In many companies, corporate strategy is developed as a series of independent statements. Lacking essential integration, the result is a compilation of distinct, functional strategies that sit side by side, layer on layer, in the same corporate binder. Integration is not provided if, in fact, it was ever intended.
Functional dominance of the views of markets and the failure to interface the perspectives, insights and capabilities of functions characterise this strategy development task. For example, in many companies major strategic decisions are made covering the markets and customers that are to be grown without any attempt to embrace the perspectives of operations as to its ability to support these requirements and to make anticipated profits. This failure is further compounded by the fact that operations investments are large (in terms of asset size) and fixed (in terms of the timescale to undertake change).
Given that the criteria by which many companies now win orders are provided by operations, knowing the timescales and investments involved for operations to give this support is a prerequisite in the strategy debate. However, this rarely happens. Instead, operations is placed in a reactive mode and very often finds itself unable to support customers and make money.
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Functional strategies are concerned with prioritising investments in line with support for markets. Understanding markets, therefore, is the common denominator for each functions strategic contribution.
But many organisations begin the process of strategy formulation on the incorrect premise that markets and marketing are synonymous. Marketing is a function; the market is the business. Though marketing will have an essential view of the market, the agreement must come on perspectives. Debating and agreeing markets is the very essence of strategy.
Operations (as with any other functional) strategy starts, therefore, with an agreement about markets how a company competes in them, the operations tasks that follow, and the priority investments and developments that operations needs then to undertake. Without this clarity, functions are unable to link into their strategic role within a business. Doing the right things needs to replace the doing-things-right mentality of many operations executives. Thus, being effective rather than being efficient needs to drive the operations culture of the future.
How then is this change to be made? The key lies in understanding markets. Currently, the insights typically considered by a business are too broad to provide meaning. Companies are too often reviewed as wholes with corporate diversity overlaid by generality.
General descriptions of markets are appealing to chief executives faced with the task of developing strategies for businesses typified by difference rather than similarity. However, such similarity, though desirable, is inherently not available. Companies need to develop approaches to reviewing markets that deliver essential insights as to how they really work. While marketings view of a market is necessary, it is not sufficient. Companies must supplement customer voice (the typical outcomes of marketing surveys and discussions with customers) with customer behaviour (the reality of fulfilling orders and providing support for customer demands).
Customer voice is embodied in marketing reviews but customer behaviour is found in the actual demands placed on the operations function of a supplier (see Figure 1). It is this latter insight that operations needs to provide within the strategy debate and that it alone understands and can explain through the data that it records in its order processing and managerial systems.
The debate about markets must provide better insights on which to build functional strategies. To do this there are three key issues.
First, avoid descriptions of markets expressed in general terms. The phrase customer service is too general to provide key insights. The on-time and quick-response dimensions of delivery are crucial but invariably not provided. Is the term quality referring to design or the need to provide a product/service to specification?
Given the essential nature of market understanding, companies cannot afford to lose these essential insights. However, they typically do. Not appreciating the inadequacy of their current market statements, companies fail to provide the level of understanding required more by default than design.
Second, as part of gaining a greater understanding of their markets, companies need to distinguish between qualifiers and order-winners. Qualifiers get and keep a supplier on a customers short-list. Order-winners, on the other hand, are those criteria a supplier needs to provide at a level better than competitors who also qualify. However, that does not imply that qualifiers are less important than order-winners. Qualifiers have order-losing characteristics and thus play an essential role in the competitive stance of companies. But knowing what you need to do to qualify and what to win are key insights.
Finally, qualifiers and order-winners are time and market specific. They will be different from market to market and will change over time. Recognising and providing these insights, therefore, is a far cry from the general statements of markets that typify most companies strategic discussions. Difference, not similarity, is the hallmark of todays markets. Adequate insights are a prerequisite to developing functional support and developing strategic direction for the key functions within a firm. Figure 2 helps demonstrate this for the operations function.
Most firms start their debate about corporate strategy by listing the objectives they wish to achieve and then ask marketing to put forward a strategy for achieving them. This corporate marketing debate is at the front end of most companies strategic process. However, the strategic debate typically stops here.
