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Strategic Management Process - The Operating Stage

by

William M. McGee

June, 2011

The Operating Stage of a strategic management process is the fourth and final stage of the process. During the Operating Stage, a company will stabilize its operating environment, refine its business and market strategy, and identify opportunities for improvement. Coming after the Building Stage, and the growth that normally occurs during it, the Operating Stage can seem boring, like the business has plateaued. However, this feeling is not reality. There is still much work to be done during the Operating Stage, and additional growth in revenue and profitability to be realized.

A key attribute of the Operating Stage is that it forms a feedback loop with the other stages of a strategic management process. After the initial work-through of a strategic management process, a company stays in the Operating Stage forever, or until there is a major revamping of the business. Information is captured in the Operating Stage that is fed back into the other stages in the process, where refinements and adjustments are made as appropriate.

The remainder of this brief article summarizes a few of the more important activities that take place during the Operating Stage.

Making Adjustments

Making adjustments to the outputs of all three of the other stages of a strategic management process can be extremely beneficial if they are done carefully and thoughtfully. Adjustments can serve to refine a company's market strategy, business philosophy, and performance management system, and are usually the result of decisions made regarding transactions that are raised during the Operating Stage. These of course can be of many different types, but here are a few of the more common adjustments that we have seen:

  • Tweaking the Market Strategy. Normally, there are no major adjustments to market strategy, but minor refinements can be valuable.

  • Discontinuing Activities That Are Not Consistent with the Market Strategy. Unfortunately, these adjustments are all too common, and they are difficult decisions for a company to make. However, they are necessary. Continuing activities, whether they be products or services, that are not consistent with a company's market strategy will only undermine the defined market strategy, and render the entire process invalid.

  • Further Refinement of Segments and Buyers. This also is typical. As more is known about customers and buying factors, it is natural to use that information to create deeper segmentation of markets. This can be a valuable exercise.
It probably goes without saying, but decisions regarding transactional adjustments must be made very quickly and implemented without delay. Transactional decisions should not interfere with the timing of the normal daily business flow.

Capturing Information for Improvements

Other information captured during the Operating Stage may not be associated with specific transactions, but is equally as valuable, maybe even more so, because more general information lends itself to broader, longer-term strategic decisions. Information is critical to managing a business strategically. So, it is important to capture as much information as possible on a routine basis. Of course after being captured, the information must then be summarized, triaged, and categorized before being fed back into the other stages of the strategic process.

Here again too, the types of information captured can range widely. However, here are a few of the more common categories that we have seen:

  • Market Feedback. This type of information typically comes from the sales force. There are always customers or other types of stakeholders that do not like a company's market strategy. Of course, there are also stakeholders that do like it, but those are normally not as vocal. It is important to capture all of this type of information and understand the motivations behind it.

  • Revenue Enhancements. These opportunities are normally associated with pricing structure, but they can also lead to expansion of markets.

  • Cost Reductions. At times, these suggestions can be real gems. Most companies are surprised at the suggestions they receive in this category.

  • Quality Improvements. Enhancements to quality, whether they be for products, services, or delivery, ensure long-term success

Who participates in capturing information? Everyone in the company should be encouraged to participate. The quantity of information that flows in is normally quite large. Therefore, a database application of some type for information capture is normally required. There are typically two methods of capturing information:

  • Facilitated. In this method, a small group is formed to facilitate the capture of information. This group provides assistance with classifying opportunities and quantifying potential payback. Some companies use outside consultants for this purpose to ensure objectivity. Reports are provided periodically to management for decisions.

  • Non-Facilitated. In this method, a process is created for employees to follow when submitting suggestions. Employees are responsible for all information submitted, including the quantification of payback. In this method, management normally plays a more significant role in classifying and prioritizing suggestions prior to decisions being made.
Over time at some companies, the capture of information can begin to wane. This should not be allowed to happen. The level of information flow during the Operating Stage is a good indicator of how well the strategic management process is working.

Rewarding Performance

Employees who make suggestions, based on specific transactions or otherwise, that are adopted and lead to improvements for the company should be rewarded for those suggestions. These can be treated as an addendum to a company's performance management system. However, perhaps the best way to handle them if possible, is to work them into the performance measurement system created during the third stage of the strategic management process. This can be time consuming, but it ensures that rewards for suggestions are handled equitably with other performance rewards.

* * * * * *

The final stage of a strategic management process is the Operating Stage. A company that moves through the first three stages of the process, remains in the Operating Stage forever, or until the company's business is totally revamped. During this final stage in the process, a company captures information that is fed back into the other three stages for management decisions regarding adjustments to key outputs of the process or improvements to operational performance. If implemented properly, the Operating Stage provides a solid foundation for a company to manage strategically and successfully over the long-term.

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