Strategic Operation Management: Ocado's Model, Resources & Performance

This report provides an in-depth analysis of Ocado's business operation management, focusing on its operating model, resource requirements, and performance objectives. It examines Ocado's strategic approach to online retail, highlighting its emphasis on customer satisfaction, strategic partnerships, and efficient supply chain management. The report also explores the potential impact of increased competition, particularly from Amazon's partnership with Morrison's, and suggests strategies for Ocado to maintain its competitive edge, including operational strategies, performance models, and service gap analysis. Additionally, it applies the Soft System Methodology (SSM) to identify potential challenges Ocado may face in opening physical stores and proposes solutions such as enhancing staff competencies and controlling costs. The report concludes by emphasizing the importance of quality management, customer satisfaction, and continuous improvement for Ocado's success in the competitive UK retail market. Desklib offers a range of similar solved assignments and resources for students.

Business Operation Management

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
Presenting Ocado’s operating model...........................................................................................3
PART 2............................................................................................................................................7
Presenting root definition, drawing CATWOE table and rich picture........................................7
PART 3............................................................................................................................................9
Assessing the resources that are required for the effectual implementation of new process.......9
Stating the extent to which performance objectives are related to operational priorities..........10
Use of balance scorecard in measuring company’s performance..............................................10
CONCLUSION..............................................................................................................................12

INTRODUCTION
Business operation management may be served as a process which is highly concerned
with making control on production process. In the strategic business arena, it is highly required
for the company to manage its operations and functions more effectually. Hence, operation
management is highly significant which in turn lays emphasis on planning and execution of
strategies in the right direction. By undertaking the aspects of operation management firm can
streamline its business operations and functions properly. The present report is based on Ocado
which is one of the leading online supermarkets of UK. Such firm has no chain of stores and it
delivers products to the customers directly from its warehouse. Ocado is also listed on the
recognized stock exchange of London such as FTSE 250 (Ocado Group, 2017). In this, report
will provide deeper insight about the operating model undertaken by Ocado. Besides this, it will
also shed light on the new model that can be undertaken by firm for building competitive
advantage. It also depict the sources that need to be undertaken for meeting operational priorities
or requirements.
PART 1
Presenting Ocado’s operating model
In UK market Ocado has built its distinct image in the mind of customers under the
category of online retailer. The main objective of the business unit is to maximize customer’s
satisfaction by fulfilling their needs on time. Hence, Ocado lays high level of emphasis on the
aspects of strategic partnership with the motive to deliver products to customers at affordable
prices. Thus, Ocado has developed unique model which in turn resulted into that now large
number of individuals prefer to purchase products or services from such online retailer. In
addition to this, now most of the individuals prefer to purchase products or services from online
store. The rationale behind this, online store offers high level of convenience to the individuals
and enable them to do shopping whenever they want (Hill and Hill, 2012).
Besides this, now trend towards working women has increased significantly as compared
to prior times. Thus, they do not have enough time to go outside for purchasing general
merchandise. Along with this, online stores also provide opportunity to the customers to make

comparison of prices which are charged by different retailer for the similar kind of products or
services. Thus, all such are the main reasons due to which customers prefer to do online
shopping rather than going to physical store (Krajewski, Ritzman and Malhotra, 2013). By taking
into account such aspect, it can be stated that now online store are highly significant which in
turn helps business in attaining success to a great extent.
Operation management of Ocado in the present times
 Product: Grocery items
 Price: Following penetration pricing strategy for attracting large number of customers.
 Place: Offering products through online store
 Promotion: Laying focus on both social media marketing and traditional modes
In the context of Ocado, key components of operation management include following
which are vital for organization growth and success:
 Supply chain management: In the present era, customers stick to the retailer who
delivers products on time. By considering this, it can be presented that with the motive to
strengthen supply chain aspect Ocado considers the strategy of partnership.
 Efficiency: Enhancement of efficiency level of both human and non-human aspects such
equipment is highly required for better business as well as operation management. Thus,
Ocado focuses on raising efficiency level with for doing delivery of products within the
shortest time possible.
 Quality control: In order to manage business operations and functions more effectually
Ocado focuses on making control on quality level to a great extent. In the case of online
retail store, satisfaction level of customers is highly influenced from the aspect that
products are delivered on tine or not. Thus, building and maintenance of high quality is
one of the main aspects which are highly required for effectual operation management.
Cited case situation presents that Morrison which is one of the leading supermarkets of
UK planning to do contract with Amazon for strengthening the online store and related services.
Such strategic move of Morrison’s may result into high level of competition within the
marketplace. Moreover, in the recent times, role of Amazon in offering online services are highly
significant. It offers cloud computing platforms to individuals, companies and government. In
addition to this, it allows users as well as customers to access products or services 24/7/365.

