CHAPTER 6 • P r o ce s s tech n o l o g y strategy

Chapter

6 Process technology strategy

Introduction
Technology has always had a profound impact on all operations, and with the emer-
gence of powerful new technologies this impact is becoming even more significant.
These new technologies can emerge because of the ‘push’ or ‘supply’ of new knowledge,
or the ‘pull’ from the ‘demand’ from market opportunities. Yet, despite a widespread
acceptance of its significance, strategic analysis too often treats it as a ‘black box’ – fit
only for technical experts. However, all operations need to understand the analytical
dimensions for identifying the technical, managerial and ‘operations strategy’ charac-
teristics of technology. This is an essential prerequisite for deciding ‘what’ technologi-
cal options to explore. Operations managers need to clarify ‘what’ technology options
exist, ‘why’ potential investments in process technology investments can give strategic
advantage, and explore ‘how’ managers can make such investments work in practice.
The risks associated with implementation are particularly important given the number
of high-profile failures and claims of waste that seem to go hand-in-hand with such
investments See figure 6.1.

Figure 6.1 Issues covered in this chapter

Resource usage

Issues include:
Quality Characterising process Market competitiveness
Performance objectives

technologies
Speed Understanding the general
characteristics of process
technologies over time
Dependability The effect of new forms of
technology on performance
Flexibility Evaluating process technology
The impact of process
technology on performance
Cost objectives

Development
Supply Process technology
Capacity and
network strategy
organisation

Decision areas

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K ey Qu e st ions
● What is process technology strategy?
● What are suitable dimensions for characterising process technology?
● How do market volume and variety influence process technology?
● What are some of the challenges of information technology?
● How can process technology be evaluated strategically?

What is process technology strategy?

Although the word ‘technology’ is frequently used in managerial conversation, what
does this term actually mean? The Oxford Dictionary defines it as follows: ‘The applica-
tion of scientific knowledge for practical purposes, especially in industry.’ We employ a similar
generic definition for technology used as a corporate slogan by white goods manufac-
turer Zanussi. In its advertisements it talked about its products being the result of the
appliance of science. In this chapter we shall be examining how process technologies add
value in the creation of products and services. Therefore, combining the Zanussi slogan
with our transformation process view of operations, we can say that process technology
is the ‘appliance of science to any operations process’. Note the ‘process’ in this definition.
In this chapter we shall focus upon process technology as distinct from product or service
technology. In manufacturing operations, it is a relatively simple matter to separate the
two. For example, the product technology of a computer is embodied in its hardware
and software. But the process technology that manufactured the computer is the tech-
nology that assembled all the different components. In service operations it can be far
more difficult to distinguish process from product/service technology. For example,
theme parks such as Disney World use flight simulator technologies in some of their
rides. These are large rooms mounted on a moveable hydraulic platform that, when
combined with wide-screen projection, give a realistic experience of, say, space flight.
But is it product/service or process technology? It clearly processes Disney’s customers,
yet the technology is also part of the product – the customers’ experience. Product/
service and process technologies are, in effect, the same thing.

Example Marmite’s energy recycling technology1

Increasingly, process technology is judged on its contribution to an operation’s environmental
sustainability. Similarly, technology is being used directly to improve triple bottom line perfor-
mance (see Chapter 2). An example of this comes from the makers of Marmite. For those who
live in regions of the world where Marmite is not a big seller, it is ‘a nutritious savoury spread
that contains B vitamins, enjoyable in a sandwich, on toast, bread or even as a cooking ingredi-
ent’. It is not to everyone’s taste, which is why it is advertised with the line...’you’ll either love it
or hate it’. But behind the clever advertising, Marmite, which is part of Unilever, the large food
company, is a pioneer in recycling the leftovers from its production process to energy at the
factory where it is made. The factory is in Burton upon Trent in the UK and every year around

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Figure 6.2 Waste product recycling at Marmite

The major material used in the process
is waste material produced during the
manufacture of Marmite paste. A large
proportion of this waste is substances
'driven off' during the evaporation stage.

This waste is a mixture of

materials generated during
the manufacture of Marmite
paste.

Steam, produced by
burning bio-gas, The methane in 'bio-gas' is
provides power for the supplied to the site boiler
factory. It heats the house where it is burnt to
product stream and produce steam.
lowers evaporator
pressure.

18,000 tonnes of solidified Marmite deposit is left adhering to the surfaces of the machines and
handling equipment that are used to produce the product. For years this residue was cleaned off
and then either flushed into the sewerage system or sent to landfill sites. Then Unilever installed
an anaerobic digester. This is a composter that uses the waste by-product where it is digested,
eaten by microbes that feed on the waste. As they do, they release methane that is burned in a
boiler that is connected to a generator that produces power. The system also captures the waste
heat that comes through the exhaust and helps to heat the factory’s water system. See Figure 6.2.
But the Marmite example is just one part of Unilever’s ‘Sustainable Living Plan’, first published
in 2010. Since then it has published an update every year on the progress it is making globally
and nationally towards meeting its Sustainable Living Plan targets.

Direct or indirect process technology

A common misapprehension is that the term ‘process technology’ describes only tech-
nology that acts directly on resource inputs to operations. Yet both manufacturing
and service operations are increasingly reliant upon less ‘direct’ forms of technology.
Infrastructural and information technologies that help control and coordinate direct
processes are having a major impact on operations. In mass services, such as retailing,
stock control systems link specific customer requirements into complex supply chains.
Intelligent yield planning and pricing systems provide airlines with the cornerstone of
their competitive strategies. Many professional service firms (consultants, accountants,
engineers etc.) utilise information databases in order to retain knowledge and experi-
ence. But the distinction between direct and indirect process technology is not always

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clear. For example, the ‘direct’ functional capabilities of an insurance company’s IT

system will define the types of product that the firm can offer. Yet the same IT system’s
‘indirect’ capability to forecast demand, schedule call centre staff to meet demand and
issue billing details will be of equal importance.

Material, information and customer processing

In Chapter 1, we distinguished between operations that predominantly processed
materials, information or customers. Process technologies can be similarly classified;
Table 6.1 shows some common process technologies of each type. Note that some of
these technologies may have secondary, though important, elements in other cate-
gories. For example, many material processing technologies used in manufacturing
may also be processing information relating to the physical dimensions, or some other
property, of what is being processed. A machine, while processing materials, may also
be deciding whether tooling needs changing, whether to slow the rate of processing
because of rising temperature, noting small variations in physical dimensions to plot
on process control charts, and so on. In effect, an important aspect of the technology’s
capability is to integrate materials and information processing. Similarly, internet-
based technologies used by online retailers may be handling specific order informa-
tion but are also integrating this information with characteristics of your previous
orders, in order to suggest further purchases. Sometimes technologies integrate across
all three types of technology. The systems used at the check-in gate of airports is inte-
grating the processing of airline passengers (customers), details of their flight, destina-
tion and seating preference (information) and the number and nature of their items of
luggage (materials). Technologies are increasingly ‘overlapping’ to become integrating
technologies.

Process technology strategy

We define process technology strategy as:
‘the set of decisions that define the strategic role that direct and indirect process technology
can play in the overall operations strategy of the organisation and sets out the general charac-
teristics that help to evaluate alternative technologies’.

Table 6.1 Some process technologies classified by their primary inputs

Material processing technologies Information processing technologies Customer processing technologies

Flexible manufacturing systems Optical character-recognition machines Surgical equipment

(FMS) Management information systems Milking machines
Weaving machines Global positioning systems Medical diagnostic equipment
Baking ovens Search engines on the internet Body scanners
Automatic vending machines Online financial information systems Aircraft
Container handling equipment Telecommunication technologies Mass Rapid Transit (MRT) systems
Trucks Archive storage systems Renal dialysis systems
Automated guided vehicles (AGVs) Cinema digital projection
Automatic warehouse facilities Computer games
Low-temperature warehouses Theme park rides

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Operations managers cannot avoid involvement with process technologies. They work
with them on a day-by-day basis and should also be able to articulate how technology
can improve operational effectiveness. Other functional areas will, of course, also be
involved, such as engineering/technical, accountancy and human resources. Yet it is
operations that must act as ‘impresario’ for other functional areas’ contributions, and
that is likely to take responsibility for implementation. And to carry out their ‘impre-
sario role’, operations should have a grasp of the technical nature of process technolo-
gies. This does not necessarily mean that operations managers need to be experts in
engineering, computing, biology, electronics, or whatever is the core science behind
the technology, but they need to know enough about the technology to be comfort-
able in evaluating technical information, and be able to ask relevant questions of the
technical experts. These questions include the following:
● What does the technology do that is different from other similar technologies?
● How does it do it?
● What constraint does using the technology place on the operation?
● What skills will be required from the operations staff in order to install, operate and
maintain the technology?
● What capacity does each unit of technology have?
● What is the expected useful lifetime of the technology?

Technology planning – technology roadmapping

However operations managers are involved with the strategic development of process
technologies, it is likely to be in consultation and collaboration with other parts of the
firm. It is also likely to be in the context of some kind of formal planning process such as
technology roadmapping. A technology roadmap (TRM) is an approach that provides
a structure that attempts to assure the alignment of developments (and investments)
in technology, possible future market needs and the new development of associated
operations capabilities. Motorola originally developed the approach in the 1970s so
that it could support the development of its products and their supporting technolo-
gies. Bob Galvin, then Motorola’s CEO, defined a TRM as ‘an extended look at the future
of a chosen field of inquiry composed from the collective knowledge and imagination of the
brightest drivers of change in that field’. A TRM is essentially a process that supports tech-
nology development by facilitating collaboration between the various activities that
contribute to technology strategy. It allows technology managers to define their firm’s
technological evolution in advance by planning the timing and relationships between
the various elements that are involved in technology planning. For example, these
‘elements’ could include the business goals of the company, market developments or
specific events, the component products and services that constitute related offerings,
product/service and process technologies, the underlying capabilities that these tech-
nologies represent and so on. Figure 6.3 shows the generic form of technology road-
maps, while Figure 6.4 shows an example of a technology roadmap for the development
of products/services, technologies and processes for a facilities management service.
The benefits of TRMs are mainly associated with the way they bring together the
significant stakeholders involved on technology strategy and the various (and often dif-
fering) perspectives that they have. The approach forms a basis for communication, and
possibly consensus. After all, it does tackle some fundamental questions that concern

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Figure 6.3 The generic form of technology road maps (TRMs)

Market developments
Products/services
Technologies
Capabilities
Business goals p
d relationshi
Elements of Timing of, an ents of
Projects n th e el em
betwee
technology For example technology
planning
planning Process developments
Knowledge enablers
Intellectual resources
Decision points
External events, e.g. competitor activity

Time

Figure 6.4 Simplified example of a technology road map for the development of
products/services, technologies and processes for a facilities management service

Year 1 Year 2 Year 3 Year 4 etc.

