Monday, April 11, 2016

Operations = Strategy Execution

We have a tendency to look at the term "Operations" to simply mean everything that a company does. We look at each individual item and say we have processes and procedures for that. This is an atomistic view of operations.

I think it's much more powerful to think of Operations from a much more holistic perspective. Operations is the execution of your company's strategy, vision, and mission. When taken from the larger position, operations is much more powerful. Here's why.

Think about the role of operations in an organization. Operations is the "how we do what we do" piece of your business. It comes after you decide WHAT you do. First you need to decide what business you're in, who you want your clients to be, how you want to place yourselves in the competitive environment, and which products and services you want to offer. Those are all policy decisions. Those are strategic decisions.

Operations is the execution of your strategy. In other words, Operations takes strategy and turns it into execution.

Here's a great example from the IT consulting business.

Strategically, do you want to compete on price and always be the low-cost option for your clients? If you do, then you'll need more clients and have to constantly be looking for cheaper alternatives. You won't be able to sell high quality products and services. You'll spend a lot of time doing re-work because the implementation of a low-cost labor strategy will require less skilled labor and less time to execute each job.

Your marketing will focus on the low end clients. Your sales presentations will focus on cost savings. You will have a minimalist approach to standardization and quality of work.

And all that's okay if you choose to a low-cost and high-volume strategy.

Now, let's look at a high-quality strategy. Here, you'll need clients who value their investment in technology and put a premium on uptime. Now, you have to sell high quality products and services because you require uptime and reliability. You'll pay more for labor and charge more for labor. You have to because you can't afford rework. As a result, you will have more rigorous process and procedures. You will constantly be looking for higher quality tools, products, and services.

Your marketing will focus on the benefits of high quality services. Your sales presentations will be all about benefits and problem solving. You will have the highest standards for quality work.

Operations is where strategy becomes execution. So let's assume you've decided on the high-quality strategy. If someone proposes a move from business-class firewalls (starting at $1,000) to home-class firewalls (around $100), how well does that fit with your strategy? Obviously it doesn't. The lower end firewall will have much greater latency, so it is automatically the bottleneck of the client's network. It will have limited support for NAT, VPN, and IPSec. It will have a slower CPU and less memory.

On the product side, selling low end equipment is counter productive to the strategy of quality.

Now let's look at the server or labor side.

When you lead with quality, you have to have high end processes and procedures. That means your technicians are properly trained and they execute your checklist and procedures consistently. That takes overhead. It means you have a service manager who is constantly focused on providing the right service for each job. You coordinate activities in order to minimize rework and client downtime. All of that takes labor and good tools (e.g., a good service board designed for this industry rather than a home-grown product you built on crapware you found on the Internet).

Now consider what happens when you are tempted to provide that superior service at a lower cost. Of course you'll earn less money. But you'll also have to cut service. To cut labor costs you'll have to cut something else: Training, quality control, centralized management, quality of work delivered, amount of time allocated for jobs, etc. You will have to provide lower quality service.

That's the point at which the Operations department gets to push back. They get to invoke the mission, vision, and strategy of the company and ask, "Have we changed our commitment to quality? Because the reduction of quality support is not consistent with our mission to this point."

Let's be honest: Some people feel a LOT of pressure on price. Clients want to pay less but demand the higher level of service. This is true in many aspects of our lives. People buy the cheapest airline seats they can find and then complain that there's no legroom. Others pay for legroom and accept that they are paying more than the people seated behind them.

I encourage you to do the work that so many people avoid: Go back to the strategy discussion. Go back to the vision and mission discussion. It is very easy (and common) for people to wave their hand and say, "I don't need that." But without a clear vision about who you are, the clients you serve, and the services you offer, you don't have clear guiding principles for your execution. Without an overall strategy, anything you do will fit in operations. That makes it hard to provide consistently.

If you want to compete at the low end, you can do that. Lots of people do. In fact, most do.

If you want to compete on quality, you can do that. But it means you have to have people, policies, processes, and procedures that allow you to execute at a very high level.

So while "operations" might be seen as all the little things you do in the finest detail, I think it's much more powerful to think of Operations at a higher level. Operations turns your vision and your master planning into the execution of the promises you've made to stakeholders, clients, and employees.


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