Strategic Design Process: Approaches, Steps

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Strategic Design Process

An operations strategy is designed for developing a general approach to plan strategic choices that an organisation needs to make. These choices often include aspects of operations that the organisation needs to focus on for achieving a competitive advantage.

More specifically, the operations strategy of any organisation looks for gaining operational excellence (by effective utilisation of resources) and at the same time satisfying its customers (by making products/services that match their demands).

Considering the requirements, operations strategy design approaches focus on outlining the ways that an organisation could follow for achieving the corporate objectives. In other words, operations strategy design approaches pave the way for creating an effective operations strategy.

Conceptually, there is no specific right way to design a strategy. An organisation, while designing a strategy, considers all the factors that may affect the actual design of an operations strategy. A manager needs to identify several strategies that could give reasonable solutions and select the best.

Approaches in Designing an Operations Strategy

Let us discuss the major approaches involved in designing an operations strategy.

Adjust the Current Strategy

In any organisation, an operations strategy is rarely designed from scratch. Usually, managers responsible for designing an operations strategy start with an existing strategy and make revision, updates or adjustment in it as per the current market situation or demand.

Here, managers focus on a periodic review of the current strategy and assess its performance to judge whether the strategies can still bring sustainable position to the organisation in the market and achieve corporate goals.

If the default strategy is adequate then there is no need to take action. However, if the default strategy is unacceptable, managers require making adjustments in the current strategy. For this, the managers are first required to analyse and identify current operational issues and unproductive or redundant processes.

The identification of weak activities and processes can suggest the actions, needed to be taken for removing or modifying the old processes. With an understanding of the shortcomings of the current strategy, it is easier to modify the same with required changes for achieving corporate objectives.

Top-Down Approach

The top-down approach of strategy design is a traditional management approach, where senior managers at corporate-level define a mission and make strategic choices for the entire business. Senior managers progressively develop corporate-, business- and functional-level strategies, which are passed down to the organisation in steps.

The top-down approach focuses on making large strategic decisions, such as what type of business the organisation wants to be in, which parts of the world the organisation wants to operate in, how fund and resource allocation should be done for different businesses of the organisation and so on. These decisions form the corporate strategy of the organisation.

Corporate-level strategies help in designing business-level strategies for different businesses within the organisation. Each business also needs to put together its own business strategy in relation to its customers, markets and competitors. This leads to designing functional-level strategies for different functions within each business unit.

The functional-level strategies decide the role that each function must play to contribute to the strategic objectives of the business. In other words, different functional-level strategies, related to marketing, production, operations, human resource, etc. are designed in a manner so that they could collectively help in achieving business-level strategies of a business unit.

Thus, as per the top-down approach of strategy design, senior managers design corporate-level strategies. This, in turn, structures the business-level strategies for different business unit. Business-level strategies are further drilled-down to create functional-level strategies for different functions within each business unit.

The major problem with the top-down approach of strategy design is that it often suffers with the issues related to senior managers’ decision-making incapability, inadequate knowledge, lack of understanding, out-dated skills, credibility, etc. This affects the overall strategic design process.

Bottom-Up Approach

In contrast to top-down approach, the bottom-up approach assumes that strategies are not designed in a single step by senior managers at the corporate level. It emerges over time as a result of day-to-day functional-level activities and experiences of the lower-level managers.

The approach believes that, many a time, organisations move in a particular strategic direction due to the on-going experience of providing products and services to customers at an operational level. It convinces them that it is the right way of doing the things.

Lower-level executives respond to actual conditions and make practical decisions to cope with new problems arising in day-to-day work. Thus, they are more connected with ground-level problems and have their ways to deal with the same.

The bottom-up approach believes that the sum of their decisions eventually emerges as a strategy. Thus, according to the bottom-up approach, day-to-day operational activities formulate the functional-level strategy, which leads to the design of business-level strategies. These business-level strategies collectively design the corporate-level strategy of the organisation.

