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Complete Guide to Operational Strategy

Operations strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy,” they write. Technology and business models are rapidly changing, so businesses must keep pace and look to the future.

What is Operational Strategy?

There are five elements of operational strategy:

  • Target selection and configuration;
  • Decision processes;
  • Performance assessment;
  • Learning process;

Influence on corporate strategy. There are five elements of operational strategy:

Target Selection and Configuration:

The selection of the right goals is the most important factors of operational strategy and is directly related to competitive advantage which can be difficult to measure. Important operational issues include product mix, size and scale, investment mix, and the speed of change.

Decision Process

Most decisions relating to operational strategy are tactical. The crucial issue is how to make good decisions quickly. This is doable, but the goal is to make the best decision in the time given. The three examples used are: Lowe’s implementation of limited assortments; the use of store checkout clerks to sell groceries; and the planning of routes.

When it comes to decision process, there are two prevailing philosophies: assumption-based and preference-based decision making.

Assumption-based decision making focuses on the problem that needs solving and solves it using the best data and available information. This approach involves establishing the underlying problem first, then getting the data to solve the problem. This technique is popular and most likely the best to use. However, it comes with the penalty of being open to biases.

Preference-based decision making focuses on the level or orientation of the decision maker. One fits one’s preferences onto the problem and solve it accordingly using the best data and available information. This approach is not prone to biases.

Performance Assessment

The task here is to know the performance of the operational decisions. Performance measures are focused on operational profit as opposed to the shareholder value used in corporate strategy because a high return will not necessarily translate to a high stock price. The importance of measurement is rooted in risk management. According to the authors, there are two types of risk situations: known uncertainty and hidden uncertainty. In known uncertainty, much of the uncertainty is known or can be predicted, examples being a hurricane or an earthquake. In hidden uncertainty, there is too much uncertainty to predict effectively, examples being a competitor’s actions or a new product.

Learning Process

Operational decisions connect planning to performance and there should be a feedback loop to get the right information to the decision maker. The key to getting the right information to the right person is to have a clear, simple and classified system and ensure that the feedback loop is working. The three degrees of events for decision making are: company event, company and market event, and company and market events.

Influence on Corporate Strategy

The goal of operational strategy should be to strengthen the overall strategy, not the reverse. According to the authors, this is done using a linking mechanism. This is a way of including operational strategy in the corporate strategy.

In conclusion, operatoinal strategy is the total pattern of decisions which shape the long-term capabilities of any type of operations and their contribution to the overall strategy. It focuses on tactical decisions and deals with the day-to-day running of the company rather than the long-term future. Decisions must be made quickly and effectively under the pressure of competition and uncertainty to ensure the growth and success of the company.

Implementation is the other half of the strategy chain and involves getting the operational strategy and the corporate strategy into action.

Strategy Implementation Models

Before we jump into the various models, there are other papers we need to cover first. We said that we were going to look at companies versus country level strategy but before we do that, we need to cover two other loosely related topics, which are strategy formulation and strategy implementation.

Strategy Formulation

We start with strategy formulation because it is the basis of strategy implementation. Strategy formulation is a process of converting the components of the strategy into action. The sequence of converting strategy statement into action is choosing goals, allocating resources, implementing, and monitoring.

A model or framework must take all five of these components into consideration when constructing and must be flexible enough to be able to accommodate all levels of business, from global down to the smallest business or individual.

A framework or model is an organization tool which is used to guide the thinking, planning, and decisions of individuals within the organization. It must be comprehensive, simple, realistic and applicable.

The frameworks or models will differ based on the level of the business in question. While strategy formulation focuses more on company level strategy, we will look at organization and department strategy as well.

The three core four models are conceptual models, descriptive models, analytical models, and action models. Each has its own benefits and flaws. Let’s take a look at each model in more detail.

Conceptual Models

The conceptual model is a representation of the strategy design process. It is the basis of an organization’s strategy formulation and implementation process. It provides a conceptual structure to use when designing company-level strategy and operations strategy. The model shows the interactions of various factors in the strategy formulation process.

There are three common formats of the conceptual model used today: the business strategy matrix, the SWOT matrix, and the Porter diamond. Let’s look at each of them.

The first model is the business strategy matrix which was created by Joseph B. Fuller. He developed the matrix to describe why and how consumers buy, and why competition will be unprofitable when it ignored consumers. “The strategy page is designed to lead the executive team toward a well-reasoned, sound, winning strategy,” writes Fuller. “It is an interactive management tool that helps to bring the thinking of top managers from strategic concept to operational results by incorporating key strategic factors under the control of management.”

The business or company strategy life cycle consists of eight stages, seven of which are covered by the matrix. They are: situation analysis, product strategy, resource strategy, economic and competitive forces analysis, marketing strategy, organizational strategy, integration and control of the strategy.

This matrix is essentially a big strategic SWOT analysis and can become a bit more complicated than necessary. However, you should know how to use it and for company level strategy, this is one of the best tools out there.

The second model is the SWOT matrix which is an analysis tool used to assess the strength, weakness, opportunity, and threat factors relative to market opportunities. It was created by Albert Humphrey.

How to Use

The SWOT matrix can be used to analyze an organization and provide a basis for future strategic decisions. It can be used for the firm’s internal analysis or to analyze or evaluate a specific project, product, opportunity area, scenario, etc.

Steps to Using the Matrix:

  • Consider the variables to be analyzed.
  • Consider the context in which the analysis will be conducted.
  • Consider your personal biases.
  • Set up the matrix and apply a scored weight to each factor.
  • Consolidate the results into a coherent final interpretation.
  • Use the resulting analysis to develop strategy options.

