Strategy and operations: overcoming the confusion

James Creelman Oct 2017

In the first line of Drs Kaplan and Norton’s seminal work, The Execution Premium, they write “Managing strategy differs from managing operations. But both are vital, and need to be integrated.”

For producing goods and/or services, operational excellence is an absolute necessity for delivering shorter-term organizational success – especially if the intention is to keep customers happy and make a profit. However, in pursuit of a desired future state, excellence in executing strategy is required. So, both operations and strategy are fundamental to good performance. But in managing both, a major issue is that operations is much more tangible, with easier to identify processes and improvement interventions.

Due to this, in most monthly/quarterly “strategy” reviews, strategic conversations take a back seat to operations – because it is less clear as to how strategic value can be achieved. From our experience, this is a constant challenge in most organizations, prompting the questioning of the sense of investing resources that don’t deliver tangible short-term benefits. Funding operations and their improvement is a safer option. A problem compounded by the pressures to deliver to quarterly goals and “meet” the budget. And let’s not play down the performance enervating issue of functions competing for their share of scarce resources.

Delivering strategic initiatives

Within a Balanced Scorecard system, most strategic initiatives are undertaken by those in specific functions (e.g. a major technology initiative is devolved to IT). Although apparently sensible, it is also where, if we are not careful, things often fall apart, as all decisions and responsibilities are usually devolved to that function, who might not take an organization-wide view of strategic performance improvement. They have their own targets and agendas, often conflicting with other parts of the enterprise. This functional mindset is a major contributor to the high rate of failures to implement complex initiatives that have an enterprise-wide impact.

This functional mindset is a major contributor to the high rate of failures to implement complex initiatives that have an enterprise-wide impact.

The dysfunction impact of Taylor

There’s a good historical reason for such function-based behaviour and thinking. Cast your minds back more than a hundred years to the 1911 publication The Principles of Scientific Management, in which Frederick W. Taylor argued that successfully managing operations required strict silo-based working with prescribed technical skills and approaches. This is how most organizations still operate and are structured. Naturally, we instinctively manage strategic initiatives (and everything else for that matter) through the diktats of Taylor.

But the fact is that managing strategic initiatives with an opera­tional, function-based mindset simply does not deliver optimal enterprise-wide value. Managing strategic work or initiatives requires a shift to a “boundary-less” approach, i.e. end-to-end process management, where boundaries of functions are not readily distin­guishable. Anathematic to the established “Tayloresque” norms.

That said, there are similarities in both working within boundaries or without – such as elements of planning, scheduling, budgeting and following organizational processes to produce the deliverables. Unfortunately, these similarities cause further confusion about what is strategy and what is operations and so the fall-back response, as always, is to think operationally. Much more comfortable and familiar.

A clear vision

To help overcome this confusion, it is important that the strategic vision is clear, which is crucial when quantifying the longer-term strategic objectives and appropriate measures.

With this in place, it is possible to identify the critical elements (and strategic importance of funding) that need to be addressed by teams across the organization in working together to deliver a strategic initiative. Whether those elements are communication, resources, or infrastructure, they should be directly supporting the pursuit of clear and quantified organizational (not functional) goals. Importantly, they must be owned by a top executive of the organization with end-to-end process responsibility.

Separating strategy and operational reviews

Therefore, strategy review meetings also require a shift in thinking from functional to end-to-end process management. Operational meetings should focus on routine outputs and short-term problem solving. Strategy review meetings should mainly focus on the progress of the major initiatives, how they move the organizational strategy (not a functional agenda) forward, and the identification of, and putting in plans to resolve, longer-term issues. They should be supported by valid data. Powerful advanced data analytics is playing an increasingly key role here.

Critical insights and data from operational meetings should be an input to the strategy discussions, in particular in relation to those operational processes that most directly impact the strategic processes. This might lead to new strategic objectives, measures or initiatives.

Parting words

Today, the ever-increasing speed of change in markets requires more agile and adaptive organizational processes – this is further blurring the lines of our understanding of strategy and operations.

Unless the distinction is better understood, organizations run the risk of being seduced into believing that strategy is little more than enhancing current operational processes, especially as leaders feel overwhelmed by events and simply do not have the time to “think strategically.” Consequently, the bulk of resources will be directed at those interventions that deliver a quick return.

Yes, excellence in strategy and operations are both required and so both need investment, but they are not equal. Note this warning from Kaplan and Norton, “Operational excellence may lower costs, improve quality, and reduce process and lead times; but without a strategy’s vision and guidance, a company is not likely to enjoy sustainable success from its operational improvements alone.”  Think Motorola.

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By James Creelman and Saliha Ismail.