T2-2: Enterprise facetsT2-2: Enterprise facets

Chin-Sheng ChenChin-Sheng ChenFlorida International UniversityFlorida International University

T2-2: Enterprise facetsT2-2: Enterprise facets

Element facetsElement facets– StrategyStrategy– CompetencyCompetency– CapacityCapacity– StructureStructure

The ESE Framework –The ESE Framework –Re-visitRe-visitEnterprise Enterprise elementelement

WorkWork DecisionDecision ResourceResource InformatioInformationn

System System facetfacet

StrategyStrategy CompetencCompetency y (capability)(capability)

CapacityCapacity StructureStructure

EngineerinEngineering activityg activity

SpecificatioSpecificationn

AnalysisAnalysis DesignDesign implementimplementationation

PerformanPerformance ce measuremeasure

QualityQuality TimeTime CostCost Benefit Benefit (profit)(profit)

Readings & ReferencesReadings & References

Readings:Readings:– HEA: Chapters 4, 6, & 8HEA: Chapters 4, 6, & 8

ReferenceReference– ““What is strategy?,”What is strategy?,” by Michael by Michael

Porter, Porter, HBRHBR, Nov-Dec, 1996., Nov-Dec, 1996.– Strategy MapsStrategy Maps by Kaplan and Norton, by Kaplan and Norton,

HBS, 2004HBS, 2004– Strategic managementStrategic management, 4, 4thth edition, by edition, by

Burgelman, etc. , McGraw-Hill, 2004Burgelman, etc. , McGraw-Hill, 2004

Enterprise facets – Enterprise facets – strategy (1)strategy (1) DefinitionDefinition

– Michael Porter,1996, HBRMichael Porter,1996, HBR Creating fit among a company’s activitiesCreating fit among a company’s activities Selecting the set of activities in which an org. will excel to Selecting the set of activities in which an org. will excel to

create a sustainable difference in the marketplace.create a sustainable difference in the marketplace. The sustainable difference can be to deliver greater value The sustainable difference can be to deliver greater value

to customers than competitors or to provide comparable to customers than competitors or to provide comparable value but at a lower cost than competitorsvalue but at a lower cost than competitors

Differentiation arises from both the choice of activities and Differentiation arises from both the choice of activities and how they are performed. how they are performed.

– A long-range plan in a hierarchical structure of goals and A long-range plan in a hierarchical structure of goals and objectives, and a selected way of creating a fit between objectives, and a selected way of creating a fit between external environment, and internal resources and capabilitiesexternal environment, and internal resources and capabilities

– Kaplan and Norton (in Strategy Maps, 2004)Kaplan and Norton (in Strategy Maps, 2004) Strategy describes how an org. intends to create sustained Strategy describes how an org. intends to create sustained

value for its shareholders.value for its shareholders.

Enterprise facets – Enterprise facets – strategy (2)strategy (2) Alternative views of strategy (classic)Alternative views of strategy (classic)

– One ideal competitive position in the industryOne ideal competitive position in the industry– Benchmarking of all activities and achieving Benchmarking of all activities and achieving

best practicebest practice– Aggressive outsourcing and partnering to Aggressive outsourcing and partnering to

gain efficienciesgain efficiencies– Advantages rest on a few key success factors, Advantages rest on a few key success factors,

critical resources, and core competencies.critical resources, and core competencies.– Flexibility and rapid responses to all Flexibility and rapid responses to all

competitive and market changes.competitive and market changes.

Enterprise facets – Enterprise facets – strategy (3)strategy (3) Alternative views of strategy Alternative views of strategy

(sustainable competitive advantage)(sustainable competitive advantage)– UniqueUnique competitive position for the company competitive position for the company– Activities tailored to strategyActivities tailored to strategy– Clear trade-offs and choices vis-à-vis Clear trade-offs and choices vis-à-vis

competitorscompetitors– Competitive advantage arises from fit across Competitive advantage arises from fit across

activitiesactivities– Sustainability comes from the activity Sustainability comes from the activity

system, not the parts.system, not the parts.– Operational effectiveness is a givenOperational effectiveness is a given. .

