have different perspectives of value, so operations typically must attempt to satisfy several potentially conflicting demands simultaneously, for example demands from customers for high-quality products and from owners and senior managers for reduced costs. Value is a surprisingly complex concept.

Figure 3 also shows the range of activities that is the province of operations, in the form of the traditional subdivisions of operations and the relationships between them.

A secondary output, waste and depleted resources, has been added. Examples include reject products, used secondary resources such as paper, machine oils, water, worn machines, tired staff. The inclusion of this secondary output in the figure demonstrates that no system can be 100 per cent efficient and that waste and degraded resources need to be considered in the management of operations processes. For example, targeting waste reduction might be a way to increase some aspects of stakeholder value.

Can you think of any other outputs from the process apart from the desired products and waste? Another category of output (tertiary outputs) that might be worth distinguishing is changed information or knowledge. As a result of the transformation process more is known. For example, as a result of comparing forecast demand with actual demand, more is learnt about the market place and the accuracy and usefulness of the forecasting techniques employed.

Figure 4 shows another modified version of the transformation process. As well as the tertiary outputs themselves, it has a feedback loop linking ‘outputs’ back to ‘inputs’ and the operations activities. This gives more emphasis to the feedback element, which is an extremely important part of any process and an integral part of the learning that needs to be built in to generate new knowledge about the process.

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Figure 4: Transformation process with feedback loop

But even Figure 4 does not tell the whole story. Operations processes involve many different interfaces, internal and external to the organisation.

Examples of external interfaces include the following:

Operations sources components, materials, etc. from suppliers.
Operations supplies direct to the customer, and in the case of services probably interacts directly with the customer during service delivery.
Awareness of competitor activities is important, for example, to maintain competitiveness in process costs.
Operations may need to interact with external agencies such as regulators or trade associations over compliance with legislation or relevant codes of practice.

There are internal interfaces with all other business functions, for example:

Operations needs funds from finance for investment in new equipment.
Marketing provides direction for product improvement programmes.
IT supports control and information systems.
Recruitment and training of staff involves personnel or human resource management specialists.
Operations draws on R&D expertise for troubleshooting or new product development.
Operations must liaise with health and safety and environmental areas concerning compliance with regulations.

The list is almost endless. And all of this takes place in the context of the overall strategy of the organisation – the markets it serves and how it serves them; that is, the type of goods and services it aims to deliver, whether its main aim is to develop new business areas or to minimise costs, and so on. The organisation's culture and the management style also impact on operations processes. For example, does the organisation tend to be innovative, embracing new ideas and change easily, or is it rooted in traditional ways of doing things? Are management decisions taken consultatively, or is there a tendency to autocratic control?

A major influence from outside the organisation is of course the market place – the needs and wants of the customers that the organisation serves, and the other organisations providing broadly equivalent services or complementary products. Consequently, interfaces between operations and marketing are of particular importance. Similarly, links with suppliers are of vital importance and management of these interfaces forms an entire branch of management in its own right, closely allied with the operations function – supply chain management. The way an organisation conducts its business is likely to be influenced by the industry it belongs to. For example, in some industries it is the norm for organisations to manage the quality of their outputs according to the ISO 9000 standard and for customers to demand that their suppliers are registered/accredited to the standard, whereas in other sectors this is much less important.

In turn, industries are influenced by factors such as the general economic climate, sociological trends, technological change, and government interventions including legislation and regulation. Some of these macro-environmental factors have very significant effects on operations. For example, environmental legislation covering pollution control and waste management is a direct concern of many operations managers. Macro-environmental factors also influence the location of the organisation's activities. Factors such as government aid wage rates, energy costs, and the availability of a relevantly skilled workforce, for example, influence the attractiveness of countries for the location of all types of operations, from factories to call centres to R&D laboratories.

Figure 5 portrays this wider view of the operations transformation in its context.

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Figure 5: The operations transformation in its context

This ‘complete’ picture of operations demonstrates both its criticality to the enterprise and the complexity associated with its management.

SAQ 2

At the start of Section 3, I presented arguments in favour of taking a process view of the organisation. To what extent do you feel that Figure 5 is consistent with this process view?

Answer

There does seem to be something of a paradox here. In showing the individual functions, and the need for operations to interface with these, the figure seems to represent more of a functional view of the organisation. To the extent that what goes on in the operations box is a set of processes designed to convert resources to outputs, however, the figure is consistent with the process view of the organisation. The important thing is to represent the entire process – all the activities required to deliver value to the customer and other stakeholders. Figure 5 is intended to show all the different types of activities that might need to be involved. Any representation of an actual process will identify activities from various functional pigeon holes.

The view of operations outlined above applies to all types of organisation – small and large, service and manufacturing, public and private sector – and the principles apply even to departments or other subdivisions within organisations. Table 2 provides some examples of operations tasks and processes – the resources that must be managed as inputs, the output goods and services, and the interfaces that must be managed internally and externally.

Table 2: Examples of operations transformations

Organisation or department	Outputs to customer (internal or external)	Input resources	Operations processes	Internal interfaces	External interfaces
Printing services firm	Printed materials.	Paper; Ink; Computer-aided design equipment (hardware and software) and know-how to operate.	Design of printed materials; Printing; Collation; Despatch and delivery.	Finance/accounts department; Marketing/sales department.	Materials suppliers; Equipment maintenance services.
Accounts department of large organisation	Invoices; Payments; Receipts; Financial statements.	Office supplies; Office equipment; Accounting expertise.	Preparation of year-end accounts; Preparation of invoices; Receipt of payments.	All other departments.	Customers; Suppliers.
Cinema	Entertained customer.	Film; Ticket issue facilites.	Film projection; Building and auditorium heating, lighting, etc.; Ticket validation.	Box office; Finance.	Film distributors; Catering/cleaning services.
Contract R&D company	Technical and/or market information / knowledge presented as a written report; Patents; Other knowledge.	Technical / market knowledge / skills; Research equipment and facilities; Finance; Materials; Energy.	Client consultation; Research activities; Contract proposal writing; Report writing.	Marketing / sales; Purchasing; Finance.	Partners (collaborators in research activities); Suppliers; Clients.

SAQ 3

Read the case ‘A day in the life of Frederic Godé, Operations Manager, BonPain’, linked below. Then create another row in Table 2 to describe as fully as possible BonPain's bakery operations in terms of the column headings.

Click below (7 pages, 1.55MB)

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Answer

Table 3: BonPain operations

Organisation	Outputs	Input resources	Operations processes	Internal interfaces	External interfaces
BonPain Bakery	Frozen par-baked bread products	Raw materials (ingredients); Baking/freezing (etc.) equipment; Know-how; Finance (including investment in new technology); Energy; Labour	Mixing; Baking; Patisserie assembly; Freezing; Quality management	Sales; Marketing (e.g. market forecasts, new business opportunities); IT (e.g. materials resource planning, enterprise resource planning systems); Human resources (e.g. RSI concerns and job design)	Customers – supermarkets; Consumers; Suppliers (e.g. packaging supplier, equipment supplier)

Activity 3

Create two additional rows in this table to describe the operations of (a) the example organisation you chose for Activity 2, and (b) a department or division within this organisation.

It is possible to see an organisation as a hierarchy, or nest, of processes. The processes associated with a particular department (or other subdivision of the organisation) are one element of the processes or operations of the organisation as a whole. For example, a contract R&D company operates processes that include a variety of sales and marketing activities, contract preparation, laboratory-based R&D activities, patent and literature searching, report preparation, progress meetings with clients. Each one of these constituent processes can be represented as a single transformation process. Collectively, they make up the organisation in its entirety, as shown in Figure 6.

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Figure 6: Hierarchy of operations processes in an R&D company

The principles of effective operations management can equally well be applied at the macro-level to the entire organisation or at the micro-level to individual departments or functions, or to a subset of processes, such as those forming the domain of an individual cell or team.

SAQ 4

Taking as examples the first three organisations or departments in Table 2, what is changed by the transformation process in each case? In other words, what is being processed?

Answer

Printing services firm – materials.

Accounts department – information.

Cinema – people (customers).

The transformation concept might have something of a static feel to it – the appropriate resources are gathered together, something is done to them (the process) and, hey presto, the desired outputs appear. Consideration of just what is changed during the transformation process (materials, information and/or people, as in SAQ 4), and how it changes, leads to a slightly different perception – the concept of flow. Materials, information and/or people flow through the process, starting in their raw state and changing, possibly in stages, as they are acted upon in some way during the process.

Consider, for example, the flow of materials in the manufacture and use of textiles, illustrated in Figure 7. Typically, yarn is woven (or knitted) into fabric, which is cut and manufactured into garments or other items, with a variety of possibilities for the re-use and recycling of process wastes and end-of-use products. The physical flow of materials through these various stages of processing is easily envisaged.

