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Part One
Introduction
services are shown, a taxi and a bus service. Each essentially provides the same basic service,
but with different objectives. The differences between the two services are clearly shown by
the diagram. Of course, the polar diagram can be adapted to accommodate any number of
different performance objectives. For example, Figure 2.11(b) shows a proposal for using a
polar diagram to assess the relative performance of different police forces in the UK. 9 Note
that this proposal uses three measures of quality (reassurance, crime reduction and crime
detection), one measure of cost (economic efficiency), and one measure of how the police
force develops its relationship with ‘internal’ customers (the criminal justice agencies). Note
also that actual performance as well as required performance is marked on the diagram.
Trade-offs between performance objectives
There can be a trade-off
between an operation’s
performance objectives
The efficient frontier
Earlier we examined how improving the performance of one objective inside the operation
could also improve other performance objectives. Most notably, better quality, speed, dependability
and flexibility can improve cost performance. But externally this is not always the case.
In fact there may be a ‘trade-off ’ between performance objectives. In other words improving
the performance of one performance objective might only be achieved by sacrificing the performance
of another. So, for example, an operation might wish to improve its cost efficiencies
by reducing the variety of products or services that it offers to its customers. ‘There is no such
thing as a free lunch’ could be taken as a summary of this approach. Probably the best-known
summary of the trade-off idea comes from Professor Wickham Skinner, who said:
‘most managers will readily admit that there are compromises or trade-offs to be made in
designing an airplane or truck. In the case of an airplane, trade-offs would involve matters
such as cruising speed, take-off and landing distances, initial cost, maintenance, fuel consumption,
passenger comfort and cargo or passenger capacity. For instance, no one today can
design a 500-passenger plane that can land on an aircraft carrier and also break the sound
barrier. Much the same thing is true in [operations]’. 10
But there are two views of trade-offs. The first emphasizes ‘repositioning’ performance
objectives by trading off improvements in some objectives for a reduction in performance in
others. The other emphasizes increasing the ‘effectiveness’ of the operation by overcoming
trade-offs so that improvements in one or more aspects of performance can be achieved without
any reduction in the performance of others. Most businesses at some time or other will
adopt both approaches. This is best illustrated through the concept of the ‘efficient frontier’
of operations performance.
Trade-offs and the efficient frontier
Figure 2.12(a) shows the relative performance of several companies in the same industry
in terms of their cost efficiency and the variety of products or services that they offer to
their customers. Presumably all the operations would ideally like to be able to offer very high
variety while still having very high levels of cost efficiency. However, the increased complexity
that a high variety of product or service offerings brings will generally reduce the operation’s
ability to operate efficiently. Conversely, one way of improving cost efficiency is to severely
limit the variety on offer to customers. The spread of results in Figure 2.12(a) is typical of an
exercise such as this. Operations A, B, C, D have all chosen a different balance between variety
and cost efficiency. But none is dominated by any other operation in the sense that another
operation necessarily has ‘superior’ performance. Operation X, however, has an inferior
performance because operation A is able to offer higher variety at the same level of cost
efficiency and operation C offers the same variety but with better cost efficiency. The convex
line on which operations A, B, C and D lie is known as the ‘efficient frontier’. They may
choose to position themselves differently (presumably because of different market strategies)