Also, I would like to thanks my family in Indonesia and Eva Kusuma Hardani for their moral and material support during my study in The Netherlands

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PREFACE

This thesis is a final project in Master of Science in Business Administration (MScBA) program, Faculty of Management & Organization, Rijksuniversiteit Groningen. This thesis would not be completed without the helps from a number of people. Therefore, I would like to give my gratitude to my supervisors Martin Land and Manda Broekhuis for their advice, guidance, and support throughout this thesis writing.

Also, I would like to thanks my family in Indonesia and Eva Kusuma Hardani for their moral and material support during my study in The Netherlands. Finally, I would like to give my gratefulness to those who are not just my friend but also my family during my stay in The Netherlands: People from Container D (Arne, Rita, Susy, Clare, Anna, Francesco, and Martin), my Indonesian fellows (Onny, Ario, Jati, Rina, Bang Khairul, Adhit, Marly, all members of deGromiest, and all members of PPI-G), my Dutch fellows, Sophie-Kerhoz Routhieau, Cosmina Angelescu, and Ipek Özer as my partner in crimes and adventures, many thanks to all of you.

Tedjo Haryotomo Groningen, August 2004

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TABLE OF CONTENTS

PREFACE ... i

TABLE OF CONTENTS ... ii

LIST OF TABLES... iv

LIST OF FIGURES... v

LIST OF APPENDICES... vi

1 - INTRODUCTION ...1

1.1 Research Background ...1

1.2 Research Objective ...2

1.3 Research Question...2

1.4 Research Methodology...3

1.5 Structure of the Paper ...6

2 - OVERVIEW OF THE SCANS ...7

2.1 The Manufacturing Scan ...7

2.2 The Service Scan ...8

3 - ASSESSMENT CRITERIA ... 10

3.1 Development of the Assessment Criteria... 10

3.2 The Criteria for the Assessment ... 11

3.2.1 Theory-Based Assessment criteria ... 12

3.2.1.1 Definitions and Functions of the Performance Objectives ... 12

3.2.1.2 The Dimensions of the Performance Objectives ... 13

3.2.1.3 The Important Characteristics of the Performance Objectives... 15

3.2.1.4 The Elements of Process... 16

3.2.1.5 Differences between Manufacturing and Service Industry... 18

3.2.1.6 Classification of Service ... 19

3.2.1.7 Service Process... 21

3.2.3 Empirically-Determined Assessment criteria... 22

3.2.3.1 Performance Objectives and the Process ... 22

3.2.3.2 Characteristics of the Scan ... 23

3.3 The Use of the Assessment Criteria ... 24

4 - GENERAL ASSESSMENT OF THE SCANS ... 25

4.1 Assessment Based on the Theoretical Criteria ... 25

4.1.1 The Performance Objectives ... 25

4.1.2 The Process ... 27

4.2 The Comparison of the Scans ... 27

5 - ASSESSMENT OF THE SERVICE SCAN ... 31

5.1 Assessment Based on the Theoretical Criteria ... 31

5.3 Assessment Based on the Empirical Criteria ... 32

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6 - IMPROVEMENTS OF THE SERVICE SCAN... 34

6.1 Room for Improvement... 34

6.2 Improving the Service Scan... 35

6.2.1 The Main Characteristics ... 35

6.2.2 The Starting Point... 36

6.2.3 The Steps ... 37

6.2.4 The Provision of the Tools ... 37

7 - CONCLUSIONS... 41

REFERENCES ... 42

APPENDICES ... 43

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LIST OF TABLES

Table 3.1 Classification of the dimensions of the performance objectives proposed by other scholars based on Slack et al (2001)... 15 Table 3.2 Classification of the important aspects of the performance objectives ... 16 Table 3.3 Classification of the elements of the process ... 18

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LIST OF FIGURES

Figure 1.1 Research Framework ...4 Figure 3.1 The Service Process Matrix...20 Figure 6.1 Key Decision Area Matrix ...39

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LIST OF APPENDICES

1. The Groningen Manufacturing Scan 2. The Groningen Service Scan 3. The Questionnaire

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I - Introduction

1 - INTRODUCTION

1.1 Research Background

The operations function is one of the important functions within the organization. This function is responsible for transforming inputs into outputs, thus, responsible for managing the inputs, the transformed resources (i.e. material, information, and customer), the transforming resources (i.e. the facilities and the staff), and the outputs (either products or service). The transformation processes themselves are usually triggered by the demands from the customers. In order to fulfill the customers’ demands and to maintain the quality of the outputs, the operations function usually has its performance objectives and a performance level that has to be achieved. The performance objectives are the aspects of operations performance that satisfy market requirements and therefore that the operation is expected to pursue (Slack and Lewis, 2002). The performance objectives of the operations management can be distinguished into 5 dimensions (Slack et al, 2001) of costs, speed, dependability, quality, and flexibility. Nevertheless the performance level is usually the translation of those performance objective dimensions into the operational indicator.

Since the market nowadays is very dynamic, and the resources of the organization are uncertain in their nature, the organization needs to adapt quickly to the change of either the market requirements or the organization’s resources by redesigning the operations function. The redesign is resulting in the change of the performance objectives as well the performance level. One starting point to redesign the operations function is by generally scanning the organization with the focus on the operations function. The meaning of the general scan in here is the redesign process should not be directly aimed at the perceived problem; rather it should go beyond this perceived problem and take the whole operations process into account. This is intended to get more information whether this perceived problem is the real problem or not. And if that is the real problem, doing the general scan will help to identify the causes. For example, in the manufacturing operations, if the market requires the organization to perform well in the speed of the delivery, the organization should not be directly redesigning the production process in the shop floor. If the organization redesigns the shop floor by increasing the capacity, for example, it is possible that the speed of the delivery will not increase; rather the cost dimension will increase. The proper solution for increasing the speed of the delivery might be lying in the order acceptance, purchasing, or even the planning process. In the general scan, all functions involved in the operations process are included.

Therefore, to be able to generally scan the operations function, a general scan tool is needed. As a tool, the general scan certainly has some characteristics and requirements.