The major problem with the bottom-up approach of strategy design is that it involves a lower-level manager, who in spite of having fair knowledge of day-to-day working lack in the skill of designing a strategy that can make the best use of their potential.

However, this issue can be resolved with the help of strategy designers, who can take the inputs from these managers and combine it with higher aspirations of the organisation to get a workable operations strategy.

Though the aforementioned approaches are some popular approaches to design an operations strategy, there can be a lot of variation in these. Some common concerns include the extent to which an existing strategy can be adjusted, the amount of analysis that is possible, the balance between strategy design and emergence and the final contents of the strategy, etc.

Steps in Strategy Design Process

The strategy design process involves a general approach consisting of eight steps.

Let us discuss the steps involved in the strategic design process in detail.

Assess the Current Strategy

The first step in strategy design is to assess the current strategy. As discussed earlier, strategies are not designed from scratch. Managers work on current strategies to identify shortcomings and modify or re-create them as per the current requirement. This requires a thorough assessment of the current strategy.

While assessing current strategy performance, managers compare actual results in terms of sales, profitability and customer acquisition to strategic goals. In addition to an overall comparison, managers also focus on identifying factors that are responsible for performance improvement, such as repeat purchases or improved customer satisfaction, etc.

This helps in streamlining the overall strategy and making the operations more efficient. To assess the performance of the current strategy, organisations measure the usage of resources against potential benefits to ensure that the resources are being used in an optimal way to provide the best advantage. Apart from this, strategies are also assessed to ensure that they address current market concerns, competition and the regulatory environment appropriately. Managers verify whether the current strategy is able to respond effectively to competitive threats.

If there are political changes or new regulations that impact the organisation, the strategy must address them. In addition, if the composition of market segments changes or a market grows, the strategy should be able to tackle the challenge and take the best advantage of the situation.

Thus, organisations, by assessing their prevailing strategies, judge the real-time effectiveness of these strategies. Many a time, organisations discover that some of the underlying assumptions of their strategy are flawed or incomplete. In such a case, though the organisation’s mission and vision may remain the same, the objectives and goals require to be revised or updated. When this happens, the managers either make adjustments to the strategy or start the process over again.

Define the Purpose of Operations

Assessment of the current strategy provides a fair idea to managers about current problems, opportunities, market shifts or any other issues that demand solution or decision. It leads managers to define the gap between where they stand and where they want to be.

Thus, the next step in the strategy design process is defining the purpose of operations. In other words, managers now focus on what they want to achieve from newly designed operations strategy. In this regard, they may ask the following questions:

  • How can the organisation grow, stabilise or retrench in order to sustain in the future?

  • How can the organisation diversify its revenue to reduce dependence on a major customer?

  • What the organisation must do to improve the cost structure and stay competitive?

  • How and where the organisation must focus to facilitate innovation in products and services?

Thus, at this stage, managers focus on determining a set of aspirations that the organisation desires to achieve. It forms the core of operations strategy by building a framework that provides a direction to achieve organisational objectives.

At this stage, various elements, such as vision, mission, objectives and business definition of an organisation are developed. Vision exhibits the position that an organisation wishes to achieve in the future; mission defines the means to achieve the vision.

The mission of an organisation is accomplished with the help of pre-determined, specific and measurable long-term objectives. Every organisation selects a unique path to achieve its long-term objective. The selection of the path depends on the business definition of the organisation.

Analyse the Operations Environment

After formulating the purpose of the operations strategy of the organisation, managers focus on analysing the operations environment. In other words, after the formulation of vision, mission, goals and objectives, the next step in the strategic design process is to analyse the environment in which the organisation wants to operate.

Scanning the operations environment helps in understanding the surroundings and performing in an efficient manner. No organisation operates in isolation from environmental factors. These factors comprise Political, Economic, Social, Technological, Ecological and Legal (PESTEL) factors. For example, government policies and plans change substantially with a change in the political forces within the government.

As a consequence, an organisation can be affected to a large extent. Similarly, an organisation or an industry as a whole gets affected by the economic conditions prevailing in a country. For instance, in times of recession, most entertainment organisations witness a decline in sales.

