Being Operationally Effective
Every strategy is based on the premise of operational effectiveness, without it, strategy does not matter. Michael Porter uses this argument to explain, what is strategy? and he concludes that operational effectiveness is not strategy. Strategy is about choices, while operational effectiveness is a “must have” for a successful strategy, and not merely a “good to have”.
Porter described operational effectiveness as “performing similar activities better than rivals. Operational effectiveness includes but is not limited to efficiency. It refers to any number of practices that allow a company to better utilize its inputs by, for example, reducing defects in products or developing better products faster”.
Operational Effectiveness Structure
Operational effectiveness structure can be analyzed into four elements, as follows;
1- Leading and controlling functional performance;
Companies lead and control functional performance through planning and organization of resources and processes. Plans are based on overall objectives of the function, and the company organizes its resources and processes, and lead execution through controlled efforts in delivering its product or services. Leading and controlling functional performance is the first step towards becoming operationally effective.
Imagine a supermarket serving multiple needs of a wide ranging customers base. Management makes choices of “what to sell” based on it’s targeted positioning, successful result of the strategy depends on planning supermarket layout, organizing categories, leading and controlling execution. You would notice if these elements are missing e.g. if the supermarket is out of stock i.e. an example of poor demand planning, or if aisles are near to similar product categories i.e. an example of poor organisation.
2- Measuring and improving process;
Functional activities follow plan, organize, lead and control sequence, and this process be measured continuously for potential improvement, through learning curve and input from the users. This can be achieved by;
- Identifying improvement gap;
- Designing improvement process;
- Test improvement output;
Measurement could take various forms e.g. improvement in production time, improvement in quality or lower cost structure.
3- Leveraging and automating process;
Automating a process would eventually improve performance of standard activities, however some activities cannot be automated. Watch following video, its an automated robotic kitchen which prepares meals with standard measurements and recipes. In a wider context, probably all the activities cannot be automated. Automation can be easily applied to processes which are standard, consistent steps following a defined sequence.
4- Continuously improving process;
Continuous improvement is a mindset which is built inside an organization’s culture. This step is often countered with “we have always done things this way” argument from a section of Management which is oblivious to need for improvement. Organisation’s should built a culture which is open to receiving new ideas to new improve existing practices. Eventually everyone else will learn it, and late adopters will lose out on gains, or may even become too costly to maintain.
The output of the above structure results in an upward shift towards the productivity frontier. In the illustration on left, positions at point A and B are produced at the same cost position as point C, but do not provide additional value offered at point C. Do you think companies can compete at point A and B with any strategy?
P&G is an example of an operationally effective organisation with a winning strategy. While P&G strategy is commonly discussed and analysed, its operational effectiveness, for example in its chemicals related technologies, is often overlook or confused for its strategy. P&G has not just operated on the productivity frontier, it has redefined by moving it higher several times in past with its technological breakthroughs, this is now popularly known as disruption.
Operational effectiveness is best understood as “being better”, and the four steps structure described above can be used to improve operational effectiveness onto the productivity frontier. An organisation positioned on the productivity frontier remains successful until the curve move upwards to a new frontier, or the organisation moves it up by its operational effectiveness. The curve moves when an organisations delivers value through innovation and not just technological breakthroughs. Companies which quickly adopt value innovation technologies to bridge the gap to the new productivity frontier will remain operationally effective and be able to execute winning strategies.