Those characteristics will give distinction for the scan as a tool in terms of its usability and functionality. Not every tool can be used to analyze two different problems.

Therefore, the characteristics and the requirements of the tool determine the usefulness and the function of the tool.

There are two general scans available to analyze the operations function. Those scans are developed for different industries. One is a general scan for manufacturing industry and the other one is a general scan for service industry. Riezebos (2003) has revised a

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I - Introduction

previously developed by Jacob Wijngaard and Taco van der Vaart in the year of 2000 and unfortunately it is only available in Dutch. This scan is based on the basic analysis instrument in the field of business administration, particularly in operations management.

The scan is applied within the context of a process analysis instead of a functional analysis. Process analysis context means that all of the activities within the transformation process seen as a single collection that interrelate each other which add values for customer rather than as separate activities which perform the various stages of the value-adding activity. The reason for emphasizing the process analysis is that processes are the main objects of study at the operations management level. Also, a process perspective links all necessary activities together and increases one’s understanding on the entire system, rather than focusing on only a small part or function (Evans and Lindsay, 2002).

Even though this scan seems suitable for the operations function, either service or manufacturing operations, it is originally developed for the manufacturing industry. Due to the several differences between the manufacturing and the service industry, not all analysis instruments for the manufacturing industry can be applied in service industry.

According to Fitzsimmons and Fitzsimmons (1998), service organizations are sufficiently unique in their character to require special management approaches that go beyond the simple adaptation of the management techniques found in manufacturing a product.

As a response, Broekhuis and Land (2003) developed a general scan tool which is called the service scan. The framework of the service scan is developed parallel to the manufacturing scan. As already mentioned before, not all of the techniques for the manufacturing industry can be applied in the service industry. The service scan is the adaptation of the manufacturing scan. Therefore, the service scan should be further elaborated to find out whether the adaptation of the manufacturing scan is already appropriate. Furthermore, since the service scan is newly developed, it is interesting to evaluate the service scan based on the theoretical and empirical information to identify some room for improvement.

1.2 Research Objective

From the previous paragraph, there is a need to elaborate, evaluate, and improve the existing framework that can be used to analyze the process in the service operations.

Therefore, the objective of this research is to give recommendations to improve the service scan that can be used in scanning service organizations by focusing on the operations process. Furthermore, from this research, a set of recommendations regarding the improvements of the service scan is expected as a result.

1.3 Research Question

Based on the above reasoning and the research objective, the main question addressed in this research is How can the service scan be improved? To be able to answer this question, the scan should be assessed. The assessment will be based on several assessment criteria. These criteria will be obtained from the interview with the users of the scans. Then, a literature research will be conducted to obtain information to assess the scans. The scans will be assessed to find out whether they are already appropriate to scan processes. This assessment will also be based on the assessment criteria.

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I - Introduction

Furthermore, an elaborate assessment of the service scan is following. To be clearer, the framework to answer this research question can be seen in detail in the research methodology. Furthermore there are some sub-questions addressed in order to answer the main question:

1. What criteria should be fulfilled by the scan?

2. Has the service scan fulfilled those criteria?

3. What recommendation can be proposed to improve the service scan?

1.4 Research Methodology

This research is a qualitative research dominated by the literature research. To be able to answer the questions in this research, a literature study will be conducted. However, primary data from the interview with some experts or users of the scan will be used as well. Literatures such as text books, journals, articles and other academic publications will be used as sources in this research. Also, a comparative study will be conducted in this research. The existing service scan will be compared with the manufacturing scan since they have a similar structure that is an emphasis on the performance objectives and the process. Therefore, there are three methodologies used in this research:

theoretical review (assessing the scans based on the theoretical facts), empirical review (assessing the scans based on the experience of the experts and the users), and comparison (assessing the scans by comparing them with each other). Furthermore, the methodological framework and the explanation will be as follows:

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I - Introduction

The Scans Interview with users of the scans

Improvement criteria development

Improvement Criteria

General assessment of the scans

Elaborate assessment of The Service Scan

Designing the improvement recommendations

Improvement recommendations of

The Service Scan

Figure 1.1 Research Framework

1. The first step conducted in this research is interviewing the users of the ‘old’ PSM scan, The Groningen Manufacturing Scan, and The Groningen Service Scan.

This interview is conducted in order to obtain the information regarding the criteria as a base to assess and to improve the service scan.

2. After the interview, the development of the assessment criteria will take place.

The assessment criteria will be based on the result of the interview conducted in the first step (empirically-determined criteria) and the result of the literature review (theory-based criteria). To help in developing the assessment criteria, particularly the theory-based criteria, some questions are formulated as follows:

y What are the functions of the performance objectives?

y What are the dimensions of the performance objectives?

y What are the important characteristics of the performance objectives?

y Which elements should be distinguished within the scans?

y What are the differences between the manufacturing and the service industry?

y How is the classification of service?

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I - Introduction

y What are the characteristics of the service process?

The questions can be categorized into two general categories: the questions regarding the performance objectives and the process, and the questions regarding the service organizations. The first category of the questions will be used in developing the theory-based criteria that will be used further in assessing the manufacturing and the service scan. The second category then will be used in developing the theory-based criteria to assess the service scan.

3. After the development of the assessment criteria, the general assessment of the manufacturing scan and the service scan will follow. In this step, the assessment will be focused on the similar structure that the scans have that is the emphasis on the performance objectives and the process. The general assessment will also include comparing both of the scans. From the comparison, some information can be obtained such as the differences between the manufacturing and the service scan, and the useful elements in the manufacturing scan that can be used in the service scan. To have more focus when generally assessing the scans, the following questions are formulated:

y Have the scans accommodated the aspects of performance objectives such as the importance to place it as the starting point, the dimensions, the need to measure and judge the performance based on the objectives, and the concept of performance objectives’ trade-offs in their steps? And how far do they accommodate those aspects?

y Have the scans taken the relevant elements of processes into account?

y What are the useful elements from the manufacturing scan that can be used in the service scan?

From this step, room for improvement starts to be identified.

