Can Operations Be Strategic?
1. INTRODUCTION
Traditionally the strategic planning has been thought of as a task of the company’s top management. After they would have established the “grand-plan” the “simpler” part of the implementation would be assigned to the operational area (Hayes & Upton, 1998).
However strategy implementation from the point of view of operations is far from being a straightforward task. In order to operationalize the established “high-level strategy” there are decisions to make and trade-offs to assume that are far from being evident and thus often changes and adaptations are needed in mid-course.
Furthermore many researchers believe that the operations can have a much more important role than the mere implementation of the “high-level strategy” and that, in the limit, can even drive the business strategy (Hayes and Wheelwright, 1984).
Throughout this paper I will try to analyse how the operations function contribute to the strategic objectives of a company.
2. THE OPERATIONS FUNCTION IN THE ORGANIZATION
In order to understand the contribution of the operations function to the organization’s strategic objectives it is useful, first of all, to know what constitutes such a function and how it relates to the other functional areas of the organization.
While the purpose of operations is to produce and deliver products and services the operations function is the part of the organization that is responsible for such activities (Slack et al., 2007).
Naturally since an organization’s reason for existence is the products and services it delivers to its customers, the operations function must be seen as a crucial area. However the mere production of those products and services is far from being sufficient to guarantee the success of any company.
Several other core and support functions must be taken care of for a company to have a chance to succeed: typically the marketing and product/service development functions, along with the operations function, are considered the three core functions of any organization while the accounting, finance and human resources functions, to name a few, are seen as the support functions.
Figure 1 illustrates some of the relationships between the operations function and the other core and support functions.
Figure 1 – The relationship between the operations function and other core and support functions of the organization (Source: Slack et al., 2007 p6).
While those relationships are somewhat evident they serve as the basis of different perspectives of what operations should be: for some companies the role of operations is simply to avoid to make mistakes and implement the business strategy; for others its purpose is to support the business strategy which means, more than to implement the strategy, to develop the capabilities to improve its strategic goals; and still for some the operations should drive the strategy by giving it a unique and sustainable advantage (Slack et al., 2007 p37).
Hayes and Wheelwright (Hayes and Wheelwright, 1984) created a model that categorizes the contribution of operations for the overall strategy (Figure 2).
This model defines the progression of the operations function from the point where it is holding the company down (or at least it is not the source of any originality) till the point where the operations is the foundation of company’s competitive advantage, forecasting for future changes of the market and preparing the development of the future necessary capabilities (Slack et al., 2007 p37).
Figure 2 – The four-stage model of operations contribution (Source: Slack et al., 2007 p38).
3. STRATEGIC VIEW OF OPERATIONS
Operations strategy is defined by the pattern of strategic decisions and actions of the operations (Slack et al., 2007 p63).
Such a strategy should be derived from the business strategy and must be carefully integrated with the other functional areas (Schroeder, 1984 p20-21). This integration is crucial since, as seen in Figure 1, the different functional areas are interrelated and thus should all be pushing coherently in the same direction for the business strategy to succeed.
A typical operations strategy generally focuses on a number of key areas as can be seen in Table 1.
Table 1 – Key areas of an operations strategy (Source: Schroeder, 1984 p21).
Figure 3 summarizes the strategic view of operations and, as can be seen, the business strategy is the source for both the definition of the operations missions and the establishment of the necessary operations’ distinctive competences. These in turn influence the objectives of operations that drive the policy areas for operations.
Since strategy formulation at each level is an iterative process in Figure 3 it is depicted the feedback loops. All of the pieces must fit together before the strategy is finished (Schroeder, 1984 p21).
4. DISCUSSION
The operations function relevance for the success of the business strategy has been in the past very often overlooked with a direct cost in the organization’s competitiveness and productivity (Schroeder, 1984; Hayes & Upton, 1998)
While even nowadays the top management typically establishes the organization’s strategy, the current business environment, with its fierce competition and search for a continuous cost efficiency and increase in the productivity, is forcing organization’s to value and learn from the existent know-how and experience wherever in the organization it may be found. This allows the organization to improve its processes and activities with those who actually know them better and thus receive invaluable feedback to the design and improvement of the strategy.