Further, supply chain management of Amazon is highly significant which lays emphasis on
making delivery of products within the suitable time frame. Thus, if Morrison will goes to bed
with Amazon then it may result into stiff competition at marketplace (Vetráková, Potkány and
Hitka, 2013). This in turn place direct impact on the productivity and profitability aspect of
Ocado. Moreover, Amazon will give high level of competition to Ocado and thereby affects
customer base to a great extent.
Soft System Methodology (SSA): Such methodology was introduced by Peter Checkland
and colleagues, University of Lancaster. System theory provides deeper insight about the aspects
which are highly associated with the proposed situation. Through this, one can find out the issues
or problems which will arise in near future. Further, system thinking can be categorized either in
soft or hard aspect. SSA entails that when mechanical components are involved then behavioural
aspect can be predicted more effectually. In contrast to this, human behaviour is considered as
hard element which cannot be predicted easily. By considering the aspects of soft system
methodology it can be said that Ocado might face following issues if it takes decision in relation
to opening physical store:
The problem situation: In the present case, problem is that Amazon signed major deal
with Morrison’s which is one of the leading and biggest supermarket chains of UK. This in turn
imposes high level of threat in front of existing online grocery retailer namely Ocado (Amazon
just signed a major deal that threatens Ocado's existence, 2017). From assessment, it has been
identified that Ocado is growing rapidly and enjoying £1 billion revenue in a year. However,
Amazon has introduced pantry with 4000 items which in turn provides customers with wide
range of products or services. Thus, considering the current market condition or situation, Ocado
is planning to offer hybrid facilities to customers. Such hybrid facilities include offering of
products or services to customers through the means of both online and physical store.
In accordance with SSA, Ocado will face difficulty in attracting large number of
customers towards physical store. Moreover, Morrison has built its position in the category of
high discount provider. This in turn creates difficulty in front of Ocado because it is not easy the
business unit to offer products or services by offering high discounts (William East, Nisbet and

Liebich, 2012). In UK, Tesco, Morrison, ASDA and Sainsbury are the most well-known
discounters which offer retail products and services to customers. Thus, in the case of physical
store, problem will be faced by Ocado in offering products or services to customers at affordable
prices. Thus, such aspect will impose high challenge in front of such online store which is
planning to start the physical one.
Proposed solution:
 Operations strategy: In order to resolve the problems it is highly required for Ocado to
frame highly effectual operational strategies and policy framework. On the basis of such
aspect, by building or developing core-competencies of staff retail business unit would
become able to attain success in the competitive business arena. Moreover, in retail firms
individuals present firm’s image and quality of services in the mind of customers. Thus,
by enhancing the proficiency level of personnel business unit would become able to
deliver quality services (OPERATIONS STRATEGY, 2017). This in turn helps company
in enhancing both customer satisfaction and loyalty to a great extent. Besides this, by
placing emphasis on wastage level firm would become able to control the cost level. This
in turn helps firm in meeting the expectation level of individuals to a great extent.
 Performance model: Quality management will be one of the foremost priorities of Ocado
regarding the performance level. By undertaking TQM and checklist tool business entity
of such retail store would become able to assess the areas that require improvement. In
this way, by taking actions for improvement in the early stage firm would become able to
evolve high level of satisfaction among the customers (Hazlett, McAdam and Walker,
2013). This in turn helps firm to enhance productivity and profitability aspect to a great
extent. Service gap model: Now, retail sector of UK is filled up with the high level of
competition. In this, it is highly difficult for the firm such as Ocado to survive and attain
success. Thus, by assessing the gap which takes place between actual offering and
customer satisfaction Ocado can undertake strategic action which in turn makes
contribution in the attainment of organizational goals and objectives (The Customer
Service Gap Model, 2017).

 Four V’s of operation management
Volume: In the business unit, specifically in retail sector, volume of production and
offering is one of the main aspects which have direct impact on the cost of products or services.
High volume level is good which in turn offer more benefits to Ocado such as high economies of
scale and low cost, more capital requirement, repeatability and specialization. On the other side,
low volume level may result into less systemization, high cost level and lower repetition (Fullan,
2011). Thus, Ocado can strengthen its business operations and functions by placing emphasis on
high volume level.
Variety: Now, customers give high level of preference to the retailer which offers wide
range of food products to the customers. Thus, by maintaining more varieties according to the
needs and requirements of customers Ocado can attain success to the large extent (The 4 Vs of
Operation Management, 2017).
Variation: Ocado can also ensure effectual management of business and operational
aspects by assessing the extent to which demand of the customer’s will change over the time
frame.
Visibility: It implies for customer’s ability in relation to tracking their experience level.
Thus, Ocado can manage operations more effectually by delivering suitable product to customers
on time. By doing this, firm can offer positive and remarkable experience to customers.
Thus, by keeping all such aspects in mind Ocado would become able to manage its
business operations in the best possible way.
PART 2
Presenting root definition, drawing CATWOE table and rich picture
Root Definition: In the cited case situation regarding the opening of physical store
following aspects will be included in root definition such as:
X = System for the implementation of quality service
Y = Formulation of sound strategic framework and employment of high-tech equipments