4. The assessment of the structure of the existing service scan will follow the general assessment of the manufacturing and the service scan. In this step the assessment will be based on the assessment criteria and information from the textbooks regarding the service organization. Once again, to guide the assessment process, some questions are formulated. The questions are as follows:

y Has the service scan already accommodate the differences between the manufacturing and the service industry?

y In which types of service does the existing service scan fit into?

y Has the service scan accommodated the characteristics of service process?

5. After assessing the service scan, room for improvement of the service scan can be identified. In this final step of this research, the focus will be on designing the recommendations for improving the service scan. Again, some questions are formulated as guidance in designing the improvement recommendations. The questions are:

y How to fit the service scan into a broad spectrum of service organizations?

y To what extent should the service scan be improved?

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I - Introduction

1.5 Structure of the Paper

This paper will be divided into seven chapters. This first chapter gave the introduction and the background of this research. In this chapter, the objective, the question and the methodology were discussed.

The second chapter will give a general overview of both the manufacturing and the service scan. The third chapter will discuss the criteria for the assessment of the scans.

These criteria are based on the interviews with the users of the scans (empirically- determined) and from the literature review to obtain theoretical point of view (theory- based) regarding what is best for the scan. At the end of chapter 3, the list of assessment criteria will be given. Chapter 3 will give answers to sub-question 1.

The fourth chapter will discuss the result of the general assessment of the scans. The assessment will be based on the empirically-determined and the theory-based assessment criteria with the emphasis on the performance objectives and the process.

Following the assessment, the comparison between the manufacturing and the service scan will be discussed. Also, this chapter will discuss the elements from the manufacturing scan than can be used in the service scan. The fourth chapter will give answers to sub-question 2.

The fifth chapter will discuss the structure of the existing service scan elaborately. In this chapter, the existing service scan will be assessed based on the theory-based and the empirically-determined assessment criteria. The emphasis in the assessment of the service scan is more on the specific aspects regarding the service operations in the assessment criteria. Therefore, in this chapter, the performance objectives and the process will not be discussed. This chapter will give the answer for the sub-question number 2.

The sixth chapter will discuss the possible improvement of the existing service scan based on the assessment. The improvement will include the improvement of the structure, the steps, and the tools. Thus, this chapter will give answers to sub-question number 3. Based on the improvement, the recommendations of how to improve The Groningen Service Scan then will be proposed and discussed. The last chapter in this research, which is the seventh chapter, will give the conclusions of this research.

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2 – Overview of the Scans

2 - OVERVIEW OF THE SCANS

This chapter gives overview of both the manufacturing scan and the service scan. The overview will only describe the scans in general. The complete manufacturing and service scan will be included in the appendices.

2.1 The Manufacturing Scan

As already stated in chapter 1, The Groningen Manufacturing Scan was developed by Jacob Wijngaard and Taco van der Vaart at the first time in the year of 2000. In 2003, the scan was revised and translated by Jan Riezebos. The Groningen Manufacturing Scan presents a framework to scan the processes from an operations management point of view, which is looking at the activities within the operations function, and based on a process instead of functional point of view. The scan has a clear focus on the operations function of an organization. Processes are the main objects of study in this scan. It gives the attention to the transformation processes (warehousing, manufacturing, and delivery), administrative processes, such as order preparation, purchasing, engineering, and billing, as well as the planning and control of these processes (Riezebos, 2003).

The manufacturing scan follows the previous scan developed by Wijngaard and van der Vaart in 2000 in distinguishing four stages for a scan:

1. Objectives and performance

2. Identification of the relevant process(es)

3. Within process gap analysis per performance dimension 4. Analysis extra-operational causes for performance gaps

The scan starts with determining whether there is a gap between the objectives and the actual performance. The objectives in this case are the performance objectives or dimensions that the organization should achieve to satisfy its customers. Sometimes, the organization does not achieve those objectives, which in turn results in a gap between the desired objective and the actual performance. This gap will lead to deteriorated performance that can decrease the customer satisfaction and profit losses.

Generally there is a number of conflicting performance dimensions. Therefore, each process has to achieve a mixture of the potentially conflicting performance dimensions. In achieving a mixture of objectives, the interrelation between the performance dimensions should be taken into account. In the manufacturing scan, Riezebos (2003) uses the analogy of a balloon for a process. One can think of a process as a balloon with four forces simultaneously pressing on it. If one of the forces becomes stronger, the balloon transfers this pressure to the other three sides.

The shape of the balloon changes, and hence the process design needs to be modified. Thus, a process is explicitly designed in order to achieve a mixture of objectives with different weights. Within the first stage of the scan, the performance dimensions have to be elaborated such that they can be measured.

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The next stage aims at detecting the processes that contribute to the performance gaps found. The processes are not only those within the operations function, but may include the whole value chain. It starts with a broad picture of functions involved in the realization of performance, and characterizes the sub processes and its supporting functions in terms of complexity and contribution to the performance gaps detected.

This results in selecting a small portion of sub processes that contribute for the largest part to the performance gaps.

The scan continues in the third stage with a detailed process analysis for each performance dimension by describing the selected sub processes in terms of actors, activities, dependencies (signals), resources, and contribution to that performance dimension. This activity can be done by ‘stapling oneself to the order’. The customer order is the business object that is present through all processes. Therefore, by stapling to an order in the analysis, one can get a detailed description of the actors, activities, resources, signals, and results.

This analysis will result in discovering several causes for each performance gap. It will also provide insight in redundancies or incompatibilities within the processes and their control. However, these improvements are not directly implemented, as the diagnostic scan has not yet been finished. First, the causes that are found for each performance dimension have to be checked on consistency and coherence. And finally, a decision has to be made what type of process improvement is needed.

The fourth stage of the diagnostic scan aims at providing a better foundation for this decision on the type of process improvement by analyzing possible causes for the performance gaps outside the operational processes. These are denoted as extra- operational. If such causes are detected, either a more radical change of the processes is required or a change in these extra-operational factors is needed. The diagnostic scan provides a foundation for this decision from the operational area.

However, from the extra-operational analysis, the scan does not give much support.

2.2 The Service Scan

The Groningen service scan was developed by Manda Broekhuis and Martin Land in 2003. This scan was developed parallel with the manufacturing scan. Therefore, the steps of the scan are more or less the same as those in the manufacturing scan.

