Strategy Musings: Combining Structure with Infrastructure builds capability (Part-1)

A Way to Build Core Competencies and Sustain Advantage

Operations strategy literature distinguishes between two types of operations interventions — ‘structural’ and ‘infrastructural’. If an organization combines structural and infrastructural interventions with an eye not only on achieving a fit with its value proposition (for customers or users) in the near term, but also on developing skills that would allow it to offer significant value-adds in the future, then it would have a core competency. Then it will effectively serve its customers and users in a sustained manner. This is true for both profitmaking organizations with commercial objectives and non-profit organizations with social objectives.

Understanding what structures and infrastructures are, and how they could be combined to create sustained impact in the marketplace (or socio-economic environment), is useful for strategy making and implementation for any organization and its managers.

Structure

At the core of ‘structural’ interventions are technology and financial investment in technology and other assets. People are on the periphery. They are expected to learn to work with the new technology and adapt to it. Examples of structures are decisions of technology selection (e.g. technology for a production operation, for transportation, or for information capture, exchange, computing and storage), capacity of an equipment or a facility, and location of a facility (e.g. plant, vendor, warehouse, retail store, service office, transportation route). In order to select and implement these interventions effectively, one needs to fulfil three conditions — have access to information (about the options available, their specifications and other details required to evaluate the options), finance (to invest in the best option), and project management resources (to implement the selected option).

Real-world examples of structural interventions

There are countless examples of effective structural interventions. For instance, for the assembly plant of Mahindra set up in Chakan (Maharashtra, India) several years ago, they invited key component suppliers to set up dedicated plants next door. This eased up coordination between Mahindra and supplier organizations, Just-in-Time (JIT) production and delivery of the components by suppliers, and dynamic, accurate demand planning by Mahindra. Large giga factories set up by Tesla to manufacture battery packs and electric vehicles in integrated processes are another example of structure. They lend significant technology, supply chain and scale advantage to Tesla. Welding robots in Toyota’s plants that can weld bodies of a wide range of models are structures that make its operations enormously flexible. A biotechnology/pharmaceutical firm (for example, Genentech or Eli Lilly) developing new drugs often invests in a mix of flexible and specialized manufacturing plants in order to achieve fast time-to-market as well as cost control. However, Indian pharmaceutical firms, known for efficient reverse engineering and low-cost manufacture of generics, invest in specialized plants and standard processes.

Infrastructure

In contrast, at the core of ‘infrastructural’ interventions are people, the way they work, interact and learn, and the skills they build. Financial investments and technologies are on the periphery. Those are selected based on the requirement of the people and the skills they ought to learn.

Real-world examples of infrastructural interventions

Examples of infrastructures are:

· In-process quality control systems that empower workers to identify quality problems and diagnose their causes (for example, in Toyota, Honda and several other leading automakers).

· Inter-disciplinary and collaborative product designing processes that enlist participation of people from multiple functions — product designer and engineers, process engineers, production executives, suppliers’ engineers, marketing executives — right at the early stages of design cycles (for example, in P&G, Apple, BMW, Toyota, and Mahindra).

· Collaborative planning, forecasting and replenishment (CPFR) systems that institutionalize customer-supplier team-work to jointly carry out product planning, demand planning, supply planning, inventory management, order management, and exception handling as part of their routine supply chain management processes (for example, the famous collaboration between Walmart and P&G).

‘Structure + Infrastructure’ builds real capability

It must be evident from this brief discussion that while both structure and infrastructure are needed, the latter is more difficult to copy. Infrastructural interventions, when directed well, result in people learning skills individually and in teams that are valuable for the organization. Over time, this process could accumulate in significant tacit knowledge at the levels of individuals, specific teams (both within function and multi-functional), and the organization in general. This knowledge is difficult to access and imitate by outsiders. Therefore, when it provides major distinctive value to customers, it is likely to result in sustained advantage of the organization in the marketplace.

On the other hand, structural interventions depend on the organization’s access to information, capital and project management resources — things that can be easily accessed by other firms as well, especially in free, interconnected economies and democratic societies. Therefore, they are relatively easier to benchmark and copy.

Organizations that judiciously combine structure and infrastructure are more successful in differentiating themselves and retaining customers over longer time periods. Often, they also display greater flexibility in adapting to changing technology, competition, and markets.

(The Part-2 of this two-part article will look at some real-world organizations and describe in more detail how they have combined structures and infrastructures to build capabilities)