What Is An Operations Strategy?

If you have only a vague idea of what an "Operations Strategy" is, consider yourself well ahead of the pack. Experts have been arguing about its definition and place in the corporation for well over 50 years. However, Tim Laseter, a holder of teaching appointments at various top business schools around the world, offers a very good explanation of what it is in his article "An Essential Step for Corporate Strategy". In the article, Mr. Laseter states that "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." Now that we know what its purpose is, let's discuss what it is and why its so important.

Why Is An Operations Strategy Needed?

First things first. 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. Website Design 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.

Whereas almost all companies, big and small, have a corporate strategy, few follow a clear operations strategy and it shows. As a company grows, it usually expands its range of products and services as well as the markets it serves. As it grew, the company most likely closely adhered to the corporate strategy or in some cases revised the corporate strategy as new opportunities appeared.  Either way, the corporate strategy maintained its role as a key provider of guiding principles for the company. However, the operational structure and capabilities that were built over the same growth period may have been added in an ad hoc fashion in order to keep pace with the growth curve at any cost.  In most cases, this is because an operational strategy was nonexistent or simply bypassed in an effort to ensure growth targets were achieved. The typical result is an inefficient and often disjointed operational model.

The disadvantages of such a model becomes all too apparent in an economic downturn or when a new competitor appears.  As Laseter puts it, "the success of a strategy depends on doing many things well - not just a few - and integrating among them."  While inefficiencies may have been ok during the early stages of growth, they quickly start to hamper a firm's ability to compete and ultimately its ability to realize its corporate strategy. There are numerous examples of a big company that was the shining start of an industry being unexpectedly usurped by a start up competitor that has developed a new way to achieve the same customer value with few resources. 

Everyone is familiar with the havoc Amazon.com and Apple's iTunes store have created for the traditional bricks and mortar book and music stores around the world. Spanish clothing retailer Zara has crafted an operations model that is capable of replicating and supplying the latest runway fashion to its stores in less than two weeks. It does this by using many small sewing contractors in Spain rather than huge clothing mills with cheaper labor all the way in Asia. In each case, these companies toppled the incumbent through the implementation of a superior operations strategy. Zara's example is particularly interesting since it doesn't utilize two of the most prominent current trends: outsourcing to countries with low labor cost and being a company based on the Internet. 

Furthermore, simply looking to "industry best practices" for how you should operate is short sighted and is by no means strategic in nature. As Laseter puts it, a firm's pursuit of best practices is merely an attempt "to develop the capabilities that their fiercest competitors have already mastered". Not only are you simply trying to play catch up in a race you can't win, you leave yourself vulnerable to the new, up-and-coming competitor. The preoccupation Barnes and Noble and Borders had with trying to out perform each other by employing physical retailing "best practices" was what in part distracted them enough to allow Amazon.com to eat their lunch.

Lastly, whether you are a manufacturer, a services firm or anything in between, a sound operations strategy is necessary regardless of the industry you are in.  In all cases, a company takes some starting material, changes it in some way that makes it more valuable to a customer and then sells it to that customer.  For a manufacturer like Intel, the primary starting material is an ingot of pure silicone. Intel then uses its production facilities and its proprietary knowledge to turn that lump of silicone into a computer processor chip similar to the one powering the machine you are currently using to read this blog. For a service provider such as an employment recruiter or real estate agent, the starting material is information. They take data such as the current market conditions and current offerings on the market and use their expertise to identify possible hiring or buying opportunities for their client. In both cases, the way in which the firm operates (imparts value to the starting material) is a key determiner of the performance of the firm.

What Constitutes An Operations 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.

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:

1. 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)?
2. 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?
3. 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)? 
4. 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 influenceed 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 essensce 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.

1. Innovation and product development - Inditex's (Zara's parent company) ability to quickly copy the latest fashions and get them to their stores.
2. Customer service management - Progressive's (an American car insurer) on the spot claim settlement and services to handle the repair of your car
3. Operations planning and control - Amazon's ability to inform its customer the precise cutoff time for ordering a product with next day delivery
4. Purchasing and suppler development - Honda's development of a local supply base in the US to facilitate its growing manufacturing base there
5. Quality management - McDonald's strives to provide the same quality and taste with every Big Mac it produces around the world
6. 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

NRL's Part In Your Operations Strategy

Whether you agree with Laseter's definition of an operation strategy or not, the bottom line is that the decisions your firm makes while building its operational model must be made strategically. The long-term success of your company relies heavily on having and adhering to a coherent and clear operational strategy.  Best practices aren't enough.  You have to capitalize upon your strengths and use them to propel you towards a competitive advantage that will set you apart.

NRL can provide the advice and services necessary to create, refine and implement an operations strategy that is right for you.  In doing so, you will see a significant acceleration in the realization of your corporate strategy.  Ironically enough, you may even find yourself being called the pioneer of your industry's next wave of "best practices". Visit Web-design.com.sg for more information.