However, in the service scan, the determination of performance objectives is preceded by a step to determine the relevant service elements and customers/stakeholders.

The service scan consists of four main steps and three additional steps. The four main steps are:

1. Determine the relevant service elements and relate them to customers/other stakeholders.

2. Determine the performance aspects to be improved.

3. Describe the processes.

4. Analyze operational opportunities for improvement.

And the three additional steps are:

5. Analyze non-operational opportunities for improvement.

6. Redesign of (partial) processes.

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7. Determine requirements regarding management of change.

The first step of the service scan must provide suitable system boundaries in terms of service (elements) to be researched. The boundaries are drawn by identifying the service(s) to be investigated and who is being recognized as the customer of this process. The outputs of this step are the overview of relevant services and their elements and the overview of customers and other stakeholders.

Next, step two must lead to a suitable objective for the research. A good objective will specify a planned contribution to performance. This step is providing the performance indicators for the relevant elements of service, their relative importance, the actual performance gaps, and the performance aspects to be analyzed.

Following this step is step three that describe the service process while showing how performance emerges. The descriptions will strongly depend on the performance objectives defined in the previous step. However, beside the performance objectives, there are some building blocks that important in describing the service process.

Those building blocks are the characteristics of service demand, the characteristics of resource availability, the relevant service delivery process, and the coordination, planning, and control.

Finally, in step four, the operational opportunities for improvement are being analyzed by relating the performance gaps to the elements of the service description. In the fourth step, the performance objective is being analyzed thoroughly.

From the overview of the scans, it can be seen that there are two comparable aspects in both of the scans. Those aspects are the emphasis on the performance objectives and the process. These two aspects will be the basis in assessing and comparing the manufacturing and the service scan in chapter 4.

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3 – Assessment Criteria

3 - ASSESSMENT CRITERIA

In this chapter the discussion regarding the assessment criteria takes place. The first section of this chapter explains the development of the assessment criteria and what criteria will be used in assessing the scans. Then in the second section, the criteria itself are further elaborated. Finally, in the third chapter, the list of the criteria and how those criteria will be used are given. In this chapter, some questions will be asked to help in developing the assessment criteria particularly the theory-based assessment criteria.

Those questions are:

y What are the functions of the performance objectives?

y What are the dimensions of the performance objectives?

y What are the important characteristics of the performance objectives?

y Which elements should be distinguished within the scans?

y What are the differences between the manufacturing and the service industry?

y How is the classification of service?

y What are the characteristics of the service process?

3.1 Development of the Assessment Criteria

The development of the assessment criteria is based on the interviews conducted with the respondents that have experiences in using the scans. The experiences here are in terms of the activities of the respondents in supervising students who were using the scans. The respondents for this research are Prof. Jacob Wijngaard and Dr. Jan Riezebos from Production and Service Management cluster, Faculty of Management and Organization, University of Groningen. Starting from this point, the assessment criteria developed based on the interview will be called the empirically-determined assessment criteria. The assessment criteria will also include the criteria that obtained from the review of literature in operations management. These assessment criteria will be called the theory-based assessment criteria.

The interview is aimed at getting the opinion from those who already applied the scans in the real world and are familiar with them. In the questionnaire which is used in the interview (can be seen in the appendices), three groups of questions were asked. The first group of questions is about the performance objectives and relevant elements of process in analyzing processes within the operations function. The reason of including those two aspects in the questionnaire is the prominence of those aspects in the scan.

Both the manufacturing and the service scan are intended to analyze processes within the operations function. Therefore those scans should accommodate the need to paying attention to the relevant elements of processes in analyzing them. Furthermore, the scans use the performance objectives as a starting point. Also, the scans are developed to provide framework to analyze process in order to find whether there is a gap between the actual and the expected objectives and to find the source of the gap and then the solution to close the gap.

The second group of questions is about the application of the ‘old’ PSM-Scan and the manufacturing scan in service organizations based on the users’ experience. This group of questions is intended to obtain information regarding what kind of obstacle that the user met in diagnosing the service processes using a framework for diagnosing the

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manufacturing processes. This information can provide an input to improving the service scan in particular the features that the service should have.

The last group of questions is about the characteristics and the requirements that a good service scan should have. In the questionnaire, the respondents were presented with a list of possible characteristics that the scan should have. These possible characteristics were based on the literature review regarding the nature of service operations. The possible characteristics are including whether the scan should provide only a general framework to analyze service processes or provide also the framework to analyze specific type of service operations and service processes. The well-structured steps, a clear identification of the customer, a provision of the specific analysis tools, an identification of where the value is added in the process, and usability of the scan are also included in the list.

The characteristic whether the scan should provide only a general framework to analyze service processes is based on the fact that the scan was developed to generally analyze the process. Thus, the scan functions as a general diagnostic tool to analyze a process.

On the other hand, there is a fact that there are several types of service operations and service process. Not all of the types can be treated with the same approach due to their distinct characteristics. As a framework that helps the user in analyzing processes, the scan should have well-structured steps. The steps should be clear and accommodate all of the important aspects in analyzing processes. Clear identification of the customer is included as a possible characteristic because in a service operation customer is important due to their involvement in the service delivery process. Therefore, identifying and knowing who the customer is, is important. As a framework to analyze a process, the scan should provide the user with specific analysis tools instead of many analysis tools, particularly in the earlier steps of the scans. Therefore, the user will not get mislead in the latter steps. Even though the customer is involved in almost all of the activities in a service delivery process, not all of those activities added a value to the result. Therefore, the scan should be able to help the user in identifying where the value is added.

Besides the information from the interviews, other sources such as textbooks and articles will also be used to develop the assessment criteria. The use of literature in developing the assessment criteria is to provide another point of view. The knowledge and the experiences from the respondents will be better with the support from the theoretical point of view. In the theory-based assessment criteria, the aspects that will be judged on the scans are the performance objectives, the process, the difference between manufacturing and service industry, classification of service, and service process.

