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Organisation Performance describes how the organisation does in terms of time, cost, quality and flexibility. Where there are gaps between policy and the desired level of performance, operations managers need to make improvements in order to close these gaps. Both the policies and the practices adopted by the organisation determine what performance measures will be important. Key performance indicators such as customer service time, cost or quality provide feedback to the operations function and to the whole business as to how well operations is performing.
World-class, high-performing organisations explicitly link their Policies, Practices, Processes and Performance, making their effects clear. Only a few organisations can claim to be in this class - less than 2 per cent of all organisations (Voss et al., 1997). On the other hand, most organisations only have weak links between these aspects making them inefficient and unproductive and hence perform below the expectations they are held against.
Operations Management and Komatsu
Komatsu India Private Limited is an up and coming Infrastructure and Construction Equipment company in India. In order to face the stiff competition offered by the well established Indian companies, Komatsu has identified that it needs to smoothen its operations and ensure its customers of the quality standards that are being set by its parent company globally.
Initiatives of Komatsu in its operations
Capacity decisions are one of the key policy decision areas for operations. Like other policy decisions, this involves making trade-offs between investing in productive resources and making the best use of them. On the one hand, transforming resources such as facilities, technology, and people are generally expensive and take time to acquire or create, so the organisation wants to use them wisely. On the other, materials, information and effort may be wasted if they are acquired or transformed when there is no demand for them, while sales may be lost if outputs are not available when needed by consumers.
Komatsu India, in its efforts to improve upon its performance and quality standards, is now taking new initiatives in changing its operations towards certain specific goals. The focus of these goals is on cost reduction, operational efficiency and improving employee skills. Therefore in order to bring about the desired outcomes Komatsu is making the following changes:
Investing in R&D for future development of cost reducing technologies
Introducing IT applications and environment-friendly technologies
Bringing in new raw material that costs 20% less
Maintaining its global reputation of being customer centric and offering the customer best quality at the lowest price.
Buying new testing equipment
New material that has 20% more durability thus enhancing the product's quality.
Conducting an intensive 80-hour induction program
Providing a learning environment to the employees
Motivating them by
Providing medical insurance
Letting them know of the current changes through the monthly newsletter
Reimbursements for pursuing higher education
Problems/Opportunities for improvement
Quality and performance can in no instance be absolute. There is nothing which can be of perfect quality. They change relative to the circumstance and situation. The law of the land tell the minimum quality standards that are to be followed in that country and they change as time and technology advance. The expectations of a customer also hence change accordingly. Organisations are created to achieve a goal, mission or objective but they will only do so if they satisfy the needs, requirements and expectations of their stakeholders. Their customers, as one of the stakeholders, will be satisfied only if they provide products and services that meet their needs, requirements and expectations. Their other stakeholders (shareholders, employees, suppliers and society) will only be satisfied if the products and services provided to customers are produced and supplied in a manner that satisfies their needs, requirements and expectations - in other words, it makes a profit, does no unintentional harm, and is conceived and produced with due regard to prevailing legislation. Hence an organisation needs to be proactive and keep looking for areas of improvement. The following are a few operational areas where Komatsu India might need to step up its efforts.
Quality Manual Documentation
New materials, new machinery and testing equipment demand a big change in the processes in which Komatsu works. As there are changes in the whole way Komatsu India is going to conduct its operations its essential for it change and perfect its Quality Manual. A quality manual is a document that specifies an organisation's Quality Management System. The quality manual is to include the following
The scope of the QMS and details and justification for exclusions.
The documented procedures or reference to them.
A description of the interaction between the processes.
For if the trumpet give an uncertain sound, who shall prepare himself to the battle? (St. Paul, in 1 Corinthians, 14:8)
Changing a machine is easy; one removes the old and installs the new one but a machine cant run on its own. A person needs to run it. He needs to adjust to the new systems and processes and make the machine work properly. If the processes and procedures are the machines then the employees are the people who need to run them and the employees need a leader who would let them know about the change, create willingness in them towards it and finally adjust to the change.
Resource Requirements (for the increase in the expended efforts)
Process installation is concerned with bringing information, human resources and physical resources together in the right relationship so that all the components are put in place in readiness to commence operation. In many cases the process will be installed already because it existed before formalisation. In some cases process installation will require a cultural change. There is little point in introducing change to people who are not prepared for it. Installing a dynamic process-based system into an environment in which people still believe in an element-based system or in which management still manage performance through functions, is doomed to fail.