Business
goals

Meet budget limits Integrate with divisions Market launch

Transfer knowledge
to divisions
Products/
services

Control software Interface integration Client interface portal

Website prototype test

Technologies

Digital adaptive Resource planning

CRM implementation
agents algorithms

Establish client
develop-

ERP integration
Process

ments

Develop resource response centre

planning model

Develop service teams

Time

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any technology strategy. Why do we need to develop our technology? Where do we

want to go with our technological capabilities? How far away are we from that objec-
tive? How can we get to where we want to be? In what order should we do things? By
when should development goals be reached? Yet TRMs do not offer any solutions to any
firm’s technological strategic options; in fact, they need not offer options or alternative
technology trajectories. They are essentially a narrative description of how a set of inter-
related developments should (rather than will) progress. Because of this they have been
criticised as encouraging over-optimistic projections of the future. Nevertheless, they
do provide, at the very least, a plan against which technology strategy can be assessed.

Process technology should reflect volume and variety

Although process technologies vary between different types of operation, there are some
underlying characteristics that can be used to distinguish between them. These charac-
teristics are strongly related to volume and variety, with different process technologies
appropriate for different parts of the volume–variety continuum. High-­variety, low-
volume processes generally require process technology that is general purpose, because
it can perform the wide range of processing activities that high variety demands. High-
volume, low-variety processes can use technology that is more dedicated to its narrower
range of processing requirements. Within the spectrum from general-purpose to dedi-
cated process technologies three characteristics in particular tend to vary with volume
and variety. The first is the extent to which the process technology carries out activities
or makes decisions for itself – that is, its degree of ‘automation’. The second is the capac-
ity of the technology to process work – that is, its ‘scale’ or ‘scalability’. The third is the
extent to which it is integrated with other technologies – that is, its degree of ‘coupling’
or ‘connectivity’. We shall look at each of these characteristics.

Scale/scalability – the capacity of each unit of technology

Scale is an important issue in almost all process technologies and is closely related to
the discussion in Chapter 4 dealing with capacity strategy. Here we delve inside ‘capac-
ity’ to explore how individual units of process technology go to make up the overall
capacity of an operation. For example, consider a small regional airline serving just one
main route between two cities. It has an overall capacity of 2,000 seats per day in either
direction on its route. This capacity is ‘defined’ by its two 200-seater aircraft making five
return journeys each day between the two cities. An alternative plan would be to replace
its two identical 200-seat aircraft with one 250-seater and one 150-seater aircraft. This
gives the company more flexibility in how it can meet varying demand levels through-
out the day. It also may give more options in how its aircraft are deployed should it take
on another route and buy additional aircraft. Of course, costs will be affected by the
company’s mix of aircraft. Generally, at full utilisation larger aircraft offer superior cost
performance per passenger-mile than smaller aircraft. The important point here is that
by adopting units of process technology (aircraft) with different scale characteristics,
the airline could significantly affect its operations performance. Factors influencing
the desirability of large-scale technology include the following:
● What is the capital cost of the technology? Broadly speaking, the larger the unit of
technology the more its capital cost but the less its capital cost per unit of capacity.

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Similarly, the costs of installing and supporting the technology are likely to be lower
per unit of output. Likewise, operating (as opposed to capital) costs per unit are often
lower on larger machines, the fixed costs of operating the plant being spread over a
higher volume.
● Can the process technology match demand over time? As discussed in Chapter 4, there
is a traditional trade-off between large increments of capacity exploiting economies
of scale but potentially resulting in a mismatch between capacity and demand, and
smaller increments of capacity with a closer match between capacity and demand
but fewer economies of scale. The same argument clearly applies to the units of
process technology that make up that capacity. Also, larger increments of capacity
(and therefore large units of process technology) are difficult to stream on and off if
demand is uncertain or dynamic. Small units of process technology with the same
or similar processing costs as larger pieces of equipment would reduce the poten-
tial risks of investing in the process technology. This is why efficient but smaller-
scale technologies are being developed in many industries. Even in industries where
received wisdom has always been that large scale is economic (i.e. the steel and elec-
tricity generation), smaller, more flexible operations are increasingly amongst the
most profitable.
● How vulnerable is the operation? Building an operation around a single large machine
introduces greater exposure to the risk of failure. Suppose that the choice is between
setting up a mail sorting operation with ten smaller or one very large machine. If
there is a single machine failure, then the operation with ten machines is more
robust, as 90 per cent of the mail can still be sorted. In the large-scale machine opera-
tion, no mail can be sorted.
● What scope exists for exploiting new technological developments? Many forms of process
technology are advancing at a rapid rate. This poses a threat to the useful life of
large units of technology. If an operation commits substantial investment to a few
large pieces of equipment, it changes them only infrequently and the opportuni-
ties for trying out new ideas are somewhat limited. Having a broader range of dif-
ferent technological options (albeit each of a smaller scale) makes it easier to take
advantage of new developments – providing the operation can cope with potential
inconsistencies.

From ‘scale’ to ‘scalability’

Information processing technologies are an important exception to some of the issues
discussed above. Information is transmitted far more easily between units of technol-
ogy than between either materials or customers. Information technology also has the
capability of overcoming traditional links between volume and variety. Both of these
factors mean that information technology processes can be linked relatively easily to
combine their total processing capacity. Because of this, in many new technologies
the dynamic capacity challenges relate less to absolute scale and more to scalability.
By scalability we mean the ability to shift to a different level of useful capacity quickly,
cost-effectively and flexibly. Yet one of the key challenges for information processing
technology is still to judge how much computing capacity is required. This is especially
true if the process technology is customer-facing and in a dynamic marketplace (such
as e-commerce), where demand uncertainty and variability are common. As many
business-to-consumer internet-based businesses have discovered, too little capacity
means that the technology (website server etc.) can quickly become swamped and lead

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to extreme customer dissatisfaction. (It is worth reflecting at this point on your own
experience of trying to connect to and use a very busy website.) Conversely, too much
technology means excess invested capital to service too few customers.
Scalability, however, does depend on the ability of IT systems to work together.
Upgrading the functionality (what it can do) of an IT system is usually a matter of
evolution rather than revolution. Sometimes totally separate and only partially con-
nected systems are installed alongside existing ones. So, some IT systems finish up with
patched and inconsistent system architectures. This does not mean that they are in
themselves inefficient. However, it does make them difficult to scale up because they
do not fit conveniently with other units of technology. Thus, the underlying consist-
ency and stability of an IT platform’s architecture is an important determinant of its
scalability. Also, a more stable platform often will have support staff who have devel-
oped a greater depth of expertise. Similarly, if IT is stable and standardised, one of the
possible reasons for changing a process is removed. It is partly because of these issues
that many organisations have adopted ‘off-the-shelf’ internal business process man-
agement systems, such as enterprise resource planning (ERP). Indeed, many adopters
of ERP systems have chosen to change their business processes to match the IT, rather
than the other way around.

Degree of automation/‘analytical content’ – what can each unit of technol-

ogy do?
Very few technologies operate continually, totally and completely in isolation, without
ever needing some degree of human intervention. The degree of human intervention
varies from almost continual (the driver’s control over a bus) to the very occasional
(an engineer’s control in an automated pharmaceutical plant). This relative balance
between human and technological effort is usually referred to as the capital intensity
or degree of automation of the technology. Early applications of automation to mate-
rial transformation processes revolved around relatively simple and regularly repeated
tasks because technology is ‘dumber’ than humans; it cannot match people in many
delicate tasks or those requiring complex (and especially intuitive) thought processes.
But low automation often means higher direct costs – a requirement for control skills
and human creativity – whereas automated technology can repeat tasks endlessly and
is capable of repeating these tasks with precision, speed and power. However, in many
cases there have not been overall savings associated with automation, especially if a
complex system requires regular and expensive maintenance. It is common for a shift
towards greater capital intensity to necessitate the employment (either directly or con-
tractually) of more engineers, programmers and so on, who normally come with a much
higher price tag than the direct labour that was replaced. Other potential downsides of
automated technology include possible decreases in flexibility (labour-intensive tech-
nologies can usually be changed more readily than capital-intensive technologies) and
dependability (highly automated technology can be less robust than a more basic ‘tried
and tested’ technology).

From ‘automation’ to ‘analytical content’

Again, information processing technologies are, to some extent, an exception. Even
when considering automation of the most sophisticated forms of material and cus-
tomer processing technology there is usually an underlying strategic choice to be made

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Example Go figure2
It was a significant event in the development of artificial intelligence (AI). Between 9 and 15
March 2016 a five-game match was played in the South Korean capital Seoul between arguably
the best professional ‘Go’ player called Lee Sedol and AlphaGo, a computer Go program devel-
oped by Google DeepMind. AlphaGo won the contest by 4 games to 1. Some commentators
saw the event as a continuation of the ‘man versus machine’ chess battles that started when
chess master Garry Kasparov lost to a computer named Deep Blue in a six-game match played
in 1997. In fact, games like chess really are a handy way to gauge a computer’s evolution towards
genuine artificial intelligence. Which is where Go comes in. Although seemingly simple, it is
a far more complex game than chess. Played all over East Asia, it is particularly popular with AI
researchers, in particular, for whom the idea of truly mastering ‘Go’ has become something of
an obsession. Why? Because compared with Go, teaching computers to master chess is easy. The
size of a Go board means that the number of games that can be played on it is colossal: probably
around 10170, which is almost a hundred of orders of magnitude greater than the number of
atoms in the observable universe (estimated to be around 1080). As one of DeepMind’s creators,
Dr Demis Hassabis points out; simply using raw computing power cannot master Go. Much
more than chess, Go involves recognising patterns that result from groups of stones surround-
ing empty spaces. Players can refer to seemingly vague notions such as ‘light’ and ‘heavy’ pat-
terns of stones. ‘Professional Go players talk a lot about general principles, or even intuition,’
says, Dr Hassabis, ‘whereas if you talk to professional chess players they can often do a much
better job of explaining exactly why they made a specific move.’
However, ideas such as ‘intuition’ are much harder to describe algorithmically than the
formal rules of any game. Which is why, before AlphaGo was developed; the best GO programs
were little better than a skilled amateur. The breakthrough of AlphaGo was to combine some
of the same ideas as the older programs with new approaches that focused on how the com-
puter could develop its own ‘instinct’ about the best moves to play. It uses a technique that
its makers have called ‘deep learning’ that allows the computer to develop an understanding
of the instinctive rules of the game that experienced players can understand but cannot fully
explain. It develops this leaning by playing games against itself (or a slightly different version
of itself) and analysing the vast amounts of data to sort out these ‘intuitive’ rules. However,
as well as masses of data ‘deep learning’ also requires plenty of processing power. Yet it is the
‘deep learning’ that was being seen as the exciting development that would lead to further
applications. Such an approach could help computers to do complex tasks like accurate face
recognition or translate subtleties of meaning from one language to another. But, although
the techniques used by AlphaGo is an important step in the progress to, what in Dr Hassabis’s
view, is the ‘same sort of broad, fluid intelligence as a human being’, they still lack some of
the abilities that humans take for granted. Arguably the most important of these is the ability
to apply lessons learned in one situation in another, what AI researchers call ‘reasoning by
analogy’ or ‘transfer learning’.

about the balance between people and technology. The choice is often between empha-
sising the power, speed and general physical abilities of automation against the flexible,
intuitive and analytical abilities of human beings. However, an increasing number of
purely information transformation processes are entirely automated (including most
processing technology in the financial services sector, for instance). We need a different
metric to differentiate between different information processing technologies that are
100 per cent ‘automated’, or very close to it.

