Includes notes on Chapter 7: Creating an Edge Through New Process Development of Operations, Strategy, and Technology: Pursuing the Competitive Edge - Hayes et al.
Notes on Process Technology Strategy - Chapter 6 in Nigel Slack and Michael Lewis
Introduction
Technology has a profound impact on all operations. Manufacturing managers have to understand technology and identify ‘operations strategy’ characteristics of technology for deciding ‘what’ technological options to explore. Operations need to clarify exactly ‘why’ the proposed investments in process technology can give strategic advantage. They have to explore ‘how’ the manufacturing management team can make such investments work in practice. They have to ensure that their technology investments are implemented so as not to waste the potential of the selected process technology. The risks associated with technology implementation are substantial. There are number of high-profile failures and claims of waste that seem to go hand-in-hand with successes in such investments.
What is process technology?
Process technology is the ‘appliance of science to any operations process’.
There is product technology also. For example, product technology of a computer is embodied in its hardware and software. There are drawings of each part, each subassembly and final assembly of the computer and engineering is used to design each part and assembly and each drawing is part of computer technology represented as part and assembly drawings.
It is the process technology that produces all the components and assembles all the different components into a working product.
The term ‘process technology’ includes technology that acts directly on resource inputs in operations in processes as well as indirect technology that supports planning of resources and maintenance of resources. Infrastructural and information technologies that help control and coordinate direct processes are having a major role on operations. ERP, MES, SCADA etc. are the IT software systems that are essential components of manufacturing systems. Process management systems and systems facilitating continuous improvement that is Industrial engineering are also part of indirect technology.
Operations in processes can be categorized as operations that process materials, information or customers. Process technologies can be similarly classified. These days, we can observed machines doing multiple activities. A machine, while processing materials, may also be deciding whether tooling needs changing, whether to slow the rate of processing because of rising temperature, noting small variations in physical dimensions to plot on process control charts, and so on. Technologies are increasingly ‘overlapping’ to become integrating technologies.
Process technology strategy
Process technology strategy was defined as ‘the set of decisions that defines the strategic role that direct and indirect process technology can play in the overall operations strategy of the organisation and sets out the general characteristics that help to evaluate alternative technologies’.
Manufacturing managers have to thoroughly understand process technologies. They work with them on a day-by-day basis and should be able to visualize and articulate how new or additional technology can improve operational effectiveness. Operations must act as ‘impresario’ for technologies. (‘impresario: Organizer of public entertainment). The utilize technologies in manufacturing processes and like orchestra conductors, they have to direct the shop floor personnel to deliver a performance that is applauded by the customers. To carry out their ‘impresario role’, operations should have a grasp of the technical nature of process technologies. They need not know the core science behind the technology (technology developers have to know those core sciences). But they need to know enough about the technology to use it in operations or processes. They have to be comfortable in evaluating technical information, and be able to ask relevant questions of the technical experts in case of new technologies acquisition plans.
These questions include the following:
●● What does the new technology do and deliver additional benefits?
●● How does it do it?
●● What is capacity range of the technology?
●● What is the expected useful lifetime of the technology?
●● What constraint does using the technology place on the operation?
●● What skills will be required from the operations staff in order to install, operate and maintain the technology?
Each process technology supports a specific range of volume and variety (Hence it has to be suitable for volume and variety of the organizations).
Process technology characteristics
Process technology characteristics are strongly related to volume and variety, with different process technologies appropriate for different parts of the volume–variety continuum.
High variety–low volume processes generally require process technology that is general purpose, because it can perform the wide range of processing activities that high variety demands. High volume–low variety processes can use technology that is more dedicated to its narrower range of processing requirements.
Within the spectrum from general purpose to dedicated process technologies three characteristics important to consider in selection of technologies.
The first is the extent to which the process technology carries out activities or makes decisions for itself, that is, its degree of ‘automation’. The second is the capacity of the technology to process work, that is, its ‘scale.’ The third is the extent to which it is integrated with other technologies, that is, its degree of ‘coupling. ’
Scale and scalability – the capacity of each unit of technology
Scale is an important issue in almost all process technologies and is closely related to the capacity strategy decision.
Factors influencing the desirability of large-scale technology include the following considerations.
