You are on page 1of 16

OM5 C4 IM

OM5 Chapter 4: Operations Strategy

Discussion Questions

1. Select a business with which you are familiar and identify examples of customers
using search, experience, and credence quality to evaluate the good or service. You
might also look up the businesses on the Internet or visit the library.

This question allows students to apply the concepts to their own purchasing decisions
and helps them understand the nature of goods and services. Ask them how the shop
for and make a decision to buy a PC, furniture, vehicle, hair cut, doctor, concert,
sporting event, etc. and frame the discussion using search, experience, and credence
qualities. As students present their examples ask them, What is easier to evaluate?
Can it be evaluated at time of purchase? See Exhibit 4.1 and power point slide.

2. Select a business with which you are familiar and identify examples of order
qualifiers and winners. You might also look up the businesses on the Internet or visit
the library.

For goods-producing businesses often the order qualifier is physical goods quality
while innovation, time, price (cost), flexibility or service quality are the order winners.
Whats the order winner for IBM or Caterpillar? Service! After sale services and
consulting over the customer benefit packages life cycle is the order winner and
normally have higher gross margins than the physical goods.

3. Explain the interlinking model of quality and profitability (Exhibit 4.2). How does it
connect to business and operations strategy? Can you provide any examples of goods
and services that support and add credibility to this model?

The value of a good or service in the marketplace is influenced by the quality of its
design. Improvements in performance, features, and reliability will differentiate the
good or service from its competitors, improve a firm's quality reputation, and
improve the perceived value of the customer benefit package. This allows the
company to command higher prices and achieve an increased market share. This, in
turn, leads to increased revenues that offset the added costs of improved design.
Improved conformance in production leads to lower manufacturing and service costs
through savings in rework, scrap, and warranty expenses. The net effect of improved
quality of design and conformance is increased profits. That is, both external and
internal performance contributes to higher profitability.

4. Is it possible for a world-class organization to achieve superiority in all five major


competitive prioritiesprice (cost), quality, time, flexibility, and innovation? Explain
your reasoning.

Generally not, as tradeoffs usually exist among these priorities. For example, Dell
competes on quality, time, and flexibility, and therefore mass customization.

1
OM5 C4 IM

However, Dell is not particularly a technology innovator or even a low cost producer.
Recently it has had problems with call center service quality. Some fast food
restaurants focus more on cost and time at the expense of flexibility. However, many
firms today, such as IBM, Southwest Airlines, Procter & Gamble, Siemens, and
Vanguard Mutual Funds are building capabilities in all of these areas in order to
establish leadership superiority in their markets and meet the diversity of customer
needs. A pure information intensive service such as Monster.com or Facebook might
be the exception where most of the competitive priorities can be achieved.

5. Why is sustainability a strategy and not a competitive priority? Explain your


reasoning.

Competitive priorities represent the strategic emphasis that a firm places on certain
performance measures and operational capabilities within a value chain. Time, cost,
quality, flexibility, and innovation are the five competitive priorities defined in the
chapter. Strategy is a pattern or plan that integrates an organizations major goals,
policies, and action sequences into a cohesive whole. The direction an organization
takes and the competitive priorities it chooses are driven by its strategy. Basically, a
strategy is the approach by which an organization seeks to develop the capabilities
required for achieving its competitive advantage.

Sustainability is defined in previous chapters using three dimensions


environmental, social, and economic sustainability. Stakeholders such as the
community, green advocacy groups, or the government drive environmental
sustainability. Social sustainability is driven by ethics and human ideals of protecting
the planet and its people for the well being of future generations. Economic
sustainability is driven by shareholders such pension funds and insurance companies.
Therefore, sustainability is an organizational strategyit is broader than a single
criterion (i.e., a competitive priority). Sustainability requires major changes in the
culture of the organization (see box on General Electric).

Problems and Activities

1. Research and write a short paper (two pages maximum) about your cell phone
provider. What are their mission, strategy, and competitive priorities? How is
sustainability incorporated into their strategy, value chain, and operations?