In addition, an organisation has to cope with interest rate fluctuations and inflation. The same is true for social, cultural, technological and legal factors. Usually, an organisation does not have any direct control over these external environmental factors. However, proper analysis of such factors may help organisations to have an upper hand over competitors.

The long-term sustainability and success of an organisation depend largely on the favourability of these environmental factors. Thus, with the help of external environment analysis, an organisation can identify opportunities and threats affecting the strategic operations decisions of the organisation.

Analyse Internal Operations

Apart from external environmental factors, there are some internal factors which affect the operations of an organisation. These factors include organisational culture, structure, capabilities and resources. Unlike the external environmental factors, an organisation usually has direct control over these internal factors.

The operations of any organisation are largely affected by these internal factors. Therefore, it becomes important to thoroughly analyse these factors to identify capabilities, weaknesses and competencies of the organisation. This may further help to utilise opportunities existing in a highly competitive environment by avoiding threats. It also helps the organisation to evaluate its performance with competitors.

Internal operations of the organisation usually have three components – organisational resources, organisational capabilities and organisational competencies. Organisations use these components to evaluate its performance. Internal operations analysis helps the strategist to identify strengths and weaknesses of the organisation and make efficient strategic decisions.

List Alternative New Operations Strategies

A thorough understanding of the strengths and weaknesses of different internal operations of the organisation enables managers to come up with multiple strategic alternatives in alignment with opportunities and threats existing in the external environment.

Managers should list all possible alternatives and evaluate them based on their contribution to the operations mission. However, it is not an easy task as each strategy gives different levels of performance in different areas of concern.

For example, a strategy that aims at achieving high quality may result in low productivity or a high-capacity-based strategy may lead to high costs and so on. Thus, each alternative strategy may give diverse results. However, these alternative strategies can be used as guidelines for identifying the best strategy. Managers must make their choice based on experience, judgement, discussion, agreement and intuition.

Evaluate Alternatives and Choose the Be

Usually, managers evaluate alternative strategies purely based on the contribution made by each strategy to the operations mission. However, as discussed, each strategy is likely to give different levels of performance in different areas of concern.

One may give higher quality, another higher capacity and so on. This enforces managers to compare the results likely to be produced by each alternative. Managers identify feasible alternative strategies and compare consequences. They select the strategy that seems to give them the best overall result. Here you must understand that there is no formal way of identifying the best strategy. Managers inevitably have different views about the best solution. However, the final decision is generally based on the mutual agreement of all managers.

Add Details to the Chosen Strategy

Before implementing a selected strategy, it is important to add details to the chosen strategy. These details should be in terms of action plans that break the overall strategy in small parts and identify issues associated with it. After selecting the strategy, managers should translate it from the organisational level to the individual level.

They also need to develop short-term goals and actions to support the organisational direction. Fundamentally, this stage moves from planning and selecting a broad-level strategy to decide operational activities that may help in the effective implementation of the overall strategy. Managers also focus on aligning resources and actions from the bottom to the top for achieving the business objective.

At this stage, managers must ask the following questions:

  • What do we need to adapt in our plan?

  • What emerging issues we need to identify and solve?

  • What tools and techniques we should select to execute our plan?

  • What should be the timeline to achieve strategic goals?

Implement the Strategy

Implementation of the strategy is the final step in the strategy design process. It is a process that turns strategies and plans into actions in order to achieve strategic objectives and goals. A strategic plan is a written document that explains the plans of the business to reach its goals.

However, it is the implementation part that makes strategic plans happen. Implementation or execution relates with the ‘who’, ‘where’, ‘when’ and ‘how’ parts of the strategic plan.

It is believed that implementation is more important than the formulation and selection of the strategy. If you come up with an excellent strategy and fail in its implementation, the whole objective of strategy design would fail.

The fact is that, though both the formulation and the implementation are critical to success, organisations can gain a competitive advantage only if implementation is done effectively.

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