3.2 The Criteria for the Assessment

In this section, the assessment criteria are further elaborated. The first part of this section discusses the theoretical point of view regarding the performance objectives, the process, differences between the manufacturing and the service industry, classification of service, and service process. Following that part, the discussion of the interview results takes place. These results will be the basis in developing the empirical assessment criteria. The empirically-determined assessment criteria itself are divided

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into three categories namely performance objectives, process, and characteristics of the scan.

3.2.1 Theory-Based Assessment criteria

3.2.1.1 Definitions and Functions of the Performance Objectives

Performance objectives are defined by Slack et al (2001) as the broad objectives which operations must pursue to satisfy stakeholders that form the backdrop to all operation decision-making. From the definitions of the performance objectives, two main ideas of the function of the performance objectives can be summarized. The first idea is that the performance objectives, as the name implies, function as the objectives or the targets of the organization that should be reached in order to satisfy its customer. Therefore, the performance objectives can be said as the means or the mechanism to give a clear goal and to control the process of satisfying customers. This idea is also being proposed by Slack et al (2001). They state that performance objectives are the mechanism used by operations management to translate market requirements into operations objectives.

The second idea is that the performance objectives function as guidance to the operations’ processes. The performance objectives form the backdrop to all operation decision-making and they are the dimensions of an operation’s performance. With this idea, it can be said that the processes conducted within the operation function must follow the ‘track’ provided by the performance objectives in order to achieve it.

Another definition and function of the performance objective were suggested by Wild (1992). He states that the objectives will influence the operation manager’s decision since the actions the manager takes must be designed to achieve the required objectives and thus satisfy the part of the desirability requirement or constraint. Skinner (1969 in de Burgos Jimenez and Lorente, 2001) has another opinion about the definition and the function of the performance objectives. He states that the performance objectives were considered as representative of exclusive objectives that could be chosen to support the firm’s general strategy. Therefore, the function of the performance objectives in his view is as a supporter for the general strategy of the organization.

Furthermore, Garvin (1993 in de Burgos Jimenez and Lorente, 2001) states that the performance objectives indicate areas on which manufacturing must focus if it is to provide a competitive edge to the company.

Even though using different terms, the functions of the performance objectives proposed by Wild, Skinner, and Garvin can be put under the same classification with that proposed by Slack et al which is as the guidance. Performance objectives as the influence (Wild) and as the supporter (Skinner) are the same as the guidance. They guide the operations function by influencing and supporting it to achieve the already stated goals and objectives.

From the above explanations, the function of the performance objectives can be classified into two major classifications. The performance objectives function as the mechanism to translate the market requirement into operations objective. Since the ultimate objective of business is to satisfy the customers, operations function should have a mechanism that can translate the needs and wants or the requirements of the market. After translating the market requirement, performance objectives then function

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as the guidance for the operations function in its day-to-day activities. Performance objectives are the aim of the operations processes. Every process within the operations function should be able to contribute to the performance objectives.

3.2.1.2 The Dimensions of the Performance Objectives

Slack et al (2001) distinguish five basic performance objectives of the operations. They are: quality, speed, dependability, flexibility, and cost. These performance objectives can give both internal and external benefits if the organization excels in each of them. By doing things right, operations seek to influence the quality of the company’s goods and services. Externally, quality is an important aspect of customer satisfaction of dissatisfaction. Internally, quality operations both reduce costs and increase dependability. By doing things fast, operations seek to influence the speed with which goods and services are delivered. Externally, speed is an important aspect of customer service. Internally, speed both reduces inventories by decreasing internal throughput time and reduces risks by delaying the commitment of resources. Doing things on time, operations seek to influence the dependability of the delivery of goods and services.

Externally, dependability is an important aspect of customer service. Internally, dependability within operations increases operational reliability, thus saving the time and money that would otherwise be taken up in solving reliability problems and also giving stability to the operation (Slack et al, 2001). By changing what they do, operations seek to influence the flexibility with which the company produces goods and services.

Externally, flexibility can:

y Produce new products and services (product/service flexibility) y Produce a wide range or mix of products and services (mix flexibility)

y Produce different quantities or volumes of products and services (volume flexibility)

y Produce products and services at different times (delivery flexibility)

Internally, flexibility can help speed up response times, save time wasted in changeovers, and maintain dependability (Slack et al, 2001). By doing things cheaply, operations seek to influence the cost of the company’s goods and services. Externally, low costs allow organizations to reduce their price in order to gain higher volumes or, alternatively, increase their profitability on existing volume levels. Internally, cost performance is helped by good performance in the other performance objectives (Slack et al, 2001).

Those five dimensions of the performance objectives are commonly used in the field of operations management. Wheelwright (1984 in de Burgos Jimenez and Lorente, 2001) also uses similar dimensions of the performance objectives. However, he only proposes four dimensions instead of five. The dimensions are: cost, quality, dependability, and flexibility. On the other hand, Wild (1992) proposes other dimensions of the performance objectives. He divides performance objectives into two dimensions: customer service, and resource utilization. Customer service is being considered as a key objective of operations management due to the principal objective of operating systems which is the conversion of input for the satisfaction of customer wants. Furthermore, Wild divides customer service into one primary consideration and two secondary considerations.

Customers should want the outputs of the operating system, therefore, the objective of the operations is to satisfy customers in respect of specifications; this is the primary condition for their having customers. Secondary considerations, however, will exist and for simplicity these can be considered in terms of cost and timing. The other dimension

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that operations management is concerned essentially with the utilization of resources, i.e.

obtaining maximum effect from resources or minimizing their loss, under-utilization, or waste. Performance objectives dimensions proposed by Wild still can be related with those proposed by Slack et al. The objective dimension of customer service, which consists of several considerations are similar to some of the objectives dimensions of Slack et al. To satisfy customers with respect to specification is similar to the quality since quality can be defined as conformance to specification (Evans and Lindsay, 2002).

To satisfy customers with respect to costs is obviously similar to cost dimension. To satisfy customers with respect to timing is similar to speed and dependability. Also, the resource utilization objective of Wild is similar to the cost dimension of Slack et al since the final goal of this objective is to reduce the costs.

