What Are the Operations of a Company?
A company’s operations are the activities that produce and deliver a product or service. Operations management is the profession that encompasses planning, implementing, and supervising that production. Some people think of operations as the daily tasks and tactics that transform materials or actions into a product or service, but operations strategy goes a level higher to determine operations approaches and goals.
In a car company, for example, operations could include the following: obtaining and transporting raw materials (metal, rubber, and plastic, etc.), dealing with suppliers, conducting and measuring the steps that transform materials into parts, managing the people, machines, and processes, assembling the vehicles efficiently, maintaining quality and troubleshooting problems, delivering car orders on time, and managing and continually optimizing the whole value chain. In addition, operations could play a role in product design, plant capabilities and design, and production or sales forecasting.
The seven main functions of operations are:
- Product management
- Supply chain
- Facilities planning and management
Some people still understand operations as an organization’s daily operations and tactics, while others see operations strategy as having a key role to play in companies of any size.
The Role and Purpose of Operations Strategy
Operations strategy is only one part of overall business or corporate strategy, but it’s crucial for competitiveness and success. Without a strong operations strategy, companies fail to keep up with changing markets and lose out to more strategic competitors. Many companies, big and small, have struggled with operations strategy, often lacking in comparison with technologically savvy competitors. For example, Amazon, while constantly advancing technology such as drones for delivery, has pushed aside myriad brick-and-mortar retailers.
To be effective and competitive, all parts of a company must work together. All departments should contribute to the company mission and have strategies underlying the overall corporate/business strategy. In addition to having an operations strategy, they should also have functional area strategies in finance, IT, sales, marketing, human resources, and possibly other departments, depending on the type of business.
“An operations strategy should guide the structural decisions and the evolution of operational capabilities needed to achieve the desired competitive position of the company as a whole,” says Tim Laseter in his article "An Essential Step for Corporate Strategy.”
These days, however, it’s not enough to simply follow best practices. Companies must innovate, not just play catch-up to practices already mastered by competitors.
Authors Steven C. Wheelwright and Robert H. Hayes categorized types of organizations based on a company’s attitude toward operations:
- Stage 1, Internally Neutral: The operations function is reactive and viewed as a necessary evil.
- Stage 2, Externally Neutral: The operations function adopts best practices and tries to match the competition.
- Stage 3, Internally Supportive: The operations function tries to provide support for the overall business strategy.
- Stage 4, Externally Supportive: The operations function provides competitive advantage for the company, and sets the industry standard.
Core Operational Strategy Areas
Different sources use different terms to describe strategy areas. Here’s one way to categorize core strategies:
- Corporate: Overall company strategy, driving the company mission and interconnected departments
- Customer-Driven: Operational strategies to meet the needs of a targeted customer segment
- Core Competencies: Strategies to develop the company’s key strengths and resources
- Competitive Priorities: Strategies that differentiate the company in the market to better provide a desired product or service
- Product or Service Development: Strategies in product design, value, and innovation
A company’s key success factors (KSFs) pertain to competitiveness, such as a company’s attributes, resources, capabilities, and competencies. By identifying these, a company can focus on the issues that matter most and measure them with key performance indicators (KPIs).
Another way to frame strategic areas is by these “distinctive” competencies:
- Quality, such as performance, features, aesthetics, and durability
- Tradeoffs, or competing on one or two distinctive competencies at the necessary expense of others
Author Terry Hill used the terms order qualifier and order winner. An order qualifier means a company or product has a characteristic that allows it to be a viable competitor. An order winner is a characteristic that causes customers to choose it over competitors.
Tips for Operations Strategies and Tactics
Specific strategies depend on your specific business. Here are strategy tips that apply to many companies, whether they are producing goods or services.
- Take a Global View: See how others worldwide are providing better goods and services. Learn from them, and see how you might compete and innovate in a core competency. Also, improve your supply chain by looking globally, and employ global talent if remote work is an option.
- Have a Strong Mission Statement: Focus your efforts with a mission statement that truly defines your goals and guides your business approach. Tie your overall business strategy and operations strategy into it.
- Gain Competitive Advantage with Differentiation: Develop a point of differentiation and a unique value proposition, and consistently innovate and build strategies around them. Don’t just use best practices. Exceed them, and leapfrog the competition.