Enterprise facets – Enterprise facets – strategy (4)strategy (4) Reconnecting with strategy by identifying Reconnecting with strategy by identifying

company’s core uniqueness:company’s core uniqueness:– Which of our product or service varieties are Which of our product or service varieties are

the most distinctive?the most distinctive?– Which of our product or service varieties are Which of our product or service varieties are

the most profitable?the most profitable?– Which of our customers are the most Which of our customers are the most

satisfied?satisfied?– Which customers, channels, or purchase Which customers, channels, or purchase

occasions are the most profitable?occasions are the most profitable?– Which of the activities in our value chain are Which of the activities in our value chain are

the most different and effective?the most different and effective?

Enterprise facets – Enterprise facets – strategy (5)strategy (5) Strategy hierarchyStrategy hierarchy

– Possible layersPossible layers Corporate vision and goalsCorporate vision and goals Business unit strategyBusiness unit strategy Functional tacticsFunctional tactics

PurposePurpose: : – To ensure consistency up and down the organizationTo ensure consistency up and down the organization

DangerDanger::– Being viewed as an elitist view of management from top Being viewed as an elitist view of management from top

downdown OpportunityOpportunity

– Develop ways to harness the “wisdom of anthill” such Develop ways to harness the “wisdom of anthill” such as QCC (quality control circles)as QCC (quality control circles)

Enterprise facets – Enterprise facets – strategy (6)strategy (6) Dominant schools of strategic mgt.Dominant schools of strategic mgt.

– Pragmatic knowledgePragmatic knowledge A rational process of deliberate calculation and A rational process of deliberate calculation and

analysis designed to maximize profit by setting analysis designed to maximize profit by setting goals and cascading them down to actions and goals and cascading them down to actions and resourcesresources

– Conceptual knowledgeConceptual knowledge A question-answer process to understand the A question-answer process to understand the

nature of competition and make business decisions nature of competition and make business decisions accordingly.accordingly.

– Resource-based viewResource-based view A process that focuses on exploiting and deploying A process that focuses on exploiting and deploying

resources to sustain superior performance.resources to sustain superior performance.

Enterprise facets – Enterprise facets – strategy (7)strategy (7) Schools of pragmatic strategic mgt.Schools of pragmatic strategic mgt.

– Design schoolDesign school A deliberate process of conscious thoughtA deliberate process of conscious thought

– Planning schoolPlanning school Formalize the deliberate process into a formal Formalize the deliberate process into a formal

planning methodology with techniques and planning methodology with techniques and checklistschecklists

– Positioning schoolPositioning school Shifting focusing on a strategy formation to Shifting focusing on a strategy formation to

strategic contentstrategic content

Enterprise facets – Enterprise facets – strategy (8)strategy (8) Positioning school of pragmatic strategic mgt.Positioning school of pragmatic strategic mgt.

– Five forces that determine the inherent profit potential of an Five forces that determine the inherent profit potential of an industry and thus help a firm to find a product/market positionindustry and thus help a firm to find a product/market position

Entry barriers Entry barriers Threat of substitutionThreat of substitution Bargaining power of suppliersBargaining power of suppliers Bargaining power of buyersBargaining power of buyers Rivalry among industrial incumbentsRivalry among industrial incumbents

– Decision making processDecision making process Pick an industry based on its structural attractivenessPick an industry based on its structural attractiveness Choose an entry strategy based on conjectures about Choose an entry strategy based on conjectures about

competitors’ rational strategies.competitors’ rational strategies. if not already possessed, acquire or otherwise obtain necessary if not already possessed, acquire or otherwise obtain necessary

resources to compete on the market.resources to compete on the market.– Decision is usually reduced to choosing a generic strategy Decision is usually reduced to choosing a generic strategy

such as cost leadership, differentiation, and focus to avoid such as cost leadership, differentiation, and focus to avoid being caught up in between (in the transition stage). being caught up in between (in the transition stage).

Enterprise facets – Enterprise facets – strategy (9)strategy (9) Schools of conceptual strategic mgt.Schools of conceptual strategic mgt.

– To answer the following questionsTo answer the following questions Why do firms differ?Why do firms differ? How do firms behave?How do firms behave? What explains the success and failure for What explains the success and failure for

firms?firms? How does the strategy making process How does the strategy making process

affect strategic outcomes?affect strategic outcomes? How do differences persist?How do differences persist?

Enterprise facets – Enterprise facets – strategy (10)strategy (10) Schools of conceptual strategic mgt.Schools of conceptual strategic mgt.