The corporate web sites for Verizon, AT&T, Sprint, etc. offer much information on
these topics including annual reports. Discarded cell phones, tablets, and PCs are
major sustainability issues (reverse logistics in Chapter 9).

2. What might the competitive advantage be for each of the following companies?
a. eBay
b. Southwest Airlines
c. Starbucks
d. Apple
e Facebook

2
OM5 C4 IM

Competitive advantage denotes a firms ability to achieve market and financial


superiority over its competitors. (cost/price, quality, time, flexibility, innovation)

Some possible responses:


a. eBay flexibility, technology (innovation), worldwide market reach, self-service
and self-reporting of quality levels
b. Southwest Airlines low price (cost), only one type of plane to reduce
maintenance, training, and repair costs; workforce behavior and loyalty
c. Starbucks value of convenience (service quality), product quality, flexibility
(customization), good service if fast processing time, cost/price is lowest ranked
competitive priority
d. Apple product design and innovation, ability to charge higher prices
e. Facebook service quality, flexibility and independence, social network, on-
demand service (time), innovation

Our top priority judgment is in italics but the true purpose of the question is to discuss
several competitive priorities, pros and cons.

3. Choose an organization with which you are familiar that falls into one of the
following categories:
sporting goods store
haircut salon
college bar or restaurant
pizza business
a sports team
wireless telephone service

Define the firms strategic mission, strategy, and competitive priorities. What are the
order qualifiers and winners? What would operations have to be good at to make this
a successful business or organization?

The objective of this question is to get students to think about and discuss strategy,
mission statements, order winners, the role of operations and operational capability,
and so on. OM must be good at things like capacity management, managing multiple
sites, scheduling, service encounter design and management, controlling costs,
process design and day-to-day execution, and so on. Web sites provide this
information usually in their corporate link.

4. Research and explain the logic behind the statement, General Electric discovered
that 75 percent of its manufacturing costs are determined by design.

Design drives material and component purchasing requirements, processing and


assembly equipment needs, and other resources needed to produce the good. A small
change in design may require a large and costly change in operations. This is one
reason some firms, such as Federal Express, Apple, Marriott, Disney, McDonalds,

3
OM5 C4 IM

and General Electric, spend so much time and resources on product and process
design. Historically, Japanese automakers championed this excellence in design
first practice.

5. How does a package delivery service such as UPS or FedEx use the competitive
priority time to its competitive advantage? Research, then explain and provide
examples in a short paper. (Maximum of two typed pages).

Go to www.fedex.com or Google it and your students will have plenty of material to


write a paper on. FedEx competitive priorities are inherent in the following:

Economical - Our rates are among the most cost-effective for ground shipping.

Comprehensive - We offer delivery to every address in the 48 contiguous U.S. states within 1 to 5
business days based on the distance to the destination (delivery to Alaska and Hawaii in 3 to 7 business
days).

Easy to track - Learn about all the available options for tracking the status of your shipments.

Reliable - FedEx Ground service in the U.S. is supported by a money-back guarantee.* If your package
does not arrive by the end of the scheduled delivery day, FedEx Ground will credit or refund the shipping
charges.

Managing time is their businesspackage delivery, meeting customer promise


dates and times, instantaneous tracking and status of packages, customer access to on-
line Fed Ex web sites, and so on.

6. How does Wal-Mart use the competitive priority cost to its competitive advantage?
Research, then explain and provide examples in a short paper (maximum of two
typed pages).

A good place to start is --- http://walmartstores.com/

Students may draw the supply chain and discuss how retail point of sale capability
tied to factories, supplier cooperation, Wal-Mart trucking and GPS, cross-dock
warehouse load and unload operations, and RFID enable their supply chain to be fast
and on-time (reliable). Outsourcing and supplier discounts for huge order sizes give
Wal-Mart much power in the global supply chains. Competitors such as Target,
Safeway, and Costco have copied many of their methods and practices so Wal-Marts
competitive advantage has diminished.

7. How does Procter & Gamble use the competitive priority quality to its competitive
advantage? Research, then explain and provide examples in a short paper (maximum
of two typed pages).

