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Linking Operations to Strategy for Competitive Advantage
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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
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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
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Discussions about bad operations inevitably drive out discussions about good strategy
implementation.
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Closed Loop Management System that Links Strategy and Operations
1. DEVELOP
2. TRANSLATE
3. PLAN
EXECUTE
4. MONITOR& LEARN
5. TEST &STRATEGYStrategic
Plan
OperatingPlan
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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
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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
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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?
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Stage 1: Develop the Strategy: (2/12)What business are we in and why?
• Purpose (mission)
• Aspirations (vision)
• Internal compass (values)
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Develop The Strategy (3/12) > Mission
Nike
Walt Disney
“To make people happy!”
“To experience theemotion of competition,winning, and crushing competitors.”
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Develop The Strategy (4/12) >Vision
To be a top-quartile specialist within 5 years.
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Develop The Strategy (5/12) >GE’s Vision
“To become number one or two in every industry in which we compete.”
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Develop The Strategy (6/12)>Values
• Respect for individual• Frugality• Friendly & courteous; • Fair & compassionate• Customer driven
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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
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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?
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Develop The Strategy (9/12)> What are the key issues we face in our business?
ExternalAnalysis
(TEMPLES)
InternalAnalysis
Resources &Capabilities
SWOT
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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
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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?
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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
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Management System
1. Develop the Strategy
2. Translate the Strategy
3. Plan Operations
4. Monitor & Learn
5. Test & Adapt the Strategy
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Translate The Strategy (1/5)> Every Organization’s Communication Challenge
KnowledgeOf Strategy
KnowledgeOfOperations
High
Low
High
Low
TopManagement
MiddleManagement
FrontlineManagers
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Translate The Strategy (2/5)> Frameworks to Translate the Strategy
Balanced Scorecard
Kaplan & Norton
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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
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Translate the Strategy (4/5)> - The Balanced Scorecard
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Stage 2:Translate the Strategy (5/5)- Authorize Resources
Project Allocations Rs. Lakhs
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10 30
4575
Project 1
Project 2
Project 3
Project 4
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Management System
1. Develop the Strategy
2. Translate the Strategy
3. Plan Operations
4. Monitor & Learn
5. Test & Adapt the Strategy
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Plan Operations (1/3)> Process Improvements
Stage 2 Initiatives
Stage 3 Critical Processes
TQM6 SIGMA LEAN
MANAGEMENTBPR
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Stage 3: Plan Operations (2/3)
• Process Improvements
• Sales Plan
• Resource Capacity Plan
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Stage 3: Plan Operations (3/3)
• Process Improvements
• Sales Plan
• Resource Capacity Plan
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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>>
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3 Types of Management Meetings
Stage 4:
Operational Review Meetings
Strategy Review Meetings
Stage 5: Strategy Testing & Adapting Meetings
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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)
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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
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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.
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Stage 5: Test and Adapt the Strategy
• Conduct profitability analysis
• Conduct strategy correlation analysis
• Examine emerging strategies
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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.
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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
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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
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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
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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
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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
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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 ___________.
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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.
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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
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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
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Quiz 10 – Fill in the blank
If you don’t measure progress toward an ___________, you cannot manage and improve it.
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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
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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
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Glossary
• Management System• SWOT• TEMPLES• Mission• Vision• Values• Value Proposition
• Strategic Initiative
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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
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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