Formulating and implementing operations strategy

by Sree Rama Rao on July 5, 2009

The six basic components do not in themselves constitute a strategy – they must be integrated into a managerial framework that relates the components and provides a basis for implementing the strategy. We might think of the components as a wheel surrounding operations strategy formulation, with careful interweaving of the relationships among the components, as illustrated. For example, the strategy concerning job and process designs needs to be coordinated carefully with the strategic plans for product / process designs needs to be coordinated carefully with the strategic plans for product/process technology, which in turn needs to be coordinated with capacity/location strategies. These strategies must also be related to the positioning strategy, and so on. Rather than showing all these interconnection in figure, we depend on the interconnections through the operations strategy formulation process in the center of the diagram. Finally, all the elements of operations strategy must be related to the enterprise strategy, shown surrounding the entire process.

An operations strategy audit can expose the status of the current strategy, whether it is a unconscious one or one that has been carefully developed. Beyond the audit, the process of operations strategy formulation and implementation is not far different from that developed for enterprise strategy, for which a large amount of literature exists.

Operations strategy is relatively new, both in terms of how it is seen by top managers and in terms of it being a separate, definable subject of inquiry. The attention of top managers was captured when it became clear in the late 1970s and early 1980s that the reasons for the poor competitive position of many US companies and, indeed whole industries was high and low quality; both central to the operations function. Prior to that time, the operations function had been largely ignored by top managers.

Operations strategy must, of course, fit in with the basic strategy of an enterprise, whether that strategy is cost leadership, differentiation, or market segmentation. Regardless of the basic strategy, it is clear that the operations strategy must be carefully coordinated with it since that function is so centrally involved in any of the basic strategies.

The concept of the experience curve is of great importance to cost leadership and some segmented strategies. But costs do not necessarily decline automatically without managerial effort. Productivity improvement has long been regarded as important for maintaining a healthy market position, but the blistering pace set by Japanese producers in many industries has made it clear that company survival depend on close attention to this important objective. Since such a large fraction of manufacturing and service operations are now exposed to global competition, an understanding of the exchange rate effects of difference in productivity improvement among international competitors is extremely important. It is not good enough to be only as productive as a foreign competitor; we must be at least as productive relative to our own economy as the foreign competitor is relative to it economy. This fact places extremely heavy responsibility on operations executives to keep pace with technological change and to implement productivity enhancing process technology as rapidly as feasible.

To be effective in formulating and implementing operations strategy, we need a clear understanding. The positioning of the system with respect to the market is of key importance. Thinking about capacity expansion from strategic perspective is of great significance, and all six elements must be integrated into a whole that is consonant with the enterprise strategy.





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