Operations Management?

Now that I’ve completed the Introduction to Operations Management (OM) course, I wanted to share a few things I learned and give you a flavour of what it’s all about.

OM principles are not exclusively applied to factory production lines — the course uses examples from Subway, Dell, Starbucks, Benetton, airlines, call centres and doctors’ waiting rooms, too. Prof. Terwiesch is keen to use data taken from real world situations, and must have made a right nuisance of himself observing the customers and staff in his local sandwich bar. This gives the problems authenticity, but can make for unfriendly numbers and peculiarities that confuse the issues he’s trying to teach.

Once you’ve completed the course, you’ll understand the benefits of pooling capacity; the efficient frontier; the seven sources of waste; overall equipment effectiveness; line-balancing; ideal batch sizes; the true cost of inventory; lean operations and Six Sigma.

You will appreciate the implications of Apple and McDonalds’ ‘make to stock’ approach compared with Dell and Subway’s preference for ‘make to order’. You will learn a few words of Japanese along with the principles of the renowned Toyota Production System.

The course teaches how to identify bottlenecks; calculate waiting times; measure utilisation, efficiency and the number and cost of defects. You might even be able to answer some of the questions in the final exam.

You will see how Benetton’s ‘delayed differentiation’ makes an efficient single production line of uniform items, which are only coloured at the end, meeting current demand. The same principle explains why the region-specific power cord is packed separately when you buy a new printer and why the final customisation of your Toyota is carried out by the dealer.

I was delighted to discover the Erlang loss theory, published in 1917 by an engineer at the Copenhagen Telephone Exchange who had to calculate how many circuits were needed to cope with demand. He recognised the relationship between arrival times, length of process and number of resources and how it affected the probability of callers dropping out of the queue.

Which reminds me: although I will never be a customer, I was amused by Starbucks’ reaction to the risk of customers quitting their queue at busy times. Did they take action to reduce the waiting time? No. They took payment before customers could drop out. Brilliant.

If you’re considering taking this course, don’t think it must be easy because it’s only an introduction. My maths is a little rusty, and it was a shock to lock horns with coefficients of variation, factorials, probability, standard deviation and normal distribution. The good news is that MS Excel can crunch the numbers for you.

To be critical for a moment, the downloadable course materials are not the most helpful. Many slides pose problems that the professor goes on to solve on-screen with a digital pen. The downloadable slides show only the original problem.

The course comprises 5 modules spread over 6 weeks with 45 videos of 10-20 minutes each. There are 43 homework questions, which count for half the available marks, the other half potentially coming from the final exam, which is untimed and includes 46 fairly tough questions. The content is challenging enough to give a sense of satisfaction when you pass, and anybody with a little numeracy and dogged determination should be able to hit the 50% pass mark.

If you like the idea of a free, online course, but this one does not appeal, take a look at what else is available at Class-Central.

Reference: Matching Supply with Demand: An Introduction to Operations Management by Prof. Christian Terwiesch of the University of Pennsylvania (and delivered via Coursera)

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The choice for your organisation: evolution or extinction?

Every organisation needs constant improvement and innovation. The alternative is the fate of the dinosaurs: extinction due to failure to adapt to a changing environment.

If you don’t start start changing now, you might not be around in five years’ time.

Before you start

  • Does your IT department have agile methodology?
    If not, how will you put constant innovation into practice?
  • Do you routinely seek customer-feedback on your products and services?
    You need to be the first to know of any problems and fixing these must be your top priority.
  • When was the last time you researched your customers’ needs?
    You need to be sure you are meeting these needs before you focus on processes.

In the broadest terms, for yours to become a learning organisation, which is what I am describing, it will need to adapt and to learn from experience.

Improvise

Your organisational culture must encourage improvisation rather than penalise it. Wherever there is a difference between a formal process and its improvised enactment, focus on the reason for it, with a view to revising the process. The new way might be quicker, cheaper, better. It might highlight an obsolete routine or duplicated effort.

Corporate culture

This culture of experimentation and the inherent risks can be particularly challenging for process-driven corporations to embrace. There are bound to be bumps and scrapes along the way. You will need to marshall corporate culture to inspire the creativity that comes more naturally to workplaces where confusion, chaos and ambiguity are the norm.

Collaborate

Create collaborative practices where useful improvisations can be shared by people engaged in similar or connected tasks (team meetings, forums, webcasts, etc.).