– Transaction cost economicsTransaction cost economics Efficiency is the only comparable advantageEfficiency is the only comparable advantage Managers must concentrate on their cost, especially the transaction costs of Managers must concentrate on their cost, especially the transaction costs of

organizing and coordinatingorganizing and coordinating It is the force behind make-or-buy decisions, mergers, acquisitions, and strategic It is the force behind make-or-buy decisions, mergers, acquisitions, and strategic

alliances.alliances.

– Chaos theoryChaos theory To address the issues of unpredictable, intense, and high-velocity-changes nature To address the issues of unpredictable, intense, and high-velocity-changes nature

of modern industryof modern industry Focus on internal response to chaos such as time pacing, continuous flow of Focus on internal response to chaos such as time pacing, continuous flow of

competitive advantage and organizational structurecompetitive advantage and organizational structure Remain flexible in an uncertain worldRemain flexible in an uncertain world

– Game theoryGame theory Use game theory tools to analyze the nature of competitive interaction between Use game theory tools to analyze the nature of competitive interaction between

rival firms and to reveal how a firm can influence the behavior and action of rival rival firms and to reveal how a firm can influence the behavior and action of rival firms and thus the market environment, viewing business as a series of moves and firms and thus the market environment, viewing business as a series of moves and counter moves.counter moves.

Make decisions about marketing variables, capacity expansion, and reduction, Make decisions about marketing variables, capacity expansion, and reduction, entry and entry-deterrence, acquisitions, bidding, and negotiation.entry and entry-deterrence, acquisitions, bidding, and negotiation.

Enterprise facets – Enterprise facets – strategy (11)strategy (11) School of resource-based strategic mgt.School of resource-based strategic mgt.

– A firm is conceptualized as bundles of resources and A firm is conceptualized as bundles of resources and capabilities, with which the firm competescapabilities, with which the firm competes

– They cannot be bought or sold in markets and must be They cannot be bought or sold in markets and must be developed rather than being taken as given.developed rather than being taken as given.

– Thus the source of sustainable superior performance Thus the source of sustainable superior performance lies internally in the capacity to exploit and deploy lies internally in the capacity to exploit and deploy resources.resources.

– A firm must focus on its internal organization and place A firm must focus on its internal organization and place a focus on strategic positioning (for use of its resources)a focus on strategic positioning (for use of its resources)

– There is a shift from traditional schools (a portfolio of There is a shift from traditional schools (a portfolio of products or a network of moves) to the resources based products or a network of moves) to the resources based view (portfolio of resources and competencies)view (portfolio of resources and competencies)

Enterprise facets – Enterprise facets – strategy (12)strategy (12) Strategy issues of system elementsStrategy issues of system elements

– Work strategyWork strategy Focuses vs. diversified products/servicesFocuses vs. diversified products/services Cost vs. lead time vs. qualityCost vs. lead time vs. quality

– Decision strategyDecision strategy Corporate cultureCorporate culture Organizational structureOrganizational structure

– Resource strategyResource strategy In-house vs. virtual resourcesIn-house vs. virtual resources Cultivation vs. hiring/firingCultivation vs. hiring/firing

– Information strategyInformation strategy In-house development vs. acquisitionIn-house development vs. acquisition Trade secret vs. patentTrade secret vs. patent

Enterprise facets –Enterprise facets –competency (1)competency (1) Definition, competencyDefinition, competency

– The quality or condition of being legally qualified for or The quality or condition of being legally qualified for or technically capable of.technically capable of.

– Also known as capabilityAlso known as capability– An attribute of a resource as skill, of information as know-An attribute of a resource as skill, of information as know-

howhow– A building block for work and decisionA building block for work and decision

Common unit of elemental competency Common unit of elemental competency - operation- operation

An operation is a business activity that has a duration, An operation is a business activity that has a duration, start event, and end event.start event, and end event.

It requires resource(s), with a specific skill (ability) and It requires resource(s), with a specific skill (ability) and following a fixed procedure, to perform the activity.following a fixed procedure, to perform the activity.

Enterprise facets – Enterprise facets – competency (2)competency (2) Competencies (in terms of operation types) (1)Competencies (in terms of operation types) (1)

– ProductiveProductive Engineering operationsEngineering operations

– Engineering analysis, design, drafting, etc.Engineering analysis, design, drafting, etc. Manufacturing operationsManufacturing operations

– Machining, forming, finishing, treatments, joining, assembly, etc.Machining, forming, finishing, treatments, joining, assembly, etc.– MaintenanceMaintenance

– OperationalOperational Production/service operationsProduction/service operations

– Operation planning, acquisitions (resources & service), Operation planning, acquisitions (resources & service), accounting, etc.accounting, etc.