Broadly speaking, the larger the unit of technology, the more is its capital cost but the less its capital cost per unit of capacity. Similarly, the costs of installing and supporting the technology are likely to be lower per unit of output. Likewise, operating (as opposed to capital) costs per unit are often lower on larger machines, the fixed costs of operating the plant being spread over a higher volume.
There is a traditional trade-off between large increments of capacity exploiting economies of scale but potentially resulting in a mismatch between capacity and demand, and smaller increments of capacity with a closer match between capacity and demand but fewer economies of scale. The same argument clearly applies to the units of process technology that make up that capacity. Also, larger increments of capacity (and therefore large units of process technology) are difficult to stream on and off if demand is uncertain or dynamic. Small units of process technology with the same or similar processing costs as larger pieces of equipment would reduce the potential risks of investing in the process technology. This is why efficient but smaller-scale technologies are being developed in many industries. Even in industries where received wisdom has always been that large scale is economic (e.g. steel and electricity generation), smaller, more flexible operations are increasingly amongst the most profitable.
Building an operation around a single large machine introduces greater exposure to the risk of failure. Suppose that the choice is between setting up an operation with ten smaller or one very large machine. If there is a single machine failure, then the operation with ten machines is more robust, as 90 per cent of the work can still be done. In the large-scale machine operation, no work can be done.
Scope for exploiting new technological developments: Many forms of process technology are advancing at a rapid rate. This poses a threat to the useful life of large units of technology. If an operation commits substantial investment to a few large pieces of equipment, it changes them only infrequently and the opportunities for trying out new ideas are somewhat limited. Having a broader range of different technological options (albeit each of a smaller scale) makes it easier to take advantage of new developments – provided the operation can cope with potential inconsistencies.
From ‘scale’ to ‘scalability: Scalability is the ability to shift to a different level of useful capacity quickly, cost-effectively and flexibly.
Degree of automation
No technology operates continually, totally and completely in isolation, without ever needing some degree of human intervention. The degree of human intervention may be very occasional (an engineer’s control in an automated pharmaceutical plant). The relative balance between human and technological effort is usually referred to as its capital intensity or degree of automation of the technology.
An increasing number of purely information transformation processes are entirely automated. Analytics is now the important characteristic of information systems.
Degree of coupling/connectivity – how much is joined together?
Coupling could consist of physical links between pieces of equipment, for example a robot removing a piece of plastic from an injection moulding machine and locating it in a machine tool for finishing. Many of the direct benefits associated with increased coupling echo those described with respect to automation and scale. The integration of separate processes often involves additional capital costs. But increasing coupling removes much of the fragmentation caused by physical or organisational separation; closer coupling can lead to a greater degree of synchronisation, thereby reducing work-in-process and costs. However closer integration can increase exposure (with positive and negative effects) if there is a failure at any stage.
From ‘coupling’ to ‘connectivity’
Connectivity is the appropriate term in information technology to discuss coupling. In the recent days, information processing has moved towards platform independence, allowing communication between computing devices regardless of their specification and, increasingly, organisational boundaries. Connected IT systems allow many suppliers access to a common data portal that gives real-time information about production plans of the supply chain. Such systems enable the supply companies to modify their production schedules in order to meet demand more precisely and ensure fewer stock-outs. Here the defining technological characteristic associated with platform independence is not coupling in the classic sense of integration, but rather a greater degree of connectivity.
Two key drivers have allowed ‘connectivity’ of IT systems to develop at such a phenomenal rate.
● Hardware development. Client/server systems have permitted the separation of user interfaces, processing applications and data sources. This has encouraged the development of interconnection technology, including software protocols and connection technology (such as bandwidth enhancement).
● Software development. Arguably, the distinguishing feature of the development of the World Wide Web has been the adoption of a universal browser interface, which has considerably expanded the potential for connectivity.
The Product–Process matrix
All of the three technology dimensions described above are strongly related with variety and volume of products produced. For example, the larger the unit of capacity of products and smaller the variety, the more likely it is to be capital rather than labour intensive; this gives more opportunity for high coupling between its various parts.
Conversely, small-scale technologies, combined with highly skilled staff, tend to be more flexible. As a result, these systems can cope with a high degree of product variety or service customisation. When market supports and demand standardised products such as industrial fastenings, achieving dependable high volumes and low unit costs is critical, and inflexible systems come into their own.