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Figure 7: Material flow in the textile industry

Information flows also take place in a similar way: orders are placed, specifications drawn up and communicated, invoices raised, payments received, and so on. Figure 8 shows goods and information flows in a supermarket re-ordering system.

(Source: Womack and Jones, 1996, p. 46) ©

Womack, JP and Jones, DT (1996) ‘Tesco Reorder System’, Lean Thinking, Simon and Schuster UK Limited

Figure 8: Tesco re-order system

In service contexts, people need to be managed through a process from, in the dental surgery example, contacting the surgery for an appointment through to arrival for treatment, making a follow-up appointment, and so on. Lean thinking principles include a focus on the management of flow, to eliminate unnecessary waiting time and other hiccups that are sources of lost value in what should be overall a rapid and smooth process. The transformation process therefore needs to be designed, planned and controlled to make this flow as smooth and uninterrupted as possible.

The first step … is to focus on the actual object – the specific design, the specific order, and the product itself (a ‘cure’, a trip, a house, a bicycle) – and never let it out of sight from beginning to completion. The second step, which makes the first step possible, is to ignore the traditional boundaries of jobs, careers, functions (often organized into departments), and firms to form a lean enterprise removing all impediments to the continuous flow of the specific product or product family. The third step is to rethink work practices and tools to eliminate backflows, scrap, and stoppages of all sorts so that the design, order and production of the specific product can proceed continuously.
(Womack and Jones, 1996, p. 52)

I have placed a great deal of emphasis so far on the transformation model as the basis of an understanding of operations and operations management. This is consistent with ‘systems thinking’. The use of transformation models is a well-established approach to operations management. However, the detailed models are different in each case. If you do any further reading about the subject you will meet still other models of operations management. Models are exactly that – merely imperfect representations of a much more complex reality. They are designed to suit a particular purpose, and different models may be more or less useful in a different context.

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3.4 Managing across interfaces

The Open University — Mon, 11 May 2009 12:08:48 GMT

Increasingly, operations management is seen as an interface discipline (Voss, 1995). Managing across interfaces, both internal and external to the organisation, is a particular challenge for managers and this is discussed further in this section.

Information and communications technology is an important means of linking across the various interfaces. Box 1 outlines the capabilities of enterprise resource planning systems in this respect.

Box 1: Enterprise Resource Planning

Enterprise resource planning (ERP) systems organise and integrate all the information needed to manage processes effectively. Instead of all the various functions in an organisation using their own planning systems (typically separate ones for each of manufacturing, marketing, finance, etc.), ERP systems provide the means for all activities to share common databases. ERP systems are principally planning tools, allowing future needs for capacity, staffing, materials, and so on to be identified and assessed against expected levels of demand.

ERP systems have been available since the late 1990s, and have evolved from materials planning systems (such as MRP – materials resource planning). As computing power increased, so more and more information could be handled effectively, and the benefits of true integration of information across all functions in the enterprise could be realised. The benefits of implementing an ERP system can typically include: better utilisation of capacity and other resources, reduced inventory, accurate scheduling, and better service quality by meeting promised delivery dates better.

Large companies have grown up as suppliers of ERP systems. SAP, PeopleSoft, Oracle and Baan are names closely associated with their ERP products.

Given the nature of ERP systems – their intimate connection with organisation-wide information systems, their requirement for changed ways of working, and the large investment of financial, management and other staff resources required for their Introduction and implementation – it is not surprising that organisations opting for these systems have experienced problems in achieving the hoped-for benefits. Not only must the technical issues be addressed but also, and every bit as important, the organisational and people aspects. Thus companies providing ERP systems not only sell the hardware and software but also offer consultancy advice on the organisational changes needed to get the most out of the product.

The next generation of ERP tools will span inter-organisational boundaries so that suppliers and customers alike will have access to the same information to facilitate collaboration in the value creation process.

Figure 9 shows the traditional representation of ERP plus how it is likely to expand in the future.

(Source: Farhoomand, 2005, p. 265) ©

Farhoomand, A (2005) ‘Traditional ERP and Next generation ERP: Extending Beyond Enterprise Boundaries’, Managing e-Business Transformation – A Global Perspective, Palgrave MacMillan

Figure 9: (a) Traditional ERP; (b) next generation ERP – extending beyond enterprise boundaries

While information and communications technology is extremely powerful it is never the only solution to managing processes that span intra- and inter-organisational boundaries. A discussion of a wider range of options and their benefits follows.

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3.5 Internal interfaces

The Open University — Mon, 11 May 2009 12:08:48 GMT

The cross-functional interface between operations and marketing in particular has long been considered of critical importance in the delivery of customer value. Consider this definition of marketing:

Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably.
(The Chartered Institute of Marketing)

and reflect on just how pertinent this is to the operations manager. I think that any operations manager would surely wish to embrace the ‘satisfying customer requirements profitably’ part of this definition, even if the identification and anticipation aspects might sit better elsewhere (at least to some extent). Service operations and marketing have always had a close affinity, as so much marketing actually takes place during service delivery because of the intimate involvement of the customer in the process.

In spite of the evident commonality of aims, some conflict between marketing and operations functions is not unusual. For example, marketing may want to increase product diversity to satisfy customer demands while operations wants to reduce it in order to reduce the cost and complexity of production. In order to achieve balance and resolve the potential conflicts, both functions must work in concert. Marketing must not seek to sell what operations cannot deliver at a cost that allows a profit to be earned, and operations must not seek to provide products that do not give value to customers. Many publications attest to the importance of effective marketing–operations interfaces, and have shown that their effective management enhances customer-perceived value as well as overall organisational performance (Berry et al., 1999; Hausmann et al., 2002; Sawhney and Piper, 2002).

Box 2 describes the main decision-making areas where opportunities for marketing–operations integration exist.

Box 2: The marketing–operations interface

(Source: Malhotra and Sharma, 2002, p. 215)

Figure 10: Marketing operations integration framework within a firm

Figure 10 shows both strategic and tactical decisions associated with the marketing–operations interface.

Strategic planning integration

Marketing and operations strategies must be aligned. Operations systems must be designed to provide the benefits that customers want. For example, if rapid response to orders is needed then operations must organise itself accordingly. If cost leadership is the aim then investments in appropriate process technology need to be made.

Strategic forecasting

Strategic forecasting involves long-term forecasting of markets and technologies, and is required to inform the development process for new products and processes. For example, decisions on which new products to develop need to be informed by anticipation of future market needs and by appreciation of how present and future technologies can contribute to providing for those needs.

New product development

New product development involves several marketing inputs. The success of new product launches has been shown to depend on following a formal development procedure that incorporates market appraisal, market testing and so on. Cross-functional development teams have been found to be very successful in ensuring that both market and technical factors are given due consideration in the concept generation and later stages of product development. Techniques such as quality function deployment (QFD) have been explicitly designed to ensure that market/customer needs are taken into account in the product design process.

Tactical forecasting

Typically, tactical forecasting involves the forecasting of demand in order to inform the planning of operations, including the scheduling of production and of sales/marketing. For example, products such as toys and ice cream have seasonal or weather related demand patterns: production and distribution needs to be planned to suit.

Marketing/sales and operations planning

Marketing/sales and operations planning seeks to balance customer demand and supply resources. This balance may be achieved by making adjustments to pricing and promotion strategies on the one hand (discounting goods in plentiful supply, for example) or production capacity on the other (such as taking on extra staff to cope with peak demand). Clearly, for a balance to be achieved there must be a shared view of future demand and an agreed approach to address it. It would be unfortunate if, in response to the same forecast of high demand for a particular product, marketing reduced promotional activity while operations increased production capacity such that supply exceeded demand and goods were left on the shelf or services went unsold.

Operational integration

Operating-level decisions are often concerned with trade-offs – for example, making a product more easily or quickly available to a customer may increase revenue, but may also increase costs. The appropriate compromise position needs to be agreed between marketing (focused on revenue) and operations (focused on costs).

SAQ 5

Identify or suggest three ways in which the integration of marketing and operations functions can be implemented practically.

Answer

Use of appropriately designed processes, e.g. the new product development process that explicitly incorporates all the necessary steps including inputs from both functions.
Use of cross-functional teams.
Effective communication channels between functions to allow sharing of information, e.g. ERP systems.

To achieve cross-functional integration the organisation must have appropriately designed processes that link functions together seamlessly. In practice, this may involve, for example:

use of formal procedures to be followed by everyone engaged in the project (as in new product/process development)
use of shared information systems
working in cross-functional teams.