Schönsleben (2000) proposes four dimensions of performance objectives which he calls target areas. He includes quality, costs, delivery, and flexibility as a set of the performance objectives. Schönsleben uses delivery as a representative of speed and dependability dimensions. Chase and Aquilano (1981) also propose different dimensions of the performance objectives. They divide the dimensions of the performance objectives into two: output objectives and cost objectives. The output objectives are further broken down into volume and performance categories, where volume refers to how much must be produced, inventoried, and so forth, and performance refers to the extent to which the system meets the standard set for quality, time, and so forth. Similarly, cost objectives are broken down into explicit costs and implicit costs categories where explicit costs refers to those costs that are measured by standard cost accounting methods, such as cost of materials and wages; and implicit costs refers to those costs that cannot be measured by cost accounting methods, such as idle time and stock out costs (Chase and Aquilano, 1981).

From the explanation above, some classifications of the dimensions of the performance objectives can be made. Based on all of the ideas proposed by the above mentioned authors, the dimensions actually can be classified into five dimensions that similar to those proposed by Slack et al. Some authors only used different name or different level of dimension. For example, the dimensions proposed by Wild are in higher level than the five basic performance objectives. Wild uses customer service and resource utilization as the performance objectives which can be further break down into quality, costs, speed, and dependability. Also, Chase and Aquilano use higher level of the dimension.

However, the use of the lower level of the dimensions as suggested by Slack et al and Wheelwright is more appropriate for the scans. The lower level dimensions are easier to be translated to the operational term than the higher level dimensions. Furthermore, the lower level dimensions of the performance objectives are already adequately covered all objectives for the operations process that can be applied from the customers’ and the producers’ point of view. The following table shows the classification of the performance objectives’ dimensions according to the above mentioned authors.

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Speed Quality Dependability Flexibility Costs

Schönsleben (2000)

Included in delivery dimension

Use the same term

Included in delivery dimension

Use the same term

Wild (1992)

Included in customer

service dimension

Not mentioned

service dimension

and resource utilization dimension Chase and Aquilano

(1981)

Included in output objectives

Not mentioned

Included in costs objectives Wheelwright (1984), Not

mentioned

Use the same term

Use the same term Table 3.1 Classification of the dimensions of the performance objectives proposed by other

scholars based on Slack et al (2001)

3.2.1.3 The Important Characteristics of the Performance Objectives

An organization cannot be excelling in all of the performance objectives mentioned. An organization, therefore, must have the priority of the performance objectives it wished to achieve. According to Slack et al (2001), one of the important questions that any operation has to answer is the relative priority of its performance objectives. To do this, an organization must sacrifice one performance objective to be able to be more superior in other objectives. An organization must consider trading off one aspect of performance with another.

The same opinion is also proposed by Wild (1992), Chase and Aquilano (1981), and de Burgos Jimenez and Lorente (2001). Wild states that operations management is concerned with the achievement of both satisfactory customer service and resource utilization, therefore, operations managers must attempt to balance these two basic objectives. However, an improvement in one will often give rise to deterioration in the other. Hence, a trade-off should be considered in order to achieve the balance.

Chase and Aquilano, state that the performance objectives are often in conflict, and to achieve a balance among them for many situations tests the mettle of any production manager. Furthermore, they state that in order to achieve the balance, operations manager determine the optimum set of objectives. The optimization of the objectives results in a sacrifice of one objective to the others. The issue of trade-off between the performance objectives is also discussed by de Burgos Jimenez and Lorente. They state that trade-offs is inevitable and it is the task of the operations manager to overcome those trade-offs.

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As an objective and a control function, performance objectives must be measurable. In order to measure the five basic performance objectives, one can derive the basic performance into several performance indicators or translating the basic performance objectives into operational indicators. From those operational indicators, the organization can measure their current performance easily.

After the performance is measured by using a bundle of partial measures (operational indicators), the judgment need to be made whether the performance is good, bad or indifferent (Slack et al, 2001). There are several ways it can do this, each of which involves comparing the current achieved level or performance with some kind of standard. Four kind of standard are commonly used (Slack et al, 2001):

y Historical standards, which compare performance now against performance in the past;

y Target performance standards, which compare current performance against some desired level of performance;

y Competitor performance standards, which compare current performance against competitor’s performance;

y Absolute performance standards, which compare current performance against its theoretically perfect state;

Based on the text above, the important characteristics of the performance objectives can be classified as follows.

Trade-off Should be measurable

Should be judged

Slack et al (2001) X X X

Wild (1992) X

Chase and Aquilano

(1981) X

de Burgos Jimenez and

Lorente, 2001) X

Table 3.2 Classification of the important characteristics of the performance objectives

3.2.1.4 The Elements of Process

Processes are the main objects of study in the scans. This section discusses the concept of process and its elements. From the discussion, a classification of the elements of a process is proposed.

There are many definitions of process proposed by some authors. Harrington (1991) defines process as any activity or group of activities that takes an input, adds value to it, and provides an output to an internal or external customer. Processes use an organization’s resources to provide definitive results. Harrington also proposes another definition of a process in terms of production process (he distinguished production process from business process which is defined as all service process and processes that support production processes) as any process that comes into physical contact with the hardware or software that will be delivered to an external customer, up to the point

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the product is packaged. From the definition, it can be concluded that a process is designated to provide the customers, either internal or external with the output (goods or services). Therefore paying attention to the customers is one of the important aspects in the process.

In the definition of a process proposed by Harrington, there are other elements that inherent in a process. A process consists of a group of activities; these activities add a value to the input and transform it into an output by using the organization’s resources. If one of these elements is missing, and then there will be no process. Furthermore, according to Harrington, processes should have owners, boundaries, and customers, and they should add value. The owner of the process will be responsible to the ongoing activities within the process. Therefore, the owner should take care of the other elements of the process. The boundary of the process will determine the scope of the process in term of managing the process. With clear process boundary, the owner should be easily mange the process. The processes also have several characteristics: flow, effectiveness, efficiency, cycle time, and cost.

