1.5 Tools: Total Order Performance

Let’s ask a question: “Which value dimension is most important?” Based on your own personal experience, you’re probably thinking, “It depends—various dimensions are important in different buying situations.” If so, you’re right. Your job is to understand customers’ needs well enough to know what really matters in each buying situation.

Decision Rules

Terry Hill, professor at London Business School, expressed this idea using the language of order winners, order qualifiers, and order losers. Three decision rules can help you determine how much weight to place on each value dimension as you design your operations.

Get into the Game

Almost always, cost and quality are critical value dimensions. If you want to be taken seriously as a potential supplier, you have to offer high quality at low cost. However, high levels of parity often exist on these dimensions. Cost and quality thus tend to be order qualifiers.

Differentiate Yourself

Harvard’s Michael Porter made a vital observation: Sustained success requires that you offer distinctive value; that is, something special. If your cost and quality are good enough for customers to consider you as a supplier, you need to differentiate yourself in one of the other dimensions. Customers must view your delivery, agility, and/or innovation as an order winner.

Avoid Disqualification

You must meet minimum requirements across all five value dimensions. Even if you rate well on cost, quality, and a differentiating characteristic, you could still disqualify yourself via unacceptable performance elsewhere. Your customers are keeping score. Having an order loser will make it impossible to earn enough points to win (or keep) a customer’s business.

Tradeoffs and Synergies

Let’s make a final point regarding the five value dimensions: Efforts to create value in one area influence the other areas. Many interactions exist within and among the value dimensions. For instance, focusing strictly on the eight quality factors, efforts to add cutting-edge features may hinder reliability. By contrast, efforts to design-in serviceability may improve reliability and durability. Your challenge is to accurately assess these tradeoffs so you can make good decisions.

Importantly, until recently, managers believed it was impossible to pursue improvements across all value dimensions at the same time (see Figure 1.3). Managers viewed high quality as inherently expensive. They perceived consistent delivery to conflict with agility. However, the relationships are more nuanced—and often synergistic. If you can increase process visibility, better share information, and build a flexible workforce, you can achieve higher levels of performance across all value dimensions.

The term hidden plant, for instance, was coined to describe the fact that 15–40% of a firm’s capacity is used to find and fix poor-quality work. That means if you improve quality, you can reduce costs. The ability to do things fast can improve forecast accuracy. The result: Agility improves and costs go down. If you manage your operations as a holistic system, the value dimensions can work together like the spokes of a wheel to move your company to a more competitive market position.