Since much of the operations knowledge is implicit in its culture and in the way things are usually done, it becomes crucial to be able to translate clearly the organization’s strategic goals
into their implications for the operation’s performance objectives (quality, speed, dependability, flexibility and cost) and policies (Slack et al., 2007 p21).
Figure 3 – Strategic View of Operations (Source: Schroeder, 1984 p22).
A perfect translation to the operations function of the business strategy was exactly what happened in the case of Southwest Airlines: its low-cost strategy was incorporated in the way operations executed each of its processes and activities.
Southwest Airlines went beyond the more evident and easier options of “no frills” (no meals, reserved seats or baggage transfers), the usage of secondary airports and of one single type of aircraft, and developed hard-to-create, difficult-to-imitate organizational capabilities (such as fast turnarounds, on-time arrivals and cooperative customers willing, for example, to enter and exit the planes as fast as possible) that allowed the company to have further cost advantages (Hayes & Upton, 1998 p15).
However those capabilities cannot be acquired overnight, they need enough time to be developed. It was exactly what happened in the war between Wal-Mart and Kmart: while Wal-Mart had been developing its unique operations capabilities for many years, Kmart underestimated his rival and didn’t promptly react. When Kmart realized that it was losing the battle it established a similar strategy. But only having the strategy was not enough because its operationalization needed time to create and tune the necessary processes and activities.
As Hayes and Upton state it is very hard to quickly become as effective as a first-rate operation (Hayes & Upton, 1998 p15).
One further aspect operations function must consider is the trade-off between the operations objectives (also called dimensions of value: cost, quality, dependability, flexibility and speed) it may have to make in order to fulfill the strategic objectives set by the organization.
For example, Southwest Airlines’ focus on cost efficiency has reduced its capacity to satisfy customers seeking a differentiated service, i.e. it was trading flexibility for cost.
While some developments (such as TQM and JIT) have shown that in some situations companies can compete on all dimensions of value (under TQM improvements in quality have also improved cost and flexibility) in the productivity frontier (defined as the sum of all existing best practices at any given time) there are only available trade-off options (Pagell et al., 2000; Boyer & Lewis, 2002).
5. CONCLUSIONS
Despite being sometimes underestimated the operations function is a relevant aspect to consider if an organization wants its strategy to be successful.
Ultimately the way the operations activities and processes are executed will determine in most part how the organization will be seen by its stakeholders: whatever is the strategy designed by the organization it will only be visible to the ‘outside world’ if it is efficiently and continuously translated to the everyday tasks necessary to produce the organization’s products or services.
Furthermore it might even be the case that the unique and sustainable capabilities that the operations were able to develop over time will drive, or at least give a strong contribution to, the design of a business strategy capable of setting the organization ahead of the competition.
(Miguel Santos)
REFERENCES
Boyer, K. and Lewis, M. W. (2002). Competitive priorities: investigating the need for trade-offs in operations strategy. Production and Operations Management, Vol. 11, No 1, Spring.
Hayes, R. H. and Upton, D. M. (1998). Operations-based strategy. California Management Review, Vol. 40, No. 4, Summer.
Hayes, R. H. and Wheelwright, S. C. (1984). Restoring Our Competitive Edge. John Wiley.
Pagell, M., Melnyk, S. and Handfield, R. (2000). Do trade-offs exist in operations strategy? Insights from the stamping die industry. Business Horizons, May-June.
Schroeder, R. (1984). Operations strategy: missing link in corporate planning?. Management Review, August.
Slack, N., Chambers, S. and Johnston, R. (2007). Operations Management, FT Prentice Hall, Fifth Edition, 2007.
Traditionally the strategic planning has been thought of as a task of the company’s top management. After they would have established the “grand-plan” the “simpler” part of the implementation would be assigned to the operational area (Hayes & Upton, 1998).