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Consider the range of new information-based technologies. Sophisticated data man-

agement and decision-making systems are being used to enhance existing processes.
These might include the use of expert systems to help authorise financial transactions
or adding automatic measurement and process control to manufacturing technology.
Two drivers influence the analytical content of the technology. The first is the amount
of parallel processing required. One of the real operational attractions of IT is that it
can transform sequential tasks into ones that can be carried out in parallel. This parallel
processing could be in a complex multinational design process, such as that used by
Ford for their global product development platform, or more simply in IT ‘work-flow’
applications for compiling an insurance policy. In order to do this, and regardless of the
precise tasks, the IT requires internal scheduling and data management protocols that
are inherently more analytical than those employed in a straightforward sequential
process. The second is the level of customer interaction. The greater the degree of cus-
tomer interaction that is required, the greater is the information ‘richness’ that must
be inputted, processed and outputted. This can be directly related to the underlying
task complexity with which the technology has to cope. Although using your mobile
phone to order cinema seats with a credit card is a valuable automated and interactive
service, such a system is really only a virtual vending machine. The system has a finite
(and relatively small) number of options (just like the limited range of snack foods in
a vending machine). The analytical content of the system, such as checking seat avail-
ability and verifying the credit card, is relatively low (using the vending machine anal-
ogy again, it is like checking if a particular candy bar has run out and then verifying
that coins are correct).

Degree of coupling/connectivity – how much is joined together?

Process technologies are increasingly coupled together. Many newer advanced manu-
facturing technologies derive their competitive cost and quality advantages from the
‘coupling’ or integration of activities that were previously separated. Coupling could
consist of physical links between pieces of equipment – for example, a robot removing
a piece of plastic from an injection moulding machine and locating it in a machine tool
for finishing, or it could mean merging the formerly managerial tasks of scheduling and
controlling these machines with their physical activities to form a synchronised whole.
Many of the direct benefits associated with increased coupling echo those described
with respect to automation and scale. For example: the integration of separate processes
often involves high capital costs; increasing coupling removes much of the fragmenta-
tion caused by physical or organisational separation (what is called ‘straight through
processing’ in financial services); closer coupling can lead to a greater degree of syn-
chronisation, thereby reducing work-in-process and costs; and closer integration can
increase exposure (with positive and negative effects) if there is a failure at any stage.

From ‘coupling’ to ‘connectivity’

Coupling in information processing technology once meant physically ‘hard-wiring’
together disparate process elements and, as a result, was economically viable only at
higher volumes and lacked the flexibility to cope with very high variety. However, more
recently, information processing has moved towards platform independence, allow-
ing communication between computing devices regardless of their specification, and
increasingly organisational boundaries. For example, supermarkets have dramatically

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altered the way they manage their buying process. Connected IT systems allow many
suppliers access to a common data portal that gives real-time information about how
products are selling in all stores. Such systems enable the supply companies to modify
their production schedules in order to meet demand more precisely and ensure fewer
stock-outs. Here the defining technological characteristic associated with platform
independence is not coupling in the classic sense of integration, but rather a greater
degree of connectivity.
The issues connected with connectivity are similar to those concerned with scalabil-
ity and analytical content. Low connectivity is often associated with idiosyncratically
designed, bespoke and ‘legacy’ IT systems. Often such systems come with restricted
opportunities for the access that is a prerequisite to connectivity. High-connectivity
technologies, on the other hand, are usually based on the platform independence dis-
cussed above and have the bandwidth capacity to enable rich communications. Some-
times, however, their very openness and easy access can give security concerns. Much
new technology, although offering wonderful levels of connectivity, creates new oppor-
tunities for fraud, ‘denial of service’ attacks and so on. Two key drivers have allowed
‘connectivity’ to develop at such a phenomenal rate.
1 Hardware development – Client/server systems (initially promoted as a less costly
replacement for mainframe technology) have permitted the separation of user inter-
faces, processing applications and data sources. This has encouraged the develop-
ment of interconnection technology, including software protocols and connection
technology (such as bandwidth enhancement).
2 Software development – Arguably, the distinguishing feature of the development of
the World Wide Web has been the adoption of a universal browser interface, which
has considerably expanded the potential for connectivity.

Example Technology or people? The future of jobs3

In his book, The Power of Habit, Charles Duhigg relates a story to demonstrate that human beings
are more predictable than we sometimes like to think. A man walked into a supermarket to
complain to the manager. They had been sending direct mail to the man’s daughter contain-
ing discount vouchers for baby clothes and equipment. ‘She is only in high school’, the father
protested. The manager apologised profusely. ‘It’s the fault of a new programme that predicted
pregnancy based on the buying behaviour of our customers’, he said. It was, obviously, a mistake
and he was very sorry. A few days later, the man again visited the supermarket and said that
it was his turn to apologise. His daughter was indeed pregnant and due to give birth in a few
months’ time. The point of the story is that technology is increasing in sophistication to the
extent that it is now capable of performing tasks that previously required skilled people making
judgements based on insight and experience. Moreover, technology can often do those tasks
better. A piece of software has replaced the marketing team trying to guess who to sell baby
clothes to. So, technology is not only replacing people, but it is also ‘climbing the skills ladder
all the time’.
Of course, technological advances have always had an impact on the type of jobs that are
in demand by businesses and, by extension, the type of jobs that are eliminated. So, much of
the highly routine work of some mass manufacturing, or the type of standardised accounting
processes that pay invoices, have been overtaken by ‘the robot and the spreadsheet’. Yet the type
of work that is more difficult to break down into a set of standardised elements is less prone to

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being displaced by technology. The obvious examples of work that is difficult to automate are
the type of management tasks that involve decision making based on judgement and insight –
teaching small children, diagnosing complex medical conditions and so on. However, the future
may hold a less certain future for such jobs. As the convenience of data collection and analysis
becomes more sophisticated, and process knowledge increases, it becomes easier to break more
types of work down into routine constituents, which allows them to be automated. Carl Benedikt
Frey and Michael Osborne, of the University of Oxford, maintain that the range of jobs that are
likely to be automated is far higher than many assume, especially traditionally white-collar jobs
such as accountancy, legal work, technical writing and (even) teaching. It is not simply that tech-
nology is getting cleverer; in addition it can exploit the capability to access far more data. Medi-
cal samples can be analysed cheaper and faster by image-processing software than by laboratory
technicians, case precedents can be sourced by ‘text-mining’ programs more extensively than
by paralegals and computers can even turn out new stories based on sports results or financial
data. Frey and Osborne go so far as to estimate the probability that technology will mean job
losses for certain jobs in the next two decades (bravely, because such forecasting is notoriously
difficult). Amongst jobs most at risk are telemarketers (0.99, where 1.0 = certainty), accountants
and auditors (0.94), retail salespersons (0.92), technical writers (0.89) and retail estate agents
(0.86). Those jobs least likely to be replaced include actors (0.37), firefighters (0.17), editors (0.06),
chemical engineers (0.02), athletic trainers (0.007) and dentists (0.004).

The product–process matrix

Generally, the characteristics of process technology affect cost and flexibility, as shown
in Figure 6.5. All of the three technology dimensions described above are strongly
related. For example, the larger the unit of capacity, the more likely it is to be capital-
rather than labour-intensive; this gives more opportunity for high coupling between
its various parts. Conversely, small-scale technologies, combined with highly skilled
staff, tend to be more flexible than large-scale, capital-intensive, closely coupled sys-
tems. As a result, these systems can cope with a high degree of product variety or service

Figure 6.5 The three dimensions of process technology are often closely linked

HIGH LOW
SCALE
Few, large Many,
units of small units
technology of technology

Process AUTOMATION Process

(technology (technology
plus humans) plus humans)
has low acuity has high acuity
and judgement and judgement
COUPLING
Technology is Technology is
integrated separated

Flexibility
performance
Cost
performance

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 The pr odu ct – pr o ce s s m atr i x 209

customisation (‘boutique’ strategy consulting firms are an example of this). Conversely,

where flexibility is of little importance (with standardised, low-cost products such as
industrial fastenings, or a mass transaction service such as letter sorting) but achieving
dependable high volumes and low unit costs is critical, these inflexible systems come
into their own. In IT-rich technologies, scalability generally depends upon connectiv-
ity (hence the emphasis upon standardisation in systems architecture and underlying
operating processes). The analytical functionality that is so central to complex task
automation normally requires different applications and data sources, so the greater
the connectivity, the greater the analytical power, and so on. Remember, though,
although the three dimensions of process technology do often go together in this way,
they do not always match perfectly.
Several authors have also made a further link to the volume and variety requirements
of the market. The logic goes something like this: companies serving high-volume, and
therefore usually low-variety, markets usually have a competitive position that values
low prices, therefore low-cost operations are important and process technologies need
to be large, automated and integrated. Conversely, low-volume, high-variety opera-
tions need the flexibility that comes with small-scale, loosely coupled technologies
with significant human intervention. This idea is incorporated in the product–process
matrix, which was first described by Professors Robert Hayes and Stephen Wheelwright
(both of Harvard Business School). Although they used it to link the volume and vari-
ety requirements of the market with process design in general, here we use it to draw a
link between volume and variety on the one hand and the three dimensions of process
technology on the other. This is shown in Figure 6.6. The relationship between the

Figure 6.6 The product–process matrix and the technology dimensions

Low volume High volume

Process
High variety Low variety
(technology Many,
plus humans) small units
Market requirements
Technology has high acuity of
is separated and judgement technology
High Cost Low
Off the diagonal
High

High flexibility
A Redundant capability
High costs
Automation

Flexibility
Coupling

Scale

Off the diagonal

Low flexibility
C
Insufficient capability
Low

High costs

Technology Process Few, large

is integrated (technology units of
plus humans) technology
has low acuity
and judgement

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 210 CHAPTER 6 • P r o ce s s tech n o l o g y strategy

volume/variety and process technology dimensions suggests that there is a ‘natural’

diagonal fit, and that deviating from the ‘diagonal’ will therefore have predictable con-
sequences for the operation.
Operations to the right of the diagonal have more capability to deal with their requi-
site variety than is necessary. Such surplus capability will normally be associated with
excess operating costs. Similarly, operations to the left of the diagonal have insufficient
flexibility to cope with their requisite variety. This may result in substantial opportu-
nity costs (being unable to fulfil orders economically), not to mention the competitive
impact of having insufficient capability. Remember, though, that the matrix cannot
prescribe the ‘correct’ process technology. It can, however, give a general idea of how
an operation’s process technology profile will need to be adapted as its market context
changes.

Moving down the diagonal

Operations will change their position in the matrix. For example, a ‘home-made’ luxury
ice-cream product, selling a few litres in a farm shop, might begin life by being manu-
factured in a farmer’s own kitchen using domestic equipment (position A in Figure 6.5).
Growth in sales (and health and safety legislation) would necessitate investment in a
small production facility, although, because of the different varieties, the production
unit will still need some flexibility (position B in Figure 6.5). Ultimately, if projected
demand for some flavours and sizes reaches mass-market levels, major continuous-flow
process investment will be necessary (position C in Figure 6.6). Equally, at this stage the
product might become attractive to a large established manufacturer because the vol-
ume and variety of demand would match its existing integrated production facilities.
The natural trajectory of movement ‘down’ the product/process matrix can be
observed in many different operational contexts. Many financial service firms, for
instance, have been able to make major reductions in their back-office operations by
reducing clerical and administrative staffing and cost levels through investment in
large-scale, integrated, automated process technology.

