Operational strategy in business.
INTRODUCTION
The New Oxford Dictionary of English second edition published in 2003 states: Operational means: relating to the routine functioning and activities of an organisation. The same dictionary also states: Strategy means; a plan of action designed to achieve a long-term or overall aim: strategic planning for the organisation is the responsibility of top management.
There are three levels of Strategy:
> Corporate
> Business
> Operational
Whatever the context, strategy is concerned with long-term goals and objectives, determining the business we want to be in, the character of the organisation, and building sustainable competitive advantage because that is the key to strategic success. We also need to be aware that the culture, leadership, and symbolic and political processes make implementing strategy or changing strategy problematic.
This assignment will only be looking at strategy in the operational context. The assignment will look at different definitions of operational strategy and then show how my organisation, TD Travel Group, could apply strategy in organising a new operational system.
TD Travel Group is a travel company that consists of TD Travel Management specialising in business travel, TD Special Events for any group, conference and incentive requirements, TD Roomfinder for all UK and Worldwide hotel accommodation and TD Holiday Options offering a quality leisure travel service. The company features in the Business Travel World Top 40 UK Travel Companies and is the North's leading independent travel company of its kind. TD Travel Group has developed an enviable reputation for offering a highly efficient service totally geared to the complete satisfaction of all clients.
The company is owned and managed by the two shareholders, Simon King and John Owen. Its current annual turnover is around £12m and it employs 26 people including the directors.
MAIN BODY
A study by the Association of Management Consulting Firms found that executives, consultants, and B-school professors all agree that business strategy is the single most important management issue. "We are seeing strategy make a rebound," says Vijay Govindarajan, a well-known strategy professor at Dartmouth College's Amos Truck School of Business Administration. "Strategy has become a part of the main agenda at lots of organisations today." Although strategic planning is back with a vengeance, it is also back with a difference. Gone are the abstraction, sterility and top-down arrogance of the old model. Today's Gurus of strategy urge companies to democratize the process - once the sole province of a company's most senior officers - by handing strategic planning over to teams of line and staff managers from different disciplines. And to keep the planning process close to the realities of markets, today's strategists say it should also include interaction with key customers and suppliers. That openness alone marks a revolution in strategic planning. http://www.businessweek.com/1996/35/b34901.htm
Luffman, Lea, Sanderson & Kenny in Strategic Management - an analytical introduction 3rd edition, Published 1996 Blackwell publishers Ltd P65 "Strategy is a word, which has been most widely used, in the military sphere. However, now the word is used extensively in business and, as in the military context, maybe defined as 'the means of achieving a given objective'. A strategy is concerned with integrating company activities and allocating scarce resources, so that the present objective can be met.
The authors then go on to discuss the meaning of strategy in operational terms:
"Strategy is concerned with: (a) products and technology (b) markets and customers. A company can only stay in business by satisfying customers. Thus, for given financial objectives, a company must decide what markets and customers it is going to supply, what products will be made to satisfy those customers, and with which technological process it will manufacture the products". Some companies' strategic options are severely limited. It is rare for a company to market products to a set of customers in a totally different manner from its competitors.
Slack, Chambers & Johnston (2001) Operations Management P64 states, "Strategy is the total pattern of decisions and actions that position the organisation in its environment and that are intended to achieve its long-term goals. A strategy has content and process. The content of a strategy concerns the specific decisions, which are taken to achieve specific objectives. The process of a strategy is the procedure which is used within a business to formulate its strategy"
The main characteristics of strategic decisions are:
> Concerned with long term direction/goals of the organisation
> About achieving some advantage for the company - success in strategic terms
> About the scope of an organisation's activities - i.e. small or global markets, product range, geographical area
> About matching the activities of an organisation to its environment - answering the environments needs - searching for strategic fit
> About building on or stretching an organisation's resources and competences - to create opportunities or capitalise on them
> May require major resources
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This is a preview of the whole essay
The main characteristics of strategic decisions are:
> Concerned with long term direction/goals of the organisation
> About achieving some advantage for the company - success in strategic terms
> About the scope of an organisation's activities - i.e. small or global markets, product range, geographical area
> About matching the activities of an organisation to its environment - answering the environments needs - searching for strategic fit
> About building on or stretching an organisation's resources and competences - to create opportunities or capitalise on them
> May require major resources
> Likely to affect operational decisions
> Affected by organisation's values and expectations
Consequences of these characteristics:
> Strategic decisions are likely to be complex in nature
> May have to be made in situations of uncertainty
> Likely to demand an integrated approach
> Will often involve change in organisations - cultural issues
Luffman, Lea, Sanderson & Kenny in Strategic Management - an analytical introduction 3rd edition, Published 1996 Blackwell publishers Ltd P65
In the process of planning a strategy, it is important to appreciate that decisions are not taken in a vacuum, but that any action taken by the business is likely to be met by a reaction from those affected. It is critical, therefore, that the effects of such reactions should be valued before taking decisions. Such an evaluation may lead to the abandonment of the project, to a contingency plan, or to making plans, which minimise the effects of possible reactions".