Marketing/sales operationsMarketing/sales operations Administrative operationsAdministrative operations

– HR, PR, IT, IP, security, etc.HR, PR, IT, IP, security, etc.

Enterprise facets – Enterprise facets – competency (3)competency (3) Competencies (in terms of operation types) Competencies (in terms of operation types)

(2)(2)– ExecutiveExecutive

Monitoring operationsMonitoring operations– MonitoringMonitoring– AuditingAuditing

Control operationsControl operations– Quality control (IQC/IPQC, etc.)Quality control (IQC/IPQC, etc.)– Shop floor controlShop floor control– Approval (work plans including changes)Approval (work plans including changes)– TestTest

Enterprise facets – Enterprise facets – competency (4)competency (4) Definition, flowDefinition, flow

– A network of activities arranged in their logical A network of activities arranged in their logical sequence for a purpose, starting from one end and sequence for a purpose, starting from one end and proceeding to the other.proceeding to the other.

– A flow is an aggregation (or network) of A flow is an aggregation (or network) of competency units of a varying sizecompetency units of a varying size

– Each flow must have a system element that flows Each flow must have a system element that flows through the resources which perform an activity. through the resources which perform an activity. The flowing element The flowing element mustmust be a resource or be a resource or information. That is, a work (or decision) flow information. That is, a work (or decision) flow occurs via an agent of either material or occurs via an agent of either material or information element.information element.

Enterprise facets – Enterprise facets – competency (5)competency (5) Related flow conceptsRelated flow concepts

– Each system entity (element) has a life cycle of Each system entity (element) has a life cycle of activities from birth to death (forming a flow).activities from birth to death (forming a flow).

– An entity may have (or be associated with) a An entity may have (or be associated with) a variety of flows in its life cyclevariety of flows in its life cycle

Workers may have flows of activities defined for Workers may have flows of activities defined for going cafeteria, restroom, material retrieval, etc.going cafeteria, restroom, material retrieval, etc.

Flows can be nestedFlows can be nested

– Competency analysis may start with decomposing Competency analysis may start with decomposing work and flows existing in the companywork and flows existing in the company

Enterprise facets – Enterprise facets – competency (6)competency (6) Competency and flow of system elementsCompetency and flow of system elements

– Work competency and flowWork competency and flow Work competencyWork competency Work flow (network of work activities)Work flow (network of work activities)

– Decision competency and flowDecision competency and flow Decision competencyDecision competency Decision flow (network of decision activities) Decision flow (network of decision activities)

– Resource competency and flowResource competency and flow Resources competencyResources competency Resources flowResources flow

– Information competency and flowInformation competency and flow Information competencyInformation competency Information flow Information flow

Enterprise facets – Enterprise facets – competency and flow competency and flow (7)(7) Work competency and flowWork competency and flow

– Work competencyWork competency Defined by productive competency units of a Defined by productive competency units of a

varying sizevarying size

– Work flowWork flow Network of productive competency unitsNetwork of productive competency units Substantiated via one or more material (and/or Substantiated via one or more material (and/or

information) flow between resources.information) flow between resources.

Enterprise facets – Enterprise facets – competency and flow competency and flow (8)(8) Decision competency and flowDecision competency and flow

– Decision competencyDecision competency Defined by managerial/executive competency Defined by managerial/executive competency

units of a varying sizeunits of a varying size– Decision flowDecision flow

Network of managerial competency unitsNetwork of managerial competency units Substantiated via a material (or information) Substantiated via a material (or information)

flow between resources.flow between resources.

A note on business processA note on business process– A work flow nested with decision flow(s)A work flow nested with decision flow(s)

Enterprise facets – Enterprise facets – competency (9)competency (9) Resource competency and flowResource competency and flow

– Resource competencyResource competency Characterized with productive, managerial, or executive Characterized with productive, managerial, or executive

competency units of a varying size, which usually is competency units of a varying size, which usually is “operation.”“operation.”

