Operations strategies drive a company’s operations, the part of the business that produces and distributes goods and services. Operations strategy underlies overall business strategy, and both are critical for a company to compete in an ever-changing market. With an effective ops strategy, operations management professionals can optimize the use of resources, people, processes, and technology.
Operations management can have a very significant impact on a business’s financial performance. Even when compared with the contribution of other parts of the business, the contribution of operations can be dramatic.
Too often I see consultants and change leaders using Project Management philosophies for operations management. This finite characteristic of projects stands in sharp contrast to processes, or operations, which are permanent or semi-permanent functional work to repetitively produce the same product or service. In practice, the management of these two systems is often found to be quite different, and as such requires the development of distinct technical skills and the adoption of separate management philosophy as highlighted below.
Operations Framework linking strategy to operations
Operations strategy provides the ability to improve products, services, and processes. To develop the strategy, consider the business/corporate strategy and a market/needs analysis. Then, consider the competing priorities of cost, quality, time, and flexibility — and how you’ll handle them.
To exist in the market, you need to have acceptable quality, price, reputation/years in business, and reliability. To actually win more orders in the market, the factors change a bit. You need winning quality, price, speed of delivery, consistency of delivery, and reliability.
Operational excellence benefits
- It can reduce the costs of producing products and services, and being efficient.
- It can achieve customer satisfaction through good quality and service.
- It can reduce the risk of operational failure because well designed and well-run operations should be less likely to fail, and if they do they should be able to recover faster and with less disruption (this is called resilience).
- It can reduce the amount of investment (sometimes called capital employed) that is necessary to produce the required type and quantity of products and services by increasing the effective capacity of the operation and by being innovative in how it uses its physical resources.
- It can provide the basis for future innovation by learning from its experience of operating its processes, so building a solid base of operations skills, knowledge and capability within the business
The Five Operational Performance Objectives
- Quality: You would want to do things right; that is, you would not want to make mistakes, and would want to satisfy your customers by providing error-free goods and services which are ‘fit for their purpose’. This is giving a quality advantage.
- Speed: You would want to do things fast, minimising the time between a customer asking for goods or services and the customer receiving them in full, thus increasing the availability of your goods and services and giving a speed advantage.
- Dependability: You would want to do things on time, so as to keep the delivery promises you have made. If the operation can do this, it is giving a dependability advantage.
- Flexibility: You would want to be able to change what you do; that is, being able to vary or adapt the operation’s activities to cope with unexpected circumstances or to give customers individual treatment. Being able to change far enough and fast enough to meet customer requirements gives a flexibility advantage.
- Cost: You would want to do things cheaply; that is, produce goods and services at a cost which enables them to be priced appropriately for the market while still allowing for a return to the organisation; or, in a not-for-profit organization, give good value to the taxpayers or whoever is funding the operation. When the organisation is managing to do this, it is giving a cost advantage.
Internal & External Influences of Performance Objectives
Performance objectives have both internal and external influences. Internally, the cost is influenced by other performance objectives.
- Running an organisation’s operations requires a well-defined set of performance objectives.
- There are five basic performance objectives that apply to all types of operations. They are cost, dependability, flexibility, quality, and speed.
- These five objectives have internal and external implications, which are usually matched.
- Each of the various performance objectives has several internal effects, but all of them affect cost.
Quality
When quality means consistency in product and service production, it makes life inside the company easier, reducing the need for re-work. Thus, quality can work for cost-reduction and increased dependability.
- Quality reduces costs. The fewer mistakes made by each process in the operation, the less time will be needed to correct the mistakes and the less confusion and irritation will be spread.
- Quality increases dependability. Increased costs are not the only consequence of poor quality. At the retail shops, it could also mean that goods run out on the shelves with a resulting loss of revenue to the operation and irritation to the external customers.
- Quality is consistent conformance to customers’ expectations and has a major influence on their satisfaction or dissatisfaction.
- Quality is the most visible part of what an operation does
- It is something that a customer finds relatively easy to judge about the operation
- Customer perception of high-quality products and services means customer satisfaction
- And therefore the likelihood that the customer will return.
Speed
Speed means the elapsed time between customers requesting products or services and their receipt of them.
- The main benefit to the operation’s (external) customers of speedy delivery of goods / services is that the faster they can get the product or service, the more likely they are to buy it, the more they will pay for it, or the greater the benefit they receive.
- Within the operation, speed is also important. Fast response to external customers is greatly helped by speedy decision-making and speedy movement of materials and information inside the operation
- Speed reduces inventories by having an efficient supply chain and logistics.
- Speed reduces risks. Forecasting tomorrow’s events is far less of a risk than forecasting next year’s, and the further ahead companies forecast, the more likely they are to get it wrong. The faster the throughput time of a process the later forecasting can be left.
Dependability
Dependability means doing things on time for customers – exactly when they are needed or at least when they were promised. Customers might only judge the dependability of operation after the product or service has been delivered.
- Over time, dependability can override all other criteria. No matter how cheap or fast a bus service is, if it is constantly late (or unpredictably early) or the buses are always full, then potential passengers will be better off calling a taxi.
- Operations, where internal dependability is high, are more effective than those which are not, because dependability saves time, money, and gives stability to the operations.
Flexibility
Flexibility means being able to change what operations does, how it is doing it, or when it is doing it. Customers usually demand four types of operations flexibility:
- Product/service flexibility: introduce new or customised products and services
- Mix flexibility: the ability of operations to produce a wide range or mix of products and services
- Volume flexibility: the ability to change the output level to produce different quantities of products and services over time
- Delivery flexibility: the ability to change the timing of delivery of its services or products
Flexibility saves time, money and gives stability to the customer. In todays world where there is purchaser power to quickly switch products, its essential to be able to adapt to new products or services demanded by customers.