In IT-rich technologies, scalability generally depends upon connectivity (hence the emphasis upon standardisation in systems architecture and underlying operating processes). The analytical functionality that is so central to complex task automation normally requires different applications and data sources, so the greater the connectivity, the greater the analytical power, and so on.
Several authors state that companies serving high-volume, and therefore usually low-variety, markets usually have a competitive position that values low prices; therefore low-cost operations are important; therefore process technologies need to be large, automated and integrated. Conversely, low-volume, high-variety operations need the flexibility that comes with small-scale, loosely coupled technologies with significant human intervention.
This idea is incorporated in the product–process matrix, which was described by Professors Robert Hayes and Stephen Wheelwright. They used it to link the volume and variety requirements of the market with process design in general.
In this book, authors used it to draw a link between volume and variety on the one hand and the three dimensions of process technology on the other.
The relationship between the volume/variety and process technology dimensions suggests that there is a ‘natural’ diagonal fit between high volume and large scale, high capital intensity and greater coupling, and lower volume and lower value of the characteristics.
Moving down the diagonal
Operations will change their position in the matrix as volumes increase. All firms start small. As growth in sales occurs, they increase investment in machines which are operated by men and therefore provide flexibility. When the product reaches large volumes, integrated production facilities are installed. The natural trajectory of movement ‘down’ the product/process matrix can be observed in many different operational contexts.
Moving on the diagonal has its challenges. Organizations have to manage the change.
Market pressures on the flexibility/cost trade-off?
The traditional flexibility/cost trade-off inherent in the scale, automation and integration dimensions of process technology (and the product/process matrix for that matter) is coming under increasing pressure from more challenging and demanding markets, as customization is increasing. The demands for more customisation are reducing absolute volumes of any one type of product or service. Simultaneously, shortening product/service life cycles can mean periodic step changes in the requirements placed on an operation and its process technology. At the same time there is increasing pressure to compete on cost as competitors are coming out with suitable technology, which is driving ongoing reductions in direct labour and placing increased emphasis on automation. Many operations are embracing process technology in new IT-rich forms. There is almost no sphere of operations where computing technology in one form or another has not had a substantial impact.
Process technology trends
So, markets seem to be demanding (or having) both greater flexibility and lower costs simultaneously from process technology. There we saw the development and improvement of operations (including process technology) as being a process of overcoming trade-offs. Now we must include developments in information technology, especially their effect of shifting traditional balances and trade-offs. In effect emerging scalability, analytical content and connectivity characteristics of IT have enabled process technologies to enhance their flexibility while still retaining reasonable efficiency, and vice versa. In other words, these trends in process technology are having the net effect of overcoming some of the traditional trade-offs inherent within the dimensions of process technology.
Market trends are themselves calling simultaneously for high performance in both cost and flexibility. This is why information processing technology has had such an impact in so many industries. In effect it has partially overcome some of the traditional trade-offs in choosing process technology. But note the words ‘partially’ and ‘some’. There are still trade-offs within technology choice, even if they are not as obvious as they were once. Moreover, information processing and computing power have undoubtedly had a major impact on almost all technologies but there are still limits to what computers can do.
The challenges of information technology
Surprisingly, given the ubiquity of IT, the cost effectiveness of investment in IT is not altogether straightforward. A strategy of blindly investing in IT and expecting productivity to automatically rise is sure to fail.’ Moreover, there is a high failure rate for IT projects (often cited as between 35 per cent and 75 per cent, although the definition of failure is debated).
Of course, different kinds of IT pose different kinds of challenge.
Evaluating process technology
It involves exploring, understanding and describing the strategic consequences of adopting alternatives.
it is useful to consider three generic classes of evaluation criteria:
● the feasibility of the process technology; that is the degree of difficulty in adopting it, and the investment of time, effort and money that will be needed;
● the acceptability of the process technology; that is how much it takes a firm towards its strategic objectives, or the return the firm gets for choosing it;
● the vulnerability associated with the process technology; that is the extent to which the firm is exposed if things go wrong, the risk that is run by choosing the technology
Evaluating feasibility
If the resources required to implement technology are greater than those that are either available or can be obtained, the technology is not feasible. So evaluating the feasibility of an option means finding out how the various types of resource that the option might need match up to what is available. Four broad questions are applicable.