Go to www.pg.com or Google it and your students will have plenty of material to


write a paper on. One P&G quality management story is as follows:

4
OM5 C4 IM

P&G Arabian Peninsula, which produces a wide range of premier products that
improve consumers' daily lives, today announced that its plant in Dammam, Saudi
Arabia has received the P&G Global Quality Excellence Award. One of P&G's
highest accolades, this award is presented to Manufacturing and
Research/Development sites that meet rigorous excellence criteria.

The Dammam Plant is a multi-category site where a variety of well-known Dry


Laundry, Hair Care, Dish Care and Fabric Enhancer Products are manufactured. It
has demonstrated a consistent and exceptional commitment to quality while
optimizing cost delivering millions in cost savings over the past four years while
improving productivity by over 30%.

The P&G Quality Excellence Award recognizes sustained excellence in quality


performance and requires at least two consecutive 100% Quality Assurance
Capability scores demonstrating high quality systems and execution, as well as zero
'significant quality incidents' (SQI) for more than two years. The Dammam plant has
recorded zero SQI's for an impressive nine years.

In addition, Quality Excellence Award recipients must meet or exceed Category


Product Quality targets for four consecutive quarters, implement strong internal and
external product quality measures, and demonstrate an active 'Quality Culture.'

P&G Arabian Peninsula applies innovation, customer service and strict product
quality and safety to all aspects of its business. It also strives to continually improve
the lives of individuals in the local community through sustainable corporate social
responsibility efforts.

Also notice the link between quality management and sustainability for this
international factory.

8. How does your cell phone provider use the competitive priority flexibility to its
competitive advantage? Research, then explain and provide examples in a short
paper (maximum of two typed pages).

The corporate web sites for Verizon, AT&T, Sprint, etc. offer much information on
these topics including annual reports. The main and unbelievable way to add
flexibility to the customer benefit package represented by a cell phone is the
millions of apps that accompany modern cell phone service. Ask students to
provide examples of what the apps can do!

9. How does General Electric use the competitive priority innovation to its
competitive advantage? Research, then explain and provide examples in a short
paper (maximum of two typed pages).

A good place to start is --- http://www.ge.com/

5
OM5 C4 IM

GE is supporting several new technologies such as film lighting (manufactured on


newspaper presses in sheets) and green innovations of all types.

10. Explore the Web sites for several competing companies on the Fortune 500 list.
Based on the information you find, on which competitive priorities do these firms
appear to focus? What can you say about their operations strategy (either explicit or
implied)? Report your findings in a short paper (maximum of two typed pages).

Good sources of information include annual reports and news articles from magazines
such as Fortune, Business Week, and Fast Company.

11. Research and write a short paper on a company that has a clear strategy based on
social and ethical sustainability.

The chapter write-up on sustainability at McDonalds is a good benchmark for what


you should expect from students. Companies you might suggest to students that they
will be familiar with include cell phone firms, restaurant chains, hotel chains, airlines,
health care and hospital systems, and web based virtual stores like Nike, Zappos, and
eBay. And, of course, goods-producing firms in manufacturing, forestry, mining,
fishing, construction, and farming.

12. Apply Hills strategy framework to one of the companies in question 2. This will
require research to identify corporate objectives and competitive priorities. See the
McDonalds example in the chapter for guidance and make sure that you emphasize
OM concepts, capabilities, and execution. Report your findings in a short paper
(maximum of two typed pages).

This question is designed to force students to think independently and apply the
principles in this chapter. This question might best be assigned to small teams or as a
project. Responses to this question should be limited to no more than 1 to 5 typed
pages by the instructor. A short 5-15 minute in class student or team presentation is
also a possibility for this question. Remember to highlight OM issues to help
students understand how OM contributes to the overall mission and strategy of the
firm. Facebook and eBay would be interesting organizations to use for this question
and challenge the students.