The assumption is that operations can support the marketing plans and achieve the projected level of profit and growth in agreed markets both today and in the future. Getting into the debate at the right time and the right level is an essential operations requirement in order to influence outcomes. The key to achieving this is through forcing detailed answers to the question: How do we win orders in our various markets? Until this is understood, operations (as with other functions) is working in the dark in terms of its strategic role.
Operational vs strategic tasks
The overall task of all executives comprises operational and strategic elements. Managing and controlling the range of tasks for which they are responsible and undertaking these efficiently is a key role in operations. What this comprises and the approaches and concepts to adopt are dealt with elsewhere in this module. The essential recognition that both sets of tasks need to be undertaken is a key factor in creating competitive firms.
Markets vs operations
While markets are inherently dynamic (they will change whether you wish them to or not), operations is inherently fixed (operations will not change unless it is deliberately changed). Thus, the task to align and realign operations to the needs of agreed markets is a continuing requirement. A key element of this is to be able to test alignment or, ideally, highlight how the gap between market requirements and operational support will increase given projected strategies or actual/anticipated changes in the market. Figure 3 is an example of the approach to test alignment.
Here, a company in the late-1980s invested in processes designed to support the high-volume markets in which it competed. As competition increased and over-capacity prevailed, the company lost sales. In order to retain its revenue levels, marketings strategy was to increase product range. As a result, customer order size reduced, the rate of new product introductions increased while marketing argued that price continued to be the important order-winner.
Over the following few years, this strategy prevailed and moved the companys position on these dimensions towards the left (see Figure 3). However, operations still had in place the processes in which it had invested in the late-1980s. Thus, operations was still attempting to support the current low-volume markets on its dedicated, less flexible processes and experiencing more set-ups, which were still long in duration and expensive in consequence.
What Figure 3 shows is that in the late-1980s operations was aligned with its markets but by the early-1990s the necessary alignment between markets and manufacturing no longer existed. The outcome was a rapid decline in profits and an increase in inventory resulting from manufacturing artificially inflating its volumes to go some way to compensating for the significant decline in customer order size.
The clear insight provided by product profiling enabled the company to identify the root cause of its decline and make adjustments to both the strategies pursued by marketing and manufacturing. Developments designed to move manufacturing to the left of its current position enabled the company to increase its alignment and gradually return to acceptable levels of profits.
Driven by greater competition and customer expectation, markets are becoming increasingly different rather than similar. A key strategic task facing manufacturing, therefore, is how does it cope with difference. In the past, the approach adopted has been to seek a complex solution. However, this has singularly failed to provide the answer.
Recent developments in manufacturing have turned to a strategic alternative. As market difference signals different markets, then the alternative to supporting these with a single manufacturing function is to develop manufacturing strategies to support the different markets in which a company competes the concept of focus.
Many companies are rearranging their manufacturing facilities based on a single provision supporting difference (the source of the complexity) by splitting their plant on the basis of the different markets in which their company competes and the different manufacturing task that follows known as plant-within-a-plant focused facilities.
Companies with several manufacturing plants, on the other hand, often choose to orientate one plant to support one set of market requirements and another to support a different set.
In either case, to retain focus companies then reposition products between the focused units as the order-winners on which they compete change and the subsequent manufacturing task alters.
There are, however, constraints. Sometimes moving towards focused plants requires duplicating existing processes and constrains its introduction. Sometimes, therefore, companies are able to focus some parts of their business while leaving the remainder unaltered. Where this is a more sensible development, companies are simply making sound choices between alternatives.
The important point is that approaches need to be based on what is best for the business as a whole and not based on competing dogmas.
Summary
Many organisations begin strategy formulation on the incorrect premise that markets and marketing are synonymous: marketing is a function, the market is the business. Companies must supplement customer voice (the typical outcomes of marketing surveys and customer discussion) with customer behaviour (found in the actual demands placed on the operations function of a supplier).
Better functional strategies come from avoiding descriptions of markets in general terms, by distinguishing between qualifiers and order-winners, and by recognising that difference, not similarity, is the hallmark todays markets.
Markets will also change whether you wish them to or not, whereas operations are inherently fixed thus the need to align the latter to the former is a continuing requirement. Many companies are rearranging their manufacturing facilities by splitting their plant on the basis of the different markets in which their company competes and the different manufacturing task that follows.