Z = Improvement in the quality of products or services
CATWOE table: It entails that through the means of transformation process input is converted
into output.
Customers People who need grocery products
Actors Ocado’s staff
Transformation process Grocery product requirement – delivery of quality
products by taking into account concerned tools
and techniques
Weltanschauung Business unit believes that by offering quality
products firm would become able to represent its
distinct image.
Owners Oscado’s business entity
Environmental constraints Pollution related activities
Rich Picture
Pro
Ocados’ Business Process Map “ASIS”
AS-IS defines current situation of business processes or aspects pertaining to specific
firm. Hence, it clearly depicts the manner in which business process works today. The below
mentioned business process map entails that by taking assistance of strategic partnership aspect
Ocado supplies products or services to the customers (How to Analyze an “As Is” Business
Process, 2017). Pictorial presentation clearly shows that 85% products are supplied by suppliers
Problem situation
 Quality management
 Availability of
personnel
Proposed solution
 Operations strategy
 Performance model
 Service gap model
 Four V’s of operation
management

to Ocado. On the other side, 15% contribution made by Waitrose regional distribution centre in
relation to providing products or services to Ocado. Thus, it can be stated that by taking
assistance from suppliers and Waitrose regional distribution Centre Ocado ensures smooth
functioning of online retail store. In AS-IS process, owner of Ocado is planning to introduce
Ocados’ Business Process Map “TO BE”
It defines future state or position of business organization by including the list of steps,
roles and exemptions. Hence, by considering such aspect it can be presented that in the near
future Ocado will make focus on undertaking quality management tools, conducting training
session as well as also place emphasis on controlling cost level (How to Analyze a “To Be”
Business Process, 2017). By doing this, business entity of Ocado would be in position to attain
success through opening physical store in UK.
PART 3
Assessing the resources that are required for the effectual implementation of new process
For the execution of new process such as opening of physical store in UK business
entity of Ocado requires more financial and non-financial resources namely employees,
equipments etc. Moreover, establishment of retail store demand for more resources. In addition
to this, for making contribution in environment sustainability aspect owner of Ocado requires

equipments and funds for investing in the same aspect. Further, for delivering products and
offering services to customer’s retail business unit requires more personnel (What can retailers
do to improve online delivery?, 2017). Hence, by making proper arrangement of such resources
Ocado would become able to carry out business operations more effectually.
Stating the extent to which performance objectives are related to operational priorities
From evaluation, it has been assessed that performance objectives and operational
priorities are highly associated with each other. Case situation clearly entails that Ocado is
planning to introduce hybrid facilities such as online offering and initiation of physical store. In
this, the main performance objective of Ocado is to attract large number of customers and evolve
high level of satisfaction among them. In this, operational priority of Ocado is to provide
customers with high quality products or services. Thus, by using quality management techniques
firm would become able to deliver highly effectual products or services to customers at
affordable prices (Ashby, Leat and Hudson-Smith, 2012). Such aspect clearly presents that
performance objectives and operational priorities are linked with each other to a great extent.
Use of balance scorecard in measuring company’s performance
Balance scorecard may be served as a performance metric which is used in the aspect of
strategic management. Such tool is highly effectual that can be used by Ocado to evaluate and
measure performance of from four perspectives such as financial, customer, internal business
process as well as learning and growth (Azhashemi, 2012).
Measurement of Ocado’s performance from varied perspective is as follows:

Financial analysis
Particulars Formulas 2014 2015 2016
Profitability ratios
GP ratio
Gross
profit / net
sales * 100 33% 33.90% 34.20%
NP ratio
Net profit /
net sales *
100 0.77% 1.07% 0.94%
ROCE
Profit
earned /
shareholders
equity 4.32% 5.19% 4.82%
Liquidity ratios
current ratio
Current
assets /
current
liabilities
0.88
times
.70
times
.51
times
Quick ratio Current
assets –
0.64
times
0.41
times
.36
times

(stock +
prepaid
expenses) /
current
liabilities
Solvency ratio
Debt-equity
ratio
Debt /
shareholders
equity 0.66 0.6 0.51
Investment ratios
EPS 0.01 0.02 0.02
Tabular presentation shows that gross profitability of Ocado inclined in the year of 2016
from 33% to 34.20%. However, there was not high growth took place in gross margin due to
having high level of direct expense level. Further, net profit margin of Oacdo declined from
1.07% to .94% at the end of 2016. Thus, owner of Ocado is required to exert control on both
direct and indirect expense level. By doing this, firm would become able to enhance profitability
aspect. In addition to this, it has been found that current ratio of firm decreased significantly.
Besides this, current ratio of Ocado was very far from ideal ratio such as 2:1 during the period of
2014 to 2016. Thus, it can be presented that business unit does not have enough funds for
meeting obligations. Hence, for maximizing profitability aspect business unit is required to make
control on the level of expenses by developing highly sound framework.
Customers
In order to attract and retain customers Ocado has placed high level of emphasis on
quality aspect which in turn differentiate firm from its competitors. Besides this, effectual
marketing mix has been prepared by firm keeping the mind the expectation level of target market
(Hajmohammad and et.al., 2013). Hence, by taking into account the sales revenue of 2014 and
2015, such as £948 and £1107 million respectively, it can be said that customer base increased
significantly as compared to prior times.
Internal business process
For making improvement in the internal; business process high-tech equipments have
been used by Ocado. In addition to this, to meet the objective in relation to environment