Cost
The lower the cost of producing their goods and services, the lower can be the price to their customers.
- Even those companies which do not compete on price will be interested in keeping costs low. Every pound or dollar removed from an operation’s cost base is a further euro or dollar added to its profits.
- The ways in which operations management can influence cost will depend largely on where the operation costs are incurred.
- High-quality operations do not waste time or effort (reducing costs) having to re-do things, nor are their internal customers inconvenienced by flawed service.
- Fast operations reduce the level of in-process inventory between and within processes, as well as reducing administrative overheads (reducing costs).
- Dependable operations do not spring any unwelcome surprises on their internal customers. They can be relied on to deliver exactly as planned. This eliminates wasteful disruption and allows the other micro-operations to operate efficiently (reducing costs).
- Flexible operations adapt to changing circumstances quickly and without disrupting the rest of the operation. Flexible micro-operations can also change over between tasks quickly and without wasting time and capacity.
Operations Strategy Framework
Steps to Write a Strategic Operations Plan
Below are 15 straightforward steps for writing a solid strategic operations plan:
- Choose the Right People: Select those with the right knowledge to compile the operations strategy plan, sometimes just called an operations plan. Some businesses provide more strategy than others in their ops strategy plan.
- Study the Overall Business Strategy Plan: Sometimes the operations strategy plan is included as a section of the overall business plan. In any case, the ops strategy plan should align with the business plan.
- Develop Measurable Operations Goals: These should match up with the business plan. Don’t do KPIs in a vacuum. Ensure that stakeholders have a say and agree to the numbers.
- Gather Key People to Brainstorm Strategies: Work on strategies (approaches to reach goals) and underlying tactics (specific steps and tasks to implement the strategy).
- Outline Your Major Points to Maintain Your Plan’s Focus: Use headings, subheadings, and bulleted lists for clear organisation. These will carry over to your fully written plan, providing clear structure and easy scanning. Your plan might have elements of a SWOT analysis: strengths, weaknesses, opportunities, and threats.
- Don’t work in a vacuum: make sure you understand what’s happening in the current environment, your industry and spot the latest trends and technologies.
- Keep Your Audience in Mind: Write so that they will understand it. The plan is all about communication.
- Use an Appendix: Use this for supplementary material or for items too detailed for the whole audience such as End-to-End workflow of operations
- Include the Operations Budget: Include it, or cross-reference or cross-link it in your operations strategy plan. Show the rationale for key budget items, especially large expenses.
- Include an “As-Is” and Diagnosis Section: Give an overview of the current state of operations and what you’re trying to accomplish and improve. Provide a high-level view of how you make your product, your supply chain, and quality control. Identify risks and how you’ll monitor them.
- Include a Production Process Section: This goes into detail on the daily production process and demonstrates that you’ve worked out the necessary specifics. For manufacturing, you would list plant details, equipment, assets, materials, special requirements, inventory, and quality control steps. For a startup, you might include prototype and testing details.
- If Necessary, Divide Other Sections by Product Family: You can also divide them by product, service, or different areas of operations. You might include overall strategies and tactics and/or consider them by section.
- Use Flowcharts: Use these images and other graphics to make it more easily understandable.
- Build-in Flexibility: Explain how you might adjust operations based on a changing market.
- Regularly Monitor Your Goals: Do this to see how your strategies and tactics are working. Adjust as necessary to keep ahead of the curve. A strong operations strategy plan is key to your success.
Operations Maturity Model
At the lowest levels of capability (Stage 1) the operation is seen as holding the organisation back. This is because the operation regularly underperforms, relative to its market requirements, and/or regularly makes mistakes that can deliver low quality product or service to the customer at tremendous cost of loss of reputation and rework.
A high proportion of operations are probably at Stage 2: they are striving to adopt best practice in their industry and are usually as good as their competitors at serving their market. These operations are good enough to help implement the organisation’s strategy but the operation itself does not convey any competitive advantage.
At Stage 3 the operation offers the best capabilities in the sector and so the competitive strategy can be linked to operations. The organisation can exploit the operations’ capabilities to offer better prices, differentiated products, faster deliveries or greater flexibility to maximise returns and increase market share.
Very few organisations ever operate at the levels described in Stage 4 or Stage 5 of the model, where operations convey such a competitive advantage through their performance and capability that the entire organisation strategy can be built around the operation. In these situations, the market expectations of what can be achieved are changed by operations performance.
- Use the framework to formally link the total organisation strategic objectives (from the business strategy) to resource-level objectives.
- The use of competitive factors (called various things such as order winners, critical success factors, etc.) as the translation device between business strategy and operations strategy.
- Involve assessing the relative importance of the various competitive factors in terms of customers’ preferences and to what opportunities you have determined internally
- Always assess the current achieved performance (benchmark), usually as compared against competitor performance levels. Identify where you are on the Operational Maturity Model
- An emphasis on operations strategy formulation as an iterative process through Continuous Improvement. Standing still isn’t an option!
- Understand best practices and the concept of an ‘ideal’ or ‘greenfield’ operation against which to compare current operations. Very often the question asked is: ‘If you were starting from scratch on a greenfield site, how, ideally, would you design your operation to meet the needs of the market?’ This can then be used to identify the differences between current operations and this ideal state.
- If stuck for ideas, use a ‘gap-based’ approach. This is a well-tried approach in all strategy formulation which involves comparing what is required of the operation by the marketplace against the levels of performance the operation is currently achieving.
…and remember, communicate, communicate and communicate! Identify who your stakeholders are, create profiles and make they are involved from the start to get traction and momentum.