Operations Strategy

Operations Strategy

A Framework for Improvement

De Vries Kozijnen

Justin Drupsteen

16 March 2007

Draft

De Vries Kozijnen BV J. Heeringastraat 7 8401 DC Gorredijk

Company Supervisor: Oene Wassenaar

Telephone: 0513 468275

E-mail: oene.wassenaar@devrieskozijnen.nl

RijksUniversteit Groningen

Faculty of Management and Organisation Landleven 5

9747 AD Groningen

First Supervisor: Prof. Dr. Ir. G.J.C. Gaalman Second Supervisor: Dr. M.J. Land

Student

Name: Justin Drupsteen

Address: Kerklaan 87

9717 HC, Groningen

Telephone: 06-2825 4364

E-mail: j.drupsteen@student.rug.nl

Operations Strategy

A Framework for improvement

MASTER THESIS

iii

F OREWORD

Five months ago a window frame was no more than four pieces of wood and a sheet of glass to me. Unaware of my ignorance I started my graduation project at De Vries Kozijnen in Gorredijk. Now I know better…

Although a graduation project is an individual project, it wasn’t possible to conduct it in the way I did, without the help of many people within and outside De Vries Kozijnen.

Therefore I would like to thank:

▪ Oene Wassenaar, my company supervisor and partner in the Talent Project, for investing as much time with me as he possibly could.

▪ Saskia Veenstra, for being so kind to share her office with me and to cope with my jokes for the past five months.

▪ Dr. Land, who was so kind to become my second supervisor on a very short notice.

▪ Anke Brockmöller, for providing me the opportunity to actively participate in the Talent Project.

▪ And all other people at De Vries Kozijnen who made my project as pleasant as it was.

Finally I would like to express my special gratitude to Prof. Gaalman, for challenging me to think, instead of providing me with answers.

I have worked with great pleasure at De Vries Kozijnen and I have experienced the past months as very educational. Furthermore I am glad to say I am going to help De Vries Kozijnen with performance measurements, as an extension of my project, up until the first of October.

Groningen, August 2006.

Justin Drupsteen

A BSTRACT

This research is conducted to formulate an operations strategy that provides directions for De Vries Kozijnen’s operations and helps De Vries Kozijnen to develop their operations capabilities in order to gain sustainable competitive advantage. The two following research questions formed the basis for this Operations Strategy.

“How should the Operations Strategy formation process take place in order to guarantee successful embedding in the organisation?”

“Which content elements should an Operations Strategy for De Vries Kozijnen contain and how should these elements be filled in?”

Extensive research in Operations Strategy literature led to the combination of many theories, viewpoints and concepts into one approach. This approach contains the identification of all relevant influencing factors found in De Vries Kozijnen: internal context, external context, strategies and operations function. These influential factors are used as input for the process and content of the Operations Strategy. A special process is proposed to transfer Operations Strategy ownership from the researcher to De Vries Kozijnen.

This research was conducted in such a way that the approach of determining the proposed content is not restricted to the current situation of DVK, in ten years time the same approach can be used in order to establish an Operations Strategy. This report can function as a guideline.

This report starts with an introduction, discussing the research motivation and the main problem and objective in this research. The following chapter will contain a more comprehensive overview of the conceptual outline of this report, discussing literature, research approach and the conceptual model. Chapter three deals with De Vries Kozijnen, providing information about its history and current occupations.

In chapter four a contextual analysis is performed, discussing the implications of the internal and external context on operations strategy formation. The main implications are the effects of macro elements, the industry structure, the organisational structure and the organisational culture.

Chapter five deals with the analysis of the business strategy, the marketing strategy and the strategic role of operations. The main implications are the lack of alignment between the strategies, the recognition of Quality and Flexibility as order winning performance objectives and the weak strategic role of operations.

The final analytical chapter, chapter six, discusses operational influencers as operations

characteristics, operations capabilities and operations performance. The main implications

are the complex nature of operations, the degree of depreciation within production, the lack

v of consensus concerning operations capabilities, and the compatibility with operations characteristics and a generic manufacturing strategy.

Chapter seven discusses the proposed operations strategy process. This process is divided into the process within the research and the process resulting from the research. The latter process is divided into three steps; strategic thinking, strategic planning, and embedding.

Operations Strategy content is discussed in chapter eight. First of all a literature research is conducted to find all key decision areas. These decision areas are filled in according to all elements identified in the previous chapters.

The main recommendations of the research are to create adopt an Operations Strategy which realises the following goals within three years from now:

▪ Establish strategic alignment

▪ Establish requirements on performance measurement

▪ Implement performance measurement.

▪ Develop goals for required performance and manage performance in order to reach these goals.

▪ Create capability awareness and development.

▪ Change current strategic role of operations from internally neutral to internally supportive.

▪ Improve the formal organisation in order to create more structure and to minimise the negative effects from the organisational culture.

▪ Build or re-design supplier relations to be able to emphasise order winning performance objectives

▪ Evaluate current products and processes (Product and Process Development Systems).

And realises the following goals in a timeframe four to ten years from now:

▪ Change Capacity according to the conclusions of the evaluation.

▪ Change Process Technology according to the conclusions of the evaluation.

▪ Change Supplier Relations according to the conclusions of the evaluation.

Finally a CD-ROM, containing a digital version of this report, the excel worksheets and all articles used in this research, can be found after chapter ten.

Keywords: Operations Strategy Process, Operations Strategy Content, Capabilities, Case

