Most manufacturing companies are now experiencing rapid and continuous change in their business environment, which can be identified in terms of product change and/or in terms of process change (Luftman 1996). Product change characterises the demands for new goods or new services. Companies change their products because of competitor moves, shifting customer preferences, or the entry to new geographical or national markets. Process change refers to altering the procedures and technologies used to produce or deliver products or services. In this context, a process refers broadly to all of the Organisational capabilities resulting from people, systems, technologies and procedures that are used to develop, produce, market and deliver products or services.
Figure: 7.1: Manufacturing Strategies for Change
These two types of change can be classified as either stable or dynamic. Stable change is slow, evolutionary and generally predictable, while dynamic change is rapid, often revolutionary and generally unpredictable. Taken together, these two types of changes provide a matrix of four possible combinations of ‘change conditions’ that can confront an organisation. Thus, a matrix can be built in which each of these combinations defines a strategic business model appropriate to the conditions (Figure 7.1). This matrix of manufacturing strategies can serve as a valuable lens through which an organisation can: (i) assess its competitive position by understanding where it has been in the past; (ii) continuously choose a strategic business model appropriate to the present and (anticipated) future environment; and (iii) clarify how to strategically align the business and IT strategies, infrastructure and processes appropriate to the strategic model. The matrix combinations and the relevant manufacturing strategies are described below.
Dynamic Product and Process Change: Innovation Strategy
The focus of innovation strategy is to frequently create small volumes of new products, while constantly innovating the processes required to develop and produce them. These organisations are often separate research and development units within mass production organisations, such as Bell Laboratories. Such organisations are inherently designed for change since product specifications and work processes are unpredictable and constantly shifting. To compete under innovation conditions, organisations decentralize decision-making, broadly define jobs, develop few rules or procedures and subjectively evaluate performance.
Stable Product and Process Change: Mass Production Strategy
Throughout the twentieth century, most large organisations have competed under the conditions of relatively stable and predictable product specifications and demand. This permits them to standardize products, centralize decision-making, routinise work and reward, develop and enforce standard rules and procedures, and allocate work to dedicated, specialized jobs i.e. to mass-produce goods or services. The focus of these firms is on efficiency through stability and control, always basing their strategy on economies of scale and low costs, and striving for the largest size and lowest cost structure in the industry. The Organisational structure of such firm is often large, hierarchical, bureaucratic and vertically integrated. Their competitive advantage and profitability are based on reduction of unit costs and, therefore, change in either process or product is an anathema to the mass production strategy. Consequently, the design for stability requires limiting both product variety as well as process innovation.
While mass production and innovation have been the predominant focus of competitive strategy during the twentieth century, today the situation has changed, with neither simultaneous dynamic product-dynamic process change nor simultaneous stable product-stable process change. In such a situation, two more strategies
Dynamic Product Change, Stable Process Change: Mass Customization
Organisations in a number of industries are facing customers making increasingly unique and unpredictable product demands. However, the basic processes that these companies are instituting to meet these demands soon evolve into identifiable patterns enabling them to build stable but flexible platforms of process capabilities. Such companies, therefore, need to be organized and managed for mass customization (Pine 1993). It is the ability to serve a wide range of customers and to meet changing product demands through product variety and innovation while simultaneously building on existing long-term process experience and knowledge that results in increased efficiencies. The focus of these firms is on individual customer fulfillment through flexibility and responsiveness. The major distinguishing characteristic of the mass customization strategy is the capacity to produce product variety rapidly and inexpensively. This requires a set of modular process capabilities with a linkage system that allows them to be brought together instantly for any particular customer order. Consequently, instead of centralizing all decision-making for a single value chain, these organisations centralize coordination and control in the hub of a web of loosely-linked processing units.
Stable Product and Dynamic Process Change
Continuous improvement in some industries, such as automobiles and machine tools, the nature of product demand is still relatively mature, stable, large and homogeneous. But the competition in these industries is based on dynamic process terms, i.e. the organisations are competing by achieving constant improvement in process quality, speed and cost. The focus of organisations in these industries is on customer satisfaction through process improvement. As opposed to mass production firms, they are very customer- or market- focused, striving to better satisfy the market as a whole through continuous process improvement. These organisations manage rapid innovation and the use of new process capabilities and, therefore, require systems and structures that facilitate long-term organizational learning about products but simultaneously achieving radical changes in the processes. To make process innovation efficient, these organisations employ cross-functional teams that collaborate to improve processes or plan for product enhancement. The members of these teams then turn to their function-specific work and execute the rules they just developed, accomplishing a sort of micro transformation. In this sense, the teams of continuous improvement firms need to be as process-innovative as ‘invention’ organisations, and as process-efficient as ‘mass production’ firms.