- Gain Insights from a SWOT Analysis: Analyze your company’s strengths, weaknesses, opportunities, and threats as a catalyst to strategy.
- Track Progress: Develop strong analytics and KPI dashboards to measure and optimize your operational efforts.
Operations Strategy Tips from Our Experts
Now, our seven pros weigh in with their tips for creating and implementing effective operations strategies. Robin Speculand and Tim Lewko were interviewed by phone, and the five others submitted responses in writing.
Paraphrased from a phone interview, Robin Speculand advises using the Triple A model of alignment, accountability, and assessment.
1. Alignment: Keep the team focused on balancing long-term and short-term perspectives. Many people trip up on this. To be aligned, you can’t just drive your individual silo. Don’t assume all plans are in alignment. You need consistent direction.
2. Accountability: Introduce a culture of holding people accountable. Make sure people know what’s important, and hold to your operational strategy. It’s one of the easiest areas to make a massive impact in. In such a culture, your boss checks in every week to see how you’re doing. It’s also important to link accountability to rewards and recognition.
3. Assessment: You have to be able to assess how you’re doing at any point in time. You need to measure with numbers.
Paraphrased from a phone interview, Tim Lewko offers these tips:
1. Define what an operations strategy means in your organization. Create a common definition because different definitions can cause communication breakdowns.
2. Operations should follow from the company strategy. Business strategy is the “what,” and operations is the “how.”
3. An operations strategy is an investment in current and future capabilities underpinned by visible assumptions. For example, if an auto company considers building a plant in Mexico, it’s making assumptions about labor, capital, and trading. What does the team see as the future for the business? It’s important to state the assumptions. When FedEx built a runway in China, some people questioned the move. But FedEx saw a future market there.
Susan Ho says, “Figure out what you want to accomplish and how you’re going to measure success. When I first joined Fab.com, one of our biggest issues was communicating to customers about late deliveries — when, for whatever reason, a supplier would be late in shipping a purchase order to our warehouse, or our warehouse would take longer than expected to ship product out to customers. When shipments were late, customer complaints would pile in. We decided that we’d track the number of late shipping complaints as a percentage of total orders and use that as our barometer for success.”
She continues, “Get all the teams that touch a process into a room together. (Major caution on this one.) This idea is actually much more complicated than it seems. If you just take this step alone, you’ll most likely have a horribly unproductive meeting where everyone is more angry at another team than before they walked into that room. As an operations strategist, my first step is to talk to key people on each team separately - not a VP or director-level necessarily, but a few people who are actually responsible for the day-to-day work. I have them walk me through their process end-to-end, and, then, I map it out and review it with them. Then, we can point out areas on the process map where a handoff between teams is breaking down, or there’s an SLA (service level agreement) that we haven’t clearly defined that’s leading to confusion about what to do. Once I do this with every team, I come up with a master list of issues and proposed solutions, along with the pros and cons of those solutions. Only then do I get the senior decision makers in a room together, so we can walk through each point and make a decision on questions like, ‘What team should ultimately own this?’ and ‘Should the cut-off point be two days or one day?’”
“Properly aligned employee incentives are a key factor for long-term operational success,” says Levy. “What many companies have found is that granting stock as a form of compensation has strong positive effects. When you lease a car, you treat that car much differently than one you own. You probably don't clean the car as often, make hard starts and stops, etc. When you own a car, you are much more careful to treat it well, so it stays in good condition over the long term. When employees own stock in a company, they make decisions that are better for the long term.”
Levy adds, “An organization must assign accountability to only one person for key functions. More than one thing will fall through the cracks. An example in our businesses is ensuring we assign each reservation to the appropriate bus company. We have centralized accountability for every trip with our operations manager. He can delegate the work but is the only one accountable. Finally, When errors occur, ask “Why?” five times to determine the true cause of the error. Toyota has a great system of doing just that to get to the root of any error. We have found that this works great in our business as well. This way, you can easily get to the true cause of any operational failure and create a system to prevent it next time.”
Suresh Dalai offers the following points:
“1. Make it consumer-driven. Whatever operations strategies you develop, ask whether they help drive superior experience for the consumer — for example, accelerating production so that the consumer can get it faster, improving quality, etc.