Study

T ABLE OF C ONTENTS

1 INTRODUCTION ... 9

R

ESEARCH MOTIVATION

... 10

P

ROBLEM

D

EFINITION

... 10

2 CONCEPTUAL OUTLINE ... 11

I

NTRODUCTORY

L

ITERATURE

R

ESEARCH

... 12

D

EFINITIONS

C

^ONCERNING

DVK ... 15

C

ONCEPTUAL

M

ODEL

... 15

S

UB

-

QUESTIONS

... 18

C

^ONSTRAINTS

... 19

S

OURCES OF

I

NFORMATION

... 19

T

HIRD

P

ARTY

R

OLE

... 20

3 ORGANISATIONAL OVERVIEW... 21

H

ISTORY

... 22

C

URRENT OCCUPATIONS

... 22

P

RODUCTION PROCESS

... 22

O

RGANISATIONAL

S

TRUCTURE

... 24

4 CONTEXTUAL ANALYSIS ... 26

E

XTERNAL

C

ONTEXT

... 27

I

^NTERNAL

C

^ONTEXT

... 29

C

ONTEXTUAL

I

MPLICATIONS

... 31

5 STRATEGIC ANALYSIS ... 32

B

USINESS

S

TRATEGY

... 33

M

^ARKETING

S

^TRATEGY

... 34

O

^PERATIONS

S

^TRATEGY

... 36

S

TRATEGIC

I

MPLICATIONS

... 38

vii

6 OPERATIONAL ANALYSIS... 40

O

^PERATIONS

C

HARACTERISTICS

... 41

C

URRENT

C

APABILITIES

... 41

C

^URRENT

P

^ERFORMANCE

... 44

O

PERATIONAL

I

MPLICATIONS

... 46

7 OPERATIONS STRATEGY PROCESS ... 47

S

TRATEGIC

T

HINKING

... 48

S

TRATEGIC

P

LANNING

... 48

E

^MBEDDING

... 48

8 OPERATIONS STRATEGY CONTENT ... 50

I

DENTIFICATION OF

K

^EY

D

^ECISION

A

^REAS

... 51

O

PERATIONS

S

TRATEGY

C

ONTENT

: 0-3

YEARS FROM NOW

... 52

O

PERATIONS

S

TRATEGY

C

ONTENT

: 4-10

YEARS FROM NOW

... 56

9 CONCLUSIONS AND RECOMMENDATIONS ... 59

F

URTHER

R

ESEARCH

... 61

10 REFERENCES ... 62

APPENDIX I: FLOW CHART PRIMARY PROCESS...ERROR! BOOKMARK NOT DEFINED.

APPENDIX II: GROUND FORM PRODUCTION ...ERROR! BOOKMARK NOT DEFINED.

APPENDIX III: DOORWIN STRUCTURE ...ERROR! BOOKMARK NOT DEFINED.

APPENDIX IV: CHARACTERISTICS OF ORGANISATIONAL CULTURESERROR! BOOKMARK NOT DEFINED.

APPENDIX V: QUANTIFICATION OF PERFORMANCE OBJECTIVESERROR! BOOKMARK NOT DEFINED.

APPENDIX VI: STRATEGIC ROLE; QUESTIONNAIRE AND DATA SHEETERROR! BOOKMARK NOT DEFINED.

APPENDIX VII: MORPHOLOGICAL SCHEME ...ERROR! BOOKMARK NOT DEFINED.

APPENDIX VIII: QUESTIONNAIRE CAPABILITIES AND DATASHEETERROR! BOOKMARK NOT DEFINED.

APPENDIX IX: PERFORMANCE INDICATORS ...ERROR! BOOKMARK NOT DEFINED.

APPENDIX X: CRITICAL SUCCESS FACTORS IN STRATEGY FORMATIONERROR! BOOKMARK NOT DEFINED.

APPENDIX XI: OPERATION STRATEGY DECISION AREAS .ERROR! BOOKMARK NOT DEFINED.

1 I NTRODUCTION

In the rough period of the mid-twenties of the previous century F. de Vries and his sons took the initiative to start up a small contracting company. Back then none could have imagined that by 2006 the company has grown to the largest producer of wooden frames in the Netherlands, producing approximately 60.000 frames annually. In the past eighty years many things have changed and De Vries changed accordingly. This growth and change increased the need for structure. This research into the realisation of an Operations Strategy will provide De Vries Kozijnen with an aggregated structure. Consequently this structure can be used as a guideline for implementing operational improvements.

This report, based on the research conducted at De Vries Kozijnen is written in the form of a master thesis. This master thesis is the final part of the graduation project for the master Operations and Supply Chains, a specialisation of the Msc. Business Administration programme at the RijksUniversiteit Groningen. The project is conducted within the Talent Project, a project which stimulates knowledge exchange between knowledge institutes and businesses in the northern part of The Netherlands.

This chapter provides an overview of the research motivation and problem definition.

Furthermore, the structure of the report is discussed. From here on De Vries Kozijnen will be abbreviated to DVK and Operations Strategy to OS.

1

CHAPTER

Research motivation

The initiating step in commencing a graduation project was applying at Q-modus. Q-modus is a semi-independent project organisation facilitating placements for the Talent Project.

After a CV check and a motivation letter approval a meeting was set up with the company of choice. During this initial contact DVK stated its contemplation moving production towards Eastern-Europe. Within this context DVK requested a research into the possibilities of moving production. After a preliminary project discussion it became apparent that DVK’s plan to move production was not an option for DVK’s holding company, Doorwin.

Next to the previously mentioned project DVK was dealing with other issues which could be formed into an interesting graduation project. These issues such as reinvesting in capacity, possibilities for vertical integration and possibilities for outsourcing, appeared very appealing as research projects. However, after further consultation it became clear that no clear strategic direction was supporting these projects. Therefore a research into developing an OS, which functions as a framework for dealing with these issues, was proposed.

The lack of a current OS and the need for a framework for future operational improvements made DVK to accept the research proposal and to offer a graduation placement in their company.

Problem Definition

After providing a problem identification more thorough research was conducted in defining the problem. This problem definition, containing the main research objective and main question, provides insight in the subject of research and the desired research outcome.

Objective and main question

The main research objective is the most aggregated goal of the research; it provides insight in the relevance of the research, addressing the problem owner, the intended outcome (research product) and the importance of the research. The objective for this research is formulated as follows:

“To formulate an operations strategy which provides directions for De Vries Kozijnen’s operations and helps De Vries Kozijnen to develop their operations capabilities in order to gain sustainable competitive advantage.”

Whereas the objective sets the broader scope of the project, the main question addresses the actual problem, which will be researched. The research project therefore is intended to answer the main question. Based on the findings in the preliminary literature research, which can be found in the apprentice report, the main question of this research project is twofold; addressing both strategy process and strategy content. The third dimension, strategy context, will be addressed as an influential factor in the research and less as a designable factor. Therefore the research questions focus on strategy process and strategy content:

1. “How should the operations strategy formation process take place in order to guarantee successful embedding in the organisation?”

2. “Which content elements should an operations strategy for De Vries Kozijnen contain and

how should these elements be filled in?”

2 C ONCEPTUAL O UTLINE

The conceptual outline of this research project is partly structured by the ‘Ballentent van onderzoek’ model (De Leeuw, 2003). This model describes every aspect that should be taken into consideration in order to conduct a proper research project. The most important aspect, the problem definition, was mentioned in the previous chapter. First of all this chapter provides an introductory literature review, in which the main topics mentioned in the problem definition are explained. Secondly it provides the conceptual model with an explanation of all the model’s elements. The third paragraph deals with the sub questions derived from the main question and the conceptual model. In this paragraph sources of information, methods of data gathering and analysis are explained. The final paragraph provides the research constraints which were kept in mind during the research.