Explore

To bring new ideas from outside the organisation you might recruit experts from other companies; send staff for external training; monitor competitors; send delegates to conferences, forums and trade fairs; participate in industry associations and regulatory bodies; subscribe to specialist publications; monitor news and developments in your market sector and share anything interesting.

Remember

Develop a means of recording successful adaptations in organisational memory, so they can be stored and make them easily accessible (via wikis, manuals, intranets, etc.).

I’m also a great believer in keeping an eye on other industries to see if they’ve come up with something that could be applied to yours. For instance, digital publishers could learn a lot about personalisation from the e-commerce industry.

If you put all these processes in place, you will soon identify potential improvements within your organisation.

You still need to evaluate, prioritise and cost them, calculate the potential benefits and risks and decide what metrics are appropriate to measure their effectiveness.

Adapt and apply

Then you need to adapt innovations to your own organisation and the environment it operates in.

And this must be an ongoing, iterative process, which will require you to revisit problems periodically. The environment we operate in shows no sign of stabilising any time soon and we will all have to continue evolving to keep up with it.

Reference:
Organizational Population Theory suggests that a corporation with an inflexible core fails when its environment changes and Organizational Learning Theory describes how to create a learning organization. Both are part of  Stanford University’s Organizational Analysis course, taught by Prof. Daniel A. McFarland and available online via Coursera.

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Why don’t TV commercials link to websites?

You know how printed billboards and press ads often include a QR (Quick Response) code, which we can snap with our smartphones to instantly load the product’s website? Well, I want to know why every TV commercial doesn’t let us do something similar.

This is not a rhetorical question  I genuinely want to know the answer  so please drop me a line or add a comment if you know of anybody who is doing this already, or if there is some obvious reason why its a bad idea.

You might argue that there is no future in TV advertising in an age of PVRs, Netflix and VoD (Video on Demand), but US data suggest it has proved largely immune to competition. At the same time as these alternatives compete for our attention, social media encourages us to share the live viewing experience, particularly for sport, reality TV and new drama such as Sherlock and Downton.

TV is still Americas biggest advertising medium and you would think anything that helped convert casual viewers into online visitors would be seized upon. Online advertising complements traditional media and here is a great opportunity for it to do so.

Lots of TV ads conclude with a website’s URL, so advertisers clearly want us to pay them a visit. I’m sure that many viewers would love to see the trailer for that new movie, read the reviews of that new appliance, find the local dealer for that car, request an insurance quotation or order a holiday brochure. 

Lots of us engage in social media while were watching TV (36% in the UK), so we already have a smartphone or tablet to hand but, by the time we’ve launched our browser and mistyped the URL, it has gone from the TV screen and the moment has passed. Any solution needs to be quick and easy, without the need for any typing.

Are QR codes the answer? I accept that a great big static QR code displayed for ten seconds while we fumble for the right app does not make for good broadcasting, but there is an alternative. Five years ago the Daily Telegraph was adding watermarks (via PhotoShop) to some editorial photographs in its print edition. These are invisible to the naked eye but can serve the same purpose as a QR code. Watermarks are preferred because they are less obtrusive. Unfortunately, in order to alert readers, they had to print a symbol beside the appropriate photos, which rather defeats the object.

In 2012, Fujitsu launched new technology that invisibly watermarks moving video images in a similar way. The same technology could also be used within TV shows:

  • to exploit product placement within TV dramas & movies;
  • to increase conversion rates for retail channels;
  • to link to URLs for stats, background info, etc. for sports shows, news & documentaries;
  • to link to URLs for cast lists, location details, background info, etc. for TV dramas & movies.

This all sounds like the answer to a marketer’s dream, so why has the opportunity not been universally adopted and exploited?

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Native advertising

Native advertising is the name now given to what magazine and newspaper publishers used to call advertorial. This was advertising content masquerading as editorial, deliberately blurring the distinction between the two.

Editors traditionally strove to be objective and independent of commercial and proprietorial influence, while advertising space was bought and paid for by advertisers and their agents, who filled it with content of their own making. Editors have always been keen to distinguish between the two, both in order to protect readers from their title’s apparent endorsement of commercial products or services, and in order to ensure the integrity of their own copy. After all, editorial reviews of books, movies, restaurants, cars, holiday destinations and so on would be worthless if subject to commercial influence.

Editors would always insist that advertorials used different fonts and layouts to the editorial style and included a large heading in bold caps, reading “ADVERTISING FEATURE”. Advertisers tried to bend the rules but, though advertising managers sought to impress editors with the vast revenues at stake, editors knew that it was the integrity of editorial content that guaranteed a title’s readership figures.