2. Make it end-to-end. Many people may think of operations as a back-office activity, such as production or logistics. However, an operations strategy focuses on the entire value chain, from plan to make to move and then ultimately, to sell. Ensure that your operations strategy covers all four areas.
3. Make it well-understood by your team. Educate your organization so that everyone understands that operations strategy is always about the consumer.”
Cristian Rennella recommends the following:
“1. I recommend not trying what first comes to your mind. Before putting something into practice, check that you have all the resources, adequate personnel, and enough time. In some cases, assuming in advance that an idea is going to work can be as expensive as an unsuccessful test.
2. Have a sole responsible person. It is important that tasks are well organized, and, for this reason, more than one person in one single activity can be problematic. For example, at elMejorTrato, I am the one in charge of link building, and I take for granted that any related activity depends on me.
3. Have an adjustable working guide. Although it is useful to have a guideline, we always have to be prompt in adapting it to new situations. The market is an environment affected by continuous change, and it is essential to follow the herd (customers), modify rules, and make contributions.”
“First, you have to know your team,” says Fajardo. “Understand their strengths and weaknesses. You need to make sure that you are playing to their strengths. Otherwise, they'll never be able to implement your strategy. Second, know the process. Anybody can determine a bottleneck when they see it, for instance, but do you know the process well enough to know why it happened? Third, you can't assume you know everything. Don't be afraid to read articles on how your competitors tackle operations problems.”
Operations Strategy Examples
With the rapidly changing marketplace in recent years, some companies have excelled in part due to their strong operations strategies. Here a few examples:
- Amazon: Once known for books, Amazon is now known as the go-to platform for online shoppers of any product. Its distribution network is widely touted and even includes experiments with drone delivery.
- Apple Computers: Apple is long recognized in operations circles for its operational excellence and supply chain management.
- Walmart: This retailing giant managed to undercut many competitors on the price and variety of a wide range of products.
- FedEx: FedEx made speed of delivery its calling card, achieving it with excellent operations.
- IKEA: The world’s largest furniture retailer undercut many home goods competitors on price and variety with its warehouse concept.
Types of Operations Strategies
We can broadly categorize major operations decisions as structure or infrastructure. Structure means the physical attributes of operations, while infrastructure refers to the people, systems, and software.
Structural decisions include facilities, capacity to produce, process technology, and supply network. An example of a decision many companies face is how much to outsource vs. handle in-house. The structural decision on whether to build or expand a facility is an expensive one that could affect the company for years to come.
Infrastructure decisions include planning and control systems, quality management, work organization, human resources, new product development, and performance management of employees.
Operations strategy has a vertical relationship with overall business/corporate strategy, and it has a horizontal relationship with other functional strategies, such as strategies for marketing, sales, finance, IT, and HR.
Another way to categorize operations strategies is top-down or bottom-up. That is, operations strategies might come down from business strategy, supporting it. Or, strategies might arise over time as a pattern of decisions within operations.
Also, operations strategy can be market-led or operations-led. When it’s market-led, operations strategy derives from a response to the market conditions. When it’s operations-led, excellence in operations in a particularly savvy company drives the strategy.
Operations Strategy Framework
Operations strategy provides the ability to improve products, services, and processes. To develop the strategy, consider the business/corporate strategy and a market/needs analysis. Then, consider the competing priorities of cost, quality, time, and flexibility — and how you’ll handle them.
To exist in the market, you need to have acceptable quality, price, reputation/years in business, and reliability. To actually win more orders in the market, the factors change a bit. You need winning quality, price, speed of delivery, consistency of delivery, and reliability.
These factors combine like this to provide an operations strategy framework, as outlined by lean transformation consultant Anand Subramanian:
- We start with the business/corporate strategy, laying out objectives, such as return on investment (ROI), profit, and growth.
- We move to marketing strategy, where we consider factors such as customer segments, standardization vs. customization, innovation level, and leader-vs.-follower alternatives.
- Next comes order-winning criteria such as quality, price, delivery speed, design, and after-sales support.
- Last comes operations/manufacturing strategy, which includes choices of structure (such as facilities and process) and infrastructure (such as planning/control systems and work organization). Feeding into that strategy are the elements of product/process design, inventory, quality management, human resources and job design, and maintenance.
