Operational Strategy sounds like a contradiction in terms. Operations, after all, is about the day to day creation and delivery of products and services. Yet businesses constantly change. New lines or factories are built and old factories closed or are consolidated. Therefore somebody somewhere is pulling the strings and that surely must be in line with an Operational Strategy?
Very few people we talk to who head up Operations believe they have a robust Operational Strategy in place. In fact, several believe there is a gap between Operations and the business strategy.
The economic downturn has driven businesses to take a good look at themselves. In 2009, the hatches were battened down and survival was the driver. Over the last 12 months we have seen clients realise that survival is not a long term strategy, but neither is short term intervention. The smart clients are thinking longer term. We have seen increased enquiries into Coriolis from clients wanting to understand the levers they can pull to unlock bottom line value in the next three years suggesting most of the low hanging fruit has gone.
There are five key stages in developing your Operational Strategy.
Stage 1 – Generate powerful business information
We see the following six types as critical to developing and implementing a robust and successful strategy:
1. Business Strategy / Market Analysis – Thinking Big
2. Capabilities, capacities, constraints and criticalities
3. True Margin and contribution analysis by product
4. R&D and available or potential technological developments
5. Overhead analysis, allocation and cost drivers
6. SWOT analysis of your operations
Stage 2 – Translate the Business Strategy into operational requirements
The Board will have developed five or six strategic priorities to deliver the vision, such as “Focus on Brand”. Additionally they will have identified the must do activities to support these (often commercially driven) such as “Launch new product X”. They should also identify their value proposition, as this drives your value chain.
￼Using this and the powerful information collated you can identify your own key activities that support the strategic priorities and business vision. For instance, do you have the capacity or capability to deliver “New product X”, if not, what do you need to do? A key activity may be “Recruit a process development team” or ”Increase capacity by 10%”.
Once all this information is in place we can start to understand what the future could look like. It is likely an operational strategy will not have one route, but scenarios and responses to potential deviations and the relationships between paths chosen must be understood and communicated to all. A “Vision” is often used to do this.
Stage 3 – Find hidden value and opportunity to give you the advantage
We have identified four example areas where businesses can get ahead:
Design to Manufacture
Operational people are not known for their product innovation, but yet they are known for their process improvements and innovations. When you look at it, they are one of the same! Involving operational teams early in the NPD process can add a new spin on innovation and ensures products can be manufactured.
Does your test kitchen replicate the manufacturing environment? Or do you have a “Pilot Plant”? The ability to ensure products are designed for manufacture will dramatically improve your costing process, product launches and bottom line.
You do not need to be the most invested business to be the best, but you do need to invest smart. Are you sitting with equipment on your balance sheet that you do not use? Having a roadmap and end goal in place ensures you evaluate your investments against this.
Paybacks may be within 2 years, yet depreciation charges are for 10 years. We see businesses far too often purchase a future bottleneck. So, consider the User Requirement Specification (URS) based on your future vision, evaluate the extra cost of flexibility and capability vs. replacement cost in the future. Recognising your decision now could prohibit investment in year 5.
Benchmark and sharing sites best practices optimises your manufacturing facilities and capabilities. Sites work in isolation focusing on their individual operating models. Moving volume, equipment or people between sites may not benefit one site, but if they benefit the total group profitability then it is the right move. Do your sites discuss this at an operational detail level? A good S&OP process can facilitate this.
Establishing “Centres of Excellence” for product/process types can add real value and enhance both performance and customer experience. Remember other sites can still hold sprint capacity and performance improvements can be shared.
Having a vision that your operations team understands ensures your teams are pulling in the same direction. Communicate this to the entire business, but remember, clear messages need to be tailored to the audience. Establish the true potential capability of your business and ensure this is over communicated. Commercial teams will start to understand your core competencies and will see or develop a pathway to growth.
If your core competencies lie in a dying market, you can plot a diversification strategy now. Too many times businesses fall into diversification and then fail because they rushed or just did not have the capability to do it.
Stage 4 – Don’t fix everything
Strategies can easily become wish lists where every possible improvement is included. Brainstorm ideas together and generate the perfect world. Work back from this to the “Must Do’s” that support the delivery of your strategic priorities. Resources are finite and that means it is important to consider what you will not do. Small nice to haves should not be lost, they just do not need to be in your strategy.
Stage 5 – Stand by your strategy but not to the death
Investing the time with your team each year will payback. You need to realise the factory does not fall over when you go on holiday, and the same goes when you take a day or two out to think about strategy. It is not an easy activity and sometimes you will think it’s a slow process. Align your people to a core set of deliverables, which will support a “high- performing and functioning team”.
The strategy should not be used to validate decisions as a prescriptive roadmap. It is claimed that 80% of strategies fail – we believe it is often because they were too detailed and something changed early that invalidated them. It is the framework that you should communicate. By allowing your team to assess whether activities and opportunities are aligned to the strategy, decisions can then be made on resource allocation.
A strategy can only fail from the top down. Below this it is the delivery that will be the failure. If the strategy really is not working, do not just change the operational focus, instead challenge back to the root cause. Recognise the market place changes and strategies must be live and responsive to the external world. Walk away and reconsider.
Written by Paul Eastwood, Director
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