However strategy implementation from the point of view of operations is far from being a straightforward task. In order to operationalize the established “high-level strategy” there are decisions to make and trade-offs to assume that are far from being evident and thus often changes and adaptations are needed in mid-course.
Furthermore many researchers believe that the operations can have a much more important role than the mere implementation of the “high-level strategy” and that, in the limit, can even drive the business strategy (Hayes and Wheelwright, 1984).
Throughout this paper I will try to analyse how the operations function contribute to the strategic objectives of a company.
2. THE OPERATIONS FUNCTION IN THE ORGANIZATION
In order to understand the contribution of the operations function to the organization’s strategic objectives it is useful, first of all, to know what constitutes such a function and how it relates to the other functional areas of the organization.
While the purpose of operations is to produce and deliver products and services the operations function is the part of the organization that is responsible for such activities (Slack et al., 2007).
Naturally since an organization’s reason for existence is the products and services it delivers to its customers, the operations function must be seen as a crucial area. However the mere production of those products and services is far from being sufficient to guarantee the success of any company.
Several other core and support functions must be taken care of for a company to have a chance to succeed: typically the marketing and product/service development functions, along with the operations function, are considered the three core functions of any organization while the accounting, finance and human resources functions, to name a few, are seen as the support functions.
Figure 1 illustrates some of the relationships between the operations function and the other core and support functions.
Figure 1 – The relationship between the operations function and other core and support functions of the organization (Source: Slack et al., 2007 p6).
While those relationships are somewhat evident they serve as the basis of different perspectives of what operations should be: for some companies the role of operations is simply to avoid to make mistakes and implement the business strategy; for others its purpose is to support the business strategy which means, more than to implement the strategy, to develop the capabilities to improve its strategic goals; and still for some the operations should drive the strategy by giving it a unique and sustainable advantage (Slack et al., 2007 p37).
Hayes and Wheelwright (Hayes and Wheelwright, 1984) created a model that categorizes the contribution of operations for the overall strategy (Figure 2).
This model defines the progression of the operations function from the point where it is holding the company down (or at least it is not the source of any originality) till the point where the operations is the foundation of company’s competitive advantage, forecasting for future changes of the market and preparing the development of the future necessary capabilities (Slack et al., 2007 p37).
Figure 2 – The four-stage model of operations contribution (Source: Slack et al., 2007 p38).
3. STRATEGIC VIEW OF OPERATIONS
Operations strategy is defined by the pattern of strategic decisions and actions of the operations (Slack et al., 2007 p63).
Such a strategy should be derived from the business strategy and must be carefully integrated with the other functional areas (Schroeder, 1984 p20-21). This integration is crucial since, as seen in Figure 1, the different functional areas are interrelated and thus should all be pushing coherently in the same direction for the business strategy to succeed.
A typical operations strategy generally focuses on a number of key areas as can be seen in Table 1.
Table 1 – Key areas of an operations strategy (Source: Schroeder, 1984 p21).
Figure 3 summarizes the strategic view of operations and, as can be seen, the business strategy is the source for both the definition of the operations missions and the establishment of the necessary operations’ distinctive competences. These in turn influence the objectives of operations that drive the policy areas for operations.
Since strategy formulation at each level is an iterative process in Figure 3 it is depicted the feedback loops. All of the pieces must fit together before the strategy is finished (Schroeder, 1984 p21).
4. DISCUSSION
The operations function relevance for the success of the business strategy has been in the past very often overlooked with a direct cost in the organization’s competitiveness and productivity (Schroeder, 1984; Hayes & Upton, 1998)
While even nowadays the top management typically establishes the organization’s strategy, the current business environment, with its fierce competition and search for a continuous cost efficiency and increase in the productivity, is forcing organization’s to value and learn from the existent know-how and experience wherever in the organization it may be found. This allows the organization to improve its processes and activities with those who actually know them better and thus receive invaluable feedback to the design and improvement of the strategy.
Since much of the operations knowledge is implicit in its culture and in the way things are usually done, it becomes crucial to be able to translate clearly the organization’s strategic goals
into their implications for the operation’s performance objectives (quality, speed, dependability, flexibility and cost) and policies (Slack et al., 2007 p21).