In a similar vein, Slack and his co-authors outlined five performance objectives in their 2004 book, Operations Management:
- Cost: Ability to compete on low price
- Quality: Ability to compete on high quality
- Speed: Ability to compete on fast delivery
- Dependability: Ability to compete on reliable delivery
- Flexibility: Ability to compete with new products or services, wide selection, and timing
Authors Henry Mintzberg and James A. Waters wrote about how organizations form strategies in their 1985 book, Of Strategies, Deliberate and Emergent. Organizations start with an intended strategy, but only some of that is realized through deliberate strategy. Some intentions are left unrealized, such as those that didn’t adequately consider operational feasibility. Meanwhile, emergent strategies develop as patterns of actions taken in the organization — most often by the operations department. The deliberate strategies and emergent strategies feed into the realized strategies. This process shows the importance of operations details in the big picture.
Steps to Write a Strategic Operations Plan
Below are 15 straightforward steps for writing a solid strategic operations plan:
- Choose the Right People: Select those with the right knowledge to compile the operations strategy plan, sometimes just called an operations plan. Some businesses provide more strategy than others in their ops strategy plan.
- Study the Overall Business Strategy Plan: Sometimes the operations strategy plan is included as a section of the overall business plan. In any case, the ops strategy plan should align with the business plan.
- Develop Measurable Operations Goals: These should match up with the business plan. Don’t do KPIs in a vacuum. Ensure that stakeholders have a say and agree to the numbers.
- Gather Key People to Brainstorm Strategies: Work on strategies (approaches to reach goals) and underlying tactics (specific steps and tasks to implement the strategy).
- Outline Your Major Points to Maintain Your Plan’s Focus: Use headings, subheadings, and bulleted lists for clear organization. These will carry over to your fully written plan, providing clear structure and easy scanning. Your plan might have elements of a SWOT analysis: strengths, weaknesses, opportunities, and threats.
- Keep Your Audience in Mind: Write so that they will understand it. The plan is all about communication.
- Include an Index: Use this for easy scanning of the plan and its sections.
- Use an Appendix: Use this for supplementary material or for items too detailed for the whole audience.
- Include the Operations Budget: Include it, or cross-reference or cross-link it in your operations strategy plan. Show the rationale for key budget items, especially large expenses.
- Include a “Stage of Development” Section: Give an overview of the current state of operations and what you’re trying to accomplish and improve. Provide a high-level view of how you make your product, your supply chain, and quality control. Identify risks and how you’ll monitor them.
- Include a Production Process Section: This goes into detail on the daily production process, and demonstrates that you’ve worked out the necessary specifics. For manufacturing, you would list plant details, equipment, assets, materials, special requirements, inventory, and quality control steps. For a startup, you might include prototype and testing details.
- If Necessary, Divide Other Sections by Product Family: You can also divide them by product, service, or different areas of operations. You might include overall strategies and tactics and/or consider them by section.
- Use Flowcharts: Use these images and other graphics to make it more easily understandable.
- Build in Flexibility: Explain how you might adjust operations based on a changing market.
- Regularly Monitor Your Goals: Do this to see how your strategies and tactics are working. Adjust as necessary to keep ahead of the curve. A strong operations strategy plan is key to your success.
Pro Tips on Writing a Strategic Operations Plan
Tim Lewko (paraphrased from a phone interview) suggests that you do the following:
1. Write the plan based on priority products. All products aren’t the same. For example, if you’re thinking of expanding into Canada, consider what percentage of primary products are represented there.
2. Know your current and future priority customers. Different departments such as operations, marketing, and sales may not agree on priorities.
3. Use a matrix of priority products and priority customers to clarify opportunities and decisions.
4. Decide whether to buy or build. Is it something you should outsource? You don’t need to know everything. You just need to know where to get it.
Robin Speculand (paraphrased from a phone interview) provides these tips:
1. Don’t wait for perfection. There’s no such thing. As soon as you roll out your operations plan, things change. Once you get 80 percent of your plan, start to roll it out.
2. Be clear on what’s actionable. You need to be able to explain what action is taking place across the division.
3. Make sure you have clear measures in place. Every objective must have a measure.
Susan Ho says, “Don’t do it alone — communication and getting buy-in is everything. The biggest point of frustration I see from teams is when executives put forth operations plans and goals without consulting them. At best, it leads to unrealistic goals. At worst, it leads to a disillusioned team that’s not bought in. Before putting something down on paper and handing it to teams as gospel, schedule time with directors and managers to communicate the business-level goals, why they’re important, and why they need to happen. Talk to them about the operational implications of those business goals. What will be easy for them to achieve, what will be difficult, and why? What do they need to make it happen?”