Slack, Chambers & Johnston (2001) Operations Management says there are two well-known procedures of operations strategy:
> The Hill Methodology - based on the idea of making connections between different levels of strategy making, from corporate objectives through marketing strategy, operations objectives and structural and infrastructural decisions.
> The Platts-Gregory Procedure - based on identifying the gaps between what the market requires from an operation and how the operation is performing against market requirements.
There are many different views and definitions on operations strategy, none of these perspectives alone gives the full picture of what operations strategy is, but together they provide some idea of the pressures which go to form the content of operations strategy.
One View on strategy is that of Michael Porter (1987) "From Competitive Advantage to Corporate Strategy" Harvard Business Review, July - August & (1996) "What is Strategy" Harvard Business Review, Vol. 74, November - December. He states "Strategy is about positioning, performing different activities or performing similar activities differently from rivals. It should be distinguished from operational effectiveness, which is about performing similar activities better. Strategy is about gaining competitive advantage, which can then be used to occupy a profitable position in the industry". Porter argues that competition in business is a war of positioning - the Positioning View (externally focused - the organisation attempts to fit with the environment).
Porter's Five Forces Theory can be used as a model for assessing the structure of the competitive environment:
> Bargaining power of Buyers
> Threat of new entrants
> Threat of substitutes
> Bargaining power of suppliers
> Competition - degree or intensity of competitive rivalry
Another view on strategy is by John Kay (1993) Foundations of Corporate Success, a British economist who asked why companies in the same industry with similar resources perform so differently. Kay says, "Strategy offers some of the answer. Strategy is about match between companies' internal capabilities and its external opportunities and threats". Kay distinguishes between reproducible and distinctive capabilities (similar to Porters positioning based view). Distinctive capabilities (relationships, reputation and strategic assets) are "those characteristics of a company that cannot be replicated by competitors, or only replicated with great difficulty." This is a resource-based view of strategy (RBV) (internally focused strategy based on using internal resources, skills and competencies to take advantage of environmental opportunities).
Another theorist with the same view as Kay is Lynch (2002) Corporate Strategy (2nd Ed); "The linking process between the management of the organisation's internal resources and its external relationships with its customers, suppliers, competitors, and the economic and social environment in which it exists."
Johnson & Scholes (2002) Exploring Corporate Strategy also uses a RBV on strategy; "Strategy is exploring the direction and scope of an organisation over the long term; which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet the needs of markets and to fulfill stakeholder expectations."
A third view on strategy is that of Henry Mintzberg (known as the guru of bottom-up management). Mintzberg, Lampel, Quinn & Ghoshal in The Strategy Process (4th Ed) say, "There is no 'one best way' to create strategy, nor is there 'one best form' of organisation. Quite different forms work well in particular contexts. We believe that exploring a full variety systematically will create a deeper and more useful appreciation of the strategy process."
Mintzberg maintains "formalising a strategy implies a sequence from analysis through procedure to action. Certainly we do think in order to act; but also we sometimes act in order to think. We experiment; those experiments that work converge into patterns that become strategies." To Mintzberg, the essence of strategy making is the process of learning as we act.
It is this view that I think TD Travel Group best fits in with. Mintzberg says, "Strategies can form as well as be formulated". To formulate strategy would involve an internal and external analysis (usually involving a SWOT and PEST analysis). The managers at TD Travel Group have not actively done this, therefore their strategy has formed rather than formulated. The strategy has developed from the actions of the managers and their organisational routines, this is known as Emergent Strategy based on real-life experience rather than theoretical positioning. TD does not have any strategy written in any one place. The processes they have used to arrive at their total strategy have evolved as internal decisions and external events have created a shared consensus for the MD's. Another name for this is 'bottom-up' management.