2

CHAPTER

Introductory Literature Research

Strategy is a well covered concept in business literature. In contradiction to what might be expected from this wide coverage, little consensus exists about how this concept should be filled in, let alone the existence of a clear and common definition (De Wit & Meyer, 2004).

Many opposing opinions amongst strategic thinkers exist. Examples can be found in:

Deliberateness vs. Emergence (Minzberg & Waters, 1985), Market based view (Porter, 1980) vs. Resource based view (Miller et al., 2002) and the Validity of generic strategies (Chrisman et al., 1988, Klein, 2002 and Porter, 1980). Even though many of the same differing points of view arise within OS literature, there seems to be more consensus amongst OS authors. This might be one of the reasons why OS literature tends to be more prescriptive than business strategy literature.

Operations Strategy Defined

As mentioned above, many different points of view exist concerning OS. These differing points of view are often expressed in the definition of OS given by the specific author.

Table 1 presents several definitions of OS through the history of OS literature.

Table 1: Operations Strategy Definitions

Author Operations / Manufacturing Strategy Definition

Skinner (1969)* Manufacturing strategy refers to exploiting certain properties of the manufacturing function as a competitive weapon

Hayes and Wheelwhright (1985)* A sequence of decisions that over time, enables a business unit to achieve a desired manufacturing structure, infrastructure and a set of specific capabilities.

Fine and Hax (1985)* It is a critical part of a firm's corporate and business strategies, comprising a set of well coordinated objectives and action programs aimed at securing a long term sustainable advantage over competitiors

Hill (1987)* It represents a coordinated approach which strives to achieve consistency between functional capabilities and policies and the agreed current and future competitive advantage necessary for success in the marketplace.

Swamidass and Newell (1987)* The effective use of manufacturing strengths as a competitive weapon for the achievement of business and corporate goals.

McGrath and Bequillard (1989)* The overall plan of how the company should manufacture products on a world wide basis to satisfy customer demand.

Hayes and Pisano (1994)* A manufacturing strategy specifies the kind of competitive advantage it is seeking in the marketplace and articulates how this advantage is achieved.

Swink and Way (1995)* Decisions and plans affecting resources and policies directly related to sourcing, production, and delivery of tangible products.

Berry et all. (1995)* The choice of a firm's investment in processes and infrastructure that enables it to make and supply its products to chosen markets

Cox and Blackstone (1998)* A collective pattern of decisions that acts upon the formulation and deployment of manufacturing resources. To be most effective, the manufacturing strategy should act in support of the overall strategic directions of the business and provide for competit Brown (1999)* A driving force for continual improvements in competitive requirements/priorities and

enable the firm to satisfy a wide variety of requirements.

Slack and Lewis (2002) The total pattern of decisions which shape the long term capabilities of any type of operation and their contribution to the overall strategy, through the reconciliation of market requirements with operations resources

Hayes and Wheelwhright (2005) A set of Goals, Policies, and self-imposed restrictions that together describe how the organization proposes to direct and develop all the resources invested in operations so as to best fulfil (and possibly redefine) its mission.

* Source: Dangayach and Deshmuku (2001)

13 The majority of the definitions presented in table 1 were gathered by Dangayach and Deshmuku (2001); two definitions were added to their list. Each of the authors has defined OS with a (slightly) differing emphasis. In order to get a comprehensive understanding of the concept of OS all definitions were compared, resulting in four OS key elements:

1. An OS consists of a set of decisions, goals, policies, etc. This is usually referred to as the OS Content.

2. An OS helps capability development. Each company has its own special capabilities;

with these capabilities a certain performance can be achieved. In order to have a performance which better matches demand, some capabilities need development where others may deserve less attention

3. An OS is congruent with Business Strategy. An OS never operates autonomously; on the contrary, it should always be consistent with the business strategy. This does not directly imply that the OS should follow the business strategy, it could also have a leading role.

4. An OS will help an organisation achieve competitive advantage. Achieving excellent performance is very important. The condition for this excellent performance is that it should lead to competitive advantage i.e. performing well on an element undesired by the customer will not contribute to a competitive advantage.

These four key elements form the basis of the conceptual model. Each of the elements will be elaborated more when explaining the conceptual model and discussing the element in a specific chapter.

Operations Strategy Dimensions

The two most widely used dimensions of OS are OS Process, i.e. how an OS is made and OS Content i.e. the constituents of an OS (Mills, Platts & Gregory 1995, Slack & Lewis, 2002). Besides these two dimensions Business Strategy literature distinguishes a third dimension; Context, which can be stated as the set of circumstances surrounding (OS) process and content (De Wit & Meyer, 2004). Mills, Platts & Gregory (1995) and Barnes (2002) advocate the use of this third dimension in the development of an OS. Both authors also distinguish the use of an internal and external context (Pettigrew 1990). The internal context contains influencing elements within the company (e.g. Culture, Politics, Structure, Individuals, Alternative Strategy Modes, and Stage of Firm Development). The external context contains influencing elements outside the company (e.g. Supplier Power, Buyer Power, Substitute Availability, Threat of Entry and Existing Competitors, Sociological -, Legal -, Economical -, Political -, and Technological factors). The three dimensions of OS will be discussed into depth in a more extensive literature research within the relevant chapter.

Sustainable Competitive Advantage

How to define competitive advantage? A question easier asked than answered. In literature

many different definitions exist. Rumelt (2003) summarises a number of these definitions

and concludes that current literature is unable to answer the question. This concept, which

is regarded as such an important result of an OS cannot be left unexplained. Therefore two

definitions will be used in order to give meaning to the concept. Barney (2002) views

competitive advantage as “a firm experiences competitive advantages when its actions in an

industry or market create economic value and when few competing firms are engaging in similar actions.” Whereas Besanko, Dranove, and Shanley (2000) have the following definition: “When a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market, the firm has a competitive advantage in that market.”

A sustainable competitive advantage suggests a form of dynamic, changes in markets will require differing actions in order to obtain a competitive advantage. Responding to changes in the market and triggering changes in customer requirements will contribute to a sustainable competitive advantage.

Decision Areas

The content of an OS is formed by making decisions in various subjects. These subjects are referred to as decision areas. Skinner (1969) identified two types of decisions; structural and infrastructural decisions.

Structural decisions primarily influence the physical arrangement and configuration of the operations resources (Slack & Lewis, 2002). Hayes et al. (1988) refer to structural decisions as “bricks and mortar” decisions. These decisions are often accompanied by large investments and involve extensive planning.

