Seldom do you come across a subject that enlightens you and shows you a universe where you thought only darkness exists. Technology & Operations Strategy is one such thing. On the façade – it looks like random ramblings of supply chain, operations planning, strategy, product development, process improvement and so on. But when you look deeper, you realise that it is the essence of running a business. Corporate Strategy and Marketing teach you about the 2 extreme sides of business – decision makers & consumers. But TOS teaches you about how to make both happen. Looking at examples is the best way to understand what TOS really is.
Let’s take McDonalds. Think of the factors that help them maintain consistency, quality, and speed across the globe. It is all about precision. The cooking conditions, ingredients, limited menu, tools for assembling, the fries scoop, the mayo-gun, employee training, customer seating, everything contributes towards making it a McDonalds. They take an enormous effort in improving their vendors so that they get quality ingredients every time. They listen to their employees so that they arrive at innovations like that fries scoop. They painstakingly document each act in making a burger – so that despite a high turnover, the employees still make the exact same burger, anywhere, anytime. The research on the cut of fries, their cooking time and temperature – all done with those high-quality potatoes in mind – makes them perfect every time. The limited menu ensures less waiting for customers and more iconic dishes. They even designed a new kind of straw just so that you can drink without any compromise. All these are neither corporate strategies or marketing activities. They are just tiny-tiny moments of attention to detail that make McDonalds who they are.
Take cars and bikes. How does BMW design its cars? Should they follow a job shop technique when prototyping? Or should they design production equipment straightaway to design for manufacturing? How do they decide on how to design the door handles? How do they research their engine efficiency? If you see closely, it is not about the designing the car, it is about designing how you design the car. It is not about making a customer likeable car, it is about how to make happen the designing of a likeable car. The decisions are of a very meta nature and yet they affect the actual operations. Think about Ducati Racing. Should they make a monolithic design or should they make the bike modular? How will performance be affected in either of the decisions and how to turn that around? Here again, it is not about designing the better engine or the faster clutch. It is about deciding how can you help it happen. Keep an integrated design and you will need to have a tightly knitted cross-functional design team that understands how one part of the bike affects the other. Keep a modular design and you can operate disjoint teams that focus only on their components and iterate them faster and better. What do you do in such a case. Such a decision is neither governed by Ducati’s corporate strategy to win races, nor is it governed by the customers who would want to buy a Ducati. Instead – it governs them back. Operating strategy for Ducati is not about designing better bikes, it is about designing bikes better. Subtle differences.
A brilliant example is BYD. It was a Chinese battery manufacturer, until they decided to go ahead and acquire a car company. Now, nobody in their sane mind would recommend a company to diversify like that. You would say “they don’t know how to make cars, they won’t be successful”. You could also say “if you want to expand your business, move to a new geography, move to a new customer segment, or even move to a different battery technology”. But defying all odds – BYD went ahead and made a successful car manufacturer. Want to know how did they make it happen? BYD was successful at making batteries because they made high quality and cheap ones. What BYD had done was break down the entire manufacturing process to its tiniest quanta of steps. And then they assigned each tiny task to a labor who could then never go wrong with it. So, they eliminated heavy-duty machinery and reduced automation – but still ended up with higher quality at a lower cost. This is an operational achievement. As is rightly put by a professor – “Task decomposition leads to process decapitalization”. Now when you think of cars – they are also assembled objects. If you take a car making process – break down tasks to their most basic level, and assign a labor to each step – it is now no different than making a battery. Just that the parts got a bit bigger. So, in hind-sight, BYD knew what their strength was – task decomposition, which is also their operating strategy. And now if you think – it doesn’t look all that far-fetched to upgrade from batteries to cars.
Another example is 7-eleven – the omnipresent store in Japan. Their supply-chain mechanism seems like magic and the inventory cycling is so fast and slick that one wonders how are they managing those 17000+ stores with clockwork precision. Thus, their operating strategy lies in supply-chain perfection. The density of stores, the concept of distribution center, the different runs of different types of trucks, the technology backed order & inventory system, the low order-to-delivery time – all these things contribute to 7-eleven’s success.
When you think about it – operations strategy is not as much about decision making as it is about finding & developing operational strengths & core-competencies that give a company competitive advantage over others. Toyota has a core-competency of manufacturing magic that they have dubbed as the TPS. Warren Buffett has a core-competency of investing based on fundamentals – which has paid off well. Steve Jobs had a core-competency of envisioning things customers would like. Tim Cook has a core-competency of delivering products at a large scale. P&G has a core competency of high-quality product & customer research – enabling them to sustain brands for over a century. Investment banks have a core competency of hiring extremely intelligent and talented people.
And if you think about it – companies that have stood the test of time – have always focused on developing their core-competencies ahead of time to retain their advantage. Satya Nadella’s decision to drop Microsoft’s paranoia on keeping its products & platforms in an ivory tower and instead going for a more open approach turned the tables for Microsoft. Instead of making software a primary business – they now deal with services, solutions and hardware. Although this decision was strategic – making it happen would have required a tremendous inertial change in the employees. New people coming in, old ones going out. Restructuring operations. Reorganizing research. Revamping development focus. Hence now Windows 10 is updated in short cycles with rapid development instead of big milestone updates every few years. Hence, now you can subscribe to Office monthly and not spend thousands in a single go. Hence Microsoft has now brought out its own laptop, tablet, phone, watch, console, VR set, and even servers. Even Google was restructured as Alphabet to completely change its resource allocation mechanism and enable a unique operations strategy for each of its massively diverse sub-companies.
When you look at any company and ask yourself – why are they so successful or unsuccessful? What are they doing right or wrong? Are they designing the designing of their business the right way? How are they developing the development of their products? How are they allocating their resources? How are putting in best practices for creating best practices? It is deceptively difficult to get when you are looking at it and delightfully simple when you see it. It is about taking those tough decision that don’t show up directly on the P&L statement and don’t really give a dividend right away. It’s about doing things the right and best way. That’s TOS for you.
Author: Agrim Gupta <email@example.com>
(The author is a PGP2 student at IIM Bangalore. Views expressed are personal).