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3.6 Interfaces in the supply network

The Open University — Mon, 11 May 2009 12:08:48 GMT

Managing the internal interfaces is part of the story. Of increasing importance is the management of the processes that cross organisational boundaries between suppliers and purchasers, that is, the management of the supply network or chain. This network of suppliers, customers, government agencies and others that are necessary parts of the entire value system must be proactively managed. This includes designing the network appropriately.

A supply network is defined as:

an interconnection of organisations which relate to each other through upstream and downstream linkages between the different processes and activities that produce value in the form of products and services to the ultimate consumer.
(Christopher, quoted in Slack and Lewis, 2002, p. 181)

A generic supply network is shown in Figure 11; note the very large numbers of individual buyer–supplier relationships represented.

(Source: Slack and Lewis, 2002, p. 181) ©

Slack N, and Lewis, M (2002) ‘Supply Networks are the Interconnections for Relationships between Operations’, Operations Strategy, Prentice-Hal International (UK) Limited

View larger image

Figure 11: Supply networks are the interconnections of relationships between operations

Supply networks come in different shapes and sizes. At one extreme is the vertically integrated organisation that does everything itself from extraction of raw materials through to delivering finished products to the end consumer. An example is an oil company: it extracts the raw material from the earth, processes it in various stages and also runs the outlets that provide fuels to the end consumer. At the other end of the spectrum are virtual organisations. Such companies perform very few operations themselves – they ‘merely’ co-ordinate the activities of many other organisations to meet the needs of customers. Box 3 describes the operations of Dell, which shows some virtual company characteristics.

Box 3: Dell

It has become a famous story. Michael Dell, a biology student at the University of Texas at Austin, had a side-line in buying up unused stock of PCs from local dealers, adding components, and re-selling the now higher-specification machines to local businesses. The side-line grew to over $50,000 per month. He quit university and founded a computer company which was to revolutionise the industry's supply network management. Entering the personal computer market in 1984, Dell realised that there was little point in trying to develop all the components for his computer himself. It was too expensive and too cumbersome a business. Better to make good contacts with specialist component manufacturers and take the best of what was available in the market. Dell says that his commitment to outsourcing was always done for the most positive of reasons. ‘Outsourcing, at least in the IT world, is almost always a way to get rid of a problem a company hasn't been able to solve itself … that's not what we're doing at all. We focus on how we can coordinate our activities to create the most value for our customers.’ While Dell insist that their suppliers maintain a quality, price, and innovation edge, they do see them as partners …, a point emphasised by Michael Dell: ‘When we launch a new product, their engineers are stationed right in our plants. If a customer calls up with a problem, we'll stop shipping product while they fix design flaws in real time.’ With a neat symmetry, the technology that Dell produces has enhanced the economic incentive to collaborate with suppliers. They can share design and performance databases with suppliers, enabling them to shorten product development times.

In Dell's early days this kind of thinking was revolutionary in the computer industry. But Dell also applied it to the demand side of their business. Seeking ways to undercut their rivals, Dell started to sell its computers direct to customers, bypassing retailers. This allowed the company to cut the retailer's (often considerable) margin, which in turn allowed Dell to offer lower prices. However the move was controversial. Computers are complex purchases, it was argued, customers need to have their hands held while they are making up their minds, they won't buy a product they can't see and touch. Time, though, was on Dell's side. Corporate customers (Dell's main market) were becoming more sophisticated and needed less of the type of support that compensated for their own lack of product familiarity. Even domestic consumers needed less hand holding. But cutting out the link in the supply network between them and the customer also had two other huge benefits. First, it offered an opportunity for Dell to get to know their customers' needs far more intimately. At the simplest level, this allows them to forecast based on the thousands of customer contact calls they receive every hour. In a longer-term sense, it allows them to talk with customers about what they really want from their machines. In this way design decisions are made in an environment of realistic customer awareness. The second advantage of Dell's direct sales model is that it cuts the time taken for components to move from suppliers through the supply chain to the end customer; this reduced Dell's level of inventory to under 10 days' worth, as opposed to over 80 days for some competitors. Preventing its computers from languishing on shelves waiting to be sold is particularly important when 80 per cent of the cost of the computer is in its components, and those components are falling in price by around 30 per cent a year. In effect, the product is perishable. Its value is deteriorating over time. But because Dell is shifting its computers through the supply chain faster than its rivals, less value is lost. This gives Dell a significant cost advantage. In 1996, when the price of memory chips (about 20 per cent of a PC's cost) dropped by three-quarters, Dell is reckoned to have achieved almost a 10 per cent cost saving.

(Source: extract from Slack and Lewis, 2002, pp. 218–9)

SAQ 6

Identify one benefit and one drawback of the following features of the Dell approach to supply chain management:

the use of extensive outsourcing
selling direct to the end user.

Answer

Table 4

	Outsourcing	Selling direct
Benefits	Reduces requirement for investment in capital plant; Existing manufacturers have competences it would be difficult to match	Cuts out retailer's margin; Feedback direct from the customer is available; Cuts time to move goods through the supply chain
Drawbacks	Management effort overhead; Less control than would be the case with in-house facilities/expertise	Not all customers may be comfortable with this mode of purchase

One of the key management implications of seeing the enterprise in terms of the wider supply network it inhabits is the focus on the design of inter-organisational rather than internal processes. This is often known as supply chain integration. There are three aspects to this (Lee, 2000):

Information integration – the exchange of information and knowledge between partners concerning, for example, inventory status, demand forecasts, production schedules, promotion plans.
Co-ordination – delegation of activities and decisions to the best-placed supply chain member; so replenishment of stocks of a component might become the task of the supplier making that component rather than the supplier of the finished product, for example.
Organisational linkage – shared performance measures, effective communications channels, alignment of incentives, and equitable sharing of the gains and the risks from supply chain integration.

SAQ 7

For each of the three dimensions of supply chain integration, give one example that is evident in the Dell example.

Answer

Information integration: shared design and performance databases.

Co-ordination: fixing of design flaws by suppliers as soon as they become apparent.

Organisational linkage: the use of a shared performance database implies at least some sharing of performance measures; supplier personnel working within Dell's premises provides good communication.

The strategic management of supply networks is concerned with shaping them – deciding what activities should be undertaken by the enterprise itself and what should be undertaken by other organisations, and then forming and managing the relationships with the other parties in the network, upstream and downstream. Networks are in effect organised collections of buyer–supplier relationships. Supply network management is therefore heavily concerned with relationship management.

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3.7 The role of technology

The Open University — Mon, 11 May 2009 12:08:48 GMT

Technology is an increasingly important, if not dominant, element in operations. It was included as one of the resource inputs in the Figure 2 transformation model developed earlier, but treating it in this way potentially underestimates its role. Technology is often an important element of the product – it provides the product's innovative features, improved performance, and the very materials that goods are made from. It is also often a crucial part of the process to produce and/or deliver the product, for example digital technology to produce and deliver published material or indeed the use of ERP to assist with the management of processes across the enterprise and also between enterprises.

Activity 4

Using the transformation models in Section 3.3 as a guide, identify four different ways in which technology impacts on the operations of your example organisation.

Discussion

Thinking about the OU, I came up with the following:

Technology is increasingly key in the delivery of course materials to students: material is available via the internet and/or on DVD. Technology is part of the product.
Teaching methods have been modified to make use of new technology, e.g. computer conferencing to provide self-help study groups, tutor support. Technology is an integral part of the process.
Course production involves the use of computers to generate word-processed documents. Technology is one of the inputs.
Databases and spreadsheets are used to report student achievement and opinions to course teams and award boards. Technology is part of the feedback control process.

The application of information technology is widespread in operations across all sectors of the economy. In particular, the growth of e-commerce or e-business has been a notable feature since the late 1990s. Table 5 summarises the various applications to operations and related activities.

