Page 103 - Operations Strategy

78 CHAPTER 2 • OPERATiOns PERfORmAnCE

Figure 2.12 to what extent do ethical and financial performance trade-off?

Societal pressure +
reputational risk defining
minimum ethical standards
The ecient frontier
between ethical and
financial performance

Stockholder
Financial performance Financial performance financial standards
Repositioning between ethical
expectations
and financial performance
defining minimum

Ethical performance Ethical performance
(a) Changing the balance (trade-o ) between (b) Simultaneously improving both ethical and
ethical and financial performance financial performance, partly because extreme
positions on either are becoming less acceptable

Improving variety even further may mean adopting even more extreme operations
practices that emphasise variety. For example, it may reorganise its processes so that
each of its larger customers has a dedicated set of resources that understands the specific
requirements of that customer and can organise itself to totally customise every product
and service it produces. This will probably mean a further sacrifice of cost efficiency, but
it allows an ever greater variety of products or services to be produced (P1). Similarly,
operation Q may increase the effectiveness of its cost efficiency by becoming even less
able to offer any kind of variety (Q1). For both operations, P and Q effectiveness is being
improved through increasing the focus of the operation on one performance objective
(or a very narrow set of them), and accepting an even further reduction in other aspects
of performance.
For example, if an audit firm designed an operation to carry out only simple stand-
ard audits on small to medium-sized engineering manufacturing companies, it could
develop processes and procedures specifically to meet the needs of such clients. It
could devise expert systems to automate much of its decision making and it could
train its staff with only the knowledge to carry out such audits. Focused and effi-
cient, the operation could achieve exceptional productivity, provided the demand
could keep it fully employed. However, such an operation is something of a one-trick
pony. Ask it to do anything else and it would have considerable difficulty. Increas-
ing the variety placed on the operation outside its design specification would have
an immediate and significant impact on its costs. In effect, designing the operation
this way has made the relationship curve between variety and cost concave rather
than convex. Asking the operation to move away from the performance objectives
for which it was specifically designed brings an immediate penalty. Asking it to move
even further away from its design specification also brings a cost, but not one to
match that initial penalty.

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