The Nature of Strategy

The Nature of StrategyThe Nature of Strategy

What is Strategy?What is Strategy?

concerned with meeting existing market concerned with meeting existing market needs as well as exploiting opportunities needs as well as exploiting opportunities for potential market segments (Kimand for potential market segments (Kimand Mauborgne, 2002; Nunes and Cespedes, Mauborgne, 2002; Nunes and Cespedes, 2003);2003);


about making the best use of resources, about making the best use of resources, and to leverage these resources either and to leverage these resources either alone or with partners (Wernerfelt, alone or with partners (Wernerfelt, 1984;Barney, 1991; Dierickx and Cool, 1984;Barney, 1991; Dierickx and Cool, 1989; Lamming, 1993;1989; Lamming, 1993;Hines, 1994; Stump Hines, 1994; Stump et al., 2002; Ireland et al., 2002);et al., 2002; Ireland et al., 2002);


the ultimate responsibility of senior-level the ultimate responsibility of senior-level managers within the firm – of course, we managers within the firm – of course, we recognize the vital of importance of a recognize the vital of importance of a range of stakeholders in the process, both range of stakeholders in the process, both within the firm and with external linkages within the firm and with external linkages to the enterprise (Frambach to the enterprise (Frambach et al., et al., 2003;2003;Hax and Majluf, 1991; Dougherty Hax and Majluf, 1991; Dougherty and Corse, 1995);and Corse, 1995);


about devising and implementing about devising and implementing processes that will enable the enterprise to processes that will enable the enterprise to compete and, ideally, to create competitive compete and, ideally, to create competitive advantage (Whittington, 2001; Hamilton advantage (Whittington, 2001; Hamilton et et al., 1998);al., 1998);


concerned with developing capabilities concerned with developing capabilities within the firm’s operations that are within the firm’s operations that are superior to other competitors and that superior to other competitors and that other competitors either cannot copy or other competitors either cannot copy or will find it extremely difficult to copy (Teece will find it extremely difficult to copy (Teece et al., 1997; Eisenhardt and Martin, 2000).et al., 1997; Eisenhardt and Martin, 2000).

These indications of what strategy is about These indications of what strategy is about are important because they are all linked are important because they are all linked to operations management in various to operations management in various ways. That is not necessarily a problem in ways. That is not necessarily a problem in itself: the problem is that firms often do not itself: the problem is that firms often do not organize themselves in a way that will organize themselves in a way that will allow them to make the best possible use allow them to make the best possible use of their operational capabilities. This is true of their operational capabilities. This is true of both manufacturing and service of both manufacturing and service organizations.organizations.

Businesses face increasing levels of Businesses face increasing levels of competition, which is becoming more competition, which is becoming more global in nature in many industries. Coping global in nature in many industries. Coping with this competition demands that with this competition demands that strategies are in place, because being strategies are in place, because being prepared and poised to act rarely, if ever, prepared and poised to act rarely, if ever, comes about by accident or ‘just happens’ comes about by accident or ‘just happens’ by chance.by chance.

The success of operations strategy has nothing The success of operations strategy has nothing to do with how long the planning process has to do with how long the planning process has taken, nor has it to do with how nicely or how taken, nor has it to do with how nicely or how wonderfully articulately the strategy is presented wonderfully articulately the strategy is presented to the firm’s employees –if indeed strategy is to the firm’s employees –if indeed strategy is articulated to employees! Rather, the success of articulated to employees! Rather, the success of operations strategy will be determined by the operations strategy will be determined by the extent to which it will focus operations’ efforts extent to which it will focus operations’ efforts into an integrated set of capabilities.into an integrated set of capabilities.

These capabilities should, in turn, enable the firm These capabilities should, in turn, enable the firm to compete in the increasingly competitive to compete in the increasingly competitive environment common to many industries. It is not environment common to many industries. It is not argued that manufacturing/operations managers argued that manufacturing/operations managers should necessarily take the lead in business should necessarily take the lead in business strategy, but that they should be an integral part strategy, but that they should be an integral part of the strategic planning process. Without of the strategic planning process. Without operations managers’ capabilities, the best operations managers’ capabilities, the best marketing and corporate plans have little chance marketing and corporate plans have little chance of being achieved.of being achieved.