Table 5: Application of ecommerce in operations

Organisational functional areas	Ecommerce applications and/or contributions	Ecommerce tools and systems
Marketing	Product promotion; New sales channels; Direct savings; Reduced cycle time; Customer services	B2B ecommerce; Internet ordering; Website for the company
Purchasing	Ordering; Fund transfer; Supplier selection	EDI; Internet purchasing; EFT
Design	Customer feedback; Research on customer requirements; Product design; Quality function deployment; Data mining and warehousing	WWW-integrated CAD; Hyperlinks; 3D navigation; Internet for data and information exchange
Production	Production planning and control; Scheduling; Inventory management; Quality control	B2B ecommerce; MRP; ERP; SAP; BAAN; Peoplesoft; IBM ecommerce (web integrated)
Sales and distribution	Internet sales; Selection of distribution channels; Transportation; Scheduling; Third party logistics	Electronic funds transfer; Online TPS; Bar-coding system; ERP; WWW-integrated inventory management; Internet delivery of products and services
Human resource management	E-recruiting; Benefit selection and management; Training and education using WWW	Emails; Interactive websites; WWW-based multimedia applications
Warehousing	Inventory management; Forecasting; Scheduling of work force	EDI; EFT; WWW-integrated inventory management
Supplier development	Partnership; Supplier development	WWW-assisted supplier selection; Communication using internet (emails); Research on supplier and products with WWW and intelligent agents

(Source: Gunasekaran et al., 2002, p. 195)

Table Key

B2B = business to business

EDI = electronic data interchange

CAD = computer-aided design

EFT = electronic funds transfer

MRP = materials resource planning

ERP = enterprise resource planning

SAP = proprietary ERP type system

BAAN = proprietary ERP type system

TPS = transaction processing systems

SAQ 8

From the examples so far, especially Tables 2 and 5 and the BonPain case (linked again below), identify one example each of how technology can be used to process:

materials
information
customers.

Click below (7 pages, 1.55MB)

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Answer

The BonPain case has examples of materials processing: consideration of future automation of packing lines, and the use of dedicated technology in the form of specific equipment for the mixing, baking and freezing processes.

All the examples in Table 5 are to do with the processing of information.

Examples of customer processing are thinner on the ground so far. One is the communication of new product information via a website (Table 5). Here the customer is transformed from ignorant to knowledgeable by the application of this technology in this way. A second is the use of media production, technology, ticketing systems, etc. in the entertainment process of a cinema (Table 2).

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3.8 Section summary

The Open University — Mon, 11 May 2009 12:08:48 GMT

This section has introduced you to the nature of operations management and the role that technology plays.

The operations function has been treated as a transformation process, converting resource inputs of various types to outputs that provide value for a range of stakeholders – particularly but not exclusively in the form of goods and services for customers. This transformation process principle can be applied at all levels in an organisation – both the enterprise as a whole and subdivisions or departments within it, that is, to macro- and micro-operations. And of course it applies to all types of enterprise, large and small, public and private, manufacturing and service based.

Although processes are identified as the province of the operations function, potentially they span all departmental boundaries. A process to provide a service to a customer will generally involve the marketing department for information about customers likely to be interested in taking up the service, the finance department to cost the service and provide invoices and other financial information, and the human resources department to recruit staff. Similarly, a process may well need to span organisations and embrace the entire supply network, to make use of resources provided by third parties. Management of various interfaces internal and external to the organisation is therefore an important part of the operations role.

Technology plays a key role in transformation processes of all types, whether they are concerned with transforming materials, information or customers, or a combination of all three. Technology's capability to integrate functions within and between enterprises is especially important.

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4.1 Background to Vue

The Open University — Mon, 11 May 2009 12:08:48 GMT

This section discusses one of four video case studies used in the T883 course to illustrate some basic concepts of operations management covered by the course.

Vue Entertainment is a relatively young organisation, formed in 2003 with the acquisition of 36 cinemas from the Warner Village chain. At the time of writing (October 2007) it currently operates 579 screens and 130,585 seats over 59 cinemas. It sees its approach as firmly based upon its desire to consistently provide ‘the best and most innovative cinema experience’. Recent innovations include live coverage of Formula 1 motor racing, as well as live rock gigs in full High Definition and surround sound. Vue has also pioneered such things as Gold Class screens (over-18s only, luxury seating, dedicated bar, complimentary popcorn) and Vista ticketing (where guests can purchase their tickets at any retail outlet within the cinema complex). Ancillary sales form an important revenue stream. In 2006, Vue was the subject of a management buy-out. Backed by the Bank of Scotland, the management team retain a 51 per cent stake in the business.

For online resources, see Vue, (accessed 23 April 2008)

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4.2 Making the most of the Vue video case study

The Open University — Mon, 11 May 2009 12:08:48 GMT

Now watch the Vue video clip, linked below.

The following self-assessment questions will help you make the most of your viewing of the video case study, and relate to the learning outcomes for Sections 2 and 3 on the process view of business operations.

Click below to watch the video clip (11 minutes 52 seconds)

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Transcript

SAQ 9

Identify the principal ‘flows’ in the operations of a Vue cinema.

Answer

Customers; information.

SAQ 10

Choose one of the flows from SAQ 9, and identify how that flow is managed – how does the design of the process facilitate the flow, and how is it planned and controlled?

Answer

If we take as an example the flow of customers in a Vue cinema, then the following approaches help to ensure that the flow enables a good standard of customer service as well as efficient service delivery.

The basic design of the process consists of:

a method of forecasting demand for each film and of allocating the films to the appropriately sized auditorium.
a method of scheduling start times to stagger audience arrival times to avoid excessive demand on ancillary services.
a method for constructing staff rostas to match service capacity to anticipated demand.
flexibility in staff contracts (most are part-time), multi-skilling of the workforce, and a culture of responsiveness and flexibility that allows changes to plans to meeet circumstances that arise at short notice.

Planning and control activities include:

film scheduling and staffing plans on a monthly, weekly and daily basis to take account of changing circumstances such as planned and unplanned staff absence, anticipated popularity of films, local circumstances such as weather conditions that may affect demand, and so on.
identification of trends to enable long-range planning of capacity.

It is important to note that the planning and control methods would not work if the process design was not conducive in the first place, e.g. staff cannot operate flexible working patterns that respond to fluctuations in demand if their employment contracts were not originally designed to accommodate this.

SAQ 11

What would the consequences be to the organisation as a whole if the flows identified in SAQ 9 were not managed effectively?

Answer

If the flows of information and customers are not managed effectively then a variety of problems may ensue, e.g.

over-crowding of foyer and related service delivery facilities, leading to a poorer customer experience and customer dissatisfaction.
lost revenue if, for example, ticket sales/bookings are not executed effectively.
if scheduling is not effective then extra staff may need to be employed to cope with peaks in demand for ancillary services that could have been levelled out by different film scheduling.
assigning films to screens inappropriately may lead to lost revenue and dissatisfied customers if customers cannot see the film they came to see.
if problems are recurrent then customers may turn to competitors as their preferred service providers, and revenue will be lost on a longer term basis, and will be harder to win back.
schedules that don't allow for cleaning of the facilities may lead to lower perceived service quality and customer dissatisfaction.

Thus, as a direct result of poorly managed ‘flows’, the company loses revenue and incurs additional costs – an obvious ‘lose–lose’ situation!

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5 An introduction to ‘making the case’

The Open University — Mon, 11 May 2009 12:08:48 GMT

Much of the T883 course is concerned with making changes to existing methods of doing something. The changes might be very radical and far-reaching in their impact, or relatively minor incremental improvements to current practices. They might involve large investments of finance and other resources over extended periods, or there might be trivial financial outlay associated with them. Some changes might be entirely within your own sphere of influence but others may involve resources outside your personal discretion. In the case of the latter, you will need a well-argued case to gain access to the required resources. Senior managers must be convinced in order to sanction the expenditure and provide other support, and those people directly involved in the change must also be persuaded so as to give their commitment and put their effort behind it.

Managers must therefore be capable of preparing an effective – that is a persuasive – case for whatever course of action they are recommending. This part of the unit (originally Sections 1 and 2 of the Making the Case resource pack) provides advice on putting together an effective business case for a process improvement.

Many of us consider the job of persuasion is done once we have convinced ourselves, and assume that all our hard-won analytical information speaks for itself in making the case equally forcibly to senior colleagues, the workforce, and other relevant stakeholder groups. This is rarely true, however, for two important reasons. Firstly, all the various stakeholder groups see the issue in different ways – they may have different objectives and therefore different priorities. Secondly, other people have not had the advantage of your involvement in all the information gathering and analysis which has built up a convincing argument in your mind over perhaps a considerable time period. Consequently, stakeholders need to be taken through, if not that entire process, at least the key issues that make the case as far as you are concerned, and more importantly, that specifically address the issues that are important from their perspective. This should also foster their commitment to the change, reduce resistance to it and generally ‘oil the wheels’ of the implementation process.

Section 6 highlights the factors to be considered in preparing the argument, whether this is to be presented orally or in written form. The emphasis is not on writing or oral presentation skills but on what the ‘case’ needs to achieve in order to convince its audience, and what it needs to contain – that is, the specific pieces of information and evaluation that need to be included.

A crucial part of ‘making the case’ is to be able to present relevant evidence in support of different aspects of the argument. For example, an argument in favour of deployment of new technology might include expected benefits such as improved customer service, reduced operating costs and thereby a stronger competitive position in the future. Claims of this sort need to be backed up with suitable evidence to demonstrate their achievability, otherwise they will carry little weight with your audience. Table 6 contains some examples of how you might demonstrate that typical benefits of a change to an operations system can be realised in practice.