She continues, “Spend extra time mapping out interdependencies and worst-case scenarios. At Journy, we pair travelers one on one with an expert concierge who custom builds a detailed travel itinerary based on the customer’s interests. At the highest level, we have monthly revenue goals that we want to achieve. Because we have a labor and time-intensive product, we need to carefully coordinate three key variables: top-line growth based on marketing and sales initiatives; capacity (how many hours our concierge team has available), which is directly impacted by how fast we execute against our engineering roadmap; and hiring and training new concierges. At the same time, we also have SLAs to deliver all itineraries to travelers within 5-7 days of their request. Because of that, we have clear processes for how our marketing team communicates with our operations team and for how operational plans align with our marketing tests. For example, if the marketing team hits it out of the park, what is the implication for ops?”
“Connect the dots in your value chain,” Suresh Dalai suggests. “To make the plan end-to-end, start with the consumer and work backward (sell, move, make, plan). If sell is your consumer, working backward, you need to plan, make, and move. Your operations strategy should articulate how these steps are connected in your business and how each piece in the chain supports the next piece. Next, measure the effectiveness of your operations plan through consumer-facing KPIs. The KPIs should be as close to consumer experience as possible. For example, many operations KPIs are about meeting operational efficiency goals (e.g., reducing lead times from order to delivery, increasing fill rates [the percentage of the request filled at a certain time], or simply increasing the number of widgets produced per labor). However, a consumer-facing KPI would be, for example, the percentage of consumers satisfied with your product availability or with the high quality/durability of your products.”
“Operations plans are really focused on the middle section of the P&L (the costs), so minimize them,” says Levy. “While operations does focus on creating a system to scale an organization, keeping costs low and maximizing profit is something I look at carefully. Operations plans should ask tough questions like, ‘Is hiring this team necessary, or can we solve this with technology?’ or ‘Should we perform more experiments to test the viability of new businesses before investing heavily?’ These are questions that should be at the core of an operations plan for any evolving organization. You should also have all leaders present, and get in the weeds. As an executive, you have to get in the weeds when you are designing a strategic operating plan. Executives should constantly meet with people on every level of the organizational structure to test assumptions.”
Levy adds, “Keep one eye on the short term and one on the long term. Short and long-term planning are equally important and not always easy to balance. Some plans may have the desired effect now, but could cause issues down the line. This often comes into play with the organizational chart and how different groups work together. You want to ensure that everyone is aligning their decision making - not only with their individual department, but also with the overall goals of the company. This is crucial for long-term operational success.”
Cristian Rennella notes, “When writing a strategic operation plan, I suggest not writing it in full. It is advisable to write just the initial points. Then, make contributions so as to complete it according to the market needs. Another interesting point is about flexibility. Always be open to new modifications, not just at the moment of writing, but also once you’ve implemented the plan.”
“First, be sure you have a contingency built in,” Fajardo emphasizes. “Manufacturers and distributors are likely to miss deadlines too, so build yourself leeway of plus or minus 48 hours on either side whenever possible. Second, sit down and consult with your department heads as you write the plan. What sounds feasible to your line manager might have major negative consequences for your receiving manager. Everybody needs to be on the same page. Third, if opportunity and operations flow permits it, test out small phases of your plan in a controlled fashion, so you can see if the pacing and flow match your desired expectations,” he concludes.
What Services Do Operations Strategy Consultants Offer?
Consultants offer a wide range of services in functional strategy areas like operations as well as overall corporate/business strategy. Among other things, they can help a business do the following:
- Map and assess their operations
- Improve alignment with the overall business and with other departments
- Create strategic plans
- Perform a SWOT analysis (strengths, weaknesses, opportunities, and threats)
- Advise on better technology
- Develop benchmarking, KPIs, and goals
- Streamline operations for efficiency and cost reduction
- Implement strategic plans and new ways of doing things
Operations Strategy FAQ
What is operational effectiveness vs. strategy?
