Operational strategy

Operational strategy focuses on how to produce and deliver value to customers. The strategic planning process produces decisions about the future shape of the firm. Then the operating parts of the organization execute the decisions.

Where we are in the strategic planning process?

The early stages of the strategic planning surfaces few major issues. The strategic plan must address these. Sometimes the issues may be in the way the firm carries out its operations.

I think of operations strategy in these two broad ways.

  • Companywide commitment to continuous productivity improvement
  • Quantum leap in operational efficiency and effectiveness

Operational strategy as continuing commitment

Commit to ongoing improvement.

To begin, aim for at least two percent improvement per year. I suggest going further. Aim in the range three to five percent per year.

Operational strategy as quantum leap

The above continuous operational improvement suits organizations that are doing well. Low performing organizations could aim for larger improvements. For example, short-term profits increase of ten percent.

Some big gains come through better processes.

Operational strategy as balancing act

Remember such strategy focuses on improving what a company ‘does’. It is how it gets its products and or services to the market. The business organizes its efforts around this 'operating spine'.

Operational strategy links operations with customer needs. Doing this well achieves the overriding profit goal of the enterprise.

Think of it as illustrated in this diagram.

Formulating operational strategy

There are many ways to build an effective operational plan. Tools can be useful. Of first importance is clarity of purpose and clear targets for operational improvements. Select tools with care. Choose few enough in number to be manageable with strong commitment until results show. Do not choose tools because they are the 'flavor of the month'. They should suit the specific business.

I will mention just one of many approaches to developing such strategy.

Hill approach to formulating operational strategy

Terry Hill outlined this framework in his Operations Management, 2nd edition.Operations Management, Second Edition.

The Hill method has five stages -

  1. Define corporate objectives
  2. Determine the marketing strategies to achieve these objectives
  3. Check how various products win sales against competitors
  4. Decide the most suitable approach deliver these sets of products
  5. Provide the requisite infrastructure to enable operations

The first stage is obvious for all kinds of business strategy. It is usual to have some corporate marketing strategy. This will influence other kinds of strategy.

The distinctive core of the approach is at the third stage. This poses this challenge. ‘How Do Products Win Orders in this Market Place?’

This pinpoints the gaps between market needs and firm operations.

Bridging the gaps begins by spelling out the marketing strategy into the key factors that affect competitive success. Such factors include at least -

  • pricing
  • product or service quality
  • delivery speed and reliability
  • after sales support

Careful review of these things can guide priorities for improving operations. The key issues for these operations include -

  • quality
  • speed
  • dependability
  • flexibility
  • cost

Hill separates the factors into two broad types. These are order winning and qualifying.

An orderwinner is a product factor that tips the customer in favor of purchasing.

An orderqualifier is an attribute of a product or service that is basic to the customer even considering the offer. These are prerequisite to market membership.

They need only be as good as the competition. If they do not match current customer expectations of the competition, they will lose sales.

With order winners, customers see the offer as better than that of the competition.

There is nothing fixed about these factors. Firms will discern their won order winners and qualifiers. For example, high quality may be an order-winning factor for a company competing in high-end luxury goods. When materials or production costs rise to where pricing is too far out of line with competing offerings, sales may drop. Even though affordability is not an order winner, pricing within a certain range may be a qualifier. Going out of the range may become an order-losing factor!

Consider both sets of factors when putting together the strategy for improving the firm' operations.

This is a simplified version of a gap analysis for a part of a firm. It indicates areas for improvement.

The firm is falling short of customer expectations in adherence to specifications, and waste reduction. It is exceeding them in speed of coping with customer variations, and material availability.

Return from Operational Strategy to Business Strategy.

Return to Simply Strategic Planning Home Page.

For a range of material relevant to operational excellence, see the listings below.

Sign up for our Newsletter -

Enter Your E-mail Address
Enter Your First Name

Don't worry — your e-mail address is totally secure.
I promise to use it only to send you StratXtra.

StratXtra provides updates on what is happening here at the website, and comment on current issues in strategic planning.