Surprisingly, ‘strategy’ is not particularly easy to define. Linguistically the word derives from the Greek word ‘strategos’ meaning ‘leading an army’. And although there is no direct historical link between Greek military practice and modern ideas of strategy, the military metaphor is powerful. Both military and business strategy can be described in similar ways, and include some of the following.
● Setting broad objectives that direct an enterprise towards its overall goal.
● Planning the path (in general rather than specific terms) that will achieve these goals.
● Stressing long-term rather than short-term objectives.
● Dealing with the total picture rather than stressing individual activities.
● Being detached from, and above, the confusion and distractions of day-to-day activities.
Here, by ‘strategic decisions’ we mean those decisions which are widespread in their effect on the organization to which the strategy refers, define the position of the organization relative to its environment, and move the organization closer to its long-term goals. But ‘strategy’ is more than a single decision; it is the total pattern of the decisionsand actions that influence the long-term direction of the business. Thinking about strategy in this way helps us to dis- cuss an organization’s strategy even when it has not been explicitly stated. Observing the total pattern of decisions gives an indication of the actualstrategic behaviour.
Operations strategy
Operations strategy concerns the pattern of strategic decisions and actions which set the role, objectives and activities of the operation. The term ‘operations strategy’ sounds at first like a contradiction. How can ‘operations’, a subject that is generally concerned with the day-to-day creation and delivery of goods and services, be strategic? ‘Strategy’ is usually regarded as the opposite of those day-to-day routine activities. But ‘operations’ is not the same as ‘operational’.
‘Operations’ are the resources that create products and services. ‘Operational’ is the opposite of strategic, meaning day-to-day and detailed. So, one can examine both the operational and the strategic aspects of operations. It is also conventional to distinguish between the ‘content’
and the ‘process’of operations strategy. The contentof operations strategy is the specific decisions and actions which set the operations role, objectives and activities. The processof operations strategy is the method that is used to make the specific ‘content’ decisions.
From implementing to supporting to driving strategy
Most businesses expect their operations strategy to improve operations performance over time. In doing this they should be progressing from a state where they are contributing very little to the competitive success of the business through to the point where they are directly
Strategic decisions
‘Operations’ is not the same as ‘operational’
The content and process of operations strategy
responsible for its competitive success. This means that they should be able to, in turn, master the skills to first ‘implement’, then ‘support’, and then ‘drive’ operations strategy.
Implementing business strategy. The most basic role of operations is to implement strategy.
Most companies will have some kind of strategy but it is the operation that puts it into practice.
You cannot, after all, touch a strategy; you cannot even see it; all you can see is how the operation behaves in practice. For example, if an insurance company has a strategy of moving to an entirely online service, its operations function will have to supervise the design of all the processes which allow customers to access online information, issue quotations, request further information, check credit details, send out documentation and so on. Without effective implementation even the most original and brilliant strategy will be rendered totally ineffective.
Supporting business strategy. Support strategygoes beyond simply implementing strategy.
It means developing the capabilities which allow the organization to improve and refine its strategic goals. For example, a mobile phone manufacturer wants to be the first in the market with new product innovations so its operations need to be capable of coping with constant innovation. It must develop processes flexible enough to make novel components, organize its staff to understand the new technologies, develop relationships with its suppliers which help them respond quickly when supplying new parts, and so on. The better the operation is at doing these things, the more support it is giving to the company’s strategy.
Driving business strategy. The third, and most difficult, role of operations is to drive strategy by giving it a unique and long-term advantage. For example, a specialist food service com- pany supplies restaurants with frozen fish and fish products. Over the years it has built up close relationships with its customers (chefs) as well as its suppliers around the world (fishing companies and fish farms). In addition it has its own small factory which develops and produces a continual stream of exciting new products. The company has a unique position in the industry because its exceptional customer relationships, supplier relationship and new product development are extremely difficult for competitors to imitate. In fact, the whole company’s success is based largely on these unique operations capabilities. The operation drives the company’s strategy.
Hayes and Wheelwright’s four stages of operations contribution The ability of any operation to play these roles within the organization can be judged by considering the organizational aims or aspirations of the operations function. Professors Hayes and Wheelwright of Harvard University,2 developed a four-stage modelwhich can be used to evaluate the role and contribution of the operations function. The model traces the progression of the operations function from what is the largely negative role of stage 1 operations to its becoming the central element of competitive strategy in excellent stage 4 operations. Figure 3.2 illustrates the four stages.
Stage 1: Internal neutrality. This is the very poorest level of contribution by the operations function. It is holding the company back from competing effectively. It is inward-looking and, at best, reactive with very little positive to contribute towards competitive success.
Paradoxically, its goal is ‘to be ignored’ (or ‘internally neutral’). At least then it isn’t holding the company back in any way. It attempts to improve by ‘avoiding making mistakes’.
Stage 2: External neutrality. The first step of breaking out of stage 1 is for the operations function to begin comparing itself with similar companies or organizations in the outside market (being ‘externally neutral’). This may not immediately take it to the ‘first division’ of companies in the market, but at least it is measuring itself against its competitors’ perform- ance and trying to implement ‘best practice’.
Stage 3: Internally supportive. Stage 3 operations are amongst the best in their market. Yet, stage 3 operations still aspire to be clearly and unambiguously the very best in the market.
Implement strategy
Support strategy
Drive strategy
The four-stage model of operations contribution
They achieve this by gaining a clear view of the company’s competitive or strategic goals and supporting it by developing appropriate operations resources. The operation is trying to be
‘internally supportive’ by providing a credible operations strategy.
Stage 4: Externally supportive. Yet Hayes and Wheelwright suggest a further stage – stage 4, where the company views the operations function as providing the foundation for its com- petitive success. Operations looks to the long term. It forecasts likely changes in markets and supply, and it develops the operations-based capabilities which will be required to compete in future market conditions. Stage 4 operations are innovative, creative and proactive and are driving the company’s strategy by being ‘one step ahead’ of competitors – what Hayes and Wheelwright call ‘being externally supportive’.
Figure 3.2 The four-stage model of operations contribution
The idea that operations can have a leading role in determining a company’s strategic direction is not universally supported. Both Hayes and Wheelwright’s stage 4 of their four- stage model and the concept of operations ‘driving’ strategy do not only imply that it is possible for operations to take such a leading role, but are explicit in seeing it as a ‘good thing’. A more traditional stance taken by some authorities is that the needs of the market will always be pre-eminent in shaping a company’s strategy. Therefore, operations should devote all their time to understanding the requirements of the market (as defined by the marketing function within the organization) and devote themselves to their main job of ensuring that operations processes can actually deliver what the market requires. Companies can only be successful, they argue, by positioning themselves in the market (through a combination of price, promotion, product design and managing how products and services are delivered to customers) with operations very much in a ‘supporting’ role. In effect, they say, Hayes and Wheelwright’s four-stage model should stop at stage 3. The issue of an
‘operations resource’ perspective on operations strategy is discussed later in the chapter.
Critical commentary
Figure 3.3 The four perspectives on operations strategy
Perspectives on operations strategy
Different authors have slightly different views and definitions of operations strategy. Between them, four ‘perspectives’ emerge:3
● Operation strategy is a top-down reflection of what the whole group or business wants to do.
● Operations strategy is a bottom-upactivity where operations improvements cumulatively build strategy.
● Operations strategy involves translating market requirementsinto operations decisions.
● Operations strategy involves exploiting the capabilities of operations resourcesin chosen markets.
None of these four perspectives alone gives the full picture of what operations strategy is. But together they provide some idea of the pressures which go to form the content of operations strategy. We will treat each in turn (seeFigure 3.3).