132 – ‘A new theory of value creation for local government’. Do we need one? Part 3 – operations strategy.

Posted by Lancing Farrell

Slack operations strategy

Image from Operations Management, 6th Edition, Slack, Chambers and Johnston.

In this third post in this series, I look at the concept of the operations strategy. Every organisation has one. Your organisation does, but do you know why or what it is? And how does it relate to the business model?

This series of posts is intended to make the case that local government needs a theory of value creation – a clear explanation of what local government does to create public value. That theory will require a reappraisal of the operations strategy and the role that operational capability can play in supporting the business model and strategy execution.

Hayes and Wheelwright describe operations strategy as guiding decisions about vertical integration (i.e. the extent to which the council owns the value chain), capacity planning (i.e. how variation in demands will be met), facilities planning (i.e. the facilities needed to deliver services), services technologies (e.g. information systems) and process technologies (e.g. batch or make-to-order).

The academics Nigel Slack, Stuart Chambers and Robert Johnston in their text Operations Management talk about strategy and the connection to operations:

“… by ‘strategic decisions’ we mean those decisions which are widespread in their effect on the organization to which the strategy refers, define the position of the organization relative to its environment, and move the organization closer to its long-term goals. But ‘strategy’ is more than a single decision; it is the total pattern of the decisions and actions that influence the long-term direction of the business.

Thinking about strategy in this way helps us to discuss an organization’s strategy even when it has not been explicitly stated. Observing the total pattern of decisions gives an indication of the actual strategic behaviour.

Operations strategy concerns the pattern of strategic decisions and actions which set the role, objectives and activities of the operation.”

If you work in an organisation that doesn’t have a strong focus on its operations (as is the case with many councils), the idea that you need an operations strategy may seem irrelevant. As you can probably guess by now, I think it is critical to developing a new theory of value creation for local government. Strategy is critical to determine the business model, or models, and then comes the need for operations capable of implementing strategy. To do this, an operations strategy is required.

The four perspectives on operations strategy (see image above) provide a starting point for understanding the contribution it can make. The ‘top-down’ approach involves organisational leadership determining where the organisation will be positioned in its marketplace – e.g. what services to be in, how to allocate resources between those services, and what relationships should exist between services. The operations strategy will be driven by these decisions. If a wide range of services are to be provided, resources are to be freely shared between them, and they are to be tightly integrated, a different strategy will be required to a single service organisation.

The ‘bottom-up’ approach takes into account the existing circumstances, experiences and capabilities of the organisation. Many valuable strategic ideas emerge through operational experience. A general consensus may exist at the operational level that is important to guide the organisation. The ‘top-down’ decision making may confirm that consensus and provide the resources necessary for it to happen. This can be particularly important if there are ‘emergent strategies’ where actual experience, rather than market surveys, drive operations. Shaping strategy from the ‘bottom-up’ requires the ability to learn from experience and continuously improve.

Organisations need to satisfy the requirements of their markets, and in local government this means understanding what is valuable to the community and providing it. An organisation that continually fails to serve its markets will not survive. Therefore, it is important to carefully understand what creates value. This is likely to involve consideration of the performance objectives that operations must achieve for success. In the example given above of an integrated organisation providing a wide range of services using shared resources, it is likely that flexibility will be a key requirement of operations. Secondary requirements could be high efficiency/low cost, reliability/consistency, quality or customer responsiveness.

The final approach is from the perspective of operational resources and the constraints they impose on operations. This involves understanding the core competencies or capabilities of your organisation and what they enable you to do that will create value. It is the third corner of Mark H. Moore’s ‘strategic triangle and critical in creating public value.

Mark H Moore strategic triangle

Operational capability is simply the organisation’s ability to do something and capabilities can be developed to implement a particular strategy. Again, using the example of an integrated organisation providing a wide range of services using shared resources, the capability is required to deliver the required value within the authorisation provided by the council. There is no point committing to public value outcomes that cannot be delivered by operations.

The operations strategy is critical to the choice of business model (and visa versa). This is discussed in the next post.

Hayes, R.H. and Wheelwright, S.C. 1984. Restoring our Competitive Edge: Competing Through

Manufacturing.

Slack, Nigel, Chambers, Stuart and Johnston, Robert 2010. Operations Management, 6th Edition.

Moore, Mark H. 1995. Creating Public Value

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