Market pressures on the flexibility/cost trade-off?

The traditional flexibility/cost trade-off inherent in the scale, automation and integra-
tion dimensions of process technology (and the product/process matrix for that matter)
is coming under increasing pressure from more challenging and demanding markets. In
many sectors, increased market fragmentation and the demand for more customisation
is reducing absolute volumes of any one type of product or service. Simultaneously,
shortening product/service life cycles can mean periodic step changes in the require-
ments placed on an operation and its process technology. This can severely reduce
the potential for applying large-scale and relatively inflexible, though traditionally
low-cost, technologies. Yet, at the same time, there is increasing pressure to compete
on cost, which is driving ongoing reductions in direct labour and placing increased
emphasis on automation. In fact, for many traditionally labour-intensive sectors such
as the banking industry referred to earlier, absence of sufficient technological invest-
ment (and the corresponding presence of ‘too many staff’) has a significant impact on
analyst and shareholder confidence and therefore share price. Both these pressures are
placing conventional process technology solutions under strain (see Figure 6.7). Of
course, this competitive challenge has proved to be simply too much for many opera-
tions but, interestingly, many of those that have survived and prospered have not aban-
doned technology in their operations strategies. Rather, many operations have more

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Figure 6.7 Market pressures are requiring operations to be both flexible and low cost

Competitive
pressure to
reduce costs

High
Traditional trade- The need to
off ‘diagonal’ overcome the
between cost traditional cost–
and flexibility flexibility trade-off
Flexibility
and achieve high
levels of performance
in both

Market
Low

fragmentation
making
High Cost Low flexibility
more
valuable

fully embraced process technology, albeit in new IT-rich forms. Indeed it is increasingly
difficult to overstate the impact that information technology is having upon organi-
sational life. There is almost no sphere of operations where computing technology in
one form or another has not had a substantial impact.

Process technology trends

So, markets seem to be demanding both greater flexibility and lower costs simultane-
ously from process technology. To the traditional mind-set, which we illustrated in
Figure 6.6, this seems to be difficult, bordering on impossible. Yet, remember our dis-
cussions on trade-offs between performance objectives back in Chapter 2? There we saw
the development and improvement of operations (including process technology) as
being a process of overcoming trade-offs. Now we must include developments in infor-
mation technology, especially their effect of shifting traditional balances and trade-offs.
In effect, we have argued that emerging scalability, analytical content and connectivity
characteristics have enabled process technologies to enhance their flexibility while still
retaining reasonable efficiency and vice versa. In other words, these trends in process
technology are having the net effect of overcoming some of the traditional trade-offs
inherent within the dimensions of process technology. This has, for some industries,
changed the nature of the product–process matrix, which we discussed earlier. Figure 6.8
shows how three separate but connected ideas have come together.
● The three dimensions of process technology – scale, automation and coupling – are
related to the volume/variety characteristics of the market. In traditional process
technologies, especially those with relatively little IT element, large, automated and
tightly coupled technologies were capable of processing at low cost but had relatively

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Figure 6.8 New developments in process technology can change the cost–
flexibility trade-off

Low volume High volume

Process
High variety Low variety
(technology Many,
plus humans) small units Market requirements
Market requirements
Technology has high acuity of
is separated and judgement technology
High Cost Low

High
Analytical content
Connectivity

Automation

Scalability

Flexibility
Coupling

Scale

Low

Technology Process Few, large

is integrated (technology units of
plus humans) technology
has low acuity
and judgement

little flexibility. This made them suitable for high-volume, low-variety processes. If
process requirements were for high variety but low volume, process technology is
likely to consist of smaller separated units with relatively little automation.
● Trends in the development of each dimension of process technology, especially those
related to their increasing richness in information processing, are overcoming some
of the traditional trade-offs within each dimension. In particular, technology with
high levels of scalability can give the advantages of flexible, small-scale technology
and yet be quickly expanded if demand warranted it. Similarly, even high-volume
information processing technology can still display the relatively high analytical
content at one time reserved for more manual processes. Finally, technology with
high connectivity can integrate processes without the rigidity once associated with
high coupling.
● Market trends are themselves calling for simultaneously high performance in both
cost and flexibility. No longer is it acceptable to suffer high costs if flexibility is
demanded by the market, nor operations rigidity if costs need to be kept low. As far as
market requirements are concerned, the ideal area in the traditional product–process
matrix is one that delivers both low cost and high flexibility.
This is why information processing technology has had such an impact in so many
industries. In effect it has partially overcome some of the traditional trade-offs in
choosing process technology. But note the words ‘partially’ and ‘some’. There are still
trade-offs within technology choice, even if they are not as obvious as they were once.

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 T he cha ll e ng es of i nf o r m at i on tech nology ( I T ) 213

Moreover, information processing and computing power has undoubtedly had a major
impact on almost all technologies but there are still limits to what computers can do.

The challenges of information technology (IT)

As we saw in the previous discussion of the three ‘dimensions’ of process technology, the
dominance of information technology (IT) has caused a profound rethink of the issues
connected with technology in an operations strategy context. Surprisingly, given the
ubiquity of IT, the cost effectiveness of investment in IT is not altogether straightforward.
Generally, research recognises a plain and positive connection between investment in IT
and operations productivity growth, even if the returns can vary widely. As one author-
ity put it, ‘there’s no bank where companies can deposit IT investment and withdraw an “aver-
age” return . . . [A] strategy of blindly investing in IT and expecting productivity to automatically
rise is sure to fail.’4 Moreover, there is a high failure rate for IT projects (often cited as
between 35 and 75 per cent, although the definition of ‘failure’ is debated). Yet there is
extensive agreement that the most common reasons for failure are connected in some
way with managerial, implementation or organisational factors. And of these manage-
rial, implementation or organisational factors, one of the main issues was the degree
of alignment and integration between IT strategy and the general strategy of the firm.
This is a particularly important point for operations strategy. It reinforces the idea that
IT strategy must be regarded as an integral part of overall operations strategy.
Of course, different kinds of IT pose different kinds of challenge. The impact of some
IT is limited to a defined and (relatively) limited part of the operation. This type of IT is
sometimes called ‘function IT’ because it facilitates a single function or task.5 Examples
include computer-aided design (CAD), spreadsheets and simple decision support sys-
tems. The organisational challenges for this type of technology can usually be treated
separately from the technology itself. Put another way, function IT can be adopted with
or without any changes to other organisational structures. Yet this does not mean that
no organisational, cultural or development challenges will be faced. Often, the effec-
tiveness of the technology can be enhanced by appropriate changes to other aspects of
the operation. By contrast, ‘enterprise IT’ extends across much of, or even the entire,
organisation; because of which, enterprise IT will need potentially extensive changes to
the organisation. The most common (and problematic) enterprise IT is an ERP system.
Because of the importance of ERP to operations strategy we will describe it in some
detail in the next section. The third IT category is network IT. Network IT facilitates
exchanges between people and groups inside and/or outside the organisation. How-
ever, it does not necessarily predefine how these exchanges should work. For example,
email is a network IT. It has brought significant changes to how operations and supply
networks function, but the changes are not imposed by the technology itself; rather
they emerge over time as people gain experience of using the technology. The challenge
with this type of technology is to learn how to exploit its emergent potential.

Enterprise resource planning (ERP)

As information technology established itself within most businesses, the various func-
tions within the business developed appropriate systems and databases to meet their
own needs. ERP systems attempt to integrate all these various systems. This allows
changes made in one part of the business to be reflected immediately in information

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held for the benefit of other parts of the business, thereby improving both the com-
munication and the effectiveness of the systems as a whole. However, this obvious and
seemingly straightforward idea is, in practice, hugely complex and expensive to adopt.
And that is what ERP has become known for: its high cost and difficult implementa-
tion. Some large corporations are reported as having spent hundreds of millions of
Euros on their ERP systems. Even medium-sized companies can easily spend hundreds
of thousands of Euros. And although some authorities claim that even successfully
implemented ERP systems will never offer any significant return on their investment,
others argue that ERP was simply one of those things that any large company had to
invest in simply to keep pace with its customers, suppliers and competitors.6

What is ERP?
One of the most important issues in resource planning and control is managing the,
sometimes vast, amounts of information generated from all functions of the business.
So, unless all relevant information is brought together and integrated it is difficult to
make informed planning and control decisions. This is what ERP is about. It is often
described as a complete enterprise-wide business solution that integrates the planning,
resource allocation and control activities of all parts of the business. The intent is that
all transaction information is entered into the system at its source and done only once.
Consider, for instance, a manufacturing firm receiving an order for a product. The trans-
action is entered into the system and the data is then sent to the master database, which
accesses and updates the other business processes. For example, the finance process is
instructed to raise an invoice, the sales and marketing processes are advised of sales
and customer information and the production process triggers the manufacturing etc.
If the system does not have its own scheduling software, it can (to varying degrees) be
integrated with pre-existing packages (see Figure 6.9).
Arguably the most significant issue in many company’s decision to buy an off-the-shelf
ERP system is that of its compatibility with the company’s current business processes
and practices. Experience of ERP installation suggests that it is extremely important
to make sure that the current way of doing business will fit (or can be changed to fit)

Figure 6.9 The ERP structure for the sandwich company

Senior management and stakeholders

Strategic
Financial
reporting
applications
applications Sales and
marketing
Operations applications
applications
Front-office
Back-office

Delivery and
Integrated
staff

staff

Suppliers distribution Customers

database
applications
Purchasing
and supply
applications Service
Human applications
resources
applications
Employees

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 T he cha ll e ng es of i nf o r m at i on tech nology ( I T ) 215

with a standard ERP package. If a business’s current processes do not fit, they can either
change their processes to fit the ERP package, or modify the software within the ERP
package to fit their processes. However, both of these options involve costs and risks.
Changing business practices that are working well will involve reorganisation costs as
well as introducing the potential for errors to creep into the processes. Adapting the
software will both slow down the project and introduce potentially dangerous software
‘bugs’ into the system. It would also make it difficult to upgrade the software later on.

Supply network ERP

The step beyond integrating internal ERP systems with immediate customers and sup-
pliers is to integrate it with the systems of other businesses throughout the supply
network. This is often exceptionally complicated. Not only do different ERP systems
have to communicate together, they have to integrate with other types of system. For
example, sales and marketing functions often use systems such as customer relation-
ship management (CRM) systems that manage the complexities of customer require-
ments, promises and transactions. Getting ERP and CRM systems to work together is
itself often difficult. Nevertheless, such Web-integrated ERP applications are emerg-
ing. Although a formidable task, the benefits are potentially great. Transaction costs
between supply network partners could be dramatically reduced and the potential for
avoiding errors is significant. Yet such transparency also brings risks. If the ERP system
of one operation within a supply chain fails for some reason, it may block the effective
operation of the whole integrated information system throughout the network.

