Operations Strategy

Strategy is defined as “the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” Strategies are established to set direction, focus effort, define or clarify the organization, and provide consistency or guidance in response to the environment.  In other words, Strategy can be defined as the art, science, and craft of formulating, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives.

Because the firm’s internal and external environment change over time, the Strategy also changes consequently, the idea that strategy is dynamic is inherent in our conception of strategic management. Strategy has four components. Firstly, strategy should include a clear set of long term goals. Second components are that it should define the scope of the firm i.e. the types of products the firm will serve etc. Thirdly, a strategy should have a clear statement of what competitive advantage it will achieve and sustain. Finally, the strategy must represent the firms’ internal contest that will allow it to achieve a competitive advantage in the environment in which it has chosen to compete. Thus, you may say, ‘Goals’ are ‘What’ of the strategy ‘Competitive Advantage; is how of the strategy and the; logic is the ‘Way’ of the strategy.

An operations strategy should guide the structural decisions and the evolution of operational capabilities needed to achieve the desired competitive position of the company as a whole. An operations strategy is not synonymous with a corporate strategy.  The key difference is that the operations strategy is a subordinate, yet crucial enabler to the corporate strategy.  A corporate strategy is the overall scope and direction of a corporation and the way in which its various business operations work together to achieve particular goals.  An operations strategy supports the overall corporate strategy by ensuring the physical assets and organizational resources in the operations domain are aligned with the direction set out in the corporate strategy.

An operations strategy has two main areas of focus: how to make structural decisions and how to choose which capabilities you want to have.

Operations strategies characteristic of modern manufacturing businesses are mass customization, flexible specialization, Lean production, agility, and strategic operations. Service firms face similar challenges to those faced by manufacturing firms in terms of increased competitiveness, but they also face some unique challenges. These challenges may be grouped under four headings: efficiency, effectiveness, capacity, and quality. There are few approaches to operations strategy in service industries which are – customer-oriented focus, service-oriented focus, and customer- and service-oriented focus.

Structural decisions determine how, where and when you build your physical operations.  According to Laseter, the four most important aspects of your operations structure to consider in your operations strategy are:

• The degree of vertical integration you want to achieve – What value adding activities do you want to do yourself versus which ones do you want to have done by someone else (ie: outsourcer, supplier, etc)?
• Capacity you want your operations to be capable of – How much do you want to be able to produce and when do you want to bring that capacity online?
• Locations you operate in – Where do you want your operations to take place (both geographically and in respect to the point of service for your customer)?
• Process Technology – What technologies are you going to leverage to achieve your operations?

Capabilities decisions determine the various means by which you impart value to the customer through your products or services.  While the capabilities a company chooses is heavily influenced by their industry, in general a firm’s “capabilities should be nurtured with a clear focus on the company’s desired, differentiated position in the marketplace”, according to Laseter.  He offers a few examples of how companies have accomplished this.  One thing to note is that a company can often gain a very powerful competitive advantage by innovating in an area that is not its core operational competency per-se but which greatly contributes to it.  This in essence allows it to differentiate its products and services from those of its competition.  This is very powerful in a commoditized market where the main source of differentiation among competitors is price.

• Innovation and product development – Inditex’s (Zara’s parent company) ability to quickly copy the latest fashions and get them to their stores.
• Customer service management – Progressive’s (an American car insurer) on the spot claim settlement and services to handle the repair of your car
• Operations planning and control – Amazon’s ability to inform its customer the precise cutoff time for ordering a product with next day delivery
• Purchasing and suppler development – Honda’s development of a local supply base in the US to facilitate its growing manufacturing base there
• Quality management – McDonald’s strives to provide the same quality and taste with every Big Mac it produces around the world
• Attraction and development of people – General Electric’s famed Crotonville leaning center ensures the companies future leaders are ready when their time comes and thus serves to attract the best and brightest to GE

Organizational Strategy

An organizational strategy is the sum of the actions a company intends to take to achieve long-term goals. Together, these actions make up a company’s strategic plan. Strategic plans take at least a year to complete, requiring involvement from all company levels.

An organizational strategy is the sum of the actions a company intends to take to achieve long-term goals. Together, these actions make up a company’s strategic plan. Strategic plans take at least a year to complete, requiring involvement from all company levels. Top management creates the larger organizational strategy, while middle and lower management adopt goals and plans to fulfill the overall strategy step by step. This unified effort to can be likened to a journey. Daily challenges such as road conditions must be overcome to complete sequential legs of the journey, which eventually lead to the ultimate destination.

