This course is about developing an operations strategy that is scalable. Toward this end we need to clarify two concepts. What is operations? What do we even mean by that? What is strategy? We begin our journey by setting the main arena for the course. The operating system, or operations. We define the operating system as the combination of assets and processes required to deliver a product or a service. By assets, we refer to the main processing resources utilized by the firm. These include the human resources and the capital resources that either add value or are necessary for the processing and delivery of the product, be it goods or services. In other words, assets are the means needed to perform the activities of the firm, focusing on who does the work. By processes, we consider the flows through a network of activities that transform the product or service from input to output. Processes are structured, recurrent activities that transform inputs into outputs. The process view highlights how assets perform activities and add value, and how work flows in the organization. >> We now turn to the main concept of the course, which is operations strategy. But before we discuss the idea of an operations strategy, we need to make sure that we all understand the word strategy. The word strategy originally referred to the military thought processes of the strategos, meaning the commander of the army in Greek. Nowadays, strategy simply means a specific plan of action to reach a particular objective. The essential motion of strategy is captured in the distinction between ends and means. The strategy clearly articulates what to do, the ends are the goals. And how to get it done, the means. A strategy is a plan to reach a specific goal. Given that we are interested in organizations or firms, we must specify the goal of the firm's strategy. Managers often say that their goal is to provide superior and sustainable performance. It seems reasonable to measure organizational performance in terms of the value of the organization. Organizations thrive when they create more value for their stakeholders, owners, employees, customers, and communities, than their competitors do. Ultimately, the value of an organization stems from the value it creates for its customers, to the extent it can capture it, minus the firm's cost of providing it. >> How do we connect the strategy to the operating system? The term operations strategy relates to both competitive strategy and operations. But what precisely should this relationship be? The principle of strategic alignment provides an answer. One of the oldest ideas in strategy literature is that the appropriateness of a strategy can be defined in terms of the fit, match, or alignment of organizational structure and resources with environmental opportunities. In our setting, we can paraphrase this idea as, operations strategy should develop assets and configure processes such that the resulting capabilities are aligned with the competitive position that the firm seeks over time. The VCAP equation echoes the two main principles outlined above. In order to maximize value, a firm needs to choose the right assets and processes that are aligned with the required capabilities. The quasi-mathematical expression reminds us that firms can choose to be asset heavy or asset light. Hence, the plus operator. But that the resulting operating system must have the desired capabilities. Hence, the times operators to maximize value. We refer to the right hand side of the equality as the operational business model of the firm. The VCAP framework asks three types of questions. One, what must operations do particularly well? For each targeted customer segment, how should the operation capabilities be prioritized, around cost, flow time, quality and flexibility? How is the organization doing along each one of these dimensions? Two, how do we invest in and develop assets to support these capabilities? And three, how do we configure our processes to support these capabilities? The key idea is by answering these questions, a tailored operating system emerges. Its assets and processes are configured such that its capabilities best fit the customer value proposition specified by the competitive strategy. >> Let's use the VCAT framework to understand one of the firms we mentioned earlier, Uber. Question one, how should the operation's capabilities be prioritized around cost, time, quality, and flexibility? How is the organization doing along each of these dimensions? Let's focus on the more traditional model of Uber, and not UberX. The main trade off is clear. Customers are willing to pay more for higher availability or speed. This is especially apparent when customers are asked to pay surge prices during times of heavy congestion or bad weather when there are no available cabs. Thus, higher cost but higher availability and speed of response. Question two, how do we invest in and develop assets to support these capabilities? One of the interesting things about Uber is its asset light model. The firm clearly uses software and service to manage the communication between customers and drivers and to route drivers to customers. But Uber does not own the vehicles and the drivers are not employees of the firm. Question three of VCAP, how do we configure our processes to support these capabilities? Uber makes up for its assets light model by emphasizing its processes, especially the process technology used to match supply and demand and the processes required to manage the independent vendors. We will get into more details in subsequent sessions when we discuss supplier-relationship management. Given its emphasis on availability, Uber must be flexible in managing the pool of available drivers. The ideas of surge pricing and not having fixed staff are crucial in supporting that flexibility.