The second type, infrastructural decisions, influences the activities that take place within the operations structure and deal with management of the operations structure (Slack &

Lewis 2002, Hayes et al. 1988). These type of decisions often involve less capital and less planning.

Performance Objectives

The most commonly used performance objectives in literature are Quality, Speed Dependability, Flexibility and Costs (Skinner 1969, Frohlich & Dixon 2001, Slack & Lewis 2002). Slack & Lewis, 2002 provide comprehensive definitions for each of these performance objectives. These definitions are briefly discussed.

▪ Quality: Two types of quality are distinguished, specification quality and conformance quality. Specification quality can be described as the degree of resemblance between the specifications of the product and the expectations of the customer. Conformance quality can be described as the degree of resemblance between the promised specifications of a product and the realised specifications of a product (is the operations function able to realise what they promise?)

▪ Speed: The elapsed time between the start of an operation and the end of an operation.

For example the time between order acceptance and order delivery.

▪ Dependability: The difference between due delivery time and actual delivery time

▪ Flexibility: Four general types of types of flexibility are distinguished:

▫ Product flexibility: the ability to introduce and produce novel products or to modify existing ones.

▫ Mix flexibility: the ability to change the variety of products or services being produced by the operation within a given time period.

▫ Volume flexibility: the ability to change the level of operations aggregated output.

▫ Delivery flexibility: the ability to change planned or assumed delivery dates.

15

▪ Costs: any financial input to the operation that enables it to produce its products.

Definitions Concerning DVK

Most definitions concerning DVK are explained in the text, however the composition of the two most important teams at DVK, the management team and the kernteam, require special emphasis.

Management Team: The highest level of management within DVK. The Management team is lead by the Managing Director and consists besides him out of the Operations Director, the Commercial Director and the financial manager.

Kernteam: The “kernteam” is a team consisting of the key people of DVK. Besides the Management Team the kernteam consists out of the: head of purchasing, head of calculation/preparation and the office sales force, sales leader of “bouwers voor particulieren”, head of “house front elements”, production manager, project leader, head of the service department and the senior account manager. The kernteam is assigned with policy development.

Conceptual Model

An OS is not a static concept which can be developed in solitude. It is dependant of several factors inside, and maybe more important, outside the operations function of the company.

Based on the outcomes of the introductory literature research the following key research elements are identified. Figure 1 gives a representation of how these key research elements relate to each other.

Figure 1: Conceptual Model

Each of the blocks in figure 1 represent influential elements for OS formation. In order to understand how these elements influence each other and the formation of an OS, three types of analyses are conducted. The first analysis focuses on context, making a distinction between internal and external context. The purpose of this analysis is identifying relevant opportunities and threats in the market and identifying the willingness of the organisation regarding an OS. Secondly a strategic analysis is conducted determining the content of the current business – and marketing strategy, the current strategic role of operations, the interactions between these strategies, and the input function they have for OS formation.

The third analysis identifies the influential elements on an operational level and maps current capabilities and current performance.

The outcome of these three analyses forms the basis for the new OS. This OS distinguishes two parts, OS process and OS content. The first part, OS Process, deals with how DVK should adopt an OS and how ownership of the proposed OS is transferred from the third party to DVK. The second part, OS content, deals with the constituents of the OS; what is the OS deciding upon?

Both research questions cannot be answered directly since the process and content of an OS rely on many influential factors. First the nature of these elements, the relationships between these elements and the influence of these elements need to be established. Each of the influential elements will be discussed into more detail in the following sub-paragraphs.

External context

The external context is the setting outside DVK in which the OS is developed. The external context elements influence the OS directly and indirectly. Mills, Platts & Gregory (1995) propose the use of Porter’s (1985) elements of industry structure which are Supplier Power, Buyer Power, Substitute Availability, Threat of Entry, and Existing Competitors. Barnes (2002) identifies macro factors (Sociological -, Legal -, Economical -, Political -, and Technological factors) as external influential. In order to make the OS valid in its external context it should be coherent with some of the elements and opposing other elements. The external context is researched in such a way that key external context factors are identified and that their influence on the OS process and content is clear.

Internal Context

The internal context contains elements within DVK influencing OS. Mills, Platts &

Gregory (1995) mention Organisational Culture and Stage of Firm Development as influential factors. Barnes (2002) also mentions Organisational Culture and adds Political Factors and Individual Factors to the internal content. Similar to the external context it is important to identify the relevant internal context elements and their influence on OS.

Mapping these elements and responding to them will make the success of the OS more plausible.

Business Strategy

One of the key elements of an OS identified, which can be found in the preliminary

literature research, is congruence with Business Strategy. The value of this congruence of

OS with the Business Strategy was emphasised by an empirical study of Tunälv (1992)

which provided empirical support for the proposed hypothesis: “companies with a

formulated manufacturing strategy, aligned with business strategy, will achieve higher

business performance than companies without such a strategy.” A more recent study

17 amongst 700 companies (Demeter, 2003) supported Tunläv’s research. In order to develop a comprehensive OS a research into DVK’s current Business Strategy will be important.

This research will identify the goals of the company and how these goals will be met. The outcome of this research will influence the direction of the OS.

Marketing Strategy

Another key element of an OS is providing the company with a sustainable competitive advantage. In order to do so communication with the market is essential. This communication is conducted via the company’s marketing strategy. This marketing strategy a.o. provides required manufacturing performance objectives (Barnes 2002, Slack & Lewis 2002). Each of the PMCs used by DVK desire a specific set of performance objectives, Quality, Speed, Dependability, Flexibility, and Costs. These performance objectives identified in the Marketing Strategy should act a.o. as input for the required performance which an OS strives to reach.

Operations Capabilities

Operations capabilities form an important input for the OS; these depict the current abilities to act of the organisation’s operations function. Developing these capabilities is an other key element of an OS. Capability development is a disputed subject in literature, two opposing sides exist. First of all there is the resource based view (Barney, 1991), which advocates capability development as leading in an OS; “…operating capabilities dictate where strategy should go.” (Gagnon, 1999). Secondly there is a market based view, which advocates capability development following market requirements; “Companies that are better equipped to respond to market requirements and anticipate on changing conditions are expected to enjoy long-run competitive advantage and superior profitability.” (Day, 1994). A mix of both perspectives seems attractive, where capabilities are developed based on internal strengths designed to grasp market opportunities. Operations capabilities also form the basis for the earlier mentioned sustainable competitive advantage; “Customers desire and purchase product and service attributes a firm creates by deploying its capabilities” (Swink & Hegarty, 1998). Through thorough research the most important capabilities at DVK should be identified. Furthermore, it is very important to identify how these capabilities should be deployed in order to reach the desired performance.