Operational effectiveness is about continually improving functional performance to better use resources and improve processes. Strategy is more about creating a unique value proposition to surpass competitors and succeed in the market.
What is meant by operational sustainability?
Operational sustainability is the business’ ability to maintain existing practices without placing future resources at risk. It often refers to ecological resources.
What is a competitive capability?
This means a plant's performance compared with competitors. Performance capabilities include quality, delivery, flexibility, and cost.
The Future of Operations Strategy
Lewko (paraphrased from a phone interview) provides these thoughts on the future of operations strategy:
1. You don’t know who the future competition is, so you have to start looking now. Who could be a future competitor? Consider who has better distribution and better manufacturing.
2. What technologies can you leverage in your business that you haven’t already? How can you lower costs and/or better serve customers? Find a better way, a better price, better technology. You could have produced the best buggy whip in the world but still been beaten out by the automobile.
3. Use an outside-in perspective. Don’t just keep looking through the lens of what you’ve always done.
Ho points out that “Everyone has been talking about AI — from using it to streamline meeting scheduling (Clara.ai and x.ai) to making recommendations to managers about their teams (butterfly.ai) to using machine learning to solve complex problems. It’s certainly true that there are many implications for AI in operations strategies that can make the job easier. I would argue, however, that when it comes to operational strategy, getting the ‘right’ answer is just a small part of the job. It’s mobilizing the broader organization to effectively do something about that answer that is the greater challenge, and a machine just won’t be able to do that.”
“The evolving trend in operations strategy is the integration of technology into every aspect of your business,” says Levy. “Operations executives must have a strong understanding of technological trends and push the envelope for integrating technology. The first question I ask myself when making a hiring decision is whether or not I can address this problem with technology. Technology and automation remove the possibility of human error, ultimately making for better processes across your organization” he emphasizes.
Speculand (paraphrased from a phone interview) believes that matching the pace of change is critical to future market survival: You have to be more fluid and agile than ever before. Operations strategies need to keep up with the pace of change. The digital transformation affects everyone to some degree, and operational models around the world are changing. Every operation is going to be challenged.
Dalai sees vertical integration, technology, and the right management talent as the keys to the future of operations strategy: “Vertical integration: Each player in the operational value chain will increasingly try to do what its customers or suppliers do in an attempt to control their own destiny and profit by eliminating the middleman. For example, the sellers of clothes will increasingly try to source materials and manufacture these clothes on their own instead of outsourcing the materials and production. The producers of clothes will increasingly try to sell them directly to consumers instead of supplying to the sellers (brands). However, the challenge in these moves is that companies are stepping out of their core competency. Some will succeed. Most will fail. Those who can harness technology well and have skilled managers will succeed in venturing into areas where they have less experience.”
He continues, “Technology: Artificial intelligence, 3D printing, and virtual reality will be some of the tools through which manufacturers will try to get closer to consumers and sellers will try to be efficient in sourcing and production. Companies who can effectively utilize these technologies will likely win. Finally, there is the search for management talent: Vertical integration and the use of technology will heavily depend on strong managers who can coordinate across functions and activities and keep team members engaged. Two types of managers will be in high demand: those who have experience across selling, moving, making, and planning and those who can build a culture of cross-disciplinary creativity and teamwork.”
Rennella strongly believes “that in the future, the key for operation strategies
is video instruction. In fact, we have already implemented this up-to-date technique in our company. It is a good idea to show everything on a main screen and, what’s more, in short segments. The first time we made a video with strategies, it lasted almost 20 minutes, and as soon as we realized a mistake, making adjustments was a real problem. Consequently, we started recording short videos, no more than seven minutes. In a nutshell, fixed schemes are totally obsolete in such a volatile worldwide market.”
“The future of operations strategy? That's a tough one,” says Fajardo. “With more and more analytics and data in play, I suppose the job will only get easier in some respects. A/B testing won't be as necessary when you already know what the best outcome will be. Even so, the surfeit of data comes with its own problems. Operations strategists are going to have to be more adept at knowing what these numbers are and — most importantly — what they
More Resources for Operations Strategies
Here are more resources to continue learning about operations strategies.
- Implementation Hub, a portal dedicated to strategy implementation and featuring more than 500 resources.
- Coursera online course — Scaling Operations: Linking Strategy and Execution
- Udemy online course — Operations Management
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