Designing an Operation Part 1

Comment: This is the seventh post in an Operations Management series.  We have looked at the 4M's, focus areas, and set a scenario. In this post, we want to discuss the basics of designing an operation and will now begin to develop the operational design structure.  The idea is to draw on the concepts  from this as restructuring the overall operation can be a challenge. Nonetheless, I will present this as an overall design restructure.

Designing an Operation Part 1: Discussion

The problem statement for designing an operation for sustainability and adaptability begins with environmental conditions in which there is a high degree of uncertainty due to political, social, and economic instability. In the scenario, inflation has set in causing available cash and disposable incomes to be down as personal debt has dramatically increased impacting sales. Competitive political ideologies stoked by wild voter swings between political parties in the past has created uncertainty regarding social programs and taxation in the near future following the upcoming elections. Finally, high unemployment and layoffs have driven operating cost up as companies pay for social programs such as unemployment insurance and severance packages. Traditional business models and designs are not working effectively due to the extreme volatility. A new way of thinking is necessary in order to handle the complexity, change, and uncertainty. Thus, the problem statement is that given the complexity, change, and uncertainty that is pervasive for the foreseeable future how does one structure the company operations for sustainability and adaptability?

Sustainability is character quality of a durable business that withstands environmental conditions and remain operationally viable through the emergent events. This is not the socio-political notion of sustainability that involves renewable natural resources and quality-of-life concerns. Although there are some cross effects that do occur. Adaptability is the ability to adjust operations to the emergent conditions quickly without loss of continuity or sustained operations during the adjustments. If adaptability is applied well then there will be little adjustment impact on the operations. For example, adaptability could be thought of as the speeding up or slowing down of a production line as well as well the addition or shutdown of parallel production lines.

The trick is not to formulate long term strategies and commit the organization's capital to a design that cannot be changed without impacting the operations. A savvied operations manager will understand how the business operates and design systems that conform to a scalable and pliable operation. For companies with huge capital investments, routine turnover, and substantial brick-n-mortar operations this is a little more challenging but not impossible. The key metrics are capacity, capability, and latency.

Capacity is an organizations volumetric measure of production and reserve to absorb variability. Capability is an organization's ability to perform specific kinds of work. Latency is the measure of how long it takes the organization to react and institute a solution to emergent conditions once identified. These three measures are essential to developing a sustainable and adaptive organization.  Of course, there are innumerable other sub-factors that affect and limit the pliability of an organization.  The overall idea is not to identify all the factors and have contingency plans for every possible outcome. The focus should only be on the high level metrics of capacity, capability, and latency which tend to wrap up in them most of the factors.  Applying system design behavior is more important than individual contingent solutions.  

Two factors of interest are turnover and reserve.  Turnover of labor can have significant impacts on  organizational efficiency as variation in the labor force impact capacity and capability as well as learning curves impact latency. Reserve is on hand capacity such as overtime and capability that can be called on when required. For example, reserve capability is a contract to respond to certain conditions when they emerge.  Unfortunately, reserves cost money and need to be managed closely. For example, reserve capability is often held on retainer, a carrying cost, which commits capital to the capability even though it is not in use. Relying on finding a resource to contract whenever needed has a lot of risk associated with it but does free up capital. The challenge is to assess the risk and determine the lowest risk most responsive solution.

With the scenario and background in mind, I would like to turn attention to designing an operation for sustainability and adaptibility by managing capacity, capability, and latency in interesting ways within the organizational design.

Organizational Design

The idea is to structure the business around a core element with scalable operations that expand and contract in response to emergent conditions.  We will begin the approach by considering military methods of combat survivability.  Expeditionary forces often design around a small organic element then compartmentalize larger organizational designs around that structure.  Essentially, the war is fought by a small group that varies the organizational structure around the core element.  The military generally looks at large blocks of troops and equipment then moves them around in support of the core element efforts.  We will want to change this to functional blocks and/or nodes that perform specific organizational tasks instead and draw on complex adaptive systems concepts such as polymorphisms in lieu of maneuverability.

Complex Adaptive Systems, CAS, can be either a supervised or self organizing nodal network. The nodes have bounded connections that vary in tension from loosely connnected to rigidly connected. The connection between nodes has both a virtual and a logistical channel. The virtual channels are purposed for information exchange requirements, IERs. The logistical channels are purposed for materiel, equipment, and/or  labor movements. The node, itself, is an encapsulated organizational element having all the necessary labor and tooling to perform its intended functions. The node recieves inputs of raw materials, information, money, etc... and delivers outputs as products or services.  All the nodes and channels operate in synergy to deliver the finished goods or services.

A closer look at the node reveals several character qualities. The first is scalability. A node can represent an entire organization, department, or elements within a department. Encapsulation is another node quality as a node, in its most basic form, represents a specific function or commonly grouped processes that cannot be broken down further without loosing its ability to perform the intended function. This quality is known as irreducible complexity.  Nodes can move and change connections to other nodes as emergent conditions require organizing newer structures relatively quickly. This quality is known as polymorphism.  Hence, the network has a supervised or self organizing quality.

In the end state, the basic organizational structure for an operation is essentially a scalable nodal network of encapsulated processes and procedures or methods. In the next post, we will explore this design structure looking at how it applies to business operations as well as the impacts on capacity, capabilities, and latencies. Ultimately, we will wrap up this series demonstrating how this structure can support sustainability and adaptability.

Please join us for the next post.