Operations Strategy Process

The OS consists out of two dimensions mentioned earlier; process and content. The OS process describes how the OS is formed and which elements inside and outside the organisation influence the OS, therefore many of the points mentioned above are of great influence for the OS process. Depending on the outcome of the previous points a mix between a deliberate strategy and an emergent strategy (Minzberg & Waters, 1985) is determined. Acur and Englyst (2006) identified the need of three elements within strategy formation. Starting with Strategic thinking, which monitors changes in internal and external context and tries to respond to them. Then Strategic planning, which is concerned with deliberate actions and the role of management plans in the strategy formation. And finally Embedding, which ensures that the strategy will become part of the company. A research into OS process literature should provide a set of different process approaches.

Operations Strategy Content

The last key element to be discussed is a pattern of decisions, goals, policies, etc., which is

placed under the common denominator OS content. This pattern of decisions distinguishes

several areas which need to be addressed. Since its first appearance in literature (Skinner, 1969) OS Content has been divided into structural and infrastructural decision areas. A more comprehensive literature research will identify the most important decision areas and will pay attention to the content of the decision areas. When the key areas are identified they will be filled in according to the OS context and the OS process in order to fulfil the four key elements of an OS.

Sub-questions

In order to answer the main question(s) several sub-questions are generated. Answering the sub questions leads to the answer on the main question(s). The previous paragraph forms the basis of the research questions. All key research elements are addressed thereby answering these sub-questions. The sub-questions are divided into four categories starting with general sub-questions, defining the main concepts used in the research. The second category consists of questions concerning the situational analysis i.e. the current situation of DVK. Answering these sub-questions will give a comprehensive overview of the research elements External Context, Internal Context, Business Strategy, Marketing Strategy, Strategic Role, Operations Performance and Operations Capabilities.

The two following categories of sub-questions cannot be answered before the two categories above are answered. I.e. these two categories of sub-questions are required as preparation for answering the two main questions.

Thirdly there is the category OS Process addressing how, and to what extent the research elements of the situational analysis influence the formation of an OS and how this influence can be used to form a comprehensive OS. Adding to this, suitable frameworks for the OS formation process are identified in literature. The final category is OS Content, which deals with the constituents of the OS. These sub-questions help identifying relevant decision areas and help determining how these decision areas should be decided upon in order to reach the required performance.

▪ General sub-questions

▫ What is an OS?

▫ What are the dimensions of an OS?

▫ What is Sustainable Competitive Advantage?

▫ What are performance objectives?

▪ Situational analysis

▫ What is DVK’s current Business Strategy?

▫ What is DVK’s current Marketing Strategy?

▫ What is DVK’s current strategic role?

▫ How do these strategies currently interrelate?

▫ How can the external context of DVK be described?

▫ How can the internal context of the OS be described?

- How can DVK currently be characterised (structure, culture, politics)?

- How can DVK’s current operations be characterised?

▫ Which operations capabilities can be identified within DVK?

▫ How do these capabilities perform?

19

▪ OS Process

▫ What is OS process?

▫ Which elements influence the OS formation process?

▫ How should DVK respond to changes in these elements (strategic thinking)?

▫ What will be the role of management in the OS formation process and how should this role be filled in (strategic planning)?

▫ Which actions should be undertaken in order to make the OS part of DVK (embedding)?

▪ OS Content

▫ What is OS content?

▫ Which OS content elements can be identified?

▫ Which performance objectives can be identified?

▫ Which goals/performance objectives should be pursued by the new OS?

▫ Which of these OS Content Elements are relevant for DVK?

▫ How should these relevant OS Content Elements be filled in?

Constraints

The following constraints are applicable on the research:

▪ Proposals for transferring (a part of) operations activities to low cost countries (e.g.

Eastern Europe) are rejected by DVK’s holding company and therefore not an issue of discussion.

▪ The research does not enclose the implementation of the proposed OS

Sources of Information

As can be concluded from the previous paragraph, the research distinguishes four parts: The General Sub-Questions, Situational Analysis, OS Formation Process and OS Content. In some cases the three parts require different sources of information; however since they are interrelated many of the sources are overlapping. To describe the sources of information comprehensively each of the research parts will be discussed.

General Sub-Questions

The general sub-questions are intended to elaborate on the concepts used in the objective and main question(s). To clearly explain these concepts a literature research is conducted.

This literature research, and all literature research in other phases of the research, is based upon books and scientific journals.

Situational analysis

For the situational analysis both field research and desk research are applied. A literature study is conducted in order to clarify all the elements and concepts used in the situational analysis. Information on DVK’s current occupation is derived from documentation available at DVK e.g. Annual Reports, Strategy Sessions, Previous Advice Reports, Intranet, Company Handbook, etc. In addition to documentation, information is gathered by interviewing members of DVK (e.g. CEO, CFO, COO, Commercial director, Production manager, etc.). These interviews are semi-structured in order to leave space for discussion.

Information about the external context is derived from previously conducted market

researches and competitor analyses. Observation of the current situation is very important;

people often act differently than they say. When analysing current strategies and internal context it is very important to observe the actual decision-making instead of reading how decisions formally should be made.

Operations Strategy Process and Content

For the research in designing OS process and content, field research and desk research are conducted. The field research consists of filling in the blanks, which were left by the situational analysis. Again, this will be conducted via interviews and observation. Desk research consists out of a literature research and the evaluation of internal documentation similar to the documentation used in the situational analysis.

Third Party Role

Involving a third party into a research or a project can have many benefits, Saxton (1995) mentions impartiality, new approaches, and supplementing available skills as important advantages compared with performing research in-house. Three roles of importance for third party assistance in strategy development are identified (Saxton 1995). These roles are defined as: the Expert role, the Provocateur, and the Legitimiser. The Expert role of a third party is bringing knowledge, otherwise unavailable for the company, into the strategy development process. The Provocateur mainly asks difficult and/or unaccepted questions in order to challenge the status quo. The final role, the Legitimiser, is to help affirm suspicions and decisions present in the company.

Initially, the third party role within this research was seen as Expert, but due to the involvement with the company strengthened by the nature of the Talent Project the third party role was able to expand to a provocateur.

The TalentProject encourages a close relationship between a manager and a student this

relationship is also referred to as a master-apprentice relationship. In this case the master-

apprentice couple consists out of Oene Wassenaar (Master), operational director of DVK

and Justin Drupsteen (Apprentice). During the project the master-apprentice couples are

followed by researchers of the RijksUniversiteit Groningen.