Table 6 Examples of evidence to be presented in support of a technology implementation proposal

Benefit claimed from proposed use of new technology	Examples of evidence to support the claim
Return on investment	Financial analysis of the cash outflows and inflows associated with the new technology, to show a net gain. Although simple payback techniques are the most commonly used methods, discounted techniques (such as Net Present Value) are preferred, especially for longer term investments, because these reflect the time value of cash inflow/outflow i.e. £1000 spent or earnt today is worth more than £1000 spent or earnt tomorrow.
Enhanced operations performance e.g. reduced operating costs; improved quality; improved customer service; higher speed or more flexibility	Technical capabilities of the proposed new system showing expected productivity increases, reduced waste production, lower reject rates, or reduced energy consumption, for example. Such information might come from:
	• suppliers.
	• results of pilot trials, experiments and so on.
	• the experience of other organisations with similar technology.
	• results of a customer survey showing that the aspect of customer service in question is a priority for customers.
	• analysis of the technical capabilities of the technology in relation to customer requirements, showing that the stated aspects of customer service are likely to be improved.
Better competitive position	Trade press reports that competitors are already investing in equivalent technology, and therefore not to do so would be to fail to keep up.
	Customer surveys or analysis of sales that demonstrate that the quality/service improvement predicted amounts to an ‘order winner’ and therefore can be expected to have a positive impact on competitive position.

A wide variety of information types may be needed to work up and support a proposal. Figure 12 shows a range of different categories of information.

Figure 12: Types of information to support a proposal

It should be borne in mind that ‘secondary data’ – information that already exists in the form of internal organisational reports or records, published research reports and so on – are by far the cheapest and easiest to acquire. Secondary data acquisition is often known as ‘desk research’. By comparison, primary research data acquisition, specifically for the purpose of the proposal, is much more resource intensive. For this reason, it should be used only for information that is unobtainable from secondary sources.

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6.1 Introduction

The Open University — Mon, 11 May 2009 12:08:48 GMT

The overall process of making the case is shown schematically in Figure 13.

Figure 13 Making the case

Note that the starting point for this process is an already well-thought-through solution to a problem or approach to enhancing operational performance – much of the ground work has already been done. The purpose of the ‘making the case’ process is to collate and present all the relevant information so as to make the most persuasive argument possible. You may also find it useful as a discipline to force you to look at your proposal objectively, to check that you haven't become blind to your pet project's shortcomings! The process may prompt the need for additional information gathering to strengthen the case, although it is hoped that this would not need to be too extensive – that most of the crucial evidence is already available.

As you work through the rest of this section, you will build up a set of 24 questions to flesh out the stages of the process shown in Figure 13. The questions are designed as far as possible to be generic and applicable whatever the nature of the case being made. Their application to operations issues is discussed in the accompanying explanatory text. The ‘checklist’ questions are provided in a box at the start of each section for easy reference.

Activity 5

This activity spans the whole of Section 6. Identify an actual or hypothetical proposal for operations change for your organisation. Answer each of the 24 questions covered in the rest of Section 6 in relation to this proposed change.

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6.2 Proposal definition

The Open University — Mon, 11 May 2009 12:08:48 GMT

1. What is the nature, purpose and scope of the proposed change? What are its objectives? Are there any constraints to be taken into account?
2. What am I asking for – in terms of specific resources, permissions and so on?
3. What are the implications for the organisation beyond the scope of this particular proposal?

Defining the proposal is obviously an essential first step to any ‘making the case’ exercise. It is imperative that you are clear about exactly what it is you are proposing. For example, is your intention to run an exploratory pilot, or are you asking for approval to roll out the idea across the entire organisation? Trials are useful when the project is ultimately a large-scale one – they provide the opportunity to demonstrate benefits and to learn from experimentation. This helps ensure that when changes are made on a more widespread basis they take place with as little pain and as close to plan as possible. If you are asking for permission to do a trial, you need to define what the trial itself is designed to achieve and how it will inform any subsequent full-scale implementation. The scaleability of the costs of a trial needs to be considered. The trial itself might run as something of a ‘cottage industry’, with time and other resources ‘borrowed’ from other activities. But for full-scale implementation all the cost implications must be understood and accounted for.

The objectives for the proposal, including any particular constraints that apply, should be spelt out clearly, for example: ‘The objective of what is proposed is to improve process control so as to achieve a 50 per cent reduction in waste production in this process by the end of 2005. No disruption to scheduled production will be incurred.’

It is important to be very specific about what resources and other outcomes you are asking for from your audience. Typically these will include one or more of the following:

particular amounts of funding, at particular times
active support for, and help with, your project from at least some of your audience
permission to make the specified changes to buildings, equipment, working practices, and so on
permission to involve the relevant personnel, including secondment of some to your project team
formal approval to go ahead.

If it is a pilot-scale operation being proposed then your audience will wish to know what the implications of full-scale implementation are before they sanction a pilot. There is, after all, no point investing in a pilot without any real intention to follow it up if the results are favourable. Therefore your proposal needs to sketch out post-pilot stages of the project albeit there will be uncertainties pending the pilot results.

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6.3 The decision-making process

The Open University — Mon, 11 May 2009 12:08:48 GMT

4. Who is the ‘audience’? Who do I need to persuade?
5. What benefits of the proposed change will those making up the audience value? What is their perspective on the proposed change?
6. What is the process by which their decision will be made? What are the criteria that will be used? How and when can I influence the decision-making process?

The manager in the position of making the case is acting as advocate for the project, and in effect as a salesperson. The objective, after all, is to persuade one or more groups of people of the value of a particular course of action, in the same way as the sales role is to persuade the customer to buy. The golden rule of effective marketing and selling is to ‘know your customer’ or if you prefer, in this context, ‘know your audience’. There are two elements to this:

Who are the individuals and groups who must be persuaded, and what is their perspective on the issue you will be asking them to consider?
What is the process by which these people will make a decision on whether or not your proposal should go ahead?

The identification of who you need to persuade might be very straightforward. For example, it might be an investment decision taken by the board of directors or agreement from a single senior manager that you seek. These people might have very clearly defined criteria by which they will make a judgement, such as the level of financial return. Even in such apparently clear-cut cases, however, there are likely to be additional factors worthy of your consideration. You may know, for example, that the board has come to regret investments in similar technology in the past, and that you may have to work extra hard to persuade them of the value of your particular proposal. Or your senior manager may not relish the thought of conflict with the workforce over your proposed change, so it makes sense to show you have thought about possible problems and taken steps to reduce or eliminate them. Or perhaps one of the board is particularly keen on environmental protection, and you can show that your proposal has environmental advantages. ‘Bullet-proofing’ your proposal requires pre-empting all the various potential objections or concerns – anticipating the arguments, as is discussed further later.

Marketers seek to identify the members of the ‘decision-making unit’ when they design their approach to a potential customer. In business purchase decisions, there are often several individuals with different perspectives on the purchase – different objectives for it – who must all be satisfied if it is to go ahead. In the case of purchase of equipment the following people might, for example, be involved in the decision-making unit:

the purchasing manager, whose main objective is low cost – this is often seen only in terms of the initial purchase price, but a more enlightened approach would consider the entire cost of ownership (including, for example, maintenance and disposal costs)
the user, whose main objectives may be technical performance
the senior manager who must sign off the purchase, with the objective of avoiding expensive financial mistakes and who will want evidence of a reputable supplier and competitive pricing
the technical support manager, who may want to see compatibility with existing technology, ease of maintenance and so on.

Your objective is to define your decision-making unit – the people who have a say in the decision, not necessarily just those who have the authority to give formal approval or sign the cheque.

Having defined who is involved in the decision, the next step is to define as closely as you can the process by which the decision will be made, including the informal as well as the formal elements. Your aim is to identify appropriate ways to intervene in this process, in order to influence (positively!) the decision outcome. At its simplest, your proposal may be put forward to the board in written form, with or without the opportunity to present the case verbally. Large organisations may have multi-stage processes using sub-committees to screen proposals. Small organisations may be much more informal and the proposal ‘merely’ needs to capture the imagination of the chief executive to get the go-ahead. You need to understand the criteria at work at each stage in the decision-making process. It might, for example, be a mistake to burden a committee with masses of detail if they are operating a fairly coarse screen at an early stage in the overall decision-making.