A third method uses the Porter diamond, created by Michael E. Porter. The diamond is a visual representation of how forces within the environment affect strategy. Strategy development must take the diamond into consideration in order to be succesful. The diamond consists of four key elements in the strategy:

The diamond is divided into four quadrants. Each quadrant represents a different type of strategy: cost, differentiation, focus, and integrated value chain.

SWOT and the Business Strategy Matrix are used for commercial strategy. Porter’s diamond is better suited to corporate strategy.

Descriptive Models

There are two ways to understand how businesses and corporations exist: one is to look at the existing instances of enterprises, for example, firms that are currently operating; and the other way is to examine a set of common characteristics that describe a class of enterprises, or better yet, a theory to describe the common characteristics.

There are three descriptive models.

The first model is the resource-based model. It was created by David J. Collis and David Kale and is called the “authority-based approach.” It is a model that is designed to help managers understand the relationships among companies, industries, and resources.

The second model is the industry life-cycle model. It is used to describe the growth and decline of industries. It is used in marketing, but can also be applied to any business of a certain industry.

The third model is the product life cycle. It was created by Raymond Vernon and describes the four stages every product goes through: introduction, growth, maturity, and decline.

Analytical Models

There are five business/corporate strategy models that use quantitative methods:

The first model is called Porter’s five-forces model. It was created by Michael E. Porter. The five forces are related to industry-specific competition and possible entry barriers and consist of three forces that produce competitive intensity and two forces sometimes leading to an industry’s profitability. All five forces have a basis in economic theory.

The second model is called the Boston Consulting Group (BCG) growth/share matrix. It was created by Bruce R. Ahlstrom and George Stalk. It is a simple and powerful tool that can be used to analyze the position of a business in its industry. This matrix is a good tool for determining whether a business should pursue market share or profitability. It is used to identify the most lucrative market segments. It can reveal which segments a business should invest in.

The third model is called Kim and Mauborgne’s four-circles model. It was developed by Youngme Moon and W. Chan Kim.

This method is a robust structure for planning long-term corporate strategy. It helps in identifying a company’s strengths and weaknesses, in spotting opportunities and threats, and it works well when combining strategic change and operational programs.

The fourth model is called the value chain model. It was developed by Michael E. Porter and is used to find additions to the value chain that will either increase value to the customer or lower cost to the organization.

The fifth model is called the resource- based view value chain model. It was created by C.K. Prahalad and Gary Hamel. This model is used to help build competitive advantage by determining an organization’s core competencies and sectors. It is used to help a firm think and differentiate itself from others resulting in a more powerful presence within a given industry.

The sixth and final model is called the post modern model. It was created by C.K. Prahalad and Gary Hamel. The building blocks of this model are the three Ps: people, process, and passion. They are used to give importance to customers, employees, and business partners. The idea is to focus on the organization’s core values, with the ability to team up and be sophisticated in implementation.

A seventh method of business and corporate strategy focuses on knowledge and innovation. This method is called the innovation approach. It was conceived by William J. Abernathy and Clark Kerr. This is the least understood of all the business strategy models, but it is very powerful when implemented.

International Models

International business strategy uses the same tools as business strategy, but it is more difficult due to the greater global implications and the different cultural practices and views.

The first model is the Porter diamond. It was just covered in the previous section, but it is used in international studies.

The second model is called the arm’s-length model. It was created by A. Sonnenschein and K.S. Bhate and is used to conduct international business studies.

The third model is called the resource-based view model and is used to carry out international studies.

The fourth model is called the strategic choice model, and is used to conduct international studies. It is the same as the explanatory models, but more formal and more analytical.

The fifth model is called the strategic focus model, and is used to conduct international studies.

The sixth model is international Porter five-forces model. It was created by Susan Ostroff, and is used to conduct international studies.

The seventh model is a recently developed international Keynsian model. It was created by Carlota Perez and is used for guiding innovation and growth in mature economies.

Knowledge Model

The last model is called the knowledge model. It was created by Manfred Kets de Vries and is used for studying the human aspect of business and business studies as well as leadership. He created the largest database of knowledge on the subject, and this model uses that data, despite its insufficiencies, in order to identify and understand the human aspects of business and business strategy.

Conclusion

Strategic business planning tools and methods are a combination of administrative tools and analytical methods. They are used to apply a strategy and to achieve business goals. In order to maximize the success of their organization, a business should be able to harmonize the different models used in these methods. Models are designed to be used in a certain economy and to be used in a certain environment and in a certain organization at a certain time. The development, design, and delivery of a strategy should be based on the model that is most suitable to the organization’s needs.

Strategic planning is an easy and fun process. Strategic business planning is the combination of management strategies, tools, and methods, and it is a process that helps companies create strategies that are optimal for their needs and their environment.

Strategic planning is a dual process, with strategic planning and operational planning synced together. Strategic planning is the process of defining the direction of a firm; it is an organization’s strategic blueprint. Strategic planning is focused on creating a future vision for the entire organization. It is all about creating an organization that is competitive and profitable in the market. It includes designing and implementing a strategy that will help the organization achieve its vision and its goals. Operational planning is different. It is about leading a team to achieve strategic goals. It is about designing and implementing the foundational steps for strategic success. Operational planning is about creating operational tasks and procedures that will yield a strategic outcome.

The objectives of the strategic planning process are the following: to increase the culture of strategic thinking in the organization and to increase strategic thinking skills among the members of the organization so that they can see the potential possibilities and opportunities; to completely align the organization’s resources, including its people, its budget, and its property, with the strategy; and to maximize the effectiveness of decisions.

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