Accidents and Mishaps
As there are big changes in the raw material and equipment that are about to be introduced there would always be an uncertainty that could lead to accidents or dangerous consequences to the employees, staff and the organisation. The workers and employees would become uncertain when faced with these changes and alien situations which would again result in a decrease in their performance and motivational levels.
Central Production Strategy
Central Production strategy of Komatsu exposed it to risks from fluctuating exchanging rates and increased logistical costs of shipping heavy equipment which could result in the loss of its competitiveness.
Recommendations (P 3.2)
Komatsu India needs to frame a detailed Quality Manual documenting all the changes that are currently going in the company and incorporate them into the quality objectives which form the backbone of the manual. It needs to be user-friendly and easily available and to an appropriate level of detail.
The Right Leader
Komatsu needs a leader who can inspire people to do better. This leader can either be the CEO of Komatsu India or someone appointed by him to champion this process of change. The needs and objectives at each step of the change are to be made very clear by him and the employees are to know what is expected of them. This can help Komatsu to improve its market share and reduce costs.
Employee performance and Training development
A precursor to installing and initialising a process is the preparation of sound foundations. Everyone concerned needs to understand the purpose and objectives of what is about to happen - they all need to perceive the benefits and be committed to change and understand the concepts and principles involved. In order for this to take place adequate training is to be given to all the employees and personnel that are required to handle the new processes. Their performance needs to be graded from time to time to ensure progress and alignment towards the objective.
The open-system view of operations takes into account the need for operations to interact with the environment, including acquiring the resources that it consumes and exporting resources to the environment. As the environment is continuously changing, operations must change and adapt to environmental change, and thus the design of a static, unchanging operations function is not feasible.
Komatsu needs to be more flexible and use different locations for sourcing key components and machines in order to cut costs. Despite regional options being available a large number of components were being sourced only from Japan. Total decentralisation of its operations could prove beneficial to its objective of cost reduction.
Health and Safety
The big machines that Komatsu produces also needs to put the health and safety of the customer who uses those machines as the top priority while designing the manual for the products. The employees are to be well aware of how to handle the machinery and certain hazardous materials. Therefore systems like the 80-hour induction programme and detailed manual documentation are to be in place to let the people inside and outside the organisation know that the organisation cares for their well-being.
As heavy investments are required in order to bring about the proposed changes it is advisable for Komatsu to tread cautiously and analyse the costs and benefits of each option and step before choosing that alternative.
New systems and processes mean wastage of time and energy in the beginning when the change is still in effect. This happens as was observed earlier because the staff and employees need to adjust to these changes. Therefore in order to attain energy efficiency it is recommended that benchmarks are established for measuring achievement. Such projects are intended to bring about change and improved performance. It is wise therefore, to record the performance before the change is brought about so that improvement can be measured after the planned work is reported as having been completed.
A quality audit functions for an organisation the same way a scorecard works for a student - keeping track of the progress or regress. When
Similar to its global parent company Komatsu India would benefit by incorporating Total Quality Management (TQM) as an auditing measure in its systems, operations and culture. The company needs to ensure it is maintaining and improving upon the standards that are set by its chosen benchmark company. This style of operational management would help in integrating its systems, processes and procedures to produce the required result of assuring and managing quality of its products and services.
Total Quality Management (TQM)
TQM: A management philosophy and company practices that aim to harness the human and material resources of an organisation in the most effective way to achieve the objectives of the organisation. (Hoyle, 2007)
Simply said TQM means "working closer with fewer suppliers to add more value to the business." (Brown et al, 2001) As the name suggests TQM is a wholistic approach in developing, managing and maintaining organisational systems and processes aiming for consistensy and continuous improvement in the quality standards that exist in the organisation. It is a strategic approach towards building a culture of quality improvement in all the functions and people across the organisation. The most important aspect of TQM is customer satisfaction. Therefore it always asks, "Is the customer getting satisfied because of this?", before any decision-making is done.