13. Identify two competing organizations (for example, AT&T and Verizon, Taylor Made
and Callaway golf club manufacturers, or Starbucks and McDonalds). Explain the
differences in their missions, strategies, and competitive priorities, and how their
operations strategies might differ. Use the Internet or business magazines to research
the information you need. Report your findings in a short paper (maximum of two
typed pages).

Taylor is more innovation (design) and flexibility (customization) while Callaway is


more minimize cost and production efficiency, and standardization for the average
golfer. Students will provide a wide range of examples. The instructor may want to

6
OM5 C4 IM

have teams present their comparison during class using no more than 1 to 3 overheads
or power point slides. Typical firms include: Apple versus Microsoft, United
Airlines versus Southwest Airlines, McDonalds versus Wendys, Amazon versus
eBay, Hyatt Hotels versus Motel 6, Honda or Toyota versus General Motors, Apple
versus Dell, Harvard Business School versus your business school, and so on.
Students may select local organizations that they are familiar with and that is fine
Students may not have the background to compare major corporations. Note that the
question does not require the student or team to use Prof Hills framework.

14. Research Apple and define its strategic mission, vision, corporate strategy,
competitive priorities, and operations strategy. What can you say about Apples
strategy and practices regarding sustainability? You might use the Internet or visit the
library. Report your findings in a short paper (maximum of two typed pages).

A good place to start is --- http://www.apple.com/investor/


And, of course, a simple Google search on topics of interest.

15. Using the information about Pals Sudden Service provided in this chapter, apply
Hills generic strategy framework in a similar fashion as the McDonalds example.
How do the strategies of Pals and McDonalds appear to differ? What differences
exist in their operations strategies and decisions? Report your findings in a short
paper (maximum of two typed pages).

The objective of this question is to help students learn Prof. Hills strategy framework
using a business they are all familiar with--fast food. Exhibits 4.3 and 4.4 and the
subsequent text discussion summarize the application of Hill's strategy framework to
McDonalds global business. The application to Pal's Sudden Service would be
similar to McDonald's but localized with less emphasis and resources focused on
social responsibility and innovation. Pal's vision and ethic statements emphasize
positive energy, fun, and a more personal approach. So, expect the student to use
Exhibit 4.3 as a guide with many duplicate ideas tailored to a much smaller firm in
the entrepreneurial stage of its development. Differences in their strategies include
global versus regional, worldwide diverse workforce versus regional USA, world
class and global brand image versus local brand image, worldwide social
responsibility (youth camps, Ronald McDonald Houses, etc.) versus regional USA
focus, maturity phase of firm's life cycle versus entrepreneurial phase, separate but
aligned corporate and SBU strategies versus Pal's where corporate and SBU strategy
are the same, and so on. Both firms share similar competitive priorities such as low
prices, quick service, and high service quality.

Responses to this question should be limited to no more than 1 (an exhibit like 4.8) to
3 typed pages by the instructor. A short 5 to15 minute in class student or team
presentation is also a possibility for this question.

Case Teaching Note: Sustainable Lawn Care Case Study

7
OM5 C4 IM

The case focuses on how two firms in the same industry define their business strategy in
different ways--one currently from a pure physical perspective and the competitor from a
full service perspective. The case makes use of most of the ideas and paradigms in
Chapter 4 on Operations Strategy. One of Lawn Care's competitors began an application
service for parks and golf courses that routinely applied the fertilizer and grass seed for
its primary customers. This competitor bundled the application service to the primary
goods, fertilizer and grass seed, and charged a higher price for this service. The
competitor sold the customer a beautiful lawn with a promise of no hassles. To the
competitor this included an application service bundled to grass seed and fertilizer. The
competitor learned the application business in the parks and golf course target market
segment and was beginning to explore expanding into the residential lawn care target
market. To avoid the liability of storing toxic fertilizer outside the competitor applied it
the same day it was delivered to the customers site.
The Lawn Care Company sold the highest quality physical products in the industry but
they were not currently in either the professional park and golf course or the residential
lawn care application market segments. A typical Lawn Care CBP analysis shown
below provides the big picture. Make sure the student understand that processes create
and deliver each peripheral or primary good or service and this is where OM has a major
impact on overall organizational performance.