I detect a buzz around native advertising in online publications as publishers cast around for the elusive money-making formula that might one day make their businesses viable. As they struggle with issues surrounding paywalls, declining readerships, the glut of online advertising inventory and its consequent low value, native advertising is a tempting way to give brands access to their customers. I am afraid that any financial gains will be more than paid for by the loss of editorial integrity.

As publishers cut costs, the quality of their content has already fallen: there is less original material; more stock photographs; more bland agency stories and more mistakes now that most of the subeditors have gone.

I fear that, although it might look like a publisher’s lifebelt, native advertising will prove to be a lead weight that will only hasten their demise.

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Organizational Analysis

I’ve written here before about the learning opportunities offered by MOOCS (Massively Open Online Courses) and I wanted to tell you about another excellent course from Stanford University, delivered via the Coursera platform.

This one is titled Organizational Analysis, written by Prof. Daniel A. McFarland, who presents ten theories to help us understand the nature of organizations and what strategies are available to them.

The course comprises 25 lectures, delivered in about 60 videos (each of 10-20 minutes), 26 case studies, about 50 “screen-side chats”, a background reading list of 40+ titles, a lively online forum and lots of quizzes spread over ten weeks and followed by a 3-hour final exam. That might sound daunting, but it’s perfectly possible to fit this around a full-time job, providing your partner is understanding about your leisure-time priorities.

The emphasis is on providing students with a selection of tools for the study of organizations in different environments, circumstances and times, with practical application, rather than simply academic or abstract interest. Some situations call for the application of more than one theory at a time and others suit different approaches at different stages.

  • The Rational Choice model assumes a central actor with clear goals, consistent preferences and all the information necessary to make decisions.
  • The Bureaucratic model describes organizations that break down problems and match them to their standard operating procedures.
  • Coalition theory explains the behaviour of multiple actors with inconsistent preferences and identities that need to form alliances to achieve their goals.
  • Organizational anarchy describes how problems, solutions and participants come together in decision-making arenas.
  • Organizational learning covers the conditions necessary for constant improvement, including feedback loops, lateral communications, communities of practice, exploration, exploitation and adaptation to suit local circumstances.
  • Organizational culture theory shows how the corporate mission and identity can be expressed through communications, behaviour, artifacts and rituals.
  • Resource dependency theory focusses on the ways an organization can insulate itself from uncertainty in the environment, including stockpiling, diversification, vertical and horizontal mergers.
  • Network theory applies to organizations that are obliged to collaborate in order to deliver a service and explores the strategies they might pursue in forming alliances.
  • Neo-institutional theory explains why organizations in the same environment tend to conform to cultural norms to survive, even at the cost of efficiency and effectiveness.
  • Organizational ecology uses the metaphor of population theory, which describes how animals’ survival depends on their environments and competition for resources.

I never imagined the subject would be so interesting. In addition to the insight it gives into problems faced by many organizations and considering the strategies at their disposal, it offers concrete and practical applications for the workplace. Case studies come from the private and public sector and include a wide range from Google and Xerox to the Cuban missile crisis and the two-decades long project to transform Chicago high schools.

If you like the sound of this (free) course, or would like to see what others are available, take a look at class-central.com and sign up for one to find out what MOOCs are all about. I’ve already started my next one.

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The e-commerce show at Kensington Olympia

e-commerce expo 2013

It’s no surprise to see this show getting busier each year as e-commerce continues its relentless march to global retail domination.

There were about 50 seminars and a dozen keynote speeches, all of them free of charge and many oversubscribed. Visitor numbers are clearly up on last year.

Much of the show’s attention was devoted to mobile apps, personalisation, localisation, site hosting, SEO, online payment, security, fulfilment, ‘big data’ and the cloud, but one of the things that I took away was a reminder of the enduring power of the killer application that convinced many of us to buy our first PCs back in the 1990s.

For the last few years, much of the talk at these expos has been about the impact of social media and how important it is for retailers to engage with customers online. We know that recommendations and referrals from friends carry more weight than even the best marketing department. Most of us have also learned a little about the dark arts of SEO, the means by which businesses and their products can be promoted up the online search rankings. So it was interesting to hear how these methods of reaching the market place are still dwarfed by the scale and reach of the humble email, the primary driver of commerce on the web.

Did it occur to you that Facebook is the biggest emailer on the planet? How else would they reach people who don’t spend most of their time on Facebook?

