Under the positioning concept of competitive strategy once a company has configured itself properly to meet the needs of its competitive strategy there is little that the operations can do to provide additional differentiation. It could of course strive for continual improvement but as soon as its competitors had similarly aligned their operations, structures and infrastructures with their competitive strategies and embarked on comparable improvement programs, they would regain parity. Similarly, adopting lean manufacturing leaves little room for differentiation: once all competitors have adopted TQM, JIT and other components how can operations further contribute to a competitive advantage?
A concept of operations strategy that emphasizes the importance of capabilities offers a richer and less imitable set of ways by which an operations organization can differentiate itself. Our earlier discussion of the various structural and infrastructural decisions that made up the contingency approach, for example, did not take into account the fact that a company can proceed along different paths to improvement and each path may both create new capabilities and impair existing ones. As a result, different choices not only affect operations today (first order effects), but also have important and sometimes predictable consequences for the kind of operating capabilities one will be able to acquire in the future (second order effects) This richer set of alternatives makes it possible for the operations function to assume a much more proactive role in a company’s competitive success. For now we will simply reconsider the implications of the capabilities based approach for both focus and trade-offs.
In the focus the decision whether to focus operating units by product lines or by process stages might be evaluated as follows: If different products are sold in markets that require different competitive priorities ( e.g. low cost in one, innovation in another), focusing along product lines would be preferable.
Different facilities could then tailor their equipment operating policies, and skill sets to the needs of their particular markets. If, in contrast different product families competed in roughly similar ways (e.g. low cost) but different segments of the production process required very different technologies operating policies, and capabilities then a process focus would be preferable.
A focus choice also has dynamic implications however, in that it shapes the directions a company can take in the future. Since it is usually easier to transfer learning within a facility than across facilities the choice of focus will influence how different capabilities are developed and diffused throughout an organization. A network of product focused facilities like a company organized around strategic business units, runs the risk of fragmenting its core operating skills. Although all facilities may have certain technologies and skills in common. Localized learning can lead to isolated pockets of process expertise. As a result, if events force a unit’s closure or sale, valuable knowledge can be forever lost to the company.
A process focus creates reciprocal risks. As a facility accumulates specialized expertise, it may lose its understanding of how different process steps fit together . Over time, this may reduce a company’s ability to introduce new products or make other changes that require integrated adjustments throughout the process chain. Similarly, if it expects that certain skills (e.g. ultra high-precision machining ) will become increasingly important in the future, it might want to begin building such capabilities in existing facilities, whatever their focus.
One of the most important functions of the earlier fit and focus dominated approach to operations strategy was to help an organization understand and properly assess the trade-offs among different performance dimensions (e.g. cost versus flexibility ) affected by various structural and infrastructural decisions. Such, decisions, however, also have important consequences for organizational learning so an operations strategy also needs to consider to effect that the selection development and exploitation of superior capabilities might have on these trade-offs over time. Neither the fit and focus approach to operation strategy nor the lean production paradigm considers the possibility that decisions designed to help the firm compete one way may induce it over time to develop capabilities that encourage it to compete in a different way.
The transition from the relatively static positioning based approach to strategy to the dynamic capabilities based approach not only encourages the operations function to consider a much richer set of alternatives and opportunities, it alters in a fundamental way one’s whole approach to strategic planning. Rather than formulating a grand plan in a remote executive suite, and then assigning its implementation to various functional groups, strategy formulation and implementation become much more interactive. A company’s strategy might not even become evident until, possibly, after its implementation is well along. Instead, people throughout the organization are continually identifying opportunities, developing new knowledge and capabilities and testing out their ideas. Initiatives are undertaken, changed in mid-course as new information becomes available and better ideas surface, and sometimes abandoned so that energy can be focused on a different approach.
This, however raises a question as to how much strategic freedom an operations organization should be given. Unless it has a clear sense of purpose it can easily expend its energies on improvement programs that don’t have much impact on things that are competitively very important. However, since the value of a given capability depends partly on the future opportunities that present themselves how should a company – given the difficulty of predicting the future in today’s turbulent world – select which capabilities to develop? Can this be done consciously or is it essentially a crap shoot, where the lucky winners survive (to be offered up as examples by researchers ) and the losers disappear — apparently the victims of simple bad management? Can a company exercise real strategic choice as regards capabilities or is it largely the prisoner of its history particularly the capabilities it has developed over time – perhaps by accident?