Aligning operations strategy to business strategy
Operations strategy must be aligned to business strategy. If not the organizations will end up with inefficiencies and loses competitive advantage. The 14 focus points mentioned below can help to avoid such problem.
According to Porter three generic strategies that a firm can use to competitively distinguish itself: cost leadership, product differentiation, and focus. The cost leadership is achieved through low-cost, standardized, off-the-shelf products and standardized processes. Production differentiation is achieved through high-quality products and easily adaptable processes. Focus is achieved through cost advantage or responsive delivery and customization in response to target market segments.
During strategy formulation process senior leadership team usually performs external and internal strategic assessments and make clear choices what to do and what not to do. Based on the choices made and other market exercise, senior leadership team come up with strategic projections, which could be range from 3 to 5 years depends on type of industry.
To execute strategic plan, the functional strategies has to be developed. The marketing strategy is developed to generate demand based on strategic projections. During the strategic planning process usually the organizations perform extensive market study and come up with target market. The operational managers come up with demand fulfillment strategy in alignment with the strategic choices made during the strategic planning process. This may be called operations strategy. Other functional strategies include finance strategies and product development strategies. We talk about operations strategy in this article.
“Operations strategy—The total pattern of decisions that shape the long-term capabilities of an operation and their contribution to overall strategy. Operations strategy should be consistent with overall strategy.” — Apics Dictionary
Focus points for operations strategy alignment with business strategy:
- Operational managers should understand the characteristics that create competitive advantage, which is defined in the business strategy. Usually organizations chose one or two competitive characteristics from Price, Quality, Delivery Speed, Delivery Reliability, Flexibility, Product [Design-technology, features/ options, range], Service [After market and Internal] and others.
Attention: If operations managers don’t engage in strategy development process from the beginning, it is most likely that there are alignment problems. Operations managers must be engaged right from the beginning in strategy development exercise. Especially they bring bottom up perspective in defining strategies.
- Operational managers should understand what competitive characters belong to categories of order winners, order qualifiers, and non-issues. Poor understanding of business strategy may make operational managers to sub-optimize supply chain and manufacturing designs. Identifying and understanding order qualifies and non-issues by operations managers becomes very crucial in developing operations strategy. In case of emerging strategies, operations managers need to adapt to the changing competitive dynamics of market.
Attention: Sometimes operations managers focus on non-issues and order qualifiers and try to optimize them. This non-alignment could eat up resources, cause frustrations, and business failures.
- Operations managers need to prepare critical skills plan as part of operations strategy in alignment with business strategy. The skills for supply chain operations and planning professionals is crucial in developing and executing operations strategies. Necessary assessments should be done periodically through identifying strategic job families. Accordingly the skills gap matrix need to be prepared and plan has to be developed to close the gaps. Outsourcing component of skills need to be identified properly and make arrangements early. Necessary budgetary provision should be made to avoid management approval problems.
Attention: Usually operations managers don’t allocate enough budgets for people development. This may create serious strategy execution problems. Continuous technology innovations make it mandatory to identify people gaps and close them properly. Internal HR team can help in assessing the gaps else hire a consultant to help you.
- Operations managers need to design facilities plan which include size and structural designs, facility locations design, layout design, material handling systems etc. Understanding business strategy is vital for successful designs of facilities. Operations manager should be involved from the beginning of strategy development process to design best possible facility plan.
Attention: Any non-alignment in facilities increases costs and affect competitive position. Usually the leadership team pays less attention to the facility plans. It is worth to spend enough time at design stage.
- Operations Managers should design business processes in alignment with business strategy. I will write another blog on this topic to cover in detail.
- Current supply chain capabilities should be reviewed in designing operations strategy and necessary gaps should be identified. This includes, supplier capabilities, production capabilities, distribution capabilities, customer capabilities etc. One of my clients has designed manufacturing facility with an assumption of enough delivery capacity by customer and this caused severe demand fulfillment problems.
Attention: Usually some assumptions are made regarding supplier and customer capabilities, which prove to be wrong at later stages. By paying enough attention in be beginning, you can eliminate surprises.
- Based on competitive advantage of organization the focus of decisions should be clearly identified. Usually the decisions related to operations strategy will be product-focused, product-focused, and customer focused strategies. Manufacturers, who produce wide range of products or services at low volumes, adopt the process-focused strategies. Manufacturers, who produce standard products or services, adopt the product-focused strategies. Customer focused strategy organizations adopt customized solutions with high quality required by customers.
Attention: Understand focus of decisions will help to design processes and configure operations systems. It is advised to make the focus formally and communicate with key stakeholders.
- Product profile needs to be prepared before designing operations. Product profiling is the graphical representation, which shows the level of fit between a manufacturing process and order-winning criteria of its products. Product profiling can be used at the process or company level to compare the manufacturing capabilities with the market requirements to determine areas of mismatch and identify steps needed for realignment.
Attention: Product profile will help operations manager to understand strategy clearly. It will help them to design robust operations strategy.
- Configuring operations system: Once the product profile is ready, you can start configuring operation systems. The key operations policies and parameters are aligned through configuration of operation systems with product profile. This will help operations managers in defining operations parameters and input for any ERP implementations.
Attention: It is advised to take help from external consultant for configuration. This will eliminate any bias towards old processes and help in managing change.
- Operations managers need to understand product life cycle, product portfolio matrix, and market entry & exit timings very well. This will help them to design operations strategy comprehensively.
Attention: Usually this information is not available for operations managers since they are involved in the strategy formulation at the later stages. Involving operations managers from the beginning in the strategy formulation covers all aspect of operations and help in linking bottom up and top down strategies.
- Organization Design: It is always recommended to have high-level organization design during strategy formulation stage. This gives better understanding of skills sets required and manage change properly in restructuring the organization. Usually the organizations will have functional structures. It is recommended to put process structure for processes like order-to-delivery. If it is not possible, then at least put process responsibilities in functional roles. This will help to connect discrete functions in a formal way.
Attention: Don’t under estimate the level of change required if you are restructuring the organization. It is better to make few big changes during operations strategy development process; this will help in reducing resistance.
- Capacity Design: Adding capacity is very crucial decision every organization does. Various organizations adopt lead strategy, lag strategy, or tracking strategy in capacity additions. Usually in product introduction and growth stages, lead strategy is adopted and at product mature and decline stages lag strategy is adopted.
Attention: Capacity addition costs a lot. Hence making a clear choice for capacity additions may help to make wise decisions.
- Infrastructural decisions: Infrastructure choices and decisions are evolutionary and are usually made by middle or lower management. Information system decisions, hiring & firing decisions are done with heavy involvement of middle and lower management. It is advisable to consider ERP selection at the stage of operations strategy. Industry vertical or standard ERP system choice can be become a daunting task.
Attention: Selecting industry vertical or standard ERP is a complicated process. In my opinion, if you consider yours business processes are matured enough then go for standard ERP and implement through full involvement of your operations team. If you think the process maturing is not so high, then going for industry vertical is preferred decision.
- Planning Engine: Establishing robust planning engine is vital in executing strategies successfully. Sales and operations planning practice needs to be established to link the business planning and low level plans (MPS & MRP). Usually there is mismatch in the alignment. I will be writing about this topic in another blog.
Attention: Planners should be involved heavily during strategy formulation process. They are the one who understands supply chain operations better than anyone else in the organization.