– Resource flowsResource flows Each resource may have its own flow(s) between other Each resource may have its own flow(s) between other

resourcesresources Critical flowsCritical flows

– Material flowMaterial flow WorkWork flow, rework flow, scrap flow flow, rework flow, scrap flow

– Human flowsHuman flows Material handling (involving one or more resources), human Material handling (involving one or more resources), human

maintenance maintenance – Cash flowCash flow– Utilities flowUtilities flow– Machine and tooling flowMachine and tooling flow

Maintenance, etc.Maintenance, etc.

Enterprise facets – Enterprise facets – competency (10)competency (10) Information competency and flowInformation competency and flow

– Information competencyInformation competency Characterized with productive, managerial, and Characterized with productive, managerial, and

executive competency units of a varying size, executive competency units of a varying size, which usually is “operation.” which usually is “operation.”

– Information flowInformation flow Each information may have its own flow(s) Each information may have its own flow(s)

between resources.between resources. Information may flow between resources due to Information may flow between resources due to

– its being worked on (similar to material and WIP) its being worked on (similar to material and WIP) or or

– its being used in support for an activity (similar to its being used in support for an activity (similar to labor and machine)labor and machine)

Enterprise facets – Enterprise facets – capacity (1)capacity (1) Capacity, definitionCapacity, definition

– The quantity (amount) required for The quantity (amount) required for an enterprise elementan enterprise element

Enterprise facets – Enterprise facets – capacity (2)capacity (2) Work capacity (requirement)Work capacity (requirement)

– The amount of work required to be doneThe amount of work required to be done– Depending on work forecast (or orders) in terms of its Depending on work forecast (or orders) in terms of its

revenue, input, output, etc.revenue, input, output, etc. Decision capacity (requirement)Decision capacity (requirement)

– The amount of decision required to be madeThe amount of decision required to be made– Depending on decision needs as imbedded in the business Depending on decision needs as imbedded in the business

process designprocess design Resources capacity (requirement)Resources capacity (requirement)

– The amount of resources required to perform productive, The amount of resources required to perform productive, operational, and executive activitiesoperational, and executive activities

Information capacity (requirement)Information capacity (requirement)– The amount of information required to perform business The amount of information required to perform business

activities with (which may be limited by duplicity, license, activities with (which may be limited by duplicity, license, and serving agents)and serving agents)

Enterprise facets – Enterprise facets – structure (1)structure (1) Structure, definitionStructure, definition

– The relationship (or organization) of The relationship (or organization) of intra/inter elements of an enterprise intra/inter elements of an enterprise systemsystem

– The structure is shaped by The structure is shaped by company’s strategy, competency company’s strategy, competency and capacity.and capacity.

Enterprise facets – Enterprise facets – structure (2)structure (2) Work structureWork structure

– Work hierarchyWork hierarchy Program (not a work order)Program (not a work order) ProjectProject Deliverable itemDeliverable item TaskTask Sub-taskSub-task OperationOperation StepStep

– Work constraintsWork constraints Hierarchical (managerial) Hierarchical (managerial) Lateral (technical)Lateral (technical)

Enterprise facets – Enterprise facets – structure (3)structure (3) Resources structureResources structure

– Resources hierarchyResources hierarchy CompanyCompany DivisionDivision Factory (plant)Factory (plant) DepartmentDepartment SectionSection GroupGroup IndividualIndividual

– Structure typesStructure types FunctionalFunctional Pure-projectPure-project MatrixMatrix

Enterprise facets – Enterprise facets – structure (4)structure (4) Decision structureDecision structure

– Decision hierarchyDecision hierarchy Strategic Strategic TacticTactic OperationalOperational

– Decision processes are based on work and org. Decision processes are based on work and org. structurestructure

Each productive operation may be followed by a Each productive operation may be followed by a decision process (or activity)decision process (or activity)

Thus each work hierarchy may be coupled with Thus each work hierarchy may be coupled with a hierarchy of decisionsa hierarchy of decisions

Enterprise facets – Enterprise facets – structure (5)structure (5) Information structureInformation structure

– Production dataProduction data Organized by work orderOrganized by work order

– Some production data may be translated into knowledge or Some production data may be translated into knowledge or engineering data after the work order is done.engineering data after the work order is done.

– Engineering dataEngineering data Organized by: Organized by:

– Operation type orOperation type or– Business processBusiness process

– Knowledge dataKnowledge data Organized by: Organized by:

– Operation type orOperation type or– Business processBusiness process