Linking operations to strategy for competitive advantage

Linking Operations to Strategy for Competitive Advantage

2

Learning Objective

1. Understand the management cycle that links strategy and operations, and

2. Know what tools to apply at each stage of the cycle.

Introduction>The Management System> Monitor & Learn

3

4

Philosophy of Execution

• Execution is a discipline, and integral to strategy

• Execution is the major job of the business leader

• Execution must be a core element of an organization’s culture

Management Guru

Ram Charan

5

Discussions about bad operations inevitably drive out discussions about good strategy

implementation.

6

Closed Loop Management System that Links Strategy and Operations

1. DEVELOP

2. TRANSLATE

3. PLAN

EXECUTE

4. MONITOR& LEARN

5. TEST &STRATEGYStrategic

Plan

OperatingPlan

7

Stages in the Closed Loop Management System

1. Develop the Strategy • Define mission, vision & values• Conduct strategic analysis• Formulate strategy

2. Translate the Strategy • Define strategic objectives & themes• Select measures & targets• Select strategic initiatives

3. Plan Operations • Improve key processes• Develop sales plan• Plan resource capacity• Prepare budgets

4. Monitor & Learn • Hold strategy reviews• Hold operational reviews

5. Test & Adapt the Strategy

• Conduct profitability analysis• Conduct strategy correlation analysis• Examine emerging strategies

8

Misaligned Approach & Deployment of Strategy coupled with no feedback loop, leads to failures.

Strategy Goals TargetsProcesses

If no strategic feedback = no learning/ no alignment

Results

9

Stage 1: Develop the Strategy (1/12)

• What business are we in and why?

• What are the key issues we face in our business?

• How can we best compete?

10

Stage 1: Develop the Strategy: (2/12)What business are we in and why?

• Purpose (mission)

• Aspirations (vision)

• Internal compass (values)

11

Develop The Strategy (3/12) > Mission

Nike

Walt Disney

“To make people happy!”

“To experience theemotion of competition,winning, and crushing competitors.”

12

Develop The Strategy (4/12) >Vision

To be a top-quartile specialist within 5 years.

13

Develop The Strategy (5/12) >GE’s Vision

“To become number one or two in every industry in which we compete.”

14

Develop The Strategy (6/12)>Values

• Respect for individual• Frugality• Friendly & courteous; • Fair & compassionate• Customer driven

15

Develop The Strategy (7/12) More Examples of Values

Sony• Elevation of the Japanese

culture and national status

• Being a pioneer- not following others; doing the impossible

• Encouraging individual ability & creativity

Walt Disney• No cynicism• Nurturing & promulgation

of wholesome values• Creativity, dreams &

imagination• Fanatical attention to

consistency & detail• Preservation & control of

the Disney magic

16

Stage 1: Develop the Strategy (8/12)

• What business are we in and why?

• What are the key issues we face in our business?– External– Internal

• How can we best compete?

17

Develop The Strategy (9/12)> What are the key issues we face in our business?

ExternalAnalysis

(TEMPLES)

InternalAnalysis

Resources &Capabilities

SWOT

18

Develop The Strategy ( 10/12)> Issues arising from SWOT Analysis

• The best role for new products and services

• Whether new partners need to be acquired• What new market segments the company

might enter• Which customer segments are contracting

19

Develop The Strategy (11/12)> How can we best compete?

• Which customers or markets will we target?

• What is the value proposition that distinguishes us?

• What key processes give us competitive advantage?

• What are the human capital capabilities required to excel at these key processes?

• What are the technology enablers of the strategy?

• What are the organizational enablers required for the strategy?