Whatever the nature of the process, it is often helpful to prepare your audience in advance of any formal consideration, perhaps by informal discussions with key individuals, so that they feel familiar with the basic idea, if not the detail, and become well-disposed towards you and your project. This can be a good way to defuse any knee-jerk objections and might even earn you invaluable high-powered support in the board room. You should certainly seek to gain the commitment of a senior manager willing to act as ‘project champion’ through both proposal and implementation phases.

Not all decision criteria are entirely rational – there are factors in addition to the financial rate of return or objective analytical assessment of benefits to the organisation that influence the decision. Personal preferences, organisational politics and individual insights and intuitions play their part. However, formal boards and committees do need, most of the time, to demonstrate rationality in their decision-making, and you need to make this easy for them by providing the relevant evidence.

Only after you have defined both the precise nature of your proposal and the nature of the audience and its associated decision-making processes should you proceed to the next stages of building your case.

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6.4 Benefits

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7. What are the financial benefits of the proposed change?
8. What are the short-term operational benefits e.g. improvements to the key operations performance objectives?
9. What are the strategic benefits, if any, of the proposed change?
10. Over what timescales will these benefits be realised?

This analysis is concerned with identifying how the proposal adds value for the organisation and its stakeholders. There may be both operational and strategic benefits. The former are usually much easier to quantify. Operational benefits need to be considered in terms of key operations performance objectives and their financial implications. For example: ‘As a result of the proposed change, productivity is expected to improve by 20%. Taking into account the costs of the proposal, this translates into an estimated 15% reduction in unit costs – the data is detailed in your proposal pack.’

Operational benefits may lead to strategic benefits, for example: ‘The proposed project will give us a much clearer understanding of the causes of variability in product quality that we have been experiencing. We can expect this to give us the know-how to improve the process and if we can achieve more reliable processing then this would give us an edge over our competitors who have similar problems with this type of product.’

While strategic competitive benefits may be more difficult to quantify than short-term operational gains, they may be of much greater significance in the longer term. In the last example, the enhanced competitive position may actually be worth much more to the company than the reduced operational costs. It is important that both types of benefit are explicitly addressed, even when conventional investment appraisal techniques ignore them. Otherwise, where there is a choice, a cheaper option that delivers short-term benefits but without the long term advantages may be chosen by default.

Your audience will want a clear idea of the timescales when the various benefits can be expected to manifest themselves. Ideally (because it makes the decision-making more straightforward) this should be in the form of cashflow statements – what income can be expected when. The timing of more strategic benefits should be indicated as appropriate – for example, ‘by the beginning of year three we should see the effects in enhanced market share’.

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6.5 Costs

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11. What are the financial costs involved (capital and recurring)?
12. What additional non-financial resources will be needed?
13. When are the all the various financial and non-financial resources needed?
14. What drawbacks or constraints does the proposal have?

There are many ways in which your proposal will incur financial costs, of which the following are typical, but this is by no means an exhaustive list:

capital purchase cost of equipment
cost of finance (e.g. interest on loans)
running costs of equipment
labour costs
training costs
materials costs.

It is important to show you have considered all potential costs. Detailed analysis will impress your audience and convince them that your proposal is thorough and accurate.

While most resources translate into financial cost, it is important to identify key resources because access to them may depend on more than the funding available. For example, the personnel you need may include key specialists with many other demands on their time from different projects.

It is not always an easy task to determine the cost of a process, yet very often an operations change is made on the grounds of reducing process costs. If a direct comparison between the ‘old’ and the ‘new’ process is possible, then it is easy to show, say, that less time is needed for a particular activity, and to infer cost savings from increased throughput. However, it is important to understand the relationship, if any, between time saved on a particular activity to the throughput time for the entire process. If there is a bottleneck elsewhere in the system, then time saved on one activity may not have any effect on the overall process.

Costing of an entire service or goods product is much more difficult, because of the need to apportion all overhead costs – those that are not directly attributable to one product or activity. Without this apportionment, the organisation's total costs might not be recovered by its sales revenue.

A significant cost often associated with the implementation of new technology arises from the organisational change that must take place for the technology to work effectively. Working practices may be changed quite dramatically, and there are various adjustment costs, including the cost of training staff in new methods, temporary losses in productivity while the new system beds in, and so on. Such costs are difficult to quantify in advance, but it is wise to make some contingency for them all the same.

Also under the category of costs – the debit side of the equation, where benefits are the credit – are any negative effects of your proposal. For example, you may be intending to make a change to a process that reduces financial costs – the benefit, but this also has the drawback of reducing process flexibility. You will need to show that such drawbacks are not significant in the overall scheme of things. These negative consequences need to be considered in the overall ‘cost-benefit analysis’. Such considerations form part of the anticipation of arguments against your proposal.

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6.6 Risks

The Open University — Mon, 11 May 2009 12:08:48 GMT

15. What are the risks associated with the change that might mean the intended benefits cannot be realised?
16. How can these risks be mitigated or eliminated?

No plan for the future ever comes with a 100 per cent guarantee – there are always uncertainties attached. Risk is the adverse consequence of exposure to uncertainty. Risk management involves identifying the sources of risk, identifying the priorities for attention, and taking steps to eliminate or mitigate the risk. The following example illustrates issues of risk with reference to a technology implementation project.

Box 4: Risk management in an IT project

An organisation decides to put in place a new IT system to help it manage its contacts with customers and to support its marketing activities. The project team decides to buy an off-the shelf package from a reputable supplier, and carry out any customisation needed in-house. The main risks associated with this investment are identified by the project team as:

the package not being flexible enough to allow the extent of customisation they think is required
lacking the internal expertise to carry out the customisation effectively
the sales force not adopting the new working practices (inputting client contact reports into the database) reliably enough for all the intended benefits of the system to be gained.

While these risks cannot be eliminated entirely, the project team decide to build in to the implementation plan the following means of reducing the risk:

getting the supplier to confirm that the intended customisation is feasible, to provide guidance as to how it can be achieved, together with an offer from the supplier to undertake the customisation work to the defined specification (at extra cost) should the organisation wish it after purchase of the package
involving the salesforce as key stakeholders in the development and implementation of the new system from the outset
rollout of the system region by region so that the experiences of users in the first pilot can inform modifications before implementation nationwide.

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6.7 Cost-benefit analysis

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17. Does the case clearly and unequivocally demonstrate that benefits outweigh costs?

In some contexts ‘cost-benefit analysis’ implies some specific formal method of assessing costs in relation to expected benefits. For example, in the UK public sector, there are particular protocols for carrying out cost-benefit analysis to demonstrate that public money is being used to best advantage (see, for example, The Green Book published by central government (HM Treasury, 2003)). However, here the term ‘cost-benefit analysis’ is used generically, to mean the weighing in the balance of the expected costs and benefits of your proposed change. The most straightforward method is to reduce all costs and benefits to monetary values and do the arithmetic. Conventional investment appraisal techniques do just that. The big drawback of these methods is their inability to take into account benefits that cannot be quantified, or benefits that accrue beyond the timescale considered by the appraisal. Many organisations have their own preferred method of investment appraisal and/or cost-benefit analysis, and you will need to work within your own organisation's framework, whatever constraints or other difficulties it poses for your particular proposal.

Overall your objective is to demonstrate that the net result of implementing the change is positive – that the benefits outweigh the costs. Irrespective of how much of the case can have hard figures attached to it, the audience must be persuaded that the expected benefits are almost certainly worth significantly more than the expected costs.

It is probably appropriate to include some form of sensitivity analysis to demonstrate that your argument is robust under a variety of circumstances. Sensitivity analysis asks the question ‘What if …?’ For example, what if the equipment installation takes a bit longer than the estimate and cash inflows are delayed by 2 or 3 months? What if additional help is needed from the supplier and costs rise as a consequence? Sensitivity analysis re-works financial and other appraisal with modified parameters. Ideally a net gain should still be projected under a wide range of different circumstances.

The critical parameter is often the time frame to be considered. Benefits and costs over the entire system life cycle should be included in the analysis. For example if the predicted life of a piece of process equipment is ten years then this should be the life cycle time to be considered. Such an approach requires not just the costs of purchase and ongoing operating costs associated with use of the equipment to be considered, but also the costs of end-of-life disposal, and perhaps increased maintenance requirements later in the life cycle to be taken into account. The problem with this approach is that it tends not to match the normal methods of accounting and investment appraisal. Many organisations use simple payback methods, where the time required for the proposed investment to pay for itself in terms of the cashflow benefits is calculated. Thus an up front investment of £100,000 is paid pack in less than two years if it generates net cash inflows of £5000 per month. Typically, organisations demand a payback period of no more than two years, nowhere near the system life cycle for most significant investments in process technology, for example. It may be necessary to carry out two sets of analysis, one to deal with your organisation's chosen methods of investment appraisal that will be recognised by the board, and another to show more complete life cycle analysis, as a more true-to-life approach.