What technical or human skills are required to implement the technology?
What ‘quantity’ or ‘amount’ of resources is required to implement the technology?
What are the funding or cash requirements?
Can the operation cope with the degree of change in resource requirements?
Evaluating acceptability
Acceptability in financial terms
Financial evaluation involves predicting and analysing the financial costs to which an option would commit the organisation, and the financial benefits that might accrue from acquiring the process technology over the life-cycle. Project appraisal is done over the life of the project.
Limitations of conventional financial evaluation
Conventional financial evaluation has come under criticism for its inability to include enough relevant factors to give a true picture of complex investments.
Acceptability in terms of impact on market requirements.
Market requirements are the performance dimensions
Any evaluation must reflect the impact of process technology on each performance objective relative to their importance to achieving a particular market position. Often there will be trade-offs involved in adopting a new process technology.
-------------
Quality
Does the process technology improve the specification of the product or service?
Speed
Does the process technology enable a faster response to customers?
Does the process technology speed the throughput of internal processes?
Dependability
Does the process technology enable products and/or services to be delivered dependably?
Flexibility
Does the process technology allow the operation to change in response to changes in customer demand?
Cost
Does the process technology process materials, information or customers more efficiently and give higher productivity?
Acceptability in terms of impact on operational resources
At the same time, however, it is important to build up a picture of the contribution that process technology can make to the longer-term capability ‘endowment’ of the operation. These four dimensions of assessment are:
● the scarcity of resources;
● how difficult the resources are to move;
● how difficult the resources are to copy;
● how difficult the resources are to substitute for.
These four dimensions provide us with a ‘first cut’ mechanism for assessing the impact that a specific technological resource will have upon sustainable competitive advantage.
Tangible and intangible resources
Tangible resources are the actual physical assets that the company possesses. In process technology terms these will be the machines, computers, materials handling equipment, and so on, used within the operation. Intangible resources are not necessarily directly observable but nevertheless have value for the company. Things such as relationship and brand strength, supplier relationships, process knowledge, and so on are all real but not always directly tangible. This concept of intangible resources is important when considering process technology.
A unit of technology may not be any different physically from the technology used by competitors. However, its use may add to the company’s reputation, skills, knowledge and experience.
Thus, depending on how the process technology is used, the value of the intangible aspect of a process technology may be greater than its physical worth. If the usefulness of process technology also depends on the software it employs, then this also must be evaluated. Again, although software may be bought off the shelf and is therefore available to competitors, if it is deployed in imaginative and creative ways its real value can be enhanced.
Vulnerability because of changed resource dependencies
Specific skills are needed if the technology is to be installed, maintained, upgraded and controlled effectively. In other words, the technology has a set of ‘resource dependencies’. Changing to a different process technology often means changing this set of resource dependencies. This may have a positive aspect when the firm succeeds in implementation. The skills, knowledge and experience necessary to implement and operate the technology can be scarce and difficult to copy and hence provide a platform for sustainable advantage.
Chapter 7: Creating an Edge Through New Process Development of Operations, Strategy, and Technology: Pursuing the Competitive Edge - Hayes et al. (2005)
Sections
Introduction
How Process Development and Operations Interact to Facilitate New Product Development
- The Product Life Cycle Concept & Product & Process Development Intensity
- Mapping the Context - Four Quadrants - Different Intensities of Product & Process Development
Leveraging Process Development Capabilities for Competitive Advantage -Benefits of Process Development Capabilities
- Accelerated Time to Market
- Rapid Ramp-Up
- Enhanced Customer Acceptance
- Stronger Proprietary Position
Achieving Speed, Efficiency and Quality in the Development of New Processes - Strategic Initiatives or Choice
- Integrated Product and Process Development
- Timing the Transfer of New Process Technologies into Operations
- Centralized versus Decentralized Process Development and Technology Choices
Process Development in Perspective
Bibliography
The Development Factory: Unlocking the Potential of Process Innovation
Gary P. Pisano
Harvard Business Press, 1997 - Technology & Engineering - 343 pages
https://books.google.co.in/books/about/The_Development_Factory.html?id=xrnTsLrn9y4C
Automotive Industry Technology and Processes
2019
https://www.autonews.com/commentary/suppliers-need-product-technology-strategy
Ud. 11.2.2022
Pub 30.1.2021