20

Develop The Strategy (12/12) > Frameworks for Strategy Formulation

Blue Ocean Strategy

Kim & Mauborgne

Disruptive Technology

Clay Christensen

Core Competencies

CK Prahalad

Low Cost/ Differentiation

Michael Porter

21

Management System

1. Develop the Strategy

2. Translate the Strategy

3. Plan Operations

4. Monitor & Learn

5. Test & Adapt the Strategy

22

Translate The Strategy (1/5)> Every Organization’s Communication Challenge

KnowledgeOf Strategy

KnowledgeOfOperations

High

Low

High

Low

TopManagement

MiddleManagement

FrontlineManagers

23

Translate The Strategy (2/5)> Frameworks to Translate the Strategy

Balanced Scorecard

Kaplan & Norton

24

Increase return on capital

Improve Productivity Increase revenues(existing markets)

Grow revenues(New products & markets)

Improve OperatingQuality & Efficiency

------------------------------Be a leader in

quality & reliability------------------------------Improve supply chain

efficiency & effectiveness

Accelerate productInnovation

----------------------------Introduce innovative

Hi-performance Products/ solutions-------------------------

Excel at prod. Dev. & lifecycle management

Grow high-valueCustomer relationships-----------------------------

Provide valuedService, application expertise & support-------------------------Expand channels,

offerings & markets

FinancialPerspective

VISION: By 2013, become the leading company in our industry

CustomerPerspective

ProcessPerspective

Learning &GrowthPerspective

Themes

Create a High-Performance Culture

Expand & buildStrategic skills

Enable & requireCont. learning

Develop leadership& exec. driven culture

MAPPING STRATEGIC THEMES

25

26

Translate the Strategy (4/5)> - The Balanced Scorecard

27

Stage 2:Translate the Strategy (5/5)- Authorize Resources

Project Allocations Rs. Lakhs

15

10 30

4575

Project 1

Project 2

Project 3

Project 4

28

Management System

1. Develop the Strategy

2. Translate the Strategy

3. Plan Operations

4. Monitor & Learn

5. Test & Adapt the Strategy

29

Plan Operations (1/3)> Process Improvements

Stage 2 Initiatives

Stage 3 Critical Processes

TQM6 SIGMA LEAN

MANAGEMENTBPR

30

Stage 3: Plan Operations (2/3)

• Process Improvements

• Sales Plan

• Resource Capacity Plan

31

Stage 3: Plan Operations (3/3)

• Process Improvements

• Sales Plan

• Resource Capacity Plan

32

Stages 1,2, 3…Summary

Formulate Strategy

Set Objectives/ Measures/ Targets

Forecast Sales

Estimate Resources & Authorize Spending

Prepare Projected P&L

Move to Stage 4: Monitor & Learn

Stage 1 >>>>>>>

Stage 2 >>>>..

Stage 3>>

33

3 Types of Management Meetings

Stage 4:

Operational Review Meetings

Strategy Review Meetings

Stage 5: Strategy Testing & Adapting Meetings

34

Meeting Characteristics (1/3)

Meeting Type>>>

Operational Review

Strategy Review Strategy Testing & Adapting

Information Requirements

Dashboards for key performance indicators; weekly & monthly financial summaries

Strategy Map and Balanced Scorecard reports

Strategy map, balanced scorecard, Profitability reports, analytic studies of strategy, external competitive analyses

Frequency Daily/ weekly/ monthly depending on business cycle

Monthly Annually ( quarterly for fast-moving industries)

35

Meeting Characteristics (2/3)Operational Review Strategy Review Strategy Testing

& Adapting

Attendees Departmental & functional personnel; senior management for financial reviews

Senior mgmt. team, strategic theme owners, strategy mgmt officer

Sr. mgmt team, strat. theme owners, functional & planning specialists, bus. unit heads

Focus Identify & solve operational problems( sales declines, late deliveries, equipment downtime, supplier problems

Implement strategy

Test & adapt strategy based on causal analytics, product-line & channel profitability, changing external environment, emergent strategies & new technology

36

Meeting Characteristics (3/3)Operational Review

Strategy Review

Strategy Testing & Adapting

Goal Respond to short-term problems and promote continuous improvements.

Fine-tune strategy; make mid-course adaptations

Incrementally improve or transform strategy; establish strategic & operational plans; set strategic targets; authorize spending for strategic initiatives and other major discretionary expenditures.