3 O RGANISATIONAL

O VERVIEW

In order to place the research in a more practical context, a brief organisational overview of DVK is presented in this chapter. This organisational overview consists out of a description of the history of DVK, followed by its more current occupations. A brief description of the actual production process provides a more detailed insight in these current occupations.

This organisational overview concludes with a description of the structure of the DVK’s holding company, DVK itself and the operations function within DVK.

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History

In 1924 F.J. de Vries founded a small contracting firm under the name F.J. de Vries en zonen, which was settled in the small village of Gorredijk in the northern part of The Netherlands. During the years that followed the small company grew rapidly and gained brand awareness as “De Vries Gorredijk” throughout the northern part of The Netherlands.

During the 1950’s the conventionally manual carpenting process was processed more mechanically by De Vries Gorredijk. As a result in the 1960’s and 1970’s De Vries Gorredijk could easily fulfil the demands from the market and grew rapidly. In 1988 De Vries Gorredijk was incorporated in the British based Rugby Group, which contained several door, stairs and window frame manufacturers. In 1992 De Vries Gorredijk changed its name into its current name: De Vries Kozijnen BV. In 1999 the Dutch companies of the Rugby Group were incorporated into a new holding: Doorwin. After a reorganisation in 2003 DVK reached its current form, employing approximately 250 employees, 180 working in the workshop and 70 working as office personnel.

Current occupations

DVK is currently one of the most important players on the Dutch market for wooden door- and window frames and is considered the largest wooden frame manufacturer in The Netherlands. Besides door- and window frames DVK produces doors and elements for prefab buildings, the latter product group however forms a very small proportion of the total production. DVK distinguishes five product lines in doors, windows, frames and sliding doors: Vrigonorm, Vrigoplus, Vrigospeed, VrigoMax, and Grandeur.

The main customers of DVK are divided into two segments. “Beheerders en Beleggers”

which constitutes large new build projects and large renovation projects, and “Bouwers voor Particulieren” which constitutes smaller contracting firms building one or a small number of houses. The size of an order can therefore vary from one window to hundreds of complete framed doors and windows. The complete primary process can be found in appendix I

In general DVK transforms two types of wood into finished product, Meranti and Oregon pine. These types of wood possess different types of characteristics, which makes different treatment necessary. Per day over 2000m of rough wood is processed into semi-finished products. It generally takes nine days from start of production to the end of production.

DVK has an annual production volume of approximately 57000 frames.

Production process

As stated earlier the majority of DVK’s employees work in the workshop. This workshop is the heart of the operations function of DVK. Production of most products is divided over six departments. In order to create a finished product all unfinished products have to pass the following departments in the sequence presented below:

4. Painting department 5. Assembly department 6. Expedition

1. Raw material supply

2. Shorting department

3. “Machinery” department

23 Within these six departments two primary product flows can be distinguished: door &

window wood and frame wood. Besides these two flows there is a secondary flow of diverse products. Diverse products are used within frames or windows or doors; however they can also be used as autonomous product. Figure 2 depicts the primary flows through production.

Figure 2: Aggregated ground form primary production process

Each of the departments consists of several sub-departments performing essential operations. In order to get a more comprehensive overview of production, figure 3 depicts a more detailed overview of the essential operations in production. A complete ground form can be found in appendix II.

Raw Material Supply

This department consists of a warehousing function, which stocks incoming raw material.

The distinction in door & window wood and frame wood is already made in this raw material. This raw material enters DVK in different forms; main examples of raw material forms are: high quality full length wood, low quality full length wood, high quality welding blocks and low quality welding blocks. The first raw material example will undergo fewer operations in the raw material supply department. All other raw material will enter the selection saw, which clears the wood of its impurities. The output of the selection saw are blocks of wood varying in length from 40 cm up until 120 cm. These small pieces of wood are glued together, via finger welds, in order to create lengths of wood, this is a continuous process. In order to make drying practical the lengths of wood are sawn into smaller lengths, these lengths are already customer specific. After drying and calibration the wood enters the Shortening department.

Shortening

In the previous department, the wood is already allocated to a customer. Therefore the destination and the specifications of the wood are attached via order cards. In order to reduce waste the shortening department receives lengths of wood which are multiples from the wood required in the next department. The shortening department cuts and sorts the wood.

Machinery

Within the machinery many different operations are performed. The wood, which is still a beam with the right length, is milled in its right shape. First the wood is shaped lengthways and second the “head” of the wood is shaped. After this the holes are drilled and the bars of the frames receive a connection pin. The upper and lower thresholds are only drilled. After the machinery the bars and thresholds are moved to sub-assembly.

Sub-assembly

The sub-assembly transforms bars, an upper - and a lower threshold into a frame. This

process is partly manually performed. The sub-assembly also prepares the frames for the

painting department by adding metal hooks to them. These metal hooks connect with a complex railway system connected to the ceiling of the factory.

Painting Department

The frames connected to the railway system travel through a painting “street” which stretches throughout the full length of the factory. Within this painting street the frames are grounded, dried, painted and dried again. After this process the painted frames arrive in a large buffer prior to the assembly department.

Final Assembly

All “turning elements” e.g. windows and doors arrive at a separate pre-assembly space. At this pre-assembly door and window furniture is added. At the final assembly all pre- assembled, painted and bought elements (e.g. glass, rubber, ventilation elements) are gathered and assembled. After assembly the finished products are moved to expedition.

Expedition

The final processes can be found in expedition. The finished products covered in plastic sheet, marked stacked on pallets and moved outside. Due to the current expedition procedures finished product sometimes have to be unpacked and restacked. Expedition is also responsible for order picking and transportation to the customer.

Figure 3: Overview of process steps DVK

Organisational Structure

Three types of organisational structures will be discussed, the Doorwin holding structure, the general organisational structure of DVK and the structure of the operations function.

Doorwin Holding

In 1988, The Rugby Group took over several window, door and staircase manufacturers in

the Netherlands. The growing demand for owner-occupied housing in the 1990’s and the

ever-higher demands on the part of the customers were met by the group by modifying its

factories, product innovation, clear and balanced product concepts, expansion of production

and measures benefiting the environment. The Dutch division of The Rugby Group became

market leader. By 1999 Rugby has been changed into Doorwin, a fully independently

operating holding company. Doorwin is the largest Dutch company specialized in the

production and sales of window-frames, doors and windows. The Doorwin holding

company comprises sixteen specialized companies with about 2500 employees. The

structure of Doorwin is depicted in Appendix III

25 De Vries Kozijnen

DVK consists of three main functional departments; Operational, Commercial and Financial. The directors of these three departments, together with the managing director form the management team of DVK. All functional departments are divided into several sub-departments as shown in the schematic representation (figure 4). DVK’s organisation knows only a few hierarchical levels which enables short and direct communication lines.

