Case Study: Midas
BUS 644
Operations Management
Dr. Snell
May 19, 2014 Case Study: Midas
Specialization is a two-edged sword. When an organization specializes, they become experts in a particular process, product, or operation. In exchange for this deeper knowledge and ability in one factor, the organization typically suffers a loss of width in the marketplace therein reducing their potential customer base. Efficiencies should certainly be derived from this specialization and with efficiency may come greater profitability. When examining such an organization, a case study is useful to help break down the scenario and discover real-world effects of specialization. In this paper, the company Midas will be reviewed for their operational efficiencies, potential weaknesses and other negative impacts, and how, through analysis of these factors, a better business paradigm can be developed and implemented.
Midas provide vehicle services related to exhaust, brakes, and shock absorbers. They do not offer general automotive services but rather specialize in those three areas. As described by Vonderembse and White (2013), this provides Midas with a number of advantages. Firstly, the limited services allows Midas to maintain a much more limited inventory which enables the workers to have the parts they need readily at hand near where work is being performed. Because of the focus on specific tasks, tools, training, and skills are also specialized and customized to fit the specific needs of the operation. “By increasing his degree of specialization, an individual is able to increase productivity by speeding up accumulation of experience via specialized learning-by-doing” (Borland & Yang, 1995, p. 21). This lets the worker become a true expert in the duties he performs and able to leverage the efficiencies associated with well-refined tools and procedures. The workers are able to work more quickly and with greater accuracy, but only on the very specific services that Midas offers.
While these efficiencies certainly give Midas an advantage on skill, speed, and price, they can only leverage those abilities on the refined list of tasks that they perform in their service centers. In other words, by specializing, they might be the best at what they do, but they leave behind a great many other potential products and services that their competition can provide. This leaves a very large vulnerability in their operations. If a customer has multiple needs that include shock absorber replacement, new tires, and some body damage repair, they are not likely to take the vehicle to three different service shops in order to leverage the best skills for each task. The typical customer will find a generalist that is able to provide all of the services at a reasonable aggregate price and who can perform the tasks simultaneously so as to return the car back into the owner’s hands as quickly as possible. Midas, when dealing with this type of customer should be expected to lose the shock absorber business because they cannot change tires or repair the damage to the car’s body. This leaves Midas not only out of the revenue stream for these services which are not included in their offered products but it also removes them from contention for the services that they are specialized in.
While there is an opportunity cost associated with these customers looking for multiple services in a single package, the question remains as to whether the net effect of the specialization is of benefit to the organization. For example, by marketing and advertising their specialization and efficiencies in price and time investment, is Midas able to capture business from customers who would have normally taken the car for services at a more generalist shop – even if the customer was looking only for a single type of service? As a customer discovers that Midas is able to service those specific needs faster, cheaper, and more accurately, word of mouth will bolster the marketing to bring in even more customers and increase the revenues (and thus validate the model) for Midas. Midas would benefit greatly from gathering information from their various shop owners. Data points should be gathered related to repeat business, new first-time customers, increased sales during promotions, and customer surveys which can relate specific information on the customer preferences and decision process. Through an analysis of this information, Midas can evaluate empirically how well their specialization plan is working for them.
While such data is not readily available for analysis here, the longevity and profitability of the company seems to suggest that the current business plan appears to be working well enough. This, however, does not preclude the potential for revisions that might make the company even more successful. The single-most consideration that Midas might have is how to retain the customer who needs to have multiple types of services performed. In order to keep the customer’s loyalty, Midas must develop a method by which they can achieve the same value of convenience that the customer receives by taking their vehicle to a generalist shop. Houthakker states that “Although specialization will lead to the avoidance of individual coordination costs, it may in turn call for coordination between individuals” (Houthakker, 1956, p. 184). This method could take the form of partnerships with other specialized businesses. By working together, a company that specializes in tire sales and installation (for example, Goodyear service centers) might team with Midas to provide an aggregated solution. A customer could bring the vehicle to one of the two shops and the providers could then manage the operations behind the scenes to give the customer the best of both worlds: convenience along with the pricing and quality of specialization. This might satisfy the customer well for those scenarios where the shops are able to provide the simulation of general services.
There are two major factors that would need to be considered for this approach to work successfully. Foremost, the businesses must be willing to partner and share geographic proximity. When a business is searching for a location to establish a presence, they may or may not have already established a partnership strategy and then look for where these synergistic companies already exist. The second issue is that there will be only a limited number of available permutations and combinations of services these aggregates will be able to provide. They will certainly be able to capture more of the market but a generalist will still be able to handle the extensive list of services that a customer might come into the shop looking for.
To mitigate the partnership and location issue, Midas could look into forming strategic relationships with complementary organizations on a more global scale. Similar to how you might see within a single building two fast food restaurants which serve different types of food, Midas could make agreements where franchisees or corporate stores are deliberately built with the partner shop attached. The two organizations are separate but become symbiotic for the marketplace. There are limitations to how many of this type of relationship Midas would be willing or able to form, though, so the second issue of competition with the generalist will still exist however much it may be mitigated.
For Midas the specialization in their three core services appears to be working well, so adding to their business portfolio the services of other specialists with products that can be leveraged together for service packages would be the first step of executing this new plan. Leaving it to the shop managers to build these relationships and marketing would likely be cumbersome and less effective. Corporately, Midas can begin this process by finding a single partner who is not competitive for their business but from which customers also have come to expect quality services at lower prices. Engaging that partner to perform joint services to mutual benefit would be the next step with the ultimate findings being that the model is proved out. Then Midas can take the next step and find additional partners, market these relationships and special pricing for packages, and start to snare customers from the generalist competition.
Specialization provides many powerful business advantages including efficiencies that drive down costs, improve skills, and allow the business to develop honed operations that focus on being excellent and expert in those few services that they provide. Customers appreciate these advantages but may sometimes go elsewhere if the products they require cannot be fulfilled by the lone specialist. By examining the case study of Midas, a solution to specialization causing opportunity loss was developed by creating corporate partnerships with like-minded organizations thus creating the illusion of generalized services. Some challenges remain, but Midas could provide a larger portfolio to their customers thereby retaining more of these services for themselves and increase their revenue generation. References
Borland, J., & Yang, X. (1995). Specialization, product development, evolution of the institution of the firm, and economic growth. Journal Of Evolutionary Economics, 5(1), 19-42.
Houthakker, H. S. (1956). Economics and Biology: Specialization and speciation. Kyklos. 9, (2), 181-187
Vonderembse, M.A. & White, G.P. (2013). Operations Management . San Diego, CA: Bridgepoint Education, Inc.