37

Stage 5: Test and Adapt the Strategy

• Conduct profitability analysis

• Conduct strategy correlation analysis

• Examine emerging strategies

38

Summing -up

Successful strategy execution has two basic rules:

1. Understand the management cycle that links strategy and operations, and

2. Know what tools to apply at each stage of the cycle.

39

Quiz 1 – select the best option

An integrated set of processes and tools that a company uses to develop its strategy, translate it into operational actions and monitor and improve the effectiveness of both is referred to as what?

a) Budgeting systemb) Management systemc) Costing system

40

Quiz 2

What generally is the cause of a company’s underperformance?

a) Lack of abilityb) Lack of effortc) Break down in its management system

41

Quiz 3 – select the best option

A brief statement, that defines why the organization exists, especially what it offers to its customers and clients, is referred to as what?

a) Missionb) Visionc) Values

42

Quiz 4- select the best option

Stretch performance goals are sometimes referred to as BHAGs. What does BHAG stand for?

a) Bold, Hot, Ambitious Goalsb) Big, Hairy, Audacious Goalsc) Big, Hot, Ambitious Goals

43

Quiz 5 – select the best option

Which company’s vision states: “ become number 1 or number 2 in the industry in which we compete” ?

a) Nikeb) GEc) Siemens

44

Quiz 6 – Fill in the blanks

The reaffirmation of mission, vision, and _________ puts executives in the right mind-set for setting the company’s fundamental ___________.

45

Quiz 7 – Fill in the blanks

The aim of SWOT analysis is to ensure that strategy leverages internal _________ to pursue external ____________ , while countering weaknesses and threats.

46

Quiz 8- select the best option

Which strategy helps companies search for new market positions by creating new value propositions for a large customer base?

a) Resource-based strategyb) Position-based strategyc) Blue Ocean strategy

47

Quiz 9 – select the best option

What provides a powerful tool for visualizing the strategy as a chain of cause-and-effect relationships among strategic objectives?

a) Strategy Mapb) SWOT Matrixc) TEMPLES Analysis

48

Quiz 10 – Fill in the blank

If you don’t measure progress toward an ___________, you cannot manage and improve it.

49

Quiz 11 – select the best option

Which type of meeting has this focus:“Test and adapt strategy based on causal

analytics, product-line and channel profitability, changing external environment, emergent strategies, and new technology developments”?

a) Operational reviewb) Strategy reviewc) Strategy testing & adapting

50

Quiz 12- select the best option

“Respond to short-term problems and promote continuous improvements” - this is the goal of which meeting?

a) Operational reviewb) Strategy reviewc) Strategy testing & adapting

51

Glossary

• Management System• SWOT• TEMPLES• Mission• Vision• Values• Value Proposition

• Strategic Initiative

52

Reference Books for exploring the topic further….

• Michael E Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, 1980

• Gary Hamel & CK Prahalad, Competing for the Future;Harvard Business School Press, 1994

• W Chan Kim & Renee Mauborgne, Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, Harvard Business School Press; 2005

• Clayton M Christensen & Michael E Raynor; The Innovator’s Solution: Creating & Sustaining Successful Growth; Harvard Business School Press, 2003

• Robert S Kaplan & David P Norton; The Strategy Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment; Harvard Business School Press, 2000

53

Reference Books for exploring the topic further (contd)….

• Robert S Kaplan & David P Norton; Strategy Maps: Converting Intangible Assets into Tangible Outcomes; Harvard Business School Press; 2004

• Wayne C Eckerson; Performance Dashboards: Measuring, Monitoring & Managing Your Business; John Wiley & Sons, 2006

• Peter S Pande, Robert P Neuman & Roland R Cavanagh, The Six-Sigma Way: How GE, Motorola, and other Top Companies are Honing their Performance; McGraw-Hill, 2000

• Jeremy Hope & Robin Fraser, Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap, Harvard Business School Press, 2003

• Thomas H Davenport & Jeanne G Harris; Competing on Analytics: The New Science of Winning; Harvard Business School Press, 2007