Therefore along with the employee initiatives, the testing equipment and the training modules Komatsu also needs to introduce quality checks at the right places before, during and after production and take counteractive measures whenever necessary to improve value to the customer. The salient features of TQM that need to be checked by these quality controls are as follows
Use of quality tools
Managing supplier quality
Developing quality controls
Quality controls form the most important aspect of operations management especially when trying to imbibe a culture of Total Quality Management. Developing these controls depends majorly on understanding the need to introduce those checks. First there is a need that is to be satisfied. This need brings with it a set of requirements that are analysed and executed using a plan. Then the controls are developed to make sure each stage of the processes and procedures are in accordance to fulfilling the need and ensuring minimal wastage. In the figure below, Hoyle explains how each an increase in customers increases the demand for the company to work more and perform better by reducing wastage of time, money and energy. Therefore to reduce that wastage remedial and corrective actions are taken up after the completion of each stage (analysing the requirements, planning the work and implementing the plan) in order to increase the overall output of the process of fulfilling the need.
1: Development of controls (Hoyle, 2007)
Right pricing and product strategies
Komatsu needs to continue its low prices (Low labour costs and high productivity labour force), maintain cordial relations with officials of various governments in the wake of more demand by state authorities and bring out more variants in each product category before its rivals.
Quality Service along with the Product
Komatsu should open their own select stores in strategic locations so that they can save on training costs of dealers, they should establish direct source of communication with customers and identify new needs and constantly improve on their current products.
Wider Implications of the Suggested Changes (P 3.3)
The organisation is a set of interconnected processes. A change, when properly affected, is like a ripple which courses through the entire organisation changing all the other parts of the business that come along its path. Therefore there are bound to be certain good and bad effects that are to be well thought about so that Komatsu can be ready to face them if and when they occur.
Synergy of Business Improvement
Operations, as was discussed, is the core of any business as it deals with the actual process of making the product available to the customer. No product means no marketing, no need for financing or strategising and hence no business itself. Streamlining the operations of Komatsu would guarantee all its various departments and functions to go from strength to strength. A drastic improvement in operational efficiency of the company would hence improve its capacity to serve its customers better and therefore ensure the overall improvement in the way it conducts its business.
Since the company is used to the current flow of operations changes in this flow are bound to face resistance from the personnel (staff and employees) and all its stakeholders. Therefore in order to understand and react to this resistance the Human Resources department need to gain their commitment by provisioning them with new and improved HR practices, rewards and recognition systems.
Competition & Competitors
The competition sets the targets. The success or failure of these changes shall be reflected in the changes in the competitors. It is likely that the competition would be reacting to this change as well and Komatsu India needs to proactively plan its marketing strategies to be aggressive. The primary objectives of its marketing should be to market the right price, advertise its quality standards and attack its competition on all fronts.
It is important to understand that TQM runs essentially on the principle of customer satisfaction. An improvement in organisational performance can be measured by this factor alone as an improved organisational performance satisfies the customers and stakeholders and that satisfaction drives such improvement in return. Therefore it is best for Komatsu to tailor its processes and procedures to deliver value to the customer.
Plan and Schedule for Implementation
The company plans to implement these changes via a change management program as follows:
The employees at the production floor have to be trained accordingly to handle the new material.
The company has to install and train the staff for using the new testing device.
Rotating employees so that they can get better learning opportunities and exposure to different environments.
As the company is revising and remodelling itself it is recommended that Komatsu India follow and implement the model and principles of Business Process Reengineering (BPR).
Business process re-engineering (BPR) is an approach used in fundamental, radical, dramatic process change, over short time horizons. (Hammer, 1990) BPR provides answers regarding where to go and how to get there. BPR is the interior designer remodelling the house that is the organisation. BPR involves rethinking all aspects of a business process, including its purpose, tasks, structure, technology and outputs, and redesigning them from scratch to deliver value-added process-oriented outputs more efficiently and effectively. As explained by Hammer, the four general themes of BPR are process orientation, the creative use of information technology (IT), ambition, and rule-breaking.
Process orientation refers to BPR's strong focus on the process, including jobs, tasks, precedence constraints, resources and flow management protocols. The focus on the use of IT includes the use of automation to facilitate processes. The five phases of process re-engineering are:
(Brown et al, 2001)
Planning for the change
This is the phase when a need for change is identified and a reaction to that need is formulated. Komatsu India identified that being a new player in the industry it needs to run its operations at minimum cost to remain competitive in the market. To generate the necessary plans firstly the following steps are to be taken up
review business strategy and customer requirements
select the critical processes
Identify and target the process area for change. The process can be of 2 types:
Business process: A broader process that links many other sub-processes and is fundamental in nature. For Komatsu revising the HR practices would fall under this category and greater emphasis and detailed analysis on such processes is required.
