Operation – New Directions

Most of the people employed by most organizations – whether private or public, whether engaged in making products or delivering services are engaged in its operations function, and most of its physical  assets reside there. Within operations we include all those activities required to create and deliver a product or service, from procurement through conversion to distribution. In today’s fierce global competition, there is a growing recognition that the operations function can be a formidable competitive weapon if designed and managed properly.

An operations strategy, is a set  of goals, policies, and self-imposed restrictions that together  describe how the organization purposes to direct and develop  all the resources invested in operations so as to best fulfill (and possibly redefine) its mission. In the case of a business organization, this mission usually is expressed in terms of survival profitability, and growth, and is pursued by trying to differentiate itself from its competitors in some desirable way. A company’s operations strategy, therefore, has to begin by specifying how it proposes to support that chosen form of competitive differentiation. By helping weld together the massive resources invested in the operations function into a cohesive, purposeful whole, such a strategy can enable operations to become a powerful source of competitive advantage.

Consider, for example, the case of Southwest Airlines, which began operations in Texas in 1971 with little more than “a wing and a prayer”. SWA grew steadily during the 1970s and, after the deregulation of the airline industry, began expanding outside Texas.  By following a clear and inconsistent low cost /no frills strategy, it grew steadily until in 2003 it was the fourth largest airline in the United States in terms of domestic passengers flown. Moreover, after thirty years of continuous profitability (in several years it was the only airline in the top ten to show a profit) its market capitalization was greater than the total of its six largest competitors.

It wasn’t until the 1990s that any of its major competitors attempted to imitate Southwest’s strategy and all attempts so far have failed. Southwest’s approaches to customer service, gate operations and human resource management had made it so efficient and its reputation and drawing power were so established that it no longer appeared vulnerable either to competitor’s counterattacks or their attempts to imitate its way of doing business. Its eastward expansion in 1997, in fact, occasioned the Wall Street Journal to headline an article:  Competitors Quake as Southwest Air Is set to Invade Northeast. The reason its competitors waited so long to react, and why they were so ineffective when they did so, is largely due to Southwest’s superior operating effectiveness.

Most managers have a fairly good idea of what a business strategy consists of, and they are generally familiar with the basic issues and concerns associated with marketing and financial strategies. But the idea that operations can be a competitive weapon, and that an operations strategy is more than simply pursuing improved efficiency or doing whatever is required in order to carry out our other strategies still is somewhat surprising to many managers . In too many firms, operations has tended  to play an essentially neutral role, reflecting an assumption that  marketing sales, or R&D could provide a more effective basis for achieving a competitive advantage.

A contrasting perspective showing how an operations organization can be configured and managed strategically so as to create a competitive advantage can be illustrated.  Before describing the development of the concept of operations strategy and some of the debates it has triggered over the years, we review the essential nature of business strategy: its purpose, its basis in the underlying attitudes and preferences that shape the way a firm manages itself, and how that strategy is translated into the function strategies required to implement it. Then we describe the somewhat simplistic, but seductive appeal of one best way approaches to managing operations and contrast such approaches with a contingency theory of operations strategy based on the notions of fit and focus. We provide examples of some of the different ways a firm can pursue a competitive advantage, and how, through a coherent series of decisions, an operations organization can go about creating an operations edge that reinforces that advantage.

The we address how a company might be able to transform a competitive advantage that is easy to imitate and therefore, temporary into one that is sustainable through the development of operating capabilities that are both important to customers and difficult for competitors of capability building /learning is continued.