Note: This case has been used in executive education programs so there is more
contained in this teaching note than you can cover in a single classpick and chose
what you want to emphasize. The value chain diagram is probably most useful on
the board to undergraduates with a quick discussion of how goods and services are
bundled together, and that you need at least one process to create and deliver each
good or service.

8
OM5 C4 IM

Lawn Care Company Example CBP

Peripheral Service Peripheral Goods


Claims Services Packaging
Primary Good
Grass Seed and
Fertilizer

Peripheral Good
Retail Store
Display Cases

Whats the order winner above? #1 competitive priority is high quality grass seed and
fertilizera physical good! How would you rank order the competitive priorities using
this vision of the business? One ranking might look as follows:

#1Product quality (grass seed and fertilizer)


#2 Product delivery (to job or retail site; to loading dock)
#3 Flexibility (R&D, field testing for disease, etc.)
$4 Innovation (green physical goods, etc.)
#5 Price/cost (highest in industry)

It is also useful to revisit Section 4 in Chapter 1 on customer benefit packages (also see
the CBP power point slides) and this VISION of the business. An industrial mentality
permeates the management of Lawn Care. This management vision of the business was
fine in the past but did not meet current customer and market requirements.

9
OM5 C4 IM

The Competitor's Example CBP

Peripheral Good Peripheral


Retail Store Service
Display Cases Claims Services

Immediate Peripheral Goods


Application so Packaging
No Liability
Primary Good Primary Service
Grass Seed and Application
Fertilizer Services Excellence
Service
Peripheral Goods Encounters
Clean Trucks & Application With
Equipment Service Customers
Technician
Skills &
Training

Whats the order winner? A beautiful lawn with no hassles! Service! How would you
rank order the competitive priorities using this vision of the business?

#1a and 1b Product and service quality (grass seed and fertilizer)
#2 Application service (service encounter execution, etc.)
#3 Flexibility
#4 Innovation
#5 Price/cost

The Lawn Care Company defines its business more from a physical product or
manufacturing perspective while the competitor defines its VISION of the business as a
dual CBP where service is equal in strategic importance to the physical product. An even
more radical (probably too radical) CBP perspective is as the application service being
the primary (core) feature of the CBP with fertilizer and grass seed as peripheral goods.
But make sure that you point out this possible radical CBP configuration in class. And,
of course, the value chain and supporting processes are quite different for the two firms.
Remember, IBM is the "Solutions Company" and there are other examples where the
traditional goods-producing firm redefined itself from a service perspective.

Case Questions and Brief Answers

10
OM5 C4 IM

1. Define Lawn Cares current strategic mission, strategy, competitive priorities, value
chain, and how it wins customers. What are the order qualifiers and winners? Draw
the major stages in their value chain without an application service.

The Lawn Care Company defines its business strategy as the "highest quality grass
seed and fertilizer in the world" while the competitor defines their business strategy
as "beautiful lawns with no hassles." One could view the no hassles as part of
doing work practices that are environmentally friendly such as immediate application
with no on-site storage of toxic materials (notice the fish kill sentence in case).
Therefore, the Lawn Care Co. currently focuses on competitive priorities such as
high product quality, delivery to retail store or golf course loading dock, and price.
Product quality is the #1 competitive priority for the Lawn Care Co with price/cost
#5.

The competitor focuses on (1) high product quality, (2) no hassle application to the
customer's lawn, (3) higher margins on the application service than the physical
goods, (4) customized applications as needed, (5) service encounter excellence, (6)
sustainability and eco-friendly work practices, and (7) building a strong relationship
with customers. Service quality is the #1 competitive priority for the competitor.

Operations management is a key skill to making everything work as promised, that is,
each of the above processes. Some of above processes can be tied to the physical
good while other processes focus on the application service. Instructor
expectation of students defining these two processes should be general in nature at
this early point in the course. The objective here is simply to get students to think in
terms of processes and some general notion of what type of work and process steps is
required. Keep it simple.