Figure 3 – Strategic View of Operations (Source: Schroeder, 1984 p22).
A perfect translation to the operations function of the business strategy was exactly what happened in the case of Southwest Airlines: its low-cost strategy was incorporated in the way operations executed each of its processes and activities.
Southwest Airlines went beyond the more evident and easier options of “no frills” (no meals, reserved seats or baggage transfers), the usage of secondary airports and of one single type of aircraft, and developed hard-to-create, difficult-to-imitate organizational capabilities (such as fast turnarounds, on-time arrivals and cooperative customers willing, for example, to enter and exit the planes as fast as possible) that allowed the company to have further cost advantages (Hayes & Upton, 1998 p15).
However those capabilities cannot be acquired overnight, they need enough time to be developed. It was exactly what happened in the war between Wal-Mart and Kmart: while Wal-Mart had been developing its unique operations capabilities for many years, Kmart underestimated his rival and didn’t promptly react. When Kmart realized that it was losing the battle it established a similar strategy. But only having the strategy was not enough because its operationalization needed time to create and tune the necessary processes and activities.
As Hayes and Upton state it is very hard to quickly become as effective as a first-rate operation (Hayes & Upton, 1998 p15).
One further aspect operations function must consider is the trade-off between the operations objectives (also called dimensions of value: cost, quality, dependability, flexibility and speed) it may have to make in order to fulfill the strategic objectives set by the organization.
For example, Southwest Airlines’ focus on cost efficiency has reduced its capacity to satisfy customers seeking a differentiated service, i.e. it was trading flexibility for cost.
While some developments (such as TQM and JIT) have shown that in some situations companies can compete on all dimensions of value (under TQM improvements in quality have also improved cost and flexibility) in the productivity frontier (defined as the sum of all existing best practices at any given time) there are only available trade-off options (Pagell et al., 2000; Boyer & Lewis, 2002).
5. CONCLUSIONS
Despite being sometimes underestimated the operations function is a relevant aspect to consider if an organization wants its strategy to be successful.
Ultimately the way the operations activities and processes are executed will determine in most part how the organization will be seen by its stakeholders: whatever is the strategy designed by the organization it will only be visible to the ‘outside world’ if it is efficiently and continuously translated to the everyday tasks necessary to produce the organization’s products or services.
Furthermore it might even be the case that the unique and sustainable capabilities that the operations were able to develop over time will drive, or at least give a strong contribution to, the design of a business strategy capable of setting the organization ahead of the competition.
(Miguel Santos)
REFERENCES
Boyer, K. and Lewis, M. W. (2002). Competitive priorities: investigating the need for trade-offs in operations strategy. Production and Operations Management, Vol. 11, No 1, Spring.
Hayes, R. H. and Upton, D. M. (1998). Operations-based strategy. California Management Review, Vol. 40, No. 4, Summer.
Hayes, R. H. and Wheelwright, S. C. (1984). Restoring Our Competitive Edge. John Wiley.
Pagell, M., Melnyk, S. and Handfield, R. (2000). Do trade-offs exist in operations strategy? Insights from the stamping die industry. Business Horizons, May-June.
Schroeder, R. (1984). Operations strategy: missing link in corporate planning?. Management Review, August.
Slack, N., Chambers, S. and Johnston, R. (2007). Operations Management, FT Prentice Hall, Fifth Edition, 2007.
posted by Michelangelo at 9/21/2009 05:56:00 da tarde
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1 Comments:
This is a mature article which demonstrates a clear understanding of the importance of the operations function in achieving the strategic objectives (Usually profitability) of the business.
The article is well written and provides a good balance between the explanations necessary to describe the context of the arguments put forward and support for these arguments in terms of references to authoritative texts.
The article provides appropriate discussion on the value provided by effective operations management in achieving competitive advantage (An objective on the minds of most strategic planners), thus demonstrating the importance of the interrelationship between the two functions. The examples provided were useful in providing a context for the discussion.
The author has a very good grasp of the topic and a professional writing style.
Kevin Ord
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