The most hierarchical department is the Operations department, which will be described more detail in the following paragraph. Cross-functional teams compiled out of all hierarchical layers are very common at DVK. Many projects are led by these cross- functional teams.

Figure 4: General Organisational Structure DVK Operations Department

The operations department consists out of three main sub-departments as shown in figure 4.

However, when looking at a more detailed level, departments are made up according to their place in the primary production process. When comparing figure 4 with figure 5 it becomes apparent that the department production (in figure 5) consists out of four functional departments; Machinery and Sub-assembly, Assembly, Wood Supply, and Painting. The second department in figure 4; Logistics, is positioned as a sub-department of Assembly. The sub-department Project Management retains its position in both views.

Figure 5: Structure Operations Department

4 C ONTEXTUAL A NALYSIS

Throughout literature authors emphasise the importance of achieving a fit amongst strategy process, content, and context (De Wit & Meyer 2004, Mills et al. 1995, Barnes 2002). Two opposing approaches of strategy context are elaborated; the context can be determined by a strategy or the context determines the strategy. Each chosen path requires identification of the most important factors out of which the context is built. Pettigrew (1990) distinguishes two types of context, external and internal. The external context deals with factors outside the company whereas the internal context deals with factors inside the company. Returning to the context approach, obviously the internal context is more susceptible to be determined by the strategy than the external context.

This chapter identifies the factors influencing OS process and content which can be found in the external and internal context. Fundamentally the elements Business Strategy, Marketing Strategy and Operations Capabilities can be seen as internal context elements, these elements however are not discussed in this chapter, they are discussed more comprehensively in the following chapters. This chapter concludes with a summary of the contextual implications.

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27 External Context

The external context contains all factors influencing OS process and content found outside DVK. Describing the external content elements comprehensively will result in an excessive amount of information. Therefore only the most important categories are discussed. Two approaches are proposed in literature, identifying macro elements and identifying the industry structure. First of all the macro elements are briefly discussed. Pettigrew (1990) identifies four important macro elements: Economical, Social, Political, and Sectorial factors. Stock & Lambert (2001) use a more comprehensive list containing Social, Legal, Economical, Political and Technological factors (SLEPT). Secondly a set of strategic influencers will be discussed more into depth. Mills et al. (1995) suggest to use five environmental elements: Supplier Power, Buyer Power, Substitute Availability, Threat of Entry, and Existing Competitors (Porter, 1985) as strategic influencers.

Macro elements

In order to be brief, only the opportunities and threats caused by these macro elements will be discussed. Table 2 presents the possible influences of macro elements. This list is not exhaustive and further research is required into macro influencers.

Table 2: Macro influencers (sources: CBS, DVK Strategy Manual)

Social Economical Political Technological

Opportunities

Economical growth in the Netherlands (2,9% in 1st quarter 2006)

Policy in increasing newly built houses

RFID

Increasing Consumer Trust

Increasing Producers Trust

Increasing market volume

Threats

Request for FSC wood Downwards trend in completed newly build houses

Ongoing discussion on removing mortage interest deduction

Improved Extrusion techniques to make frames out of plastics more attractive

Lowering EPC to 0.8 Building business will be

more focussed on

lowering costs

The request for FSC wood is growing rapidly, FSC wood is only produced by a small number of suppliers. In the current sellers market (see supplier bargaining power), a reduction of potential suppliers will lead to more power to these few suppliers. This reduces DVK’s bargaining position. This reduced bargaining position could lead to reduced dependability and flexibility, and increasing costs. Since FSC is not a quality certificate but a certificate for responsible timber, quality can be a reduction in quality is possible.

Economical growth and increasing trust in the Dutch economy combined with an increasing market volume for door and window frames, and the policy of the Dutch government of increasing the number of newly built houses can lead to an increase in customers and therefore sales. However the downward trend in newly built housing and the ongoing discussion on removing interest reduction contradict these positive macro influencers.

Further research in these macro influencers is required.

The building business is more and more focussed on costs, whereas the lowering of the

EPC (Energy Performance Coefficient) will increase the costs of DVK’s product. This

threat can be converted into an opportunity when DVK focuses more on increasing value instead of lowering costs.

Identifying specific frames in production is often difficult. With RFID (Radio Frequent IDentifcation) technology, performance measurement and after sales service can be increased and simplified.

Improved techniques for plastics extrusion make plastic more and more attractive as a substitute for wood. When technology has reached a point where quality and appearance of plastic frames equal those of wooden frames, and the costs involving plastic frames is far lower. The market for wooden frames will decrease rapidly.

Supplier bargaining power

DVK Distinguishes two types of suppliers: raw material suppliers (wood) and purchase part suppliers (glass, rubber strips, aluminium profiles, door and window furniture, etc).

DVK uses two types of wood in its production process: Meranti and Oregon Pine. Meranti is bought via an agent of the Doorwin group, who purchases for all Doorwin daughter companies to achieve economies of scale. For Meranti, which is bought in Indonesia a sellers market exists. Due to the scarcity of this wood both suppliers and the Indonesian government are aware of their position. The current trend is that no wood leaves Indonesia without being processed. This results in so called “government grooves” which means added value in Indonesia and added unwanted costs for DVK. Switching supplier is not possible, due to the fact that the actual supplier is DVK’s holding company. For Oregon Pine, which is bought directly from Canadian sawmills also a sellers market exists. Not due to government regulations but due to the relative small amounts of wood with special specifications which is purchased. Switching suppliers is possible and currently a team of DVK is examining the possibilities of switching to smaller sawmills in order to reduce supplier power.

For purchase parts DVK has more close relationships with its suppliers. In many cases DVK is co-developer of the mould (for aluminium profiles, rubber strips and, door and window furniture). Since all products produced for DVK with these moulds are DVK- specific and in relatively large quantities, DVK is an important customer, which could prove expensive to lose, therefore supplier bargaining power is reduced. On the other hand switching costs are very high, since DVK does not own the moulds, which enhances supplier bargaining power.