Please note that the competitor firm requires high quality service providers
(agronomic technician, application equipment operator, sales representative) to
interact directly with customers, that is, service management skills. So, if The Lawn
Care Co. adopts application services it must add high customer contact service
processes. Historically, high customer contact an activity of marketing and its sales
staff. Shifting from a physical product focus to a service focus is a strategic and
tactical paradigm shift of major significance. Moreover, employee health is an issue
since they apply this fertilizer and grass seed daily.

The following value chain is what we usually put on the board.

11
OM5 C4 IM

Lawn Care Value Chain (Focus on Physical Product or Add Service)

Suppliers Inbound Grass Factory Third Third


Mining, Shipping Seed & Loading Party Party
Farmers, and Fertilizer Dock (Lawn Shippers Applicators
seeds, Transport Factories Care Trucks, & Apply to
chemicals, Trucks, third (Continuo responsibilit Rail to Lawns or
packaging, party truckers us flow) y ends) Ship Cust. Do It
ext. and rail It Loading Yourself
carriers Dock (How?)

Notice with this physical product definition and VISION of the business, Lawn Care
is finished when the grass seed and fertilizer leaves their loading dock (i.e., the right
product to the right customer at the right time) and the shipment is unloaded at the
customers loading dock. The competitors value chain (not shown) extends this
traditional value chain by adding a profession application service so they can
accomplish their corporate objective of a beautiful lawn with no hassles.

2. What problems, if any, do you see with The Lawn Care Company's current strategy,
vision, customer benefit package design, and pre- and post-services?

There will always be a market for self-service application for golf courses, parks, and
residential lawns (like some step 1-2-3 self-service Four Step program sold at retail
stores) but as the U.S. standard of living and disposable income increases, the market
for lawn care application services will grow. The Lawn Care Co. is missing a major
market opportunity but has time to catch up. Their current vision of the business
focuses on perfect physical goods but that is not enough in today's competitive
markets! Services need to be bundled with the goods to help gain competitive
advantage in this market and they leave sustainability issues up to others (third party
or golf course applicators, park managers, etc.). The strategy determines everything
else!

This case also fits nicely with the pre- and post-production value chain model of
Exhibit 2.3.

Pre-Production
Supplier negotiation and contracts
Employee and customer application service training
Financing is some cases for large cities and other government work
Physical product warranties and application service guarantees
Technical consulting services for parks, golf courses, government land, etc.

12
OM5 C4 IM

Customized grass seed or fertilizer design for highway construction firms, golf
courses, and other special applications (i.e., technical lawn consulting).

Post-Production
Warranty and claims processing
On-line billing and payment
Environmental and recycling processes
Field maintenance and repair of trucks and equipment
Transportation services for factories, warehouses, and application services
Technical consulting services for parks, golf courses, government land, etc.
Service Encounter Excellence Training

Expect undergraduate students to only point out one or two of these you will have
to help them see these pre- and post-production goods and services. Only talk
about a few in class. Of course, the key OM issue here is each of the above requires
one or more processes to create and deliver it!

3. Redo questions (1) to (2) and provide a new or revised strategy and associated
customer benefit package and value chain that is more appropriate for todays
marketplace.

Adding the application service (i.e., adding the last box to value chain) and extending
the value chain forward toward the customer is the focus of this question. Most of the
answer to this question is previously described. The objective of this question is to
force your students to think service and green in what initially looks like a goods-
producing situation.

The key to a good application service is (1) good equipment, (2) good seeds and
fertilizer, (3) well trained employees with service management skills, (4) crew routing
and scheduling of labor and trucks, (5) clean freshly painted equipment and crew
uniforms (part of servicescape), (6) right number of trucks and crews per area
(capacity), (7) eco-friendly work practices, (8) call center processes, and so on. Get
these ideas on the board! Students need to see that adding a post-production service
requires a whole new set of operations and logistic skills. Operations management is
critical execution of a well-run and profitable lawn application service.

4. What does operations have to be good at to successfully execute your revised


strategy?

We normally get into a discussion of What does the firm have to be good at to
offer the application service? Ask them questions like:

(1) How many crews?


