As regular readers of this column know, I am returning to the classroom as a full-time faculty member this Fall Semester in August. In my first semester back in the classroom, I’ve been assigned two courses to teach. At the MBA level, I will be teaching a course in Strategic Management, while at the undergraduate level, I will be teaching a course in Operations and Supply Chain Management. While my most extensive academic training and experience have been in Operations and Supply Chain, I have taught Strategy in both MBA and executive programs and have experience in strategy development and implementation in my previous leadership positions. These two areas seem diametrically opposed with Strategy being a “big picture,” long-term management area, while operations are more about managing the daily productive functioning of a business. However, my experience, both in the classroom and in managing enterprises, has shown me that these two areas are tightly connected and depend on each other for business success.
Before we explore the relationship between strategy and operations, let us take a quick look at each. Strategy is basically how a firm will achieve its objectives. A strategy encompasses the pattern of organizational actions taken in pursuit of an advantage over its competitors. In other words, a strategy defines how a firm will create unique value. Ultimately, strategic management focuses on the competitive environment of the firm and determines the firm’s “long-term plan to win.” The long-term time frame is key to understanding strategy. A firm typically makes consistent and expensive resource allocations to its strategy. Changing strategy has been compared to turning around an aircraft carrier; it can be done, but not very quickly.
Unfortunately, many people misconstrue strategy with tactics. Whether it is in business, warfare, or sports, many use the terms interchangeably or confuse one with other. Tactics (and operations, for that matter) are the specific actions the firm takes to execute its strategy. In a sports broadcast, you will often hear the announcers talking about the strategy within a game. However, for the most part, the team’s strategy was determined before the season started. Tactics are what occur within the game to deliver on that strategy. For instance, the Atlanta Braves strategically chose to be a power-hitting team, as it built its roster and its player development system. The way their lineup is constructed is a tactic to execute that strategy.
Therefore, for a business like yours, you should develop your strategy first, prior to using operations to allow you to compete effectively. You will develop your strategy by evaluating your competitive marketplace. There are three important components of your marketplace that you need to study and understand as you develop your strategy. First, you need to understand the customers in that marketplace. You need to understand what aspects of your product or service do they value most. Is it price? Is it quality? Is it customization? Second, you will need to understand the competitors in your marketplace. Again, value is most important. What is it that your competitors and potential competitors offer that the customers in the marketplace value? Finally, you must also consider the “environment” that will affect your marketplace. For instance, legal and regulatory issues, cultural issues, and the state of the economy can all have impacts on your market and what your customers may value. Once you evaluate your marketplace, you can determine a strategy that will allow you to be successful. In other words, determining what will allow you to win customers and be profitable.
Because strategy is of primary importance and because it ultimately drives your operations decisions, even in my operations course, I will teach the important elements of strategy before I teach operations. I typically spend the first two weeks of my operations and supply chain courses discussing strategy, so that students understand that ultimately, a firm’s operations and supply chain must be constructed and implemented to deliver on its strategy.
For example, a company like Walmart has a strategy that is dominated by being the cost leader in its markets. You can often determine a firm’s strategy by the promises made to its customers in its marketing. For decades, Walmart has used variations of the taglines, “Everyday Low Prices” and “Always Low Prices,” and now, most recently is using the tagline, “Save Money, Live Better.” Given this strategy, Walmart’s operations and supply chain are focused on lower prices. Whether it is managing inventories, negotiating with suppliers, or its information technology investment, it is all focused on delivering low costs to its customers.
Therefore, when teaching operations and supply chain management concepts, whether it be managing processes, managing inventories, managing purchasing and logistics, or any other means of manufacturing products or delivering services, I always remind my students that our primary goal is to make our operations and supply chain to support our strategy to best compete in the marketplace. So, while strong operations are critically important to delivering a good product or service, they are only of value in the context of supporting the firm’s strategy.
At the end of the day, strategy and operations are the yin and yang of your business. While seemingly opposites (i.e., long-term vs. day-to-day), they are interconnected and must be linked for your firm to be successful. As the noted Chinese military strategist, Sun Tzu, wrote over 2000 years ago, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” So, be sure that your business’ strategy and operations are in sync to be successful.