Criticisms of ERP
Attempting to get new systems and databases to talk to old legacy systems can be very
problematic. Not surprisingly, many companies choose to replace most, if not all, of
their existing systems simultaneously. New common systems and relational databases
help to ensure the smooth transfer of data between different parts of the organisa-
tion. Therefore, ERP installation can be particularly expensive. In addition, there are
also considerable ‘adjustment costs’ associated with many of the implementations.
ERP implementations have developed a reputation for exceeding their budgets, with
200/300 per cent cost and time overruns being commonly cited for reasonably sized
installations. Yet, given that such systems are predicated on both substantial IT devel-
opment and process redesign work, it should not be surprising that costs and time-
frames proved to be larger and longer than predicted.
In addition to the obvious investment of time and effort, there is also the cost of
providing training in new ways of working. Given that old systems, procedures and
routines are being replaced in an ERP implementation, this retraining cost can be very
significant. During the retraining period there may also be an increased chance of staff
error that, combined with the novelty of the system, could cause further failures.
By definition, ERP systems are ‘enterprise wide’. This means that all parts of the enter-
prise must agree on a shared way of working (that coincides with the ERP system’s
underlying structure) and uniformly implement the system in the same way. There
are two important implications of this. First, getting all parts of the enterprise to agree
on a common business model is rarely straightforward, even supposing that the ERP
system’s business model is appropriate for the way the enterprise prefers to operate.
Second, because all parts of the enterprise are linked together, the whole business could
be held back by the ‘weakest link’. That is, inefficiency or incompetence in one part of
the enterprise may hold back the whole business.

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Note that these disadvantages of ERP are not so much concerned with the funda-
mental logic of integrating enterprise-wide information systems. Rather, they are con-
cerned with the sheer difficulty of making it happen. This leads some authorities to
argue that the disadvantages of ERP systems are not really disadvantages. The question
is really whether any individual firm has the money, time and talent to exploit the
advantages of ERP.

Lessons from ERP

When ERP is implemented successfully it has the potential to significantly improve
performance. This is partly because of the, very much enhanced, visibility that infor-
mation integration gives, but it is also a function of the discipline that ERP demands.
Yet this discipline is itself a ‘double-edged sword’. On one hand it ‘sharpens up’ the
management of every process within an organisation, allowing best practice (or at least
common practice) to be implemented uniformly through the business. No longer will
individual idiosyncratic behaviour by one part of a company’s operations cause disrup-
tion to all other processes. On the other hand, it is the rigidity of this discipline that
is both difficult to achieve and (arguably) inappropriate for all parts of the business.
Nevertheless, the generally accepted benefits of ERP are as follows:
● Greater visibility of what is happening in all parts of the business
● Forcing the business process-based changes that potentially make all parts of the
business more efficient
● Improved control of operations that encourages continuous improvement (albeit
within the confines of the common process structures)
● More sophisticated communication with customers, suppliers and other business
partners, often giving more accurate and timely information
● Integrating whole supply chains, including suppliers’ suppliers and customers’
customers
An important justification for embarking on ERP is the potential it gives to link up
with the outside world. For example, it is much easier for an operation to move into
internet-based trading if it can integrate its external internet systems into its internal
ERP systems. However, as has been pointed out by some critics of the ERP software
companies, ERP vendors were not prepared for the impact of e-commerce and had not
made sufficient allowance in their products for the need to interface with internet-
based communication channels. The result of this has been that whereas the internal
complexity of ERP systems was designed only to be intelligible to systems experts, the
internet has meant that customers and suppliers (who are non-experts) are demanding
access to the same information.

Example Legacy versus fintech in financial services7

Fintech is the term that commentators in the financial service sector use to refer to innovation
in all types of financial services. As Carolyn Wilkins, Senior Deputy Governor of the Bank of
Canada, announced, ‘It is no exaggeration to say that we are in the midst of a defining moment for
innovation in financial services. Some expect that new technology will cause a complete disruption
of traditional financial institutions, giving businesses and households access to more convenient and

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 E va luat i ng pr oces s tech nology 217

customised services. Entrepreneurs are also finding applications well beyond finance, and these new
technologies could transform other fields, such as humanitarian aid.’ Yet, arguably, what is more sur-
prising is that this type of process technology was not embraced faster by the financial services
industry. As one commentator put it, ‘after all money is mostly represented as an entry on a com-
puter. It can be moved rapidly from one account to another with virtually no cost’. Moreover, finance
firms as a whole spend more on IT, as a proportion of their revenues, than any other sector.
Three issues have (at the time of writing) inhibited the adoption of new fintech process tech-
nologies. And they all could apply to any ‘disruptive’ and industry-wide process technologies.
The first is the traditional structure of the industry. According to Andrew Haldane, the Bank of
England’s chief economist, the international payments system still looks like a ‘spaghetti junc-
tion’, with money passing through several hands on the way from payer to recipient. Nor is it
necessarily in the existing firm’s interests to change the system. Each year huge revenues are
earned by processing payments (around $1.7 trillion). The second reason is ‘legacy’. IT systems
in banks have grown for the most part incrementally, with updates and modifications over
the years often ‘patched’ onto existing systems until a large part of firms’ annual technology
budget is consumed by maintaining, rather than re-designing, existing systems. The third issue
is risk. Understandably, financial services firms are very much concerned with the reliability of
any new technology, and new technologies are often unproven. A good example is ­distributed
ledger technology (DLT) – the ‘blockchain’ technology behind the Bitcoin, the digital cur-
rency. Although many technology experts regarded a distributed ledger as being more secure
(any hacker would have to crack several sites rather than a single, central register), doubts were
expressed over the technology’s ability to cope with the hundreds of thousands of transactions
every second that the financial system needed to process.

Evaluating process technology

Evaluating process technology quite literally means determining its value or worth. It
involves exploring, understanding and describing the strategic consequences of adopt-
ing alternatives. Although there can be no ‘all-purpose’ list of attributes to be evaluated,
indeed the precise nature of the attributes to be included in any evaluation should
depend on the nature of the technology itself, it is useful to consider three generic
classes of evaluation criteria (Figure 6.10):
1 The feasibility of the process technology – that is, the degree of difficulty in adopting it,
and the investment of time, effort and money that will be needed.
2 The acceptability of the process technology – that is, how much it takes a firm towards
its strategic objectives, or the return the firm gets for choosing it.
3 The vulnerability associated with the process technology – that is, the extent to which
the firm is exposed if things go wrong and the risk that is run by choosing the
technology.

Evaluating feasibility
All process technology decisions have resource implications – even the decision to do
nothing liberates resources that would otherwise be used. In this context we are not just
talking about financial resources, which, although critical, are no help if, say, the tech-
nical skills necessary to design and implement a technology are not available. There-
fore, if the resources required to implement technology are greater than those that are

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 218 CHAPTER 6 • P r o ce s s tech n o l o g y strategy

Figure 6.10 Broad categories of evaluation criteria for assessing concepts

What INVESTMENT (both

Feasibility – How
managerial and financial)
difficult is it?
will be needed?
The criteria Overall
What RETURN
for Acceptability – How evaluation
(in terms of benefits to
screening worthwhile is it? of the
the operation) will it give?
concepts concept
What RISKS
Vulnerability – What
do we run if things go
could go wrong?
wrong?

either available or can be obtained, the technology is not feasible. So, evaluating the
feasibility of an option means finding out how the various types of resource that the
option might need match up to what is available. Four broad questions are applicable.
What technical or human skills are required to implement the technology? Every process
technology will need a set of skills to be present within the organisation, so that it can
be successfully implemented. If new technology is very similar to that existing in the
organisation, it is likely that the necessary skills will already be present. If, however,
the technology is completely novel, it is necessary to identify the required skills and to
match these against those existing in the organisation.
What ‘quantity’ or ‘amount’ of resources is required to implement the technology? Deter-
mining the quantity of resources (people, facilities, space, time etc.) required for the
implementation of a technology is an important stage in assessing feasibility because
it is time dependent. Rarely will a lack of sufficient process engineers, for example, rule
out a particular process technology, but it could restrict when it is adopted. So, a firm
may deliberately choose to delay some of its process technology decisions because it
knows that its current commitments will not allow it. In order to assess this type of
feasibility, a company may compare the aggregate workload associated with its imple-
mentation over time with its existing capacity.
What are the funding or cash requirements? The previous two questions can be difficult
to answer in a meaningful way, but this does not diminish their significance. However,
in any real investment evaluation, one ‘feasibility’ factor will inevitably come to domi-
nate all other considerations – do we have enough money? Because of this significance
we will spend a little more time reviewing some of the many approaches that have been
developed to aid managers in their analysis of cash flow and funding requirements over
the lifetime of an investment project.
Can the operation cope with the degree of change in resource requirements? Even if all these
resource requirements can quite feasibly be obtained individually by the organisation,
the degree of change in the total resource position of the company might itself be
regarded as infeasible. Consider, for instance, a bespoke manufacturer of road-racing
bicycles being encouraged to leverage its reputation for high quality into the ‘top end’
of the mass cycle market (i.e. much higher volumes). This would require the firm to
make substantial investment in automated tube welding equipment. The firm is con-
fident that it will be able to obtain all the different categories of resource required for
the project. It believes that it can recruit the appropriate expertise in sufficient quantity
from the labour market. Furthermore, it believes that it could fund the project until it

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broke even. Yet, in the final analysis, the company regards the investment as infeasible.
It decides that absorbing such a radical new process technology in a relatively short
time-frame would put too great a strain on its own capacity for self-organisation. Thus,
sometimes it is not the absolute level but rather the rate of change in resource require-
ments that renders a project infeasible.

Example Nestlé’s flexible factories8

It is not only process technology in its immediate sense that needs evaluating, it is also the infra-
structure that houses the technology. This is particularly true for large companies like Nestlé
(the largest food company in the world) that has operations in almost 200 countries around
the world. It also has over 400 factories around the world, many of them in developing coun-
tries. Nestlé opened its first factory in Africa (a condensed milk production plant) in 1927. But
factories are expensive to build, especially where infrastructure can be problematic and future
demand uncertain. This is why Nestlé has created a blueprint for a new type of factory that can
be built in half the time of a more traditional one for about 50 to 60 per cent of the cost.
The modular factory will be made of multiple, easy-to-assemble component sections designed
to offer a highly flexible, simple and cost-effective solution for creating production sites in the
developing world. Often, investing in these countries can be high risk, as they can lack infra-
structure, reliable energy sources and building expertise but the modular factory concept will
enable Nestlé to rapidly establish a footprint, creating local jobs and being closer to its cus-
tomers and its raw materials. ‘The model is a real evolution from the traditional bricks and mortar
factories of the past,’ says Alfredo Fenollosa, Nestlé Technical Head for Asia, Oceania and Africa.
‘Big companies traditionally build solid stuff but the lighter structure of this modular factory concept
represents a real mindset change for Nestlé. We hope to be able to apply it soon in countries in Africa,
and in some parts of Asia,’ he added.
The average Nestlé factory takes between 18 and 24 months and costs between CHF30m and
CHF50m to build. The new modular factory could be complete, and up and running, in less than
12 months, at a cost of between CHF15m and CHF25m. The modular factory uses a series of
purpose-built factory sections, which can be brought, ready-to-use, directly to the site and con-
nected to each other according to requirements. These could include, for example, a ready-to-use
generator and boiler, a staff canteen and changing rooms for factory employees. The factory can
then be expanded, moved or its function transformed without having to start from scratch. The
modular factory concept is designed to industrialise simple processes like repacking and mixing
dry goods such as Maggi bouillon cubes, rather than creating more complex products.