Buyer bargaining power

DVK offers products to two segments “Beheerders en Beleggers” and “Bouwers voor

Particulieren”. Within the first segment large quantity orders are placed (5-100 houses),

while within the latter segment small quantity orders are placed (1-5 houses). Due to the

economies of scale buyers in the first segment have more bargaining power compared to

buyers in the latter segment. However, due to the relative low total demand, DVK is often

forced to compromise in order to obtain the customer’s order; each order is needed to fill

the factory. Many customers of DVK actively chose for the material wood, because of the

feeling they have with this material, therefore the propensity to use a substitute is relatively

low.

29 Substitute Availability

The availability of substitutes is mainly found in the used materials and the applied techniques. Two main substitute materials exist: Aluminium and Plastics. Both materials have better production specifications with smaller tolerances. Furthermore they are less subject to moist, which can cause many problems in wooden products. With these benefits one should think that wood stands no chance anymore against its substitutes. However the positive feeling wood raises with people is still a major influential factor in the choice for wood over its substitutes.

Substitution also can be found in the different techniques used. The technique of DVK’s frames is moist ventilation, where others make use of moist prevention. Furthermore DVK uses rubber connections whereas others tend to use silicone. These are minor differences and not many customers will acknowledge these differing approaches as vitally important.

Currently prices of wooden frames and its substitutes are still comparable, however with new techniques and technology prices of substitutes will decrease, this will be for the worse of DVK’s products.

Threat of entry

Threat of entry can occur from several angles: downstream vertical integration of suppliers, upstream vertical integration of customers or completely new entrants to the market. Both downstream and upstream vertical integration will not form an immediate threat for DVK since the absolute cost advantages for this kind of new entrants are low. The same can be said for starting companies in the frame business.

A more immediate threat are producers from foreign countries, especially German manufacturers. Currently their system is not suitable for the Dutch market, however with a few modifications the German system will be.

Existing competitors

DVK is very hard to compare with other wooden frame producing companies. Where other companies follow the so-called KVT (translated: Quality for Carpentry work) standards, DVK has developed its own standard. Many competitor actions are performed within this KVT whereas DVK is not constrained by KVT. DVK is by far the largest wooden frame producer in The Netherlands; existing competition does not come from wooden frames but from substitutes described earlier.

Internal Context

The internal context contains all factors influencing OS process and content found within

DVK. Internal context elements influence OS process and content greatly, due to the fact

that they contain the behaviour of and relationships between individuals forming and

working with the OS. Pettigrew (1990) mentions three internal context elements (structure,

culture and politics) influencing processes of change within a company. Mills et al (1995)

adopted two of these three elements; culture and politics using them in their framework for

OS formation. Barnes (2002) ads individual elements to this list, these individual elements

will be discussed within the two first elements. The third element of Pettigrew will be

discussed in OS content as an OS decision area.

Organisational Structure

In chapter three, two figures clearly depict DVK’s formal structure. This formal structure contains all official tasks, responsibility, functions, relationships, etc. However, currently this formal structure is not as formal as it seems. For example the formalisation of the primary process (Appendix I) took place during the period of this research. Establishing the content of the different functions within DVK is scheduled to be finished after completion of this research. Many processes within DVK lack formalisation, few functions have clear boundaries, and procedures fail to be followed.

With a weak formal organisation, the influence of organisational culture on day to day operations is higher than with a strong formal organisation. This is not necessarily a negative issue. However when the organisational culture knows habits negatively influencing organisational performance, it is very unlikely that the formal organisation is able to undo the negative effects of these habits.

The formal organisation forms a basis for new employees, when this formal organisation is weaker than the informal organisation, new employees tend to adopt the methods of other employees (socialisation) and therefore enhancing the influence of the informal structure.

Organisational Culture

Organisational culture is an intangible concept extensively covered in literature. A classification method still used currently is the classification of Ouchi (1980). He advocates three types of organisational cultures; Bureaucracy, Market and Clan cultures. Kerr and Slocum (2005) made a list of characteristics for the latter two cultures. This list can be found in appendix IV.

When comparing the observations done at DVK with the characteristics of a clan culture a strong resemblance occurs. DVK can be described as a company with long respected traditions and style, employing people who take pride in their job and are committed to DVK and their colleagues. Research on the interrelationship between organisational culture and OS (Bates et al., 1995) concluded that successful implementation of an OS would benefit the most from a clan type of culture.

In short it can be said that DVK has the right culture to adopt an OS, nonetheless some pitfalls can be identified. First of all the commitment to DVK is expressed by long term employee engagements, which could cause an unwillingness to change (a “we’ve always done it this way, why change?” mentality). The second pitfall is the tendency to start of very enthusiastically with improvement projects, however after several weeks or months the project seems to get less priority and a new project is started. The third pitfall is the operational pressure. Due to structural problems much of the management time is consumed with operational issues and long term issues remain untouched. These three pitfalls should be kept in mind when designing an OS.

Politics

As in every organisation, politics can be found throughout DVK. However due to the “flat”

organisation of DVK and the informal contacts within DVK these politics are reduced to a

minimum. Observations inside and outside the boardroom led to the conclusion that many

decisions were made transparently. In other words, people at DVK do what they say they

are planning to do.

31 Contextual Implications

As mentioned before external and internal context are very important influencers. The external context partly influences the content of the OS whereas the internal context influences the process of forming an OS and the process of implementing an OS.

The OS content should reduce supplier bargaining power, especially for raw materials. It should also focus on partnership relations in order to maintain or increase purchase part and raw material quality. In order to remove “static”, caused by small customers placing low quantity orders with differing specifications, out of DVK’s production it is important to reduce buyer bargaining power. Threats from substitutes, new entrants and existing competitors should be neutralized by giving the customer best value for money, emphasising positive associations customers have with the material wood.

The internal context of DVK has both positive and negative effects on forming an OS and implementing an OS. The present clan culture will enforce the OS formation process due to the positive attitude towards the improvements accompanied by the OS. On the other hand the reserved attitude toward change can negatively influence the OS formation process and even more the OS implementation.

DVK’s organisation can negatively influence the formation and execution of an OS.

Executing long term plans requires a structured approach, this is currently lacking within

DVK. Changing the organisation in order to make it support structure and formalisation is

an important issue.

5 S TRATEGIC A NALYSIS

OS development is dependent on many elements; two important elements are business strategy and marketing strategy (Menda & Dilts 1997, Ward 2000, Barnes 2002). First of all this chapter identifies the most important characteristics related to OS of both marketing strategy and business strategy. Secondly characteristics of the current OS are discussed and the strategic role of operations within DVK is determined according to the four-stages model (Hayes & Wheelwright 1985). Finally, the Strategic implications are discussed.

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