Customer surveys show that we prefer to receive marketing messages via email. This even applies to younger age groups, who are more likely to spend their days engrossed in social media. Unlike the ads on TV and in the press, we can choose which brands to engage with by email and the data shows we are subscribing to an increasing number of brands.

The marketing email open-rate paradox

It was intriguing to learn that there is an inverse relationship between the percentages of sent marketing emails that are opened and the total number opened. As open rates increase, totals decrease: the message for the marketers is to focus on the totals, unless they’d rather ignore their less active subscribers at the cost of reducing total openings. Instead, efforts would be better spent increasing the list size and the frequency of emails. Dela Quist, of Alchemy Worx, urged marketers not to be embarrassed about this as all the recipients are subscribers who are free to opt out at any time. Indeed, he even took the opportunity to argue that the old chestnut of ‘email overload’ is a modern myth.

I was surprised to hear that marketing emails boost conversion across all channels, so even if they don’t get opened and clicked, they are still bringing in business. It was also counter-intuitive for me to discover that, as frequent email-openers are only a small percentage of the total recipients, the majority of revenue comes from the bulk of occasional openers. These are good reasons for marketers to be careful how they set their goals and measure the outcomes of their email strategy.

One minor gripe

You would think the organisers could fill empty seminar seats with the people who would like to sit in them. The problem was, free tickets were issued 45 minutes before each presentation started, but there were lots of no-shows. Rather than take a decision five minutes before show-time to offer the unclaimed seats to the numerous disappointed and ticketless visitors, the seminars proceeded with dozens of empty spaces. It really isn’t that complicated, is it?

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Why do Spotify penalise their UK customers?

I love music, but gave up buying CDs years ago, when I decided I already owned enough possessions for a lifetime. I still don’t know how to get rid of my old vinyl collection and I don’t want to clutter the place with another obsolescent music format if I can help it.

So, when Spotify launched their music streaming service in the UK in 2009, it seemed the obvious way to go. Their content wasn’t comprehensive, by any means, but it has improved over the years. Despite Radiohead’s criticisms of the business model, I assume the artists who remain on Spotify are satisfied with the arrangement, so I listen with a clear conscience. 

I upgraded to the Unlimited version for £4.99 a month to avoid the adverts and I was considering stepping up to the Premium account so I could also listen through my TV, which is in another room. That was before I discovered that we in the UK have to pay 56% more than our friends in the US, for the same service. 

How do Spotify justify charging £9.99 ($15.63) in the UK, compared to $9.99 in the US?

They don’t; they won’t; they can’t.

Does it cost them any more to deliver digital data to one place than another?

You jest.

Do they charge as much in any other countries?

Not that I can find. The Eurozone pays €9.99 (£8.58) and other areas are charged in local currencies. Users in Canada, Australia and Sweden all pay more than the US but less than the UK at today’s exchange rates.

Is this pricing policy common to similar online businesses?

Some quick price comparisons suggest that Amazon charge identical prices for e-books, wherever you are. I presume they are calculated dynamically, compensating for daily currency fluctuations. iTunes show some price discrepancies, but less dramatic than Spotify’s.

Won’t Spotify’s new music streaming competitor, Google Play Access, force an end to this price discrimination?

Let’s hope so. The launch price for Google’s new music streaming service is £7.99 a month. It doesn’t support Apple’s iOS and I have no idea if it offers a similar range of content to customers or a more generous commission to artistes. Even so, it might force Spotify to match it before too many of their premium service users jump ship.

Economists may explain that businesses maximise profits by raising prices to the point that any further rise would reduce overall revenues due to lower sales volumes. It is conceivable that Spotify have analysed consumer price sensitivity around the world, leading to higher prices where compliant and law-abiding consumers are less likely to seek alternatives. On the other hand, it could just be that they don’t care enough about their customers in the UK.

So what can we do about it?

Firstly, we should refuse to pay £9.99 a month for streaming music from Spotify. The less scrupulous among us might revert to illegal music downloads, or find a way to register as American users via a proxy server, neither of which I advocate. Some may switch to Google but I won’t be joining them while Google maintain their arrogant attitude towards corporation tax and corporate responsibility.

My own problem will soon be resolved by new developments. Spotify recently launched a browser-based Web Player and the new Google Chromecast dongle, which is expected in the UK in time for Christmas, will let me stream content from my PC’s browser to my TV set for a one-off payment of around £30. It is pleasing to see the two companies together conspiring to solve my problem for me.

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