Organizational Mission and Vision

Organizational strategy must arise from a company’s mission, which explains why a company is in business. Every activity in the company should seek to fill this purpose, the mission thus guiding all strategic decisions. A company’s vision describes what the company will have achieved in fulfilling its mission. From the vision follows the long-term goals of an organizational strategy.

Business and Functional Objectives

For a strategy to work, it must be converted into smaller, shorter-term goals and plans. Middle management adopts goals and creates plans to compete in the marketplace. These tactical objectives take less than a year to complete, becoming the building blocks of a successful organizational strategy. At the lower levels of an organization, functional managers concern themselves with the day-to-day operations of the company, their objectives and plans taking days, weeks or months to complete.

Considerations

Elements important to organizational strategy include resources, scope and the company’s core competency. Because resources are finite, allocating them — people, facilities, equipment and so on — often means diverting them from somewhere else in the organization. Quantifying a strategy’s scope — for instance, becoming No. 1 in North American sales — makes for more focused plans. Finally, competitive advantage refers to what a business is best at — its core competency — along with the sum of what it knows through experience, talent and research.

Organizational Strategy Types

Organizational strategy falls into categories referred to as grand strategies. Grand strategies include growth, diversification, integration, retrenching and stabilizing. A growth grand strategy refers to high levels of growth achieved, for instance, by adding new locations. Diversification means expanding into new markets or adding dissimilar product lines. Controlling supply or distribution channels instead of relying on outside companies is vertical integration. Companies achieve horizontal integration by adding similar products and services to their lineup, making them more competitive. Retrenching prunes a company back to its core competency. Companies staying the course adopt a stability strategy.

Stages of the Strategic Management Process

The strategic management process is more than just a set of rules to follow. It is a philosophical approach to business. Upper management must think strategically first, then apply that thought to a process. The strategic management process is best implemented when everyone within the business understands the strategy. The five stages of the process are goal-setting, analysis, strategy formation, strategy implementation and strategy monitoring.

• Goal-Setting – The purpose of goal-setting is to clarify the vision for your business. This stage consists of identifying three key facets: First, define both short- and long-term objectives. Second, identify the process of how to accomplish your objective. Finally, customize the process for your staff, give each person a task with which he can succeed. Keep in mind during this process your goals to be detailed, realistic and match the values of your vision. Typically, the final step in this stage is to write a mission statement that succinctly communicates your goals to both your shareholders and your staff.
• Analysis – Analysis is a key stage because the information gained in this stage will shape the next two stages. In this stage, gather as much information and data relevant to accomplishing your vision. The focus of the analysis should be on understanding the needs of the business as a sustainable entity, its strategic direction and identifying initiatives that will help your business grow. Examine any external or internal issues that can affect your goals and objectives. Make sure to identify both the strengths and weaknesses of your organization as well as any threats and opportunities that may arise along the path.
• Strategy Formulation – The first step in forming a strategy is to review the information gleaned from completing the analysis. Determine what resources the business currently has that can help reach the defined goals and objectives. Identify any areas of which the business must seek external resources. The issues facing the company should be prioritized by their importance to your success. Once prioritized, begin formulating the strategy. Because business and economic situations are fluid, it is critical in this stage to develop alternative approaches that target each step of the plan.
• Strategy Implementation – Successful strategy implementation is critical to the success of the business venture. This is the action stage of the strategic management process. If the overall strategy does not work with the business’ current structure, a new structure should be installed at the beginning of this stage. Everyone within the organization must be made clear of their responsibilities and duties, and how that fits in with the overall goal. Additionally, any resources or funding for the venture must be secured at this point. Once the funding is in place and the employees are ready, execute the plan.
• Evaluation and Control – Strategy evaluation and control actions include performance measurements, consistent review of internal and external issues and making corrective actions when necessary. Any successful evaluation of the strategy begins with defining the parameters to be measured. These parameters should mirror the goals set in Stage 1. Determine your progress by measuring the actual results versus the plan. Monitoring internal and external issues will also enable you to react to any substantial change in your business environment. If you determine that the strategy is not moving the company toward its goal, take corrective actions. If those actions are not successful, then repeat the strategic management process. Because internal and external issues are constantly evolving, any data gained in this stage should be retained to help with any future strategies.

