Page 235 - Operations Strategy

210 CHAPTER 6 • PRoCEss TECHnology sTRATEgy
volume/variety and process technology dimensions suggests that there is a ‘natural’
diagonal fit, and that deviating from the ‘diagonal’ will therefore have predictable con-
sequences for the operation.
Operations to the right of the diagonal have more capability to deal with their requi-
site variety than is necessary. Such surplus capability will normally be associated with
excess operating costs. Similarly, operations to the left of the diagonal have insufficient
flexibility to cope with their requisite variety. This may result in substantial opportu-
nity costs (being unable to fulfil orders economically), not to mention the competitive
impact of having insufficient capability. Remember, though, that the matrix cannot
prescribe the ‘correct’ process technology. It can, however, give a general idea of how
an operation’s process technology profile will need to be adapted as its market context
changes.
Moving down the diagonal
Operations will change their position in the matrix. For example, a ‘home-made’ luxury
ice-cream product, selling a few litres in a farm shop, might begin life by being manu-
factured in a farmer’s own kitchen using domestic equipment (position A in Figure 6.5).
Growth in sales (and health and safety legislation) would necessitate investment in a
small production facility, although, because of the different varieties, the production
unit will still need some flexibility (position B in Figure 6.5). Ultimately, if projected
demand for some flavours and sizes reaches mass-market levels, major continuous-flow
process investment will be necessary (position C in Figure 6.6). Equally, at this stage the
product might become attractive to a large established manufacturer because the vol-
ume and variety of demand would match its existing integrated production facilities.
The natural trajectory of movement ‘down’ the product/process matrix can be
observed in many different operational contexts. Many financial service firms, for
instance, have been able to make major reductions in their back-office operations by
reducing clerical and administrative staffing and cost levels through investment in
large-scale, integrated, automated process technology.
Market pressures on the flexibility/cost trade-off?
The traditional flexibility/cost trade-off inherent in the scale, automation and integra-
tion dimensions of process technology (and the product/process matrix for that matter)
is coming under increasing pressure from more challenging and demanding markets. In
many sectors, increased market fragmentation and the demand for more customisation
is reducing absolute volumes of any one type of product or service. Simultaneously,
shortening product/service life cycles can mean periodic step changes in the require-
ments placed on an operation and its process technology. This can severely reduce
the potential for applying large-scale and relatively inflexible, though traditionally
low-cost, technologies. Yet, at the same time, there is increasing pressure to compete
on cost, which is driving ongoing reductions in direct labour and placing increased
emphasis on automation. In fact, for many traditionally labour-intensive sectors such
as the banking industry referred to earlier, absence of sufficient technological invest-
ment (and the corresponding presence of ‘too many staff’) has a significant impact on
analyst and shareholder confidence and therefore share price. Both these pressures are
placing conventional process technology solutions under strain (see Figure 6.7). Of
course, this competitive challenge has proved to be simply too much for many opera-
tions but, interestingly, many of those that have survived and prospered have not aban-
doned technology in their operations strategies. Rather, many operations have more

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