The importance of being able to accomplish the strategic vision The importance of being able to accomplish the strategic vision once it has been formed was highlighted by once it has been formed was highlighted by Fortune (8 March Fortune (8 March 2004):2004):

The Basic Strategy ModelThe Basic Strategy Model

Using Operations Capabilities Using Operations Capabilities in Strategy Formulationin Strategy Formulation

Understanding the Process and Understanding the Process and Content of StrategyContent of Strategy

The Vital Role of StrategyThe Vital Role of Strategy

Four Characteristics that Tend to Four Characteristics that Tend to DistinguishDistinguish

Strategic from Tactical DecisionsStrategic from Tactical Decisions

Role of Senior ManagementRole of Senior Management

We can say that strategy We can say that strategy formulation tends to be formulation tends to be the prerogative of the prerogative of senior managers within the firm senior managers within the firm and the final decisions regarding the direction of and the final decisions regarding the direction of the firm will rest with these senior-level managers. the firm will rest with these senior-level managers. However, other levels of the firm may also be However, other levels of the firm may also be involved in the development of strategic plans and involved in the development of strategic plans and these other levels will certainly be involved in their these other levels will certainly be involved in their implementation (for a good discussion on strategic implementation (for a good discussion on strategic formulation, formulation, see Johnson and Scholes, 2003).see Johnson and Scholes, 2003).

Creating Competitive AdvantageCreating Competitive Advantage

Strategic decisions are intended to create Strategic decisions are intended to create competitive advantage for the firm or, at the very competitive advantage for the firm or, at the very least, to allow the firm to continue to compete in its least, to allow the firm to continue to compete in its chosen markets. The term ‘strategy’, as used in the chosen markets. The term ‘strategy’, as used in the ‘business strategy’ sense, originated in military ‘business strategy’ sense, originated in military terminology. This analogy is not liked by some terminology. This analogy is not liked by some writers (for example, see Kay, 1993) because writers (for example, see Kay, 1993) because strategy is not always about obliterating the strategy is not always about obliterating the competition. However, it should fall under the realm competition. However, it should fall under the realm of strategists within the firm to determine and exploit of strategists within the firm to determine and exploit opportunities and, at the same time, to be aware of, opportunities and, at the same time, to be aware of, and diffuse, potential threats from other players.and diffuse, potential threats from other players.

The Profound Consequences of Strategic Decisions

A strategic decision can profoundly alter, A strategic decision can profoundly alter, and have major consequences for, the and have major consequences for, the firm. firm.

An operations strategy concerned with An operations strategy concerned with supply may lead to a reshaping of the supply may lead to a reshaping of the organization, including outsourcing and organization, including outsourcing and in-sourcing operations, and configuring in-sourcing operations, and configuring an internal supply chain, thus profoundly an internal supply chain, thus profoundly altering its nature.altering its nature.

Long-Term HorizonsLong-Term Horizons

Strategic decisions can have long-term Strategic decisions can have long-term implications for the firm and hence the implications for the firm and hence the factor of time is an important one for factor of time is an important one for strategists (Das, 1991; Itami and strategists (Das, 1991; Itami and Numagami, 1992). It is important to note Numagami, 1992). It is important to note that strategic planning is not simply that strategic planning is not simply crystal-ball gazing into the far future; for crystal-ball gazing into the far future; for strategy to be effective, it also needs to strategy to be effective, it also needs to have a sense of timing and urgency in its have a sense of timing and urgency in its implementation.implementation.

Tactical and strategic concerns Tactical and strategic concerns in manufacturing operations.in manufacturing operations.

What is Operations What is Operations Strategy?Strategy?

There is no one best way to formulate strategy There is no one best way to formulate strategy and the debate on whether strategy should be and the debate on whether strategy should be internal, resource-based or fully externally internal, resource-based or fully externally market-driven may be seen as of intellectual market-driven may be seen as of intellectual interest only. In practice, many organizations interest only. In practice, many organizations will combine both internal and external will combine both internal and external considerations in the same way that they tend considerations in the same way that they tend to innovate as a result of both ‘push to innovate as a result of both ‘push technology’ (from internal developments) and technology’ (from internal developments) and ‘pull demand’ (from market requirements).‘pull demand’ (from market requirements).

These capabilities are not limited to operations These capabilities are not limited to operations only but they must include operations only but they must include operations capabilities, including quality, innovation, capabilities, including quality, innovation, flexibility of volume and variety requirements, flexibility of volume and variety requirements, delivery speed and reliability. While excellent delivery speed and reliability. While excellent marketing skills need to be in place within an marketing skills need to be in place within an organization, they are of little use if there are organization, they are of little use if there are not world-class operations management not world-class operations management capabilities (internal and external) also in place capabilities (internal and external) also in place to support the marketing intentions of the to support the marketing intentions of the organization.organization.

The Content of the Strategy The Content of the Strategy Should Include:Should Include:

process choiceprocess choice – the selection of the – the selection of the right approach to producing goods or right approach to producing goods or delivering service;delivering service;

innovationinnovation – the adaptation or renewal – the adaptation or renewal of the organization’s processes or of the organization’s processes or outputs to ensure they adapt to changes outputs to ensure they adapt to changes in the external environment;in the external environment;

supply chain managementsupply chain management – the – the external management of relationships external management of relationships with suppliers to ensure the effective and with suppliers to ensure the effective and efficient supply of inputs;efficient supply of inputs;

control of resourcescontrol of resources – the internal – the internal management of inventories;management of inventories;

production controlproduction control – the effective and – the effective and efficient management of processes;efficient management of processes;

work organizationwork organization – the management – the management and organization of the workforce within and organization of the workforce within the organization;the organization;

customer satisfactioncustomer satisfaction – the – the management of quality.management of quality.