Assessing financial requirements

In most process technology decisions the most important feasibility question is, ‘How
much financial investment will the technology require, and can we afford it?’ At its sim-
plest, this could mean simply examining the one-off cost of the purchase price of the
technology. Usually, though, an examination of the effect of the cash requirements on
the whole organisation is necessary. If so, it is often necessary to simulate the organisa-
tion’s cash flow over a period of time. Computing the total inflow of cash over time as it
occurs, and subtracting from it the total outflow of cash as it occurs, leaves the net fund-
ing requirement for the option. For example, Figure 6.11 shows the net cash inflows likely
to be earned if a proposed technology is adopted and the cash outflows associated with its
purchase and implementation. The resulting cash requirements show that a maximum

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 220 CHAPTER 6 • P r o ce s s tech n o l o g y strategy

Figure 6.11 Cash inflows, outflows and requirements up to the finish of the
project (€000s)

3,000

Cash requirements (€s)

2,000

1,000

Start 12 24 36 48
Time (months) End
–1,000

Six-month periods 0 1 2 3 4 5 6 7 8

Cash inflows 0 1,000 1,000 1,000 1,000 2,000 0 0 3,000

Cash outflows 1,050 800 970 950 700 200 200 200 300
Net cash flow (1,050) 200 30 50 300 1,800 (200) (200) 1,700

Beginning cash
without financing 0 (1,050) (850) (820) (770) (470) 1,330 1,130 930
Ending cash
without financing (1,050) (850) (820) (770) (470) 1,330 1,130 930 2,630

All figures in €s

funding requirement of €1,050,000 occurs within the first eight months of the project,
and diminishes only slowly for two years. After that, the project enjoys a large net inflow
of cash. Of course, this analysis does not include the effects of interest payments on cash
borrowed. When it is decided how the cash is to be raised (i.e. borrowed from a bank or
private investor or raised from the equity markets), this can be included.

Evaluating acceptability
Evaluating acceptability can be done from many technical and managerial perspec-
tives. Here we limit our discussion to cover the financial perspective on evaluation and
the ‘market requirements’ and ‘operations resource’ perspectives. Figure 6.12 summa-
rises the different elements of our analysis.

Acceptability in financial terms

Financial evaluation involves predicting and analysing the financial costs to which an
option would commit the organisation, and the financial benefits that might accrue
from acquiring the process technology. However, ‘cost’ is not always a straightforward
concept. An accountant has a different view of ‘cost’ to that of an economist. The

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Figure 6.12 Assessing the ‘acceptability’ of a process technology

Operations resource Market

capabilities requirements

Is the process How does the process

technology . . . Proposed technology affect . . .
Scarce? process Quality?
Difficult to move? technology Speed?
Difficult to copy? Dependability?
Difficult to Flexibility?
substitute for? Cost?

Financial evaluation

Does the process

technology give an
acceptable return on
the investment
necessary for its
adoption?

accountant’s view is that the cost of something is whatever you had to pay to acquire
it originally. The economist, on the other hand, is more likely to define costs in terms
of the benefits forgone by not investing elsewhere: that is, the opportunity cost of the
technology. Thus, to the economist, the cost of investing in a process technology is
whatever could be gained by investing an equivalent sum in the best feasible alterna-
tive investment. While opportunity costing has obvious intuitive attractions, and is
particularly useful in process technology investments where alternative technologies
may bring very different benefits, it does depend on what we define as the best feasible
alternative use of our resources. The accountant’s model of acquisition cost is at least
stable – if we paid €1,000 for something, then its value is €1,000, irrespective of what-
ever alternative use we might dream up for the money.

The life cycle cost

The concept of life cycle costing is useful in process technology evaluation. It involves
accounting for all costs over the life of the investment that is influenced directly by the
decision. For example, suppose a company is evaluating alternative integrated ware-
housing systems. One system is significantly less expensive and seems at first sight to
be the least costly. But what other costs should the company consider apart from the
acquisition cost? Each system would require some initial development to remedy out-
standing technical problems before installation. The systems would also have to be
‘debugged’ before operation, but, more importantly, during its years of life the plant
will incur operation and maintenance costs that will, in part, be determined by the orig-
inal choice of system. Finally, if the company wants to look so far ahead, the disposal
value of the plant could also be significant. In fact, total life cycle costing is impossible
in any absolute sense. The effects of any significant investment ripple out like waves
in a pond, impinging on and influencing many other decisions. Yet it is sensible to

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include more than the immediate and obvious costs involved in a decision, and a life
cycle approach proves a useful reminder of this.

The time value of money: net present value (NPV)

One of the most important questions to be answered in establishing the ‘real’ value of
either costs or benefits is determining when they are incurred or realised. This dynamic
is important, because money in your hand today is worth more to you than the same
money would be worth in a year’s time. Conversely, paying out a sum in one year’s time
is preferable to paying it out now. The reason for this has to do with the opportunity
cost of money. If we receive money now and invest it (in a bank account or in another
project giving a positive return), then in one year’s time we will have our original invest-
ment plus whatever interest has been paid for the year. Thus, to compare the alternative
merits of receiving €100 now and receiving €100 in one year’s time, we should compare
€100 with €100 plus one year’s interest. Alternatively, we can reverse the process and
ask ourselves how much would have to be invested now, in order for that investment to
pay €100 in one year’s time. This amount (lower than €100) is called the present value
of receiving €100 in one year’s time.
For example, suppose current interest rates are 10 per cent per annum. The amount
we would have to invest to receive €100 in one years’ time is as follows:

1
:100 * = :90.91
1.10
1 1 1
:100 * = :100 * = :82.65
(1.10) (1.10) (1.10)2

The rate of interest assumed (10 per cent in our case) is known as the discount rate.
More generally, the present value of €x in n years’ time, at a discount rate of r per cent is

x
(1 + r/100)n

Limitations of conventional financial evaluation

Conventional financial evaluation has come under criticism for its inability to include
enough relevant factors to give a true picture of complex investments. Nowhere is
this more evident than in the case of justifying investment in process technologies
comprising a significant IT element. Here costs and benefits are uncertain, intangi-
ble and often dispersed throughout an organisation. Indeed, with all the talk about
there being a ‘new economy’, the myriad discussions about computers removing cost
(labour) from operational processes, or the impact of the creation of knowledge and
information-based markets, you could be forgiven for thinking that the computer age
was an unambiguously positive thing for business. Until recently, however, there has
been little actual evidence that, for all the IT investment that firms have made, there
has been any real impact upon overall productivity.

Acceptability in terms of impact on market requirements

Extending the idea of considering all competitive benefits from an investment, we
have argued elsewhere in this chapter that process technology can impact all of the
generic operational performance objectives: quality, speed, dependability, flexibility

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and cost. The questions listed in Table 6.2 can help to provide a framework for assess-
ing the impact of any proposed investment on each of them. In order to illustrate this,
we have applied them to a generic analysis of the effect of process technology on the
airline industry.
Although the examples in Table 6.2 were set in the airline industry, we could have
done the same for any industry. The most important point to emerge from any similar
analysis in any sector is that the market opportunities associated with process technol-
ogy are far greater than the traditional narrow focus on cost reduction. Any sensible
evaluation of process technology must include all the effects impacting on quality,

Table 6.2 Evaluating the acceptability of process technology investment on market criteria

Generic questions Example

Quality Does the process technology improve the An airline investing in in-flight entertainment
­specification of the product or service? technology to enhance the specification of its
That is, does it provide something better or flight services.
­different that customers value? An airline investing in maintenance ­equipment
Does the process technology reduce unwanted that keeps the performance of its aircraft
variability within the operation? Even if and ancillary systems within very tight
absolute specification quality is unaffected ­tolerances. This reduces the risk of failure in
by process technology, it may contribute to equipment, as well as increasing the internal
conformance quality by reducing variability. predictability of the airline’s processes.

Speed Does the process technology enable a faster The check-in technology used by airlines at
response to customers? Does it shorten the airport gates and lounges in effect allows
time between a customer making a request customers’ requests for seating or dietary
and having it confirmed (or a product requirements to be explored quickly and, if
­delivered etc.)? possible, confirmed.
Does the process technology speed the The technology that allows the fast loading
­throughput of internal processes? Even if of customers’ bags and in-flight ­catering
customers do not benefit directly from faster ­supplies, allows fuel to be loaded and engines
process throughput within an ­operation, to be checked etc. all reduces the time the
­technology increasing ‘clock speed’ can ­benefit aircraft spends on the ground. This allows the
the operation by, for instance, ­reducing costs. aircraft to be used more intensively.

Dependability Does the process technology enable p ­ roducts Specialist navigation equipment installed in
and/or services to be delivered more ­aircraft can allow them to land in conditions
­dependably? Although many of the causes of of poor visibility, thus reducing the possibility
poor dependability may appear to be outside of delays due to bad weather.
the control of an operation, technology may Customers benefit directly from such an
help to bring some of the factors within its increase in dependability.
control. Airlines invest in advanced aircraft
Does the process technology enhance the ­communications technology. Efficient
dependability of processes within the ­communication between aircraft and
­operation? Again, even when customers control centres reduces the possibility of
see no direct result of more dependable ­miscommunication, which, even when
­technology, it can provide benefits for the ­presenting no danger, can waste time and
operation itself. cause confusion. Indeed, an oft-cited concern
of many airlines is that airports around the
world do not always match their investment in
communications technology – preventing maxi-
mum productivity gains from their equipment.

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Flexibility Does the process technology allow the When an airline considers the mix of aircraft
­operation to change in response to changes types to include in its fleet, it does so partly
in customer demand? Such changes may be to retain sufficient flexibility to respond
in either the level or nature of demand. to such things as timetable changes or
Does the process technology allow for ­unexpected demand.
­adjustments to the internal workings of the Some aircraft (notably the Boeing 777) ­permit
operations processes? the precise configuration of cabins and
­seating to be changed. While this may not
happen very frequently, it offers airlines the
flexibility to provide a different mix of services
without having different types of aircraft.

Cost Does the process technology process materials, A major driver for airlines to invest in new
information or customers more efficiently? aircraft is the greater efficiency (€/­passenger
As we mentioned previously, this is by far mile flown) of each new generation of
the most common basis for justifying new ­aircraft that derives from the overall design
process technology, even if it is not always of the aircraft and, most especially, the
the most important. It is never unimportant, engines powering them.
however. The ‘yield management’ decision support
Does the process technology enable a greater ­systems used by airlines enable them to
effectiveness of the operations p ­ rocesses? ­maximise the revenue from flights by
Even if straightforward efficiency is ­adjusting capacity and pricing strategies to
­unaffected, process technology can aid the match demand patterns.
deployment of the operations ­capabilities
to increase profitability or general
effectiveness.

speed, dependability, flexibility and cost. As we stressed in Chapter 2, the generic per-
formance objectives are very rarely equally important for all types of operation. Their
relative importance will reflect the actual and intended market position of the organi-
sation. The implication of this for evaluating process technology is straightforward:
any evaluation must reflect the impact of process technology on each performance
objective relative to their importance to achieving a particular market position. Often
there will be trade-offs involved in adopting a new process technology. Reverting to
our airline examples earlier, one advantage of having a fleet of mixed aircraft is the flex-
ibility it provides to match aircraft to routes as the demand on different routes changes.
Yet different types of aircraft require different spare parts, different maintenance proce-
dures and different interfaces with ground technology and so on. This may add more
cost and complexity to the total airline operations than is gained through the benefits
of flexibility. For example, Airbus, the European airline consortium and great rival to
the US aerospace giant Boeing, claims that its strategy of common cockpit and flight
control systems across its range of planes saves considerable cost. Commonality in such
systems allows pilots and ground crews to deal with similar systems with 120-seater to
400-seater aircraft.