Peters & Waterman also expressed doubts about the usefulness of formal planning systems in their book In Search of Excellence and Mintzberg's Rise and Fall of Strategic Planning presents a direct attack on traditional perspectives of strategic planning suggesting that emergent strategies may be just as successful as the intended strategies that are the output of a formal planning process.
In the article "Crafting Strategy" Harvard Business Review July - August 1987, Mintzberg concludes that managing strategy is "to craft thought and action, control and learning, stability and change." He discusses his viewpoint in detail with some great insights and examples: "Like potters at the wheel, organisations must make sense of the past if they hope to manage the future.... thus crafting strategy, like managing craft, requires a natural synthesis of the future, present, and past."
Amazingly enough this article was published in the same issue of the Harvard Business Review (July-August 1987) as Michael Porter's 'From Competitive Advantage to Corporate Strategy'. Both have almost completely opposite views on strategy and both won the McKinsey Award.
In Mintzberg's 5 P's (Plan, Ploy, Pattern, Position, Perspective), TD would fit in with his definition of pattern the best. "Strategy is a pattern - specifically, a pattern in a stream of actions. Strategy is consistency in behavior, whether or not intended. The definitions of strategy as plan and pattern can be quite independent of one another: plans may go unrealised, while patterns may appear without preconception."
A companies mission is crucial in considering strategy. "Missions describe the purpose of the organisations basic functions in society, in terms of the products and services it produces for its clients" a quote from Mintzberg, a leading writer in organisation and behavior. TD's mission is as follows:
"The TD Travel Group will continue to develop and retain a reputation amongst customers, suppliers and all associated to the Business Travel Industry for being the most professional, quality and highest caliber travel company of our kind".
Its 'focus on the future' goes on to say:
"Team members must be constantly aware of our goals and philosophies, and it should be recognised that we remunerate and reward our people better than any of our competitors if they demonstrate being the best.
Our clients must always be of the opinion that the service, value for money, added benefits and total concept that they receive from TD is superior to any that they would receive elsewhere. We cannot ask our customers for more if we are not perceived to be offering them more.
Service fees, mark-ups and additional opportunistic earnings, must continue to be managed properly and increased accordingly. If it is evident that we invest in the best people, technology and products, then any sensible company or individual traveler will accept the reason behind these charges and recognise the benefits when paying for them."
I think this is a good mission and focus to have but TD needs to decide which is more important, to provide the best quality service or to provide the best price service. At the moment they are trying to do both which may cause confusion for the staff when deciding what mark-ups to put on tickets and if they get it wrong could result in loosing valuable customers. It is this mission and focus that forms TD's emergent strategy. As the mission states TD should "retain a reputation for being the most professional, quality and highest caliber travel company" to do this I am looking at organising a new operational system.
Custom Fares is a new solution that enables you to search for the best deals from low cost carriers on the web and via Galileo, on the same screen at the same time, for instant cost comparisons.
The benefits of custom fares include:
> Reduces the time an agent spends searching for the best fare as the single search function removes the need to search each website and Galileo system separately therefore providing better service to clients by being able to get back to them quicker.
> Provides an integrated display of fares on a single page allowing instant comparison, again saving the client time.
> Assists accuracy when booking the fare that meets the customers' need, enhancing customer service and reducing costs.
> Pre-fill functions reduce the amount of time agents spend inputting data, again enhancing customer service.
> Using web based technology means it's simple to use and quick to learn - reducing time and costs.
> Saves time booking on individual websites and toggling between applications.
> Broadened booking capabilities can help increase revenue.
> Allows the agency to keep an accurate track of booked web fares by providing a web fares reporting system.
All these benefits prove that TD would spend less time, resources and money training staff and inputting agent and passenger data, and more time giving customers the best fares available and therefore the best service. So whether TD decides quality or price is the most important, Custom Fares fits in with both aspects.
TD travel already has all the technical specification required to obtain the software, the cost is £84.00 per month to have it installed on the 14 business travel consultants' computers. I think the benefits above far outweigh this nominal charge.
Luffman, Lea, Sanderson & Kenny in Strategic Management - an analytical introduction 3rd edition, Published 1996 Blackwell publishers Ltd P97 say 'An important influence on strategic choice is the behavior of cost in an organisation. Strategic cost analysis allows the firm to identify the sources of cost advantage and their potential for building strategies based upon them." From the time saving aspect of Custom Fares I think it would be to TD's advantage to invest in Custom Fares to fit in with their mission to "retain quality" and so that "customers are always of the opinion that the total concept TD offers is far superior to that of any competitor."
