>> [MUSIC] >> The framework is about asking questions. For assets, let's adopt an assets or resource you by asking. One, sizing. How much capacity should you invest in? Timing. When should a firm add capacity, given issues such as lead time, both in hiring and in building a facility? Type of assets. One of the key issues when hiring or investing in assets is whether to hire generalists or specialists. Or when serving multiple market segments, whether to invest in flexible or dedicated capacity. Four, location. Where shall I locate my assets? Two examples are worth discussing here. Tesla recently announced a location, Nevada, for its new huge battery production facility. As you can see in this company slide, Tesla aims to be at full capacity of 500,000 cars per year by the year 2020. To accomplish that goal, the firm had to choose a location quickly, so it could begin building the facility in 2014, and begin ramping up around 2017. This is an example of an asset decision that combines sizing, timing and location. In session four, we will discuss the main tools we can use to make such asset decisions. But not all firms need to take decisions of this magnitude. Mafia, the restaurant chain we mentioned in the first video of this module, had to make a decision whether to centralize the kitchen, and if so, where to locate it. This decision involves questions of flexibility. Shall we allow each restaurant to have its own dedicated kitchen or are there benefits for pooling the resources and centralizing them? >> For processes we ask questions about the way work flows in organization and value is being created. This includes at least five questions that pertain to supply sourcing. Which activities do we perform internally? Which are outsourced? And how do we manage suppliers? What type of technology is used for input-output transformation. Discussing product, process, information, and transportation technology. Demand, how does the operating system interact with the end user market or final good market? How do we manage improvement and innovation, and how do we manage risk? Given the length of this course, we will devote time only to the first question among these. The decision of whether to source a specific activity and how to manage the relationship with our suppliers. We already mentioned how Uber must deal with this question continuously, but we will also discuss Walmart and its decision to consider crowdsourcing delivery to customers. Yes, you heard that right. Walmart considered using one of the hallmarks of the sharing economy by asking its own customers to deliver goods to other customers. What are the benefits? What are the risks? How do we manage the relationship with these customer turned delivery men? For capabilities, we ask two key questions. How good is the current operating system in delivering products and services in terms of the costs, timeliness, quality, variety customization? What are the desired capabilities given the business strategy? We will devote the third module to build the framework to access whether the actual capabilities are also the desired ones. The main value of such a framework is that it forces us to take the complex reality of the firm and disentangle it into the basic fundamental elements of it. Assets and processes. And test whether indeed these support the desired capabilities required to achieve the goal of maximizing stakeholder value. >> Let's do a quick example of assessing alignments. Sharp's decision to invest $11 billion and build a new plant. Sharp is a Japanese multinational corporation that designs and manufactures electronic products. In 2009, the firm built a new production facility at Sakai. The Sakai factory was initially built as a pioneer for Japanese high tech manufacturing. It costs $11 billion to build. It covers the land of 32 baseball stadiums, and is the only factory in the world that creates 10G LCD panels. At full capacity, the plant can produce 72,000 giant glass sheets. Or 576,000 60-inch TV screens per month. One of the reasons for the size of the plant was the decision to cut costs and time by requiring suppliers to collocate on site, in what Sharp referred to as hybrid just in time. When the project was announced back in 2007, LCD demand was high. Then 2008 occurred and Sharp the owners of the Sakai factory posted its first annual loss in 60 years. Even after the factory began producing LCD panels in late 2009. Revenues were highly dependent on a volatile TV market. In 2011, parallel slump in the TV market led to excess inventory and the biggest fiscal year loss in Sharp's entire history. >> Viewed from the perspective of the Vidcup framework, Sharp is attempting a new operational business model in which the firm invests in the large capacity early in an attempt to achieve economies of scale. From the process view, the firm requires its supplier to move closer to reduce cost and possibly to achieve faster time to market for quick improvements. Sharp uses this operating system to achieve capabilities such as cost reduction and faster time to market in a world with quick technological changes. It is important to contrast Sharp's operational business model with that of its competitors, Samsung and LG, who produces primarily in China. >> God, it is easy to look at the decision at 2009 and say that it was a mistake, but let's try to use the framework and assess the decision. Is the decision to invest in such a plan aligned with the desired capabilities? We will revisit this question later when we discuss assets and resources. >> The main value of the framework is enforcing management to ask questions about the decisions that are made and make sure that these are aligned with the overall strategy. The framework can also be used to identify opportunities. That is decisions that were made that are not particularly supportive of the overall strategy and capabilities. [MUSIC]
