Are the four perspectives of operations strategy reconciled?

67

A company that has position A in Figure 2.11 has achieved ‘fit’ in so much as its operations
capabilities are aligned with its market requirements, yet both are at a relatively low level. In
other words, the market does not want much from the business, which is just as well because
its operation is not capable of achieving much. Over time its ambition is to move to position D,
where it has also achieved ‘fit’, but at a much higher level. Other things being equal, this will
be a more profitable position that position A.
However, like most strategic improvement, the company cannot always guarantee to keep
on the ‘line of fit’ as it moves from A to D over time. In this case, it first improves its operations
capability without exploiting its enhanced capability in its market (position B). This could be
seen as a ‘waste’ of its potential to adopt a more ambitious (and possibly profitable) market
position. Realising this, the company revises its marketing strategy to promote itself as being
able to maintain a much higher level of market performance (position C). Unfortunately, these
new promises to its market are not matched by its operations capabilities. The company is again
away from the line of fit. In fact, position C is possibly even more damaging than position B.
The risk now is that the company’s market reputation will erode until it can improve its opera-
tions capabilities to bring it back to the line of fit (position D).
The issue that is highlighted by positioning operations strategy relative to the line of fit is
that progress cannot always be a smooth trajectory that achieves perfect balance between
market requirements and operations capability. Furthermore, when an operation deviates from
the line of fit there are predictable consequences. A position below the line of fit means that
the operation is failing to exploit its operations capabilities. A position above the line of fit
means that it risks damaging its reputation or brand by failing to live up to its market
promises.

EXAMPLE Nokia, a failure to change16

Only a decade ago, Nokia was the king of the mobile phone business – and it was a good busi-
ness to be in, with double-digit growth year on year. Nokia was omnipresent and omnipowerful,
a pioneer that had supplied the first mass wave of the expanding mobile phone industry. They
dominated the market in many parts of the world and the easily recognisable Nokia ring-tone
echoed everywhere from boardrooms to shopping malls. So why did this, once dominant,
company eventually sink to the point where it was forced to sell its mobile communications
business to Microsoft in 2013? The former Nokia CEO, Jormal Ollila, admitted that Nokia made
several mistakes, but the exact nature of those mistakes is a point of debate amongst business
commentators. Julian Birkinshaw, a Professor at London Business School dismisses some of the
most commonly cited reasons. Did they lose touch with their customers? Well, yes, but by defi-
nition that must hold for any company whose sales drop so drastically in the face of thriving
competitors. Did they fail to develop the necessary technologies? No. Nokia had a prototype
touchscreen before the iPhone was launched, and its smartphones were technologically superior
to anything Apple, Samsung, or Google had to offer for many years. Did they not recognise
that the basis of competition was shifting from the hardware to the ecosystem? (A technology
ecosystem in this case is a term used to describe the complex system of interdependent com-
ponents that work together to enable mobile technology to operate successfully.) Not really.
The ‘ecosystem’ battle began in the early 2000s, with Nokia joining forces with Ericsson,
Motorola and Psion to create Symbian as a platform technology that would keep Microsoft at
bay.
Where they struggled was in relying on an operations strategy that failed to allocate resources
appropriately and could not implement the changes that were necessary. As far as resource
allocation was concerned, Nokia saw itself primarily as a hardware company rather than a
software company. Its engineers were great at designing and producing hardware, but not the
programs that drive the devices. They underestimated the importance of software (including,
crucially, the apps that run on smartphones). Largely it was hardware rather than software
68 Chapter 2 Operations and strategic impact

experts who controlled its development process. By contrast, Apple had always emphasised that
hardware and software were equally important. Yet while they were losing their dominance,
Nokia were well aware of most of the changes occurring in the mobile communications market
and the technology developments being actively pursued by competitors. Arguably, they were
not short of awareness, but they did lack the capacity to convert awareness into action. The
failure of big companies to adapt to changing circumstances is one of the fundamental puzzles
in the world of business, says Professor Birkinshaw. Occasionally, a genuinely ‘disruptive’ tech-
nology can wipe out an entire industry. But usually the sources of failure are less dramatic. Often
it is a failure to implement strategies or technologies that have already been developed, an
arrogant disregard for changing customer demands, or a complacent attitude towards new
competitors.

DI AG NO S TI C Q UEST IO N

Does operations strategy set an

improvement path?
An operations strategy is the starting point for operations improvement. It sets the direction in
which the operation will change over time. It is implicit that the business will want operations
to change for the better. Therefore, unless an operations strategy gives some idea as to how
improvement will happen, it is not fulfilling its main purpose. This is best thought about in terms
of how performance objectives, both in themselves and relative to each other, will change over
time. To do this, we need to understand the concept of, and the arguments concerning, the
trade-offs between performance objectives.

An operations strategy should guide the trade-offs between performance

objectives
An operations strategy should address the relative priority of operation’s performance objec-
tives (‘for us, speed of response is more important than cost efficiency, quality is more impor-
tant than variety’, and so on). To do this it must consider the possibility of improving its
performance in one objective by sacrificing performance in another. So, for example, an
operation might wish to improve its cost efficiencies by reducing the variety of products or
services that it offers to its customers. Taken to its extreme; this ‘trade-off’ principle implies
that improvement in one performance objective can only be gained at the expense of another.
‘There is no such thing as a free lunch’ could be taken as a summary of this approach to
managing. Probably the best-known summary of the trade-off idea comes from Professor
Wickham Skinner, the most influential of the originators of the strategic approach to opera-
tions, who said:
. . . most managers will readily admit that there are compromises or trade-offs
OPERATIONS PRINCIPLE to be made in designing an airplane or truck. In the case of an airplane, trade-
In the short term, operations cannot offs would involve matters such as cruising speed, take-off and landing dis-
achieve outstanding performance in tances, initial cost, maintenance, fuel consumption, passenger comfort and
all its operations objectives cargo or passenger capacity. For instance, no one today can design a 500-
simultaneously. passenger plane that can land on an aircraft carrier and also break the sound
barrier. Much the same thing is true in . . . [operations].17