Task process: Usually involved with the production process and is narrower in scope.
Form a team of employees who have good experience and knowledge in the company and the industry, and select a suitable project leader who has the faith of the team.
Decide on the objectives of the analysis and the time-frame required for planning. The primary objectives of Komatsu India are time, cost and quality aspects of the processes.
When there is a destination to be reached the direction towards it depends on the present position. Change can be made only when the correct assessment of the current situation is made so that the right, suitable steps can be made towards the desired outcome. Internal learning is the step in which all the factors and variables internal to the organisation are analysed. In this, the above appointed team needs to
Identify the individual process elements & steps in the process flow by dissecting one process at a time. In doing so they may look into the following aspects of the process and identify any weaknesses or wastage of resources
Raw materials that are being consumed i.e. the material resources.
job (sequence, simplification, discretion etc)
equipment or tools
people - actors (direct/indirect staff, customers, supply relationships (internal & external)
management control information
Chart all the smaller elements and link them to describe the existing transformation process. This step ensures the job's sequence, simplicity and discretionary authorities to be in accordance to the smooth flow of the process.
identify improvement opportunities
errors and re-work
long time delays/backlog
The current situation also involves taking into account the external factors that affect the changes and the processes. The external factors are the vital forces that drive the changes or the ones that create the need for the changes. For Komatsu, it is advisable to take into account the following:
Define customers & suppliers. As they are direct points of interfacing with the external environment, expectations of the company and limitations in availability of resources can be learned from them which in turn would help set the targets and requirements in delivering quality in the company's products.
Take into account the competition's measure of achievements and the regulatory norms defined by the law in India.
This is the actual part of the planning wherein the development of new processes, policies and procedures take place. The new systems designed involve the work processes and the quality controls that help maintain and improve them. A flowchart of how to design the new processes can be constructed for the team as below:
Clarify the desired outcome of the activity of the redesigning.
Define the boundaries of the activity
Map the process elements undertaken now
Develop a process overview that takes into account all the analysis that is done in the above stages.
Identify failure points - a key failure may be that the current practice fails to achieve the desired outcome.
Decide if failure points can simply be corrected, or require search for best practice or more detailed mapping.
Define and eliminate process problems by brainstorming all the alternatives and recommendations suggested above.
Develop an improved process design
Confirm and delegate functional responsibility for each element
Gain management approval of the improved design
Error proof the process and document it
Implementing the new process design using BPR techniques requires a team of employees and change consultants who can induce the change and gain the commitment of all the people involved in the change. A step-wise procedure on how to implement the new processes is given below
Appoint BPR champion and give him the responsibility of overseeing the changes.
Select BPR team members
Establish an Executive Improvement Team
Provide executive training
Develop an improvement model
Communicate goals to employees
Appoint process owners
Carry out walkthroughs on new processes
Define process mission, scope and boundaries
Provide team training
Define customer expectations for the process
Select and train the employees
Plan/schedule the changes
Develop in-house measurements and targets
Resolve the differences (existing/new, ideal/realistic)
Provide advanced team training
Eliminate bureaucracy and no-value-added activities
Allow the results of the changes to be seen by the employees
Standardise and automate
Review Process for Evaluating Change
Komatsu is focussing mainly on the customer and shaping its processes but there are several internal aspects that are considered as well. These aspects of the process, the inputs to the processes, the outputs obtained and the value added are all usually measurable. Since the processes tend to have repeatable activities an accurate assessment of the effectiveness of the processes can be made from those measurements. Because process maps represent both sequences of events and the relationships between them, they are an effective way to understand operations processes and to begin to improve them. Processes can be measured and controlled:
At each internal supplier/customer (user) interface
At each interface with the external customer
By the process owner.
In developing such review processes Komatsu India can undertake the following steps:
Install the new testing equipment
Chart the process
Assimilate and compare the cost, time and value data obtained before and after making the changes
Establish a feedback system
Audit the process periodically
Simplify the process and reduce process time
Establish a quality-cost system
Certificate the process
Execute periodic qualification reviews
Evaluate the impact of the changes on the business and on customers
Benchmark the process
Change is a continuous and on-going process and adapting to the changes in the environment ensures the establishment and stability of a company in the market. Komatsu India can therefore successfully change the Infrastructure and Construction Equipment industry scenario in its favour by conducting these changes fruitfully.