Darnton and Darnton (1997) in their book quoting several definitions proposed by several authors as follows:

y A set of logically related tasks performed to achieve a defined business outcome (Davenport and Short, 1990).

y The logical organization of people, materials, energy, equipment, and procedures into work activities designed to produce a specified end result or work product (Pall, 1987).

y A structured, measured set of activities designed to produce a specified output for a particular customer or market (Davenport, 1993).

y A bounded group of interrelated work activities providing output of greater value than the inputs by means of one or more transformations (Melan, 1993).

From the above definitions, several important characteristics of a process can be concluded. One important issue in the definition, particularly the one proposed by Davenport and Short, is an opinion that a process is a set of tasks that are related to each other. This opinion is being supported by Melan in his definition that mentions the interrelation process. The definition proposed by Melan more or less is the same as that proposed by Harrington. In his definition, Melan included the activities, the inputs, the transformation, and the output. Other important elements of the process are the actors, and the resources as Pall states in his definition. Furthermore, the definition proposed by Davenport put more emphasis on how the work is done to produce the product instead on what the product is. A process is thus a specific ordering of work activities across time and place, with a beginning, an end, and clearly identified inputs and outputs.

The concept of interrelated within process can be seen also in the process hierarchy proposed by Harrington. He divides a process into four hierarchies: macro process, sub process, activities, and tasks. From the macro view, processes are the key activities required to manage and/or run the organization. A macro process can be subdivided into sub processes that are logically related, sequential activities that contribute to the mission of the macro process. Every macro process or sub process is made up of a number of activities. Activities are things that go on within all processes. Each activity is made up of a number of tasks.

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Melan discusses the hierarchy of a process by proposed lower levels of process such as sub-process, activity, and task. Task is elemental work. Processes are part of a higher level object, a system. The hierarchy of a process also mentioned in the definition of a process proposed by Born (1994 in Darnton and Darnton, 1997). According to Born, a process consists of a sequence of steps which transform information from an initial state (input) to a final state (output). A key characteristic of a process is that it can be broken down into less complicated processes. Slack et al (2001) also discuss about the process hierarchy. They state that all operations can be divided into micro operations which form a network of internal customer-supplier relationship within the operation.

From the definitions of a process proposed by several authors, several important characteristics of a process can be identified. Those aspects are: activities, inputs, transformations process, outputs, resources, customers, interrelatedness, owner, and boundaries. A classification of the process elements can be seen in the following table.

Act In Trans Out Res Cust Inter Own Bound

Harrington (1991) X X X X X X X X X

Davenport and Short (1990 in Darnton, 1997)

X X X X

Pall (1987 in

Darnton, 1997) X X X X X

Davenport (1993

in Darnton, 1997) X X X X X

Melan (1993 in

Born (1994 in

Slack et al (2001) X

Table 3.3 Classification of the elements of the process

Act: Activities, In: Inputs, Trans: Transformation, Out: Outputs, Res: Resources, Cust: Customer, Inter: Interrelated lower-level process, Own: Owner, Bound: Boundaries

From the table, it can be seen that there are nine elements of the process. However there are only five prominent elements, namely the activities, inputs, outputs, transformation, and interrelatedness. Even though there are only five prominent elements, does not mean that the other elements are not as important as these elements. Thus, it is better if the scans put all of these elements into consideration.

3.2.1.5 Differences between Manufacturing and Service Industry

Since the service scan was developed parallel with the manufacturing scan, most of the steps that the two scans have are almost similar. However, the manufacturing and the service industry have some differences that influence the nature of those two industries.

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Thus, when analyzing service process, it requires a different approach than when analyzing manufacturing industry. The differences between manufacturing and service industry are discussed to give better understanding of the characteristics of the service industry. Therefore, it opens the possibility to adjust the existing service scan according to the characteristics of the service.

To be able to understand the differences between manufacturing and service industry, one can start by differentiating between their products: goods and services. Many authors in the service management and operation suggest differences between goods and services. Gustaffson and Johnson (2003), suggest the characteristics of services which are different from products. According to them, services are inherently more heterogeneous that goods. This means services can be customized according to individual customer needs. Services are also intangibles. Not like goods, services do not have the physical appearance. According to Gustaffson and Johnson, unlike physical goods, services are often produced and consumed at a time and place of the customer’s choosing. The inseparability of service production and consumption means that the service cannot be inventoried and checked for quality assurance.

Similar differences between goods and services are also proposed by Metters et al (2003). According to them, services are different from goods because of the intangibility, simultaneity, proximity, and perishability nature of service. The new issue proposed by Metters et al is the proximity. According to them, many services must be physically close to the customer since the customer is involved in the production of the services.

Therefore, by closing in to the customer, service provider will give more satisfaction to the customer.

These differences that create distinct characteristics of services give implications to the service operations. According to Van Looy et al (2003), the intangibility of services makes products difficult, and sometimes impossible, to evaluate before and sometimes even after purchase. With the simultaneous production and consumption of services, careful attention must be paid to the employees dealing with the customer. Furthermore, where production and consumption occur simultaneously, clearly the customer has to be present at the place where the service is provided. This means that the service provider has to make the service accessible to the customer. The heterogeneity of services creates one of the major problems in service management that is how to maintain an evenly perceived quality of the services produced and rendered to the customer (Van Looy et al, 2003). Even with a highly standardized service product, variability will occur.

The complexity of the service does not allow for control of all the process parameters, to ensure a consistent, high quality output. According to Van Looy et al, the perishability of the process makes the volatility of demand a bigger problem for service producers than for goods producers. When demand is lower than production, goods can be stored. If demand is higher than production, the accumulated stock of goods can be sold to accommodate the surplus in demand. Thus, stock can be used as a buffer to demand variability. This is not the case for services.

3.2.1.6 Classification of Service

Service businesses can be further classified into several classifications. Schmenner (1986) uses two elements namely labor intensity, and customer interaction and service

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the ratio of the labor cost incurred to the value of the plant and equipment. High labor intensity means the business uses more labor than machine and other equipments.

