What You Need for an Effective Operations Strategy

There is a common misunderstanding about operations strategy: that it serves to implement the decisions passed down by whoever is formulating business strategy. Although implementing business strategy top-down is one important role of operations strategy, it is only one of four elements that must be present if any operations strategy is to be effective. These elements are illustrated in the diagram below.

Each of these elements is a necessary condition to develop a truly strategic operation. These four elements (or perspectives) on operations strategy are discussed in detail below.

Top-Down: Operations must directly reflect the business’ overall strategy

Operations is one amongst many functions that need to be aligned with business strategy and pull in the same strategic direction. Deriving an operations strategy from a business strategy will not be a straightforward planning activity. During the translation from business to operations strategy, all the ambiguities and conflicts that are buried within most businesses strategies will be exposed and will need to be resolved. Business strategies are painted in broad brushstrokes. They point the business in a general direction, but cannot spell out every detail; that is what functional strategies are for. Operations strategy should take the general thrust of business strategy and translate it into what it means for the operation’s resources and processes. In other words, is there a clear correspondence between your business and your operations strategy? This means making a strong, logical and explicit link between all the activities of the operation and the business strategy in which it operates. Besides this vertical logic from business to operations strategy, operations strategy also needs to be coherent with itself and the strategies other functions pursue.

Outside-In: Operations must provide a position for the business in its markets

Operations is the supplier to its markets. It should help establish and maintain its desired market position by providing the levels of service, innovation and cost that outclasses, or at least keeps up with, competitors. The key question to ask should be, ‘how well do our operations help the business compete in its markets?’ While straightforward, the hitch is that the concepts, language and (to some extent) philosophy used to help marketers understand markets are not always useful in guiding operations. The result is that descriptions of market needs often need ‘translating’ before they can be useful to operations. The relationship between markets and the operations that serve them isn’t simply a matter of markets dictating how operations should behave. Customers will behave, at least partly, on how you (or your competitors) have treated them in the past. It is always a two-way street between your markets and your operations.

Bottom-Up: Operations must get strategic advantage by learning from daily experience

Not all decisions that have long-term strategic importance come top-down from senior management. Important ideas can emerge from seemingly routine activities that happen within operations. A business can move in a particular strategic direction because their on-going experience of serving customers at an operational level convinces them that it is the right thing to do, then a general consensus emerges, often from the operational level of the organisation. Letting strategic ideas emerge from the operational level of a business isn’t abdicating responsibility; it is accepting that great ideas can come from those who work at the sharp end. It would be a dereliction of duty if one did not do everything possible to encourage good ideas from daily experience. Every action, every decision, every transaction made by your operation’s processes, is an opportunity to add to existing knowledge.

Inside-Out: Operations must develop the strategic capabilities of its resources and processes

The key question here is, ‘what can your operation do that your competitors can’t?’ In other words, how can one’s operations bring something unique to the business’ capabilities? For too many businesses, the answer is that it can’t. But even if one’s operation does not have any unique capabilities, it should at least be striving to gain some kind of advantage from its resources and processes. Thus, two further questions are relevant: what resources and processes should be contributing to building capabilities? And: how are the decisions that are made within the operation contributing to developing and supporting these capabilities? Try asking the four questions of the so-called VRIO framework [i].

The inside-out element of operations strategy should attempt to make sure that resources and processes are valuable, rare, inimitable, and that the operation is organised to exploit them. Remember that all these things are time dependent. A capability may be valuable now, but competitors are not likely to stand still.

[i]In, Barney, J. B. (1995). Looking Inside for Competitive Advantage. Academy of Management Executive, Vol. 9, Issue 4, pp. 49-61