Operations

Operations

In a recent article ¹, David J. Collis observes CEOs in innovative enterprises often neglect to invest in capabilities needed to sustain a long-term competitive advantage. The Operations View addresses this shortcoming by shaping the enterprise’s resources and processes to create the needed capabilities. The CAF starts from the Value Capability Assets Processes (or VCAP) framework ² and extend it to address Digital Operations.

The Operations View covers the ensemble of Assets and Processes of the enterprise. It affects what the Operating System of the enterprise can or cannot do. Together with the concept of Value, it determines the Capabilities of the enterprise. The Capability perspective treats the Operating System as a black box and focuses on the desired and actual dimensions along which it excels (or not).

Values are the third factor that affects what the Operating System can or cannot do. Values are the standards by which employees set priorities and behave. For example when an enterprise values service employees’ autonomy, it is more capable of solving customer problems compared to one where employees follow procedures blindly.

The figure below, inspired by the VCAP framework, summarizes the dimension to consider when assessing the current situation and formulating an Operations Strategy.

Classical Operations

The capabilities required to deliver products the enterprise markets define:

• The cost of operating that must be achieved for the product to be profitable. Because price is set by the market, design to cost is a common approach to develop products and their production processes
• The lead time which determines how long it takes to serve customers and how much they have to wait
• The quality of outputs determines the expected degree of excellence of products and processes
• Operations flexibility determines the expected ability of the enterprise to cope with changes in inputs, activity levels or volumes

The process view specifies how the activities required to develop and produce the goods and services of the enterprise are structured. The process view addresses the questions below:

• For each activity, which qualified suppliers of the resource required to perform them and decide whether to outsource them or not?
• Which activities should be performed in-house? Which knowledge and skills employees should possess and how effective coordination will be achieved?
• How to adjust capacity to meet the variability of demand while achieving the targeted service levels and operating costs?
• Continuously improve processes through incremental and breakthrough innovations
• Which level of operational risk is acceptable?

To coordinate and perform their activities, the enterprise needs a bundle of real assets and resources. Since most resources are in limited supply, it is critical to answer the questions below:

• What should the overall capacity be now and in the future?
• How will the enterprise grow or shrink capacity over time?
• What kinds of assets do we need? What is the right level of automation? How polyvalent should employees be?
• Where should assets be located and how are they positioned within the operating network of the enterprise?

Digital technology has the potential to impact most of the operating variables. For example, in the Cloud era the management of IT infrastructure capacity changes dramatically. Instead of investing in data centers, the enterprise can purchase IT infrastructure as a service and rapidly grow or shrink capacity when needed. The next section will describe the salient characteristics of a digital operating model.

Digital Operations

We will now analyze how digital technologies impact the operating system’s processes and assets.

Digital technologies are used to:

• Increase process automation level by replacing humans by software, for example using Robotic Process Automation (RPA)
• Improve process execution intelligence using Machine Learning or AI
• Shift activities from the enterprise to clients or third parties through self-care

When software replaces humans, it is easier to grow or shrink capacity to adjust to demand variability. In the cloud era, compute, network or data resources are provisioned through APIs or self-service systems with automatic enforcement of enterprise’s policies. Compared to a labor intensive model with approval procedures, it is more cost effective and agile.

Smart automation offers an alternative to full automation by augmenting humans using technologies such as AI or exoskeleton bionic devices to improve employees’ skills or physical limitations. Alongside with Garry Kasparov we think It’s time for humans and machines to work together ².