This summary summarizes all of what there is to know about the course business processes. It contains all of what is said in the lectures and tutorials. In addition, this summary has multiple exercises that not only explain the theory of this course but also help you prepare for the exam!
Consumer Utility
= a measure of the customer preference of a product or service
The decision: Where will we go for lunch today, and why?
Utility number is not enough to explain why one should go there for lunch
Consumer utility
=
Consumption Utility Price Inconvenience
Performance Fit Location Timing
• Price:
o The total cost of owning a product or receiving a service
o Including expenses such as shipping and financing etc.
• Inconvenience:
o The reduction in utility that results from the effort of obtaining the product or service
o Location: The place where customer can get a product or service
o Timing: the amount of time that passes between ordering and receiving a product or service
• Consumption Utility:
o Is a measurement of how much you like a service, ignoring the effects of price and its
inconvenience
o Consumption ability comes from various attributes such as Performance and fit
o Performance: subcomponent of consumption utility capturing how much a consumer
desires a product or service (we all desire “cleaner”, “newer”, “more efficient” …)
o Fit: subcomponent of consumption utility that captures how well the product or service
matches with the uniqueness of a given consumer. On some attributes consumers disagree
what the best is
,What drives your utility of where to go to dinner?
• Consumption utility:
o Performance: freshness, nutrition level, cleanliness
o Fit: style of food, taste, style of restaurant
• Price: price for the food order
• Inconvenience:
o Location: closeness of the restaurant
o Timing: fast food vs longer waiting time
What drives your utility of choosing a hotel room in San Francisco?
• Consumption utility:
o Performance: air-conditioning, Wi-Fi, size of the room
o Fit: classic vs. modern, quiet vs busy atmosphere
• Price: just the price you pay to the hotel
• Location: close to your travel plans (e.g., sightseeing, attend a conference, ..)
• Timing: no room available during your holidays
Strategic trade-offs and the Efficient Frontier
Strategic Trade-off:
• When selecting inputs and resources, the firm must choose between a set that excels in one
direction of customer utility or another, but no single set of inputs and resources can excel in all
dimensions
• To decide in which dimensions of the customer utility a firm wants to excel
Capabilities:
• The dimensions of the customer’s utility function a firm is able to satisfy
• Capabilities allow a company to do well on some but not all components of customer utility
• We focus on two dimensions, namely responsiveness and cost performance
• If a company is more responsive, it is faster in serving a customer
• If a company improves its cost performance: How much money in resources does the company
needs to invest to serve a single customer
• How do the customers value these aspects in the utility
• Market segments:
o A set of customers who have a similar utility functions
, restaurant A and B dominate restaurant C
Restaurant D dominates all of the other restaurants (paerito optimal)
, Towards (and beyond) the Pareto Frontier
Operations management
• Improving the way, a business does its work in order to be part of the efficient frontier (“The
Science for the Better”)
• Managing processes to efficiency (e.g., reduced cost, better utilized resources) match deand and
supply
Costs for inputs:
• Inputs are the things that a business purchases:
o A fast-food restaurant purchases meat, salad, buns, soda, etc.
o Car manufactures buy steel, seats and tires
o Hospitals purchase medications bandages and food
Costs for resources:
• Resources are the things in a business that help transform input into output that match customers
demand:
o Ina fast-food restaurant, the resources that are the cooking equipment, the real estate of
the restaurant and the employees
o Car manufacturers have plants, warehouses and employees
o Hospitals have doctors, nurses and their building
Three System Inhibitors: Waste, Variability, Inflexibility
Waste
• Everything that is associated with our cost that does not add anything with regards to well you
• The consumption of inputs and resources that do not add value to the customer
• It does not help you make more money
o Restaurant: disposes expired food, bad layout (e.g., employees waste time looking for the
sauce)
o Every time that a employee wastes time to do something that does not make the company
(restaurant) any profit is a waste
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