Some proposals by their very nature consist entirely of non-financial benefits. Feasibility studies, trials and experiments usually fall into this category. For example, a proposal to try out a new e-commerce business model by testing customer response to a self-service technology has no net financial gain. Considerable costs go into the trial and its evaluation but little if any additional revenue is generated. The benefits lie in the new knowledge the trial will provide that can be used in subsequent organisational decision-making – typically whether or not, and how, to go ahead with a wider roll out of the system. In effect the purpose of such trials or experiments is to reduce the risk attached to large scale change. Some organisations have separate investment budgets for these sort of ‘experiment’ proposals, and do not require the same financial return criteria to be applied (Ross and Beath 2002).

These issues make for a very real practical dilemma for many managers. On any objective assessment their proposal makes good ‘business sense’ for the organisation, but this may be impossible to demonstrate using the organisation's specified investment appraisal methods (Currie, 1989). So what actually happens in practice? The following are examples of how this dilemma is ‘handled’ or not:

The proposal fails, because of the board's unwillingness to remove the hurdle of conventional investment appraisal techniques, even though the proposal as presented stressed the positive outcome when the complete system life cycle is considered and the significance of the non-quantifiable strategic benefits.
The proposal succeeds because the board is willing to make an exception to the normal financial criteria in view of the exceptionally strong case made by the project proposal based on significant long term/strategic benefits.
The proposal succeeds because the organisation routinely allocates a proportion of its investment budget to proposals that cannot be assessed on financial criteria but have significant non-financial benefits.
The manager persuades one or more board members, prior to formal consideration of the proposal, of the strategic competitive value of the proposal to the firm and gains their personal support. Their influence is such that the proposal gets the go ahead in spite of failing on the normal financial criteria.
The board adopts a more enlightened approach to investment appraisal allowing long term benefits (and costs) to be taken into account (such as Real Options thinking). The proposal goes ahead as a result of this more wide-ranging analysis.
The manager manipulates the data in the proposal to overstate the short-term benefits and/or underestimate short-term costs, in order to force the proposal to meet conventional financial criteria. The project is approved. Subsequently the project fails to meet its over-ambitious targets, reflecting badly on the manager concerned, and making the board reluctant to approve similar projects in the future.

There is no universally preferred answer to this dilemma. The fundamental issue is usually the time frame that decision-makers are willing to consider, coupled with attitudes to the higher levels of uncertainty inevitably associated with longer time scales. You will need to address problems of this sort in ways that best suit your project and its context in your organisation. Certainly there should be no assumption that reason will prevail and that the organisation will adopt new methods of investment appraisal – Real Options thinking, for example, is used by only a very few organisations. Organisational politics may need to play a part in your thinking, especially gaining the personal support of those with particular influence on the decision.

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6.8 Anticipating the arguments

The Open University — Mon, 11 May 2009 12:08:48 GMT

18. Have the objectives and perspectives of all the key stakeholders concerned with the decision been taken account of in the previous assessment of costs, benefits and risks?
19. What are the reasons that this proposal is preferred over other options for solving the problem or addressing the performance gap? Have these other options been thoroughly evaluated in comparison?

Hopefully your thorough analysis prior to this point in making your case has included anticipation of concerns that might be raised by your audience. You do not want any surprises when you present your case. It is quite feasible for a single well-made point of concern or objection from your audience to damn your proposal outright if you cannot answer it convincingly. Yet, with a little forethought, that objection might easily have been successfully addressed within the project proposal, and not posed any threat whatsoever. Hindsight is a wonderful thing, of course! Those involved in making the decision on your proposal will all have their own points of view, some related to their functional interests, some to their personal ‘hobby horses’. It is your job to recognise these and predict, as far as possible, the sort of questions each will have for you, for example:

Human resources director: what are the implications for staff training? Won't that increase your costs considerably?
Production director: how will we cope with the changeover to the new equipment? We can't afford any more down time.
Non-executive director: you are proposing to source materials from third world countries. How are ethical and environmental concerns being taken into account?
Marketing director: the markets for this new product line seem quite distinct from our existing markets. Where are the resources to come from for getting into these new markets? I don't think our existing sales and distribution network could cope.
Chief executive: you are claiming this will make us more competitive, but in the short term there's quite a drain on our resources, so exactly how do you foresee this competitive edge developing?

While it might be tempting to keep some of your facts under wraps so that you can be ultra-impressive when called upon to answer a point, it is probably better that your written or verbal presentation should indicate that all the angles have been covered. You might not wish to show all the details, but can at the very least point out that you have thought about the issue and can provide a more detailed analysis if needed. Not all the concerns harboured by your audience may be raised explicitly (through shortage of time for discussion, say) yet they may still influence the decision.

An important aspect of anticipating arguments is to show that other options to address the ‘problem’ have been considered in an appropriate level of detail. It might be worthwhile producing a simple analysis of the pros and cons of each option explaining how you came to decide on the proposal on the table. Any formal evaluation procedures used to help make the choice should be indicated. Avoid too much detail or emphasis here – the focus of attention should be your current proposal. You want your audience to feel confident in your judgement, not necessarily to engage with the evaluation process all over again.

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6.9 Supporting evidence

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20. Are all the assertions concerning costs, benefits and risks backed up by relevant supporting evidence?
21. If not, how can this evidence be collected and presented?

As was mentioned in Section 5, a wide range of different information types might be needed to support your case. Most of the necessary evidence will no doubt have been collected during the working up of your proposal so should be to hand when it comes to preparing the case to be presented. Any missing elements should have come to light during defining benefits and costs. Providing hard evidence for each and every assertion makes it difficult for anyone to argue with the overall conclusions. Examples of the sort of evidence likely to be of value were given in Table 6. The downside of having a lot of evidence is the potential for overloading your audience with information. The use of appendices to a written proposal, or even optional extra material provided on request, help avoid the risk of your argument getting lost in the detail. In many cases, there is no need to present the detail at all, just an indication that it exists to back up your judgement is sufficient. Again, the overall objective is to convince your audience of the relevance, accuracy and thoroughness of your analysis and evaluation.

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6.10 Action plans

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22. Does the action plan make the proposal concrete in terms of realistic time scales and budgets and identification of relevant milestones?

A reasonably detailed action plan has four distinct functions in your proposal:

it demonstrates that the case has been thought through in some detail, with all the attendant costs taken into account.
it demonstrates practical feasibility if your audience can see reasonable timescales and resources are allocated to the various activities.
it shows the scope and nature of what is involved in making your proposal a reality, and concentrates minds on the practical issues that need to be grappled with if the project is to be successful.
it shows the points at which progress can be reviewed and decisions about continuation or otherwise of the project made.

The action plan should show a breakdown of the activities needed, the time frame over which they will take place, and when key resources are required. A Gantt chart is a useful way to present the action plan.

Building in appropriate progress milestones is essential. This shows your audience when the progress of the project can be reviewed, and where future decisions about the project will be needed. A ‘stage-gate’ approach involves formal evaluation and ‘go/no-go’ decisions after each main stage of a project. This is attractive to organisations because it allows poorly performing projects to be axed rather than to continue to consume resources unchecked. However, major reviews can be very disruptive and if they take place at the ‘wrong’ time could lead to projects that ultimately might have proved successful being stopped because of apparent lack of progress or failure to meet interim performance targets. All projects need periodic checks on progress, so that remedial action can be taken to address problems. The nature and timing of major ‘stop/go’ type reviews, however, need to be planned with caution.

Performance evaluation of your new/modified operation should be included in your action plan for completeness, and to make concrete the improvements that can be expected. Performance measurement should be designed to track the benefits you have identified as the raison d'etre of your proposal: improved productivity, reduced costs, improved customer satisfaction, for example.

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6.11 Presenting the case

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23. Is the format of presentation appropriate for the audience?
24. Is the case presented in a persuasive way overall?

Hopefully, the analytical work carried out to determine costs, benefits and so on will almost speak for itself in demonstrating the project's worth. However, the case overall should aim to achieve more than persuasion on an intellectual level. The goal should be to capture the hearts and minds of the audience, to make them enthusiastic advocates for the proposed change, and willing to put themselves out to see the project succeed. You should already have your senior project champion in place, but others in your audience may also be willing and able to defend and promote the project at a senior level in the organisation and also perhaps outside it.

Don't forget that some part of the presentation of your case may take place in an informal setting. As was suggested previously, it might be useful to make key influencers of the decision on your proposal aware of it before any formal consideration takes place. This might involve approaching someone in their office or taking the opportunity in a social context, on the golf course or on the train home. A ‘pretext’ – actually a substantial benefit to you and your proposal – is to ask the people concerned to comment on your proposal to help you refine it. In this way you can gain ‘buy-in’ to your project from potential allies.