Specifically, an operations strategy Specifically, an operations strategy must includemust includeat least the following:at least the following:

amounts of capacity required by the amounts of capacity required by the organization to achieve its aims;organization to achieve its aims;

the range and locations of facilities;the range and locations of facilities; technology investment to support technology investment to support

process and product developments;process and product developments; formation of strategic buyer–supplier formation of strategic buyer–supplier

relationships as part of the organization’s relationships as part of the organization’s ‘extended enterprise’;‘extended enterprise’;

the rate of new product or service the rate of new product or service introduction;introduction;

organizational structure – to reflect what organizational structure – to reflect what the firm ‘does best’, often entailing the firm ‘does best’, often entailing outsourcing of other activities.outsourcing of other activities.

Understanding Understanding Manufacturing and Manufacturing and

Operations StrategyOperations Strategy

Manufacturing strategy was the Manufacturing strategy was the forerunner of the wider aspects of forerunner of the wider aspects of operations strategy.operations strategy.

For manufacturing strategy to be useful, it For manufacturing strategy to be useful, it needs to have consistency among needs to have consistency among decisions that affect business-level decisions that affect business-level strategy, competitive priorities and strategy, competitive priorities and manufacturing infrastructure.manufacturing infrastructure.

Much of the degree to which Much of the degree to which manufacturing strategy will be effective manufacturing strategy will be effective relies on the internal consistency of relies on the internal consistency of manufacturing strategy, manufacturing manufacturing strategy, manufacturing capabilities, marketing – manufacturing capabilities, marketing – manufacturing congruence, and their effects on congruence, and their effects on manufacturing performancemanufacturing performance

Hayes and Wheelwright’s FourHayes and Wheelwright’s FourStages of StrategyStages of Strategy

The scope of structural/infrastructure areas The scope of structural/infrastructure areas that can form part of manufacturing strategy that can form part of manufacturing strategy is wide-ranging and can include quality is wide-ranging and can include quality capabilities (including quality requirements capabilities (including quality requirements that a plant might demand from its supplier that a plant might demand from its supplier base), manufacturing processes, investment base), manufacturing processes, investment requirements, skills audits, capacity requirements, skills audits, capacity requirements, inventory management requirements, inventory management throughout the supply chain and new product throughout the supply chain and new product innovation. innovation.

Manufacturing strategy is concerned with Manufacturing strategy is concerned with combining responsibility for resource combining responsibility for resource management (internal factors) as well as management (internal factors) as well as achieving business (external) requirements.achieving business (external) requirements.

Manufacturing strategy is viewed as the Manufacturing strategy is viewed as the effective use of manufacturing strengths as a effective use of manufacturing strengths as a competitive weapon for the achievement of competitive weapon for the achievement of business and corporate goals.business and corporate goals.

Why is Operations Strategy Why is Operations Strategy Important?Important?

One of the key tasks for operations One of the key tasks for operations managers in developing strategy is that managers in developing strategy is that these managers are aware of these managers are aware of competitive factors and as a result are competitive factors and as a result are able to put in place capabilities to deal able to put in place capabilities to deal with such competitive requirements.with such competitive requirements.

All capabilities depend, to a very large All capabilities depend, to a very large extent, on managing production/ extent, on managing production/ operations in a strategic manner.operations in a strategic manner.

Forming an operations strategy that links Forming an operations strategy that links into, and forms part of, the overall into, and forms part of, the overall business strategy can also be a vital business strategy can also be a vital factor in uniting the organization.factor in uniting the organization.

In today’s turbulent competitive In today’s turbulent competitive environment, a company more than ever environment, a company more than ever needs a strategy that specifies the kind needs a strategy that specifies the kind of competitive advantage that it is of competitive advantage that it is seeking in the market-place and seeking in the market-place and articulates how that advantage is to be articulates how that advantage is to be achieved.achieved.

The link between operations The link between operations and competitive factorsand competitive factors

Service operations – the service profit chain

Fundamental to the service profit chain is the Fundamental to the service profit chain is the idea that in order to achieve profits and growth idea that in order to achieve profits and growth for the firm, an operations strategy must be in for the firm, an operations strategy must be in place.place.

Service Delivery System is the specific Service Delivery System is the specific combination of facilities, layout, equipment, combination of facilities, layout, equipment, procedures, technologyprocedures, technology

and employees needed to achieve this strategy.and employees needed to achieve this strategy.

The Service Profit ChainThe Service Profit Chain

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The Nature of Strategy