Customer interaction and service customization are two similar but distinct concepts. A service with a high level of interaction is one where the customer can actively intervene in the service process. A service with high service customization will work to satisfy an individual’s particular and perhaps full range, of preferences. Based on those two elements, Schmenner classified service business into 4 classifications as follows (see figure 3.1):

y Service Factory; service businesses that are included in this classification are those that have a relatively low labor intensity and a low degree of customer interaction and customization.

y Service Shop; service business that have low labor intensity but high degree of customer interaction and customization are included in this classification.

y Mass Service; this classification includes service businesses that have a high degree of labor intensity but a rather low degree of interaction and customization.

y Professional Service; service businesses with high degree of labor intensity and high degree of customer interaction and customization are included in this classification.

Different types of service business will certainly have different implications for the service operations. For example if a service business is classified as a service factory, that has low labor intensity and a low degree of customer interaction and customization, the operations manager should think about managing demand to avoid peaks and to promote off peaks, and give attention to

physical surrounding (Schmenner, 1986).

Furthermore, by classifying the service business, key aspects of service businesses that significantly affect the character of the service delivery process can be understood.

Johnston and Clark (2001) also propose a different classification of service. They distinguish service operations based on the volume and variety that the service operations have. Their classification results in three categories of service operations:

those that have high volume and low variety (mass service), those that have low volume and high variety (professional service), and those that lie between the previous categories (service shop). Mass service has the key characteristics as follows: high volume of customer transactions per individual provider or service unit, standard processes, and short customer transactions. The focus of these services is on

Service Factory:

- Airlines - Trucking

- Hotels - Resorts and

recreation

Service Shop:

- Hospitals - Auto repair - Other repair services

Mass Service:

- Retailing - Wholesaling

- Schools - Retail aspects of commercial banking

Professional Service:

- Doctors - Lawyers - Accountants

- Architects

Degree of Labor Intensity Low

High

Low High

Degree of Interaction and Customization

Figure 3.1 The Service Process Matrix (Schmenner, 1986)

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developing and delivering a tightly specified service product. Professional service has the characteristics as an opposite of the mass service that is low volume of customer transaction but higher variety which is caused by non-standard service.

Classifying the service operation helps in determining the relevant service process in the service scan. There are many processes, either in the same level or in the different level of process hierarchy, within service operations. Not all of those processes are relevant to the service to be investigated. By knowing the type of the service operation and the characteristic of the type, the relevant service process can be determined more accurate.

As already mentioned before, classifying the service business, makes the character of the service delivery process and the key aspects that affect it can be more understood.

3.2.1.7 Service Process

Service process is defined by Johnston and Clark (2001) as the set of interrelated tasks or activities that are required to deliver services which together, in an appropriate sequence, create the service. It seems that the definition of service process is the same as the definition of process. However, there are several distinct characteristics of service that will influence the service process. The differences between manufacturing and services can be useful to understanding the service process. Intangibility means that the result of a service transaction is not a transfer of ownership, as in the case of physical goods (Van Looy et al, 2003). Therefore, the process itself is the product or the service and a service is a process. Since the process itself is the services and production and consumption of services are simultaneous, the presence of service provider and customer is important. Furthermore, due to the different needs of every customer and the fact that both provider and customer need to interact at a certain point within the service delivery process, opens up possibilities for variation (Van Looy et al, 2003).

From the above explanation, it can be concluded that the distinctions between service process and operations process in general are:

y The product or the service is the process itself, while the product in manufacturing process is physical goods.

y The presence of the customer is needed in most of the activities within the process, while in the manufacturing process; the customer is usually only involved in the beginning when they place an order and in the end of the process when they receive the goods.

y There are more possibilities for higher variation, since for the service the needs for every customer are different.

Those distinctions are also being discussed by Johnston and Clark. They state that one can gain a great deal of understanding of service processes by asking three questions:

how much variety does the process have to deal with, where is the value added for the customer, and how are key tasks allocated?

According to Johnston and Clark, process variety concerns the variety of activities in the process and is essentially about whether the process is providing standard or non- standard services. The variety in the process will give the implication on how the resources are arranged and used in the process. Furthermore, variety also has a major impact on cost, complexity and flexibility of operations (Johnston and Clark, 2001). To understand to what extent is the degree of variety in the process, a classification of

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2001): runners, repeaters, and strangers. Every type of process will have different impact on the service operations.

Even though the customer is involved in the whole service process, it does not necessarily mean that every activity in the process adds value for the customer.

Sometimes the value is added not only when the interaction between the customer and provider is occurred. The activity in the back-office where the customer is less involved might be the main activity that adds value for the customer. Therefore, according to Johnston and Clark, it is important to view service operations in their entirety, which is the multiplicity of interrelated processes, both front office and back office. It is also important to recognize where the bulk of the activity lies. To understand where the value is added in the service process, Johnston and Clark introduce the key decision area matrix (KDAM). KDAM provides a means of categorizing service processes which helps to understand where the prime value is added. KDAM identifies four types of decision are in the relationship between customer, front-office, and back-office, for runners/repeaters and strangers/repeaters depending upon the level of customer involvement.

Classifying service processes in the service scan will help in analyzing the process in detail. By understanding the characteristics of the process and its related elements such as the variety and the value added activity, the diagnostic and the solution of the problems within process can be more effective.

3.2.3 Empirically-Determined Assessment criteria

Empirically-determined assessment criteria are derived from the result of the interview with the respondents. From the interview, some assessment criteria can be formulated.

The criteria include the aspects of the performance objectives, the process, and characteristics that a good scan must have such as the structure of the steps, a clear identification of the customer, a provision of the specific analysis tools, and an identification of where the value is added in the process.

3.2.3.1 Performance Objectives and the Process

From the interview, the respondents agree that performance objectives should be the starting point for the scans. Since the function of the scan is to analyze the process, the determination of performance objective is necessary. This is because performance objectives are translation of customers demand and market requirements that must be achieved through processes. Therefore, starting with determining the objectives for the process is appropriate. As a starting point for the scan, the performance objectives then should be measurable. This is also the implication of the function of the performance objectives which is mentioned above as a translator of the demand and the requirements.

To satisfy those two aspects, the operations function must have a clear and measurable objective so that the result can be evaluated based on the measurement and standard.

However, according to the respondents, there are several possibilities to use other starting point for the scans. Operations strategy is one of the possible starting points.

The reason why the scans should start with the operations strategy is because the operations strategy itself is derived from the business strategy which already covers the