As far as formal consideration of the proposal is concerned, normally a written proposal document is required, with or without an oral presentation covering the main points, and with the chance for the audience to ask questions. Some organisations have a ‘house style’ for such proposal documentation, defining the structure and the information to be submitted. A generic structure for a proposal is given in Box 5. This is a useful starting point in the absence of any specific organisational guidance.

Box 5: Generic structure for a written proposal

Executive/management summary

Introduction and background to the proposal – a general rationale and explanation of the context

The scope, purpose and timescale of the proposal

Benefits (financial, operational, strategic)

Costs

Risks

Cost-benefit analysis (including sensitivity analysis) e.g. financial investment appraisal results

Any other implications of implementation

Appendices containing detailed data, if appropriate

Advice on writing the proposal:

Aim for a concise and clear style.
Use short sentences for clarity.
Make effective use of tables, charts and diagrams.
Avoid over-use of technical jargon – not all your audience may be familiar with the terminology.
Keep it short.
Summarise quantitative data in concise tables or graphs. Relegate detailed analysis to appendices, clearly signposted from the main body of the document, or provide this material as supplementary documents.
Use effective sub-headings to guide the reader through the logic/rationale of the proposal.
Get someone else to proof-read the document to eliminate spelling and grammar mistakes and other errors.
Provide an overview of the main points of your entire proposal as an ‘executive summary’.

The oral presentation, when the opportunity exists, should ideally complement the written proposal and not duplicate it. Your audience will have read your document before you give the presentation, so your presentation should guide them through the main points – especially the organisational benefits – highlight the critical issues, and explain anything that needs clarification. The presentation should also be designed to show your belief in the proposal, your motivation and capability to see it through and your enthusiasm for what it represents.

This might be your only opportunity to capture the hearts and minds of your audience and it should not be wasted. The presentation is possibly as much about selling yourself as your proposal. Your audience will not give the proposal the green light unless they have confidence in you – both in your capabilities (as researcher, project leader, technical analyst and so on) and in your personal commitment to the project. The presentation is a major element in convincing your audience that the proposal can actually be translated into reality successfully by you and your team.

The oral presentation structure is probably entirely in your own hands, although you may well be restricted to a fixed time. Do not overrun – if necessary, rehearse and time your presentation to fit within the allocated slot. In particular, do not plan to use too many slides – some experienced presenters use the rule of thumb of as few as one slide per five minutes of presentation. You will not have time to present detailed evidence – you can point to your documentation for that. Keep to the bones of your argument, stressing the benefits, the practical feasibility and showing the thoroughness of your work on the proposal.

Box 6 outlines a generic presentation structure.

Box 6: Generic structure for oral presentation of proposal

Introduction

Main content – ‘highlights’ of proposal

Summary and conclusion

Question/answer session

This very basic structure is extremely simple, reflecting the often quoted advice about structuring presentations: ’Tell 'em what you're going to tell 'em. Tell 'em. Tell 'em what you told 'em.’

Advice on preparing the oral presentation:

Rehearse in front of a ‘critical friend’.
Keep to time.
Avoid detail – leave that to the written documentation.
If possible, check the room layout and the equipment beforehand.
Use professional visual aids but don't attempt to dazzle the audience with the AV technology.
Avoid using too many repetitive slides.
Keep each slide simple – keep the number of words/detail in diagrams on slides to a minimum; ensure everything is clearly legible for all your audience.
Talk to the slides: don't read from them and don't allow slides to ‘speak’ for you; make sure what you are saying relates directly to the slide content.
Make eye contact.
Show enthusiasm.
Allow time for questions and/or discussion (some of this may take place in your absence!).
Thank your audience for their time and attention.

Presenting your case, both orally and in writing, is an exercise in communicating effectively with your audience. Good communication skills are important for any manager in a variety of contexts, not just to present a proposal, and this short section can barely even scratch the surface. Further advice is contained in sources such as Hargie, Dickson et al., 2004; Harvard Business School Press, 2004; Cooper, 1964; Drysdale, 2004; and many other similar publications.

Activity 6

Now that you have completed Activity 5, how well do you feel all the angles are covered by your proposal? What additional information gathering has been suggested by questions for which you perhaps had only partial answers?

SAQ 12

Click on the link below to read the Biogenetica San Jose ITSA Replacement Business Case (Appendix 1).

Click below (9 pages, 343KB)

View document

(a) Critically appraise the case made for this technology implementation project.
(b) If you were required to make a decision on whether this project was to go ahead, what questions would you have for the authors?

Answer

(a) Strengths:

Concise; clear and logical structure (possibly this follows an organisational template).
The Management Summary covers all the key points in less than one page.
Clearly defined purpose and scope of proposal (see objectives Section 3.3. of the document).
Benefits in terms of the need to replace the old system are clearly set out with respect to the consequences of not replacing it. Tangible and intangible (financially quantifiable and non-quantifiable) benefits are identified.
An action plan is provided in the form of a Gantt chart. This is not especially detailed but probably provides an appropriate overview of the activities needed and the timescales. However note the comment under ‘risks’ that timescales are tight – just how realistic is the proposed plan?
Risks are clearly identified, and although specific mitigating actions are not built in to plans, the implication is that this will occur during the detailed specification phase.

Weaknesses:

Costs are rather vaguely specified, apparently because much depends on the first stage of the project when functional specifications will be drawn up. Other cost issues arise – for example, it is not clear that all the user time and associated costs (e.g. of temporary staff) needed to specify and test the new system has been included in the costings. Consequently the cost-benefit analysis in the form of the financial appraisal provided in Section 4.3 of the document can only be considered very approximate.
The sensitivity analysis suggests that higher than estimated costs would not affect the financial acceptability of the proposal. However, in view of the high uncertainty about costs, more than the 20 per cent increase projected might need to be considered – financial viability might be under more threat than it seems to be.
It may be that the financial case is actually quite a weak one but that the other ‘intangible’ benefits would still make this a worthwhile project. This is not stated in so many words presumably because of the perception that financial viability is the main yardstick by which the project proposal will be measured.
Much of the detail of the business requirements for the proposal is provided in a separate document – not necessarily a weakness of the case, just a shortcoming from the point of view of appraising it in this SAQ!

(b) One of the difficulties with this proposal (and many are like it in this respect) is that only when the project gets off the ground will the detail be worked up – detailed costings, etc. depend on the functional specification in relation to supplier selection and so on. The problem is that when the project has reached the stage of the review point indicated in Section 3.4 of the document, there may be little room for manoeuvre. The organisation may feel obliged to carry on with the project even if the cost-benefit analysis looks very different then from that presented here. It might be prudent to seek a more detailed breakdown of the costs involved, and identification in general terms of the options that will exist at the later review stage. It may be appropriate to ask for a remodelling of the proposal to provide for a detailed evaluation of more than one option when more information is available.

Conversely, if the financial case seems at best tenuous, then the consequences of not going ahead perhaps need to be further explored. One interpretation is that the most powerful part of the argument in favour of the proposal lies in the consequences of not investing in the new system. Are there any other means of mitigating these risks?

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References

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Acknowledgements

The Open University — Mon, 11 May 2009 12:08:48 GMT

Except for third party materials and otherwise stated (see terms and conditions), this content is made available under a Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Licence

Grateful acknowledgement is made to the following sources for permission to reproduce material within this product.

Figures

Figure 3 Malholtra, MK and Sharma S (2002) Journal of Operations Management, Prentice-Hall International Limited;

Figure 8 Womack, JP and Jones, DT (1996) ‘Tesco Reorder System’, Lean Thinking, Simon and Schuster UK Limited;

Figure 9 Farhoomand, A (2005) ‘Traditional ERP and Next generation ERP: Extending Beyond Enterprise Boundaries’, Managing e-Business Transformation – A Global Perspective, Palgrave MacMillan;

Figure 11 Slack N, and Lewis, M (2002) ‘Supply Networks are the Interconnections for Relationships between Operations’, Operations Strategy, Prentice-Hal International (UK) Limited.

Tables

Table 5 Gunasekaran, A, Marri, HB et al. (2002) ‘Application of E-Commerce in Operations’, International Journal of Production Economies, with permission from Elsevier.

Text

Box 3: Slack, N and Lewis, M (2002) ‘Dell Text’, Operations Strategy, Prentice-Hall International (UK) Limited;

Chambers S, et al (2003), ‘A Day in the Life of Frederic Godé, Operations Manager, BonPain’, Cases in Operations Management, Pearson Education Limited.

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