Acceptability in terms of impact on operational resources

Using the generic performance objectives can help us to characterise the potential con-
tribution that process technology can make to market requirements. At the same time,
however, it is important to build up a picture of the contribution that process technol-
ogy can make to the longer-term capability ‘endowment’ of the operation. We can use

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the dimensions described in Chapter 1 as being ‘strategic’ according to the resource-

based view of the firm. As a reminder, these four dimensions are
● the scarcity of resources;
● how difficult the resources are to move;
● how difficult the resources are to copy; and
● how difficult the resources are to substitute.
These four dimensions provide us with a ‘first cut’ mechanism for assessing the impact
that a specific technological resource will have upon sustainable competitive advan-
tage. Table 6.3 develops these four dimensions with examples.

Table 6.3 The four dimensions of ‘strategic’ operations resources

Generic questions Example

Scarcity Does the technology represent any Such resources might include bespoke
kind of first-mover advantage? production facilities in industries such
In other words, how much of the as petrochemicals and pharmaceuticals,
developed technology (or perhaps its where first-mover advantage often
underlying R&D) is not possessed by generates superior returns.
competitors? Capturing customer data over time and
Does the technology help to create or then exploiting this information has
exploit proprietary product/service long been a core element of airline
knowledge, perhaps in the tangible competitive strategies – such informa-
form of a database? tion is extremely scarce.

Difficult to move How much of the process technology The value of resource immobility helps to
was developed in-house? If a process explain the increased emphasis being
technology is unique and, moreo- placed upon infrastructure develop-
ver, it was developed ‘in-house’, ment in the management consulting
then such resources cannot easily be sector – to facilitate the retention of
accessed without purchasing the firm. skills, knowledge and experience.
How many of the critical technologi- Mobility concerns in, say, the IT sector
cal resources ‘don’t walk on legs’? explain the emergence of more com-
In other words, highlight those plicated contracts (constraining sub-
resources that are more than contrac- sequent employment etc.) and wage
tually tied into the operation. inflation for certain key staff.

Difficult to copy How far down the ‘learning curve’ is Experiences such as those documented
the process technology? in high-volume processes, such as Intel
How strong is the legal protection? and semiconductors, can create com-
Patents offer some protection, even petitive performance barriers.
though the process is long, often In the competitive confectionery market,
expensive and may attract greater for instance, there is almost pathologi-
competitive risk than simply having cal secrecy associated with proprietary
better site security. production processes, but very little
recourse to the filing of patents.

Difficult to create a substitute What, if any, market mechanisms exist Traditional EDI-type connections integrate
to prevent process technology simply supply chains but can also help to estab-
becoming irrelevant through the lish de-facto standards and introduce
introduction of a substitute? switching costs. They can therefore pre-
vent rivals offering substitute services.

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Tangible and intangible resources

It is important to recall that in our discussion in Chapter 1 on the importance of opera-
tions resources and process, we were careful to distinguish between tangible and intan-
gible resources. Tangible resources are the actual physical assets that the company
possesses. In process technology terms these will be the machines, computers, mate-
rials handling equipment and so on, used within the operation. Intangible resources
are not necessarily directly observable but, nevertheless, have value for the company.
Things such as relationship and brand strength, supplier relationships, process knowl-
edge and so on, are all real but not always directly tangible. This concept of intangible
resources is important when considering process technology. A unit of technology
may not be any different physically from the technology used by competitors. How-
ever, its use may add to the company’s reputation, skills, knowledge and experience.
Thus, depending on how the process technology is used, the value of the intangible
aspect of a process technology may be greater than its physical worth. If the usefulness
of process technology also depends on the software it employs, then this also must
be evaluated. Again, although software may be bought off the shelf and is therefore
available to competitors, if it is deployed in imaginative and creative ways its real value
can be enhanced.

Evaluating market and resource acceptability

Consider, for instance, a Windows-based data management system for a police force
to help manage their crime laboratory. The lab is where samples from a range of crime
scenes are tested in a large variety of different processes (DNA testing, fingerprint analy-
sis etc.) that vary widely in their sophistication and complexity. Although speed is often
of the essence in the lab, accuracy and dependability are equally critical, as is their legal
requirement to store and access information over extended periods of time (for legal
appeals, long-term investigations etc.). While this operation does not have a market
position as such, it still has a set of social and legal priorities that are its direct equiva-
lent. Figure 6.13 illustrates this by adding a further line to the profile that indicates what
the laboratory’s performance targets are. Although the new process technology does
not improve operations performance in all aspects of the crime lab’s ‘market’ require-
ments, it does improve some specific areas of performance and does not appear to have
any negative effects. However, it is when we turn our attention to the resource profile of
the technology that the relevance for ‘not-for-profit’ operations of dimensions derived
from a competitive marketplace needs to be more closely examined. Although we might
see the usefulness of a unique and difficult-to-copy crime database in the ‘war against
crime’, the positive advantage of having resources that rank highly on the RBV dimen-
sions is not clear for an accountable public sector operation.
In other words, if a resource (such as knowledge or experience) is difficult to move
or copy, this can contribute to sustainable advantage in a competitive marketplace.
However, such characteristics can act against critical public sector objectives such as
effective information transfer or even accountability over performance. In this type of
application, therefore, it is necessary to see the resource characteristics as useful in a dif-
ferent way. So, for instance, imagine that the staff experience associated with analysing
particular types of DNA evidence is crucial for the crime lab but very difficult to copy
and therefore shared both within and between labs. The operations strategy response
might therefore be to diminish (rather than embrace) this ‘imitability’ characteristic
by developing systems and procedures that seek to codify (i.e. papers, technical diaries

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Figure 6.13 Performance of laboratory analysis and data-based systems

New lab
system
performance
with new
Target Current
technology
performance performance
Excellent Poor
Quality Notes
Confidence in analysis Data allows statistical
Number of tests possible tracking of cases over time.
Improvement potential Tool for internal process
improvement and enhanced
crime solving

Speed
Analysis time Reduced time to analyse case
Report lead-time material and produce reports

Increased per cent on-time

Dependability delivery of crime reports. Often a
critical-path element in
Proportion on-time reports
a criminal investigation

Flexibility The new (more scalable)

Volume fluctuation system allows increased case
Range of tests volume (5 per cent growth
predicted) to be accommodated

Cost The elimination of paperwork is

Productivity of direct work intended to increase productivity
Productivity of indirect work by freeing staff from non-core
activities

Excellent Poor

and open databases) and encourage regular sharing of experiences (i.e. seminars, staff
exchanges and apprenticeships).

Evaluating vulnerability
There have been some spectacular and very public failures associated with the introduc-
tion of new process technology. Yet presumably all of these process technology ‘failures’
were at one time determined to be both feasible and acceptable to the operation. Their
subsequent failure highlights one further important issue to explore – v ­ ulnerability.
That is, what exposure is the firm accepting if something goes wrong with the technol-
ogy once the decision to invest is made?
Evaluating the risks associated with new process technology can be based on a very
similar type of analysis that we used for assessing acceptability; namely, by assessing
risk in terms of market, resource and financial perspectives.

Example Rampaging robots9

It is not a big problem (at least not at the moment), but it could become one as robot technologies
start to mix directly with customers. Robots can be dangerous, and not just in a highly automated
factory environment. (Although factory robots can be dangerous: in 2015 a factory worker at a
Volkswagen factory was picked up and killed by a robot. He was installing it when he was lifted

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up by the robotic arm and crushed against a metal plate, suffering fatal chest injuries.) It is the
introduction of robotic technologies into the customer environment that could give rise to new
areas of reputational risk for companies. For example, in 2016, a robot that was intended to guard
against shoplifters accidentally ran over a 16-month old boy at a shopping centre in Palo Alto,
California – ironically, a town famous for high-tech industries. The 130-kg robot, which looks
like R2-D2 from Star Wars, apparently did not sense that the child had fallen in its path and failed
to stop before they collided. According to the boy’s mother, ‘the robot hit my son’s head and he
fell down – facing down – on the floor, and the robot did not stop and it kept moving forward’.
It is an issue that was causing concern (or discussion) decades ago, before robots existed. The
author, and visionary, Isaac Asimov devised his Three Laws of Robotics to protect humans.
1 Don’t hurt a human being, or through inaction, allow a human being to be hurt.
2 A robot must obey the orders a human gives it unless those orders would result in a
human being harmed.
3 A robot must protect its own existence as long as it does not conflict with the first two laws.
The robot makers, Knightscope, said the incident was ‘absolutely horrifying’ and that the com-
pany would apologise directly to the family. It also pointed out that its fleet of similar robots
had covered 25,000 miles on patrol duty and there had never been an incident like this before.
Nevertheless, the Shopping Centre said it would temporarily take the robot out of service.
Other concerns that have been raised by companies fearing legal liability and reputational
risk include domestic devices like robot vacuum cleaners hurting pets or humans. A South
Korean woman was sleeping on the floor when her robot vacuum ‘ate’ her hair. Also some
‘automated’ services that could lead to customers confusing what’s real and what isn’t, resulting
in customers revealing more than they intended. For example, ‘Invisible Boyfriend’, is a service
that, for a monthly fee, sends ‘pretend’ romantic texts and voicemails to your phone – but not
all customers realise it is not fully automated, and that there are human operators involved.

Market vulnerability
Any investment in new technology needs to make an assumption concerning the mar-
ket (and more generable environment) that will exist when the technology is ‘up and
running’. The possibility to which any technology is subject to, therefore, is that of mar-
ket conditions being different from those envisaged when the technology was initially
planned. This type of vulnerability is inherent in every process innovation. Uncertainty
results from the fact that, on the one hand, events in the future do not follow the course
of past events and, on the other, knowing about the future is always incomplete. At its
simplest, this could be that market demand is different, either larger or smaller to such
an extent that the scale of the technology is inappropriate.
Six factors creating the uncertainty that leads to vulnerability in the innovation pro-
cess can be identified.10
1 Market vulnerability – will the technology, when developed and implemented, meet
the needs (real or perceived) of the market?
2 Regulatory vulnerability – will the technology conflict with any likely ‘constraining
regulations’ related to the environment, health or market behaviour (a significant
factor, for example in financial services)?
3 Social and political vulnerability – will the technology prove acceptable to all the
organisation’s stakeholders? Or will it expose a dysfunctional diversity of interests

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within the total stakeholder body? For example, certain legitimate oil and gas extrac-
tion technologies may provoke social opposition.
4 Acceptance and legitimacy of vulnerability – will groups or individuals who feel them-
selves affected by it accept the technology? Although rationally an improved tech-
nology, does it threaten existing jobs?
5 Timing vulnerability – will the technology be implemented either too early or too late
with respect to parallel developments (e.g., competitors’ new technology)?
6 Response vulnerability – will the technology provoke hostile competitor innovations?
Is a ‘technology war’ desirable?