Balanced Scorecard

The Balanced Scorecard is a strategy management framework created by Drs. Robert Kaplan and David Norton. It takes into account your:

• Objectives, which are high-level organizational goals.
• Measures, which help you understand if you’re accomplishing your objective strategically.
• Initiatives, which are key action programs that help you achieve your objectives.

There are many ways you can create a Balanced Scorecard, including using a program like Excel, Google Sheets, or PowerPoint or using reporting software. All in all, a Balanced Scorecard is an effective, proven way to get your team on the same page with your strategy.

Strategy Map

A strategy map is a visual tool designed to clearly communicate a strategic plan and achieve high-level business goals. Strategy mapping is a major part of the Balanced Scorecard and offers an excellent way to communicate the high-level information across your organization in an easily-digestible format.

A strategy map offers a host of benefits:

• It provides a simple, clean, visual representation that is easily referred back to.
• It unifies all goals into a single strategy.
• It gives every employee a clear goal to keep in mind while accomplishing tasks and measures.
• It helps identify your key goals.
• It allows you to better understand which elements of your strategy need work.
• It helps you see how your objectives affect the others.

SWOT Analysis

A SWOT analysis (or SWOT matrix) is a high-level model used at the beginning of an organization’s strategic planning. It is an acronym for “strengths, weaknesses, opportunities, and threats.” Strengths and weaknesses are considered internal factors, and opportunities and threats are considered external factors.

Using a SWOT analysis helps an organization identify where they’re doing well and in what areas they can improve. If you’re interested in reading more, this Business News Daily article offers some additional details about each area of the SWOT analysis and what to look for when you create one.

PEST Model

Like SWOT, PEST is also an acronym—it stands for “political, economic, sociocultural, and technological.” Each of these factors is used to look at an industry or business environment, and determine what could affect an organization’s health. The PEST model is often used in conjunction with the external factors of a SWOT analysis. You may also run into Porter’s Five Forces, which is a similar take on examining your business from various angles.

You’ll occasionally see the PEST model with a few extra letters added on. For example, PESTEL (or PESTLE) indicates an organization is also considering “environmental” and “legal” factors. STEEPLED is another variation, which stands for “sociocultural, technological economic, environmental, political, legal, education, and demographic.”

Crucial Operational Strategies

Operational strategies refers to the methods companies use to reach their objectives. By developing operational strategies, a company can examine and implement effective and efficient systems for using resources, personnel and the work process. Service-oriented companies also use basic operational strategies to link long- and short-term corporate decisions and create an effective management team.

• Corporate Strategy – Corporate strategies involve seeing a company as a system of interconnected parts. Just as the muscles of the heart depend on brain functions in a human body, each department in a company depends on the others to stay healthy and achieve desired outcomes. The additional core strategies that a company uses should support the corporate strategy and use cross-functional interactions.
• Customer-driven Strategies – Operational strategies should include customer-driven approaches to meet the needs and desires of a target market. To do so, a company must develop strategies that evaluate and adapt to changing environments, continuously enhance core competencies and develop new strengths on an ongoing basis. When evaluating environments, a company should monitor market trends to take advantage of new opportunities and avoid possible threats.
• Developing Core Competencies – Core competencies are the strengths and resources within a company. While core competencies can vary by industry and business, they can include having well-trained staff, optimal business locations and marketing and financial expertise. By identifying core competencies, a company can develop processes such as customer satisfaction, product development and building professional relationships with stakeholders.
• Competitive Priorities – The development of competitive priorities comes from the creation of a corporate strategy, market analysis, defining core processes and conducting a needs analysis. To create competitive priorities, an organization evaluates operational costs, the quality of a product or service, the time it takes to develop and deliver a good or service and the flexibility of a good or service with regard to variety, volume and customization. Competitive priorities should include being able to provide a quality product or service at a fair cost that consistently meets the needs of a customer.
• Product and Service Development – Strategies behind the development of products and services should consider design, innovation and added values. When developing new customer products, a company can decide to be a leader in introducing a new product or service, wait for the introduction of innovations on the market to improve upon them or wait to see if a company’s innovation is successful before moving forward. When developing a service, companies should consider packaging it with immediately observable and psychological benefits and support services. When developing a good or service, a company should consider the wants of its customers, how its stands against the competition and how its technical measures relate to its customers’ needs.