Recent emphasis by such commentators as Peters and Waterman on the management and motivation of staff has shown that the productivity gains can be accomplished as much by the proper management of staff as by efforts to increase scale and efficiency. Investing in Custom Fares would help staff perform their job to the best of their abilities therefore increasing motivation and productivity leading to higher quality service and customer satisfaction.
Most companies undertake comprehensive evaluation of strategy infrequently. When it does occur it is normally triggered by some event i.e. change in leadership, poor financial performance, crisis etc. For example, TD Travel Group had to refocus its strategy to try to cut costs after the major upheaval in the whole travel industry caused by September 11th. There was a total ban on overtime pay and time off in lieu offered instead and trying to cut down on phone bills and make greater use of computerised systems. A good strategy does not need constant reformulation - it is a framework for solving problems.
CONCLUSION
At the same time as agreeing with Peters, Waterman and Mintzberg that emergent strategies may be just as successful as the intended strategies that are the output of a formal planning process. I also think that TD would benefit from certain aspects of formal planning systems. I think that completing a SWOT and PEST analysis would help them realise where they are in the travel industry and using Porters five forces model would help them to gain competitive advantage. As mentioned before, they also need to decide which is more important to them, to provide the best quality service or the best price service and show this more clearly in their mission and focus. Once this has been done I think TD would have a very strong emergent operational strategy.
Another aspect of strategy not discussed in the assignment is Supply Chain Management (SCM). I think TD would benefit from SCM by meeting customer requirements more cost effectively and efficiently. I think TD would have difficulty in seeing the effect and benefits of SCM at first because it does not appear on any financial documents but once the benefits become clear from both new and old customers they may realise the benefits that effective SCM could offer them. For example, applying SCM practices to an annual MRO buy of $291 million has helped the U.S. postal Service reduce its purchasing costs. Further to this the USPS also realised significant improvements in client satisfaction, product standardization and optimisation and overall business effectiveness. For more information on this; http://www.mhhe.com/business/opsci/pom/businessweek.htm
One statement that I think Simon King (MD of TD Travel Group) would like is from Luffman, Lea, Sanderson & Kenny in Strategic Management - an analytical introduction 3rd edition, Published 1996 Blackwell publishers Ltd P172
"Strategy is a term borrowed from the military and is concerned with how battles should be fought and how wars can be won. In business it is not very different, being concerned with how to compete and how to win."
REFERENCES
. The New Oxford Dictionary of English (2003) (2nd Ed)
2. http://www.businessweek.com/1996/35/b34901.htm
3. George Luffman, Edward Lea, Stuart Sanderson, Brian Kenny (1996) Strategic Management - an analytical introduction (3rd Ed)
4. Nigel Slack, Stuart Chambers & Robert Johnston (2001) Operations Management - (3rd Ed)
5. Michael E Porter (1996) "What is Strategy" Harvard Business Review, Vol. 74, November - December
6. Michael E Porter (1987) "From Competitive Advantage to Corporate Strategy" Harvard Business Review, July - August
7. http://brs-inc.com/porter.asp
8. http://brs-inc.com/factors.asp
9. http://www-mmd.eng.cam.ac.uk/people/ahr/dstools/paradigm/5force.htm
0. John Kay (1993) Foundations of Corporate Success
1. Richard Lynch (2000) Corporate Strategy (2nd Ed)
2. Gerry Johnson & Kevan Scholes (1999) Exploring Corporate Strategy (5th Ed)
3. Henry Mintzberg, Joseph Lampel, James Quinn & Sumantra Ghoshal The Strategy Process (4th Ed)
4. Henry Mintzberg (1994) "The fall and Rise of Strategic Planning" Harvard Business Review, January - February
5. Thomas J Peters & Robert H Waterman, Jr (1982) In Search of Excellence (Warner Books Ed)
6. Henry Mintzberg (1987) "Crafting Strategy" Harvard Business Review, July - August
7. http://www.mhhe.com/business/opsci/pom/businessweek.htm
8. http://www.mmd.eng.cam.ac.uk/people/ahr/dstools/paradigm/5pstrat.htm
9. http://ltdmgmt.com/mag/index.html
20. http://www.library.nijenrode.nl/library/publications/nijrep/1997-01/1997-01.html
21. www.managementlearning.com
The Manchester Metropolitan University - Crewe & Alsager Faculty
Department of Business and Management Studies - BABM Year 1
By Amy Jackson - 2nd December 2003