Resource vulnerability
All process technologies depend, for their effective operation, on support services. Spe-
cific skills are needed if the technology is to be installed, maintained, upgraded and
controlled effectively. In other words, the technology has a set of ‘resource depend-
encies’. Changing to a different process technology often means changing this set of
resource dependencies. This may have a positive aspect. The skills, knowledge and expe-
rience necessary to implement and operate the technology can be scarce and difficult
to copy and hence provide a platform for sustainable advantage. But there can also be
a downside to a changed set of resources dependencies. For example, the specific skills
needed to implement or operate a new process technology, because they are scarce,
could become particularly valuable in the labour market. The company is vulnerable to
the risk of the staff that have these skills leaving in order to leverage their value.
Issues of trust and power also influence the vulnerability created by dependence
upon external organisations, such as suppliers and customers. If there is a high degree
of trust between a firm and its technology supplier, it can be entirely appropriate to
become dependent for the installation, maintenance and upgrading of process tech-
nology upon a particular external provider. Dependence can also work the other
way. Customers may ask for a particular piece of technology to be dedicated to their
business. Again, this can be entirely legitimate if the operation trusts its customer to
continue generating work for them over a suitable period. However, such exclusive
relationships inevitably introduce vulnerabilities. For example, suppose an operation
is choosing between alternative suppliers of software. One supplier seems to be particu-
larly price-competitive, very service-oriented and has developed a particularly effective
leading-edge application. Unfortunately, this supplier is also smaller than the alterna-
tive suppliers. Although its products and service may be superior, it is itself more vul-
nerable to business pressures. If it went out of business the company would be left with
unsupported infrastructure. Under these circumstances the company may decide that
choosing this supplier would expose it to unacceptable levels of vulnerability.

Financial vulnerability
By ‘financial vulnerability, we mean the financial exposure that adopting a new tech-
nology poses to the adopting organisation. Of course, financial vulnerability can result
from market and/or resource vulnerability. Unexpected market conditions or failure
of the technology to perform as expected can both seriously impact the financial con-
sequences of investing in new process technology. Revenues, running costs, capital
requirements and the resulting cash flows will all be affected by market and resource
vulnerabilities. At the very least, one would expect any firm to explore the sensitivity
of financial outcomes to possible deviations from expected market and resource-based

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 230 CHAPTER 6 • P r o ce s s tech n o l o g y strategy

conditions. But it is also important to recognise that, even if market and resource con-
ditions are exactly as expected, other conditions that impact on financial outcomes
could be unexpected. For example, the availability of credit, interest rates, stock market
sentiment and currency exchange rates can all affect the financial outcome of a project.

Summary answers to key questions

What is process technology strategy?
Here, technology is defined as the practical ‘appliance of science’, and ‘process technol-
ogy’ is technology as applied to operational processes (as opposed to product/service
technology). This distinction is inevitably less clear in many service operations where
the product is the process. We can further classify two types of process technology: the
first is that contributing ‘directly’ to the production of goods and services; the second
type is the ‘indirect’ or ‘infrastructure’ technology that acts to support core transfor-
mation processes. Process technology strategy is the set of decisions that define the
strategic role that direct and indirect process technology can play in the overall opera-
tions strategy of the organisation, and sets out the general characteristics that help to
evaluate alternative technologies. Any technology strategy is likely to be planned in
consultation with other parts of the firm, maybe using some kind of formal planning
process such as technology roadmapping. A technology roadmap (TRM) is an approach
that provides a structure that attempts to assure the alignment of developments (and
investments) in technology, possible future market needs and the new development of
associated operations capabilities.

What are suitable dimensions for characterising process technology?

Although generic dimensions will always fail to capture completely the rich detail of
any individual piece of process technology, it is normally useful to describe scale (capac-
ity of each technology unit), automation (what the machine can do) and coupling
(how much is or can be joined together) characteristics. Although these three dimen-
sions are unlikely to be equally relevant for all types of technology, they do offer a useful
categorisation for comparing a range of process technology options.
We can modify our original dimensions (scale, automation and integration) to more
accurately reflect the characteristics of IT-rich process technology. More suitable char-
acteristics are therefore scalability, analytical content and connectivity. We argued that
these new characteristics were overcoming the traditional flexibility/cost trade-off, and
that new process technologies were able to enhance operational flexibility while still
retaining reasonable underlying efficiency, and vice versa.

How do market volume and variety influence process technology?

There is often a ‘natural’ diagonal-fit relationship between the volume/variety and
process technology dimensions. For example, the larger the unit of capacity, the more
likely that it is capital-intensive rather than labour-intensive, which gives more oppor-
tunity for high coupling between its various parts. Where flexibility is unimportant
but achieving dependable high volumes and low unit costs is critical, such inflexible
systems come into their own. Conversely, small-scale technologies, combined with
skilled staff, tend to be more flexible than large-scale, capital-intensive, closely coupled
systems. As a result, these systems can cope with a high degree of variety.

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 Fu rther rea di ng 231

What are some of the challenges of information technology?

The dominance of information technology (IT) has caused a rethink of how technology
fits into operations strategy. Although there is a positive connection between adopting
IT and productivity growth, it is not guaranteed. But where failure occurs it is usually
caused by managerial, implementation or organisational factors. Moreover, different
kinds of IT pose different kinds of challenge. Limited ‘function IT’, such as CAD, facili-
tates a single function or task. Enterprise IT extends across the entire organisation.
Because of this it will need potentially extensive changes to the organisation. Network
IT facilitates exchanges between people and groups inside and/or outside the organi-
sation. However, it does not necessarily predefine how these exchanges should work.
Enterprise resource planning (ERP) is an example of enterprise IT. It integrates the plan-
ning, resource allocation and control activities of all parts of the business – the better
to make informed planning and control decisions. However, the practical implementa-
tion of this idea has proved to be very complex and expensive. If a business’s current
processes do not fit with the structure of whatever ERP package is purchased, they can
either change their processes to fit the ERP package, or modify the software within the
ERP package to fit their processes. But both of these options involve costs and risks.

How can process technology be evaluated strategically?

Evaluating process technology quite literally means determining its value or worth. It
involves exploring, understanding and describing the strategic consequences of adopt-
ing alternatives. We outlined three possible dimensions: (1) the ‘feasibility’ of technol-
ogy indicates the degree of difficulty in adopting it, and should assess the investment
of time, effort and money that will be needed; (2) the ‘acceptability’ of technology is
how much it takes a firm towards its strategic objectives. This includes contribution in
terms of cost, quality, speed and so on, as well as the development of strategic resources.
In general terms it is about establishing the return (defined in a very broad manner)
that the operation gets for choosing a process technology; and (3) the ‘vulnerability’
of technology indicates the extent to which the firm is exposed if things go wrong. It is
the risks that are run by choosing that specific technology. The uncertainties that lead
to vulnerability in the innovation process include
● market vulnerability;
● regulatory;
● social and political vulnerability;
● acceptance and legitimacy of vulnerability;
● timing vulnerability; and
● response vulnerability.

Further reading
Arthur, W.B. (2009) The Nature of Technology: What It Is and How It Evolves. London: Allen
Lane.
Boardman, A., Greenberg, D., Vining, A. and Weimer, D. (2006) Cost Benefit Analysis: C ­ oncepts
and Practice, 3rd Edition. Harlow, UK: Prentice Hall.
Bocij, P., Greasley, A. and Hickie, S. (2008) Business Information Systems: Technology, Develop-
ment and Management for the E-Business. Harlow, UK: Financial Times/Prentice Hall.

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 232 CHAPTER 6 • P r o ce s s tech n o l o g y strategy

Brynjolfsson, E. and McAfee, A. (2014) The Second Machine Age: Work, Progress, and Prosperity
in a Time of Brilliant Technologies. New York: W.W. Norton & Company.
Carlopio, J. (2003) Changing Gears: The Strategic Implementation of Technology. Basingstoke:
Palgrave Macmillan.
Edgerton, D. (2006) The Shock of the Old: Technology in Global History Since 1900. London:
Profile Books.
Ford, M. (2015) The Rise of the Robots–Technology and the Threat of Mass Unemployment.
­London: Oneworld Publications.
Hayes, R.H., Pisano, G.P., Upton, D.M. and Wheelwright, S.C. (2004) Operations, Strategy, and
Technology: Pursuing the Competitive Edge. New York: Wiley.
Shane, S.A. (2013) Technology Strategy for Managers and Entrepreneurs. Harlow, UK: Pearson.
Susskind, R. and Susskind, Daniel (2015) The Future of the Professions: How Technology Will
Transform the Work of Human Experts. Oxford, UK: OUP.

Notes on the chapter

1 Sources include: West, K. (2011) Turn up the heat with Marmite, Sunday Times, 2 October;
Unilever’s sustainable living report (2012) http://www.unilever.co.uk/sustainable-living/
2 Sources include: The Economist (2016) ‘Artificial intelligence and Go’, 12 March; Koch, C.
(2016) ‘How the Computer Beat the Go Master’, Scientific American, 19 March.
3 Sources include: The Economist (2014) ‘The future of jobs: Previous technological innovation
has always delivered more long-run employment, not less. But things can change’, 18 ­January;
The Economist (2013) ‘Schumpeter–The age of smart machines’, 25 May; ­Finkelstein (2013)
‘Machines are becoming cheaper than labour’, The Times, 6 November; Groom, B. (2014)
‘­Automation and the threat to jobs’, Financial Times, 26 January; Benedikt Frey, C. and
Osborne, M.A. (2013) ‘The Future of Employment: How Susceptible Are Jobs to Computerisa-
tion?’, Oxford Martin School Working Paper, 17 September; Brynjolfsson, E. and M ­ cAfee, A.
(2014) ‘The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant
­Technologies’, W. W. Norton & Company.
4 Brynjolfsson, E. (1994) ‘Technology’s true payoff’, Information Week, October.
5 This categorisation is described in McAffee, A. (2007) ‘Managing in the Information Age’,
Harvard Business School, Teaching note 5-608-011.
6 Teach, E. (2004) ‘Watch how you think’, CFO Magazine, January.
7 Sources include: The Economist (2016) ‘High tech meets low finance’, Buttonwood blog,
12 March; The Economist (2015) ‘The fintech revolution’, 9 May; Wilkins, C. (2016) ‘Fintech
and the Financial Ecosystem: Evolution or Revolution?’, Bank of Canada, Remarks issued
17 June.
8 Sources include: Nestlé’s Media Room (2014), ‘Flexible, fast and functional: Nestlé to adopt
modular factories’, http://www.nestle.com/media/, Posted 4 July.
9 Sources include: Deng, B. (2016) ‘Security robot runs over toddler at shopping centre’, The
Times, 15 July; Leader (2016) ‘They, Robots–Accelerating progress in robotics demands
advances in ethics and economics’, The Times, 1 January; Hall, A. (2015) ‘Factory robot grabs
worker and kills him’, The Times, 3 July.
10 This classification is based partly on: Jalonen, H. and Lehtonen, A. (2011) ‘Uncertainty in the
innovation process’, Proceedings of the European Conference on Innovation and Entrepre-
neurship, 15–16 September, Aberdeen, Scotland, UK.

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