(2) Whats the size of an application crew? Equipment? Trucks?
(3) How route and schedule crews?

13
OM5 C4 IM

(4) How grass seed and fertilizer delivered to job site? Does crew carry it or is it
delivered separately?
(5) What the liability of storing toxic materials at job site for even a day?
(6) How develop service management skills for your employees?

So implementing an application service is not easy and requires great OM and logistic
skills!!!!

5. What are your final recommendations?

Most students or teams will recommend they offer the application service but how to
do it is not so clear to them so ask What options does LC have to do their own
applications? Some options include:

(1) 100% company owned application service,


(2) Hire a third party local contractor, (
(3) Hire a third party local contractor and certify them in Lawn Care products,
equipment, and work practices at corporate headquarters.

Additional Case Questions to Consider

1. What issues do you see with respect to green in this business?

The case hints at sustainability issues with reference to polluted lakes and streams,
and the lawsuit by the green advocacy group. In real life, there are many profound
issues with lawn application service and the health of people and the environment
such as:

(a) Where do you store toxic fertilizer and chemicals once delivered to the job site or
do you store them?
(b) Do employees breath contaminated air when they spray a lawn or golf course, and
what is the impact on their health?
(c) Should lawn care application businesses test their employees frequently for health
reasons?
(d) How are these potentially toxic goods shipped inbound to factories and outbound
to warehouses and customer job sites?
(e) What is the business liability once these chemicals migrate into lakes, ponds,
streams, and the water supply?
(f) Should Lawn Care require suppliers to be green certified?
(g) What should be Lawn Cares policy on sustainability?

2. Whats the gross margin on the physical goods (i.e., grass seed and fertilizer) versus
the application service?

Answer: Low for physical goods in the range of 10 to 30 percent while for the
application service is it closer to 100 percent. So, how do you make money in this

14
OM5 C4 IM

business? Also, you can draw the product life cycle for physical goods and ask
students how the service life cycle overlaps. Key points are service life cycle
continues on forever once reaches maturity stage (assuming repeat business) and pulls
physical product.

3. What are two example processes that create and deliver each good or service in the
current CBP? Briefly describe process issues and related decisions.

Example processes that create and deliver the CBP include:

Equipment and truck purchasing process


Evaluating labor and equipment capacity and demand forecasts by area
Equipment maintenance and repair process
Equipment parts ordering and inventory management
Claims process
Production processes for grass seed and fertilizer
Purchasing raw materials and packaging process (supplier processes)
Retail store display design and production (maybe outsource)
Lawn Management Training and Courses for Employees and Customers
Application service training, crew scheduling and routing, and service encounter
execution
Application service providers hiring process
Application service providers recognition and reward process
Cleanliness and grooming standards for equipment, trucks, and employees

Postscript
The postscript is the Lawn Care Co. dropped professional lawn care service after three
years (the market was too small, limited ability to raise prices, and Lawn Care had little
expertise in OM field service skills such as scheduling, purchasing, and capacity
management) and bought existing and local residential application service firms that
already had the proper OM skills in cities such as Pittsburg, Philadelphia, and Atlanta.
These local firms already knew the neighborhoods and area, weather, and knew how to
do OM tasks. Some of the local firms employees were certified by Lawn Care with
training programs on how to operate equipment, different types and grades of grass seed
and fertilizer, how to interact with the customer, and so on. This case takes 45 to 90
minutes to teach depending on what you emphasize.

Ask your students How many crews do they need? How do you define a crew? (One
truck and two employees or ??) How will crews be organizedby district and region?
How will they be routed (scheduled) on a daily basis? What will they do in the winter
months? The local firms that are now part of the Lawn Care organization already knew
the answers to these questions.

The instructor should summarize key case issues such as: (1) How does Lawn Care want
to define its strategy (with or without application services)? (2) What do you have to be

15
OM5 C4 IM

good at if you adopt a lawn care application service? (3) How should Lawn Care and
other firms in this industry define, control, and manage sustainability?

16