Strategy is wasted without "operational effectiveness"
| HCi Journal | |
| According
to Michael E. Porter, Harvard Business School Professor and world-renowned
expert on strategy, success requires both the right strategy and
"operational effectiveness"."Managers
must clearly distinguish operational effectiveness from strategy. Both are
essential, but the two agendas are different. The operational agenda
involves continual improvement everywhere there are no trade-offs. Failure
to do this creates vulnerability even for companies with a good strategy.
The operational agenda is the proper place for constant change,
flexibility, and relentless efforts to achieve best practice. In contrast,
the strategic agenda is the right place for defining a unique position,
making clear trade-offs, and tightening fit."[1],
says Porter.Porter
is the first management guru to clearly label the domain of organisational
activity that directly complements strategy. By coining the term
"operational effectiveness" in this way, he opens up the
possibility of exploring the other side, as it were, of the management
coin in a systematic way. His purpose of course is to point up the
importance of strategy because simply being good at something doesn't
guarantee you success. You must have good direction and purposeBut,
as he also points out, if you are not at least as good at what you do as
your competitors then the best strategy in the world won't help you. While
dealing out a critique to those who see operational effectiveness as a
substitute for strategy, he also criticises those who have neglected
operational effectiveness for the more fashionable pursuit of strategy
alone.Porters
point is succinctly expressed by describing operational effectiveness as a
necessary but not sufficient condition for organisational success. And, of
course, the same thing can be said of strategy. So, as the diagram below
illustrates, strategy and operational effectiveness sit side by side as
equal partners in the game of enterprise.The
relationship between these two factors goes a little deeper than simply
mutual dependency. They inform each other. Operational effectiveness is
about having functions in the organisation that work well. These functions
are, of course, the organisation's skill sets or 'core competencies' and
therefore, as Porter points out, must fit together and work together to
implement the strategy. On the other hand, the possible strategies
available to an organisation are constrained, at least in the medium term,
by the skill sets available to implement them. A motorcycle manufacturer
may pursue a strategy to diversify into car manufacture, but is unlikely
to be able to, say, enter the ice cream business because the
functional skills required are radically different. Strategy may demand
capability, but capability in turn constrains strategy.Operational
effectiveness may also create the opportunity for strategy development by
inventing new technologies or methods. For example, the experimentation to
find improved glue in 3M that led to the invention of the post-it note.By
creating the strategy /operational effectiveness dichotomy, Porter has
paved the way to explore operational effectiveness in its own right as the
other major player in organisational success."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", says Porter.In
other words, all those things that make the organisation a master of
functional efficiency and effectiveness. In the diagram below, we have
grouped these into four "meta-activities" that form a virtuous
cycle of supporting operational effectiveness.OE
is about continuously improving functional performance. To do this,
managers lead and control the functional activities within the
organisation, measure and improve the processes that they are responsible
for, and leverage those processes through standardisation, communication
and automation to then close the loop to provide ever increasing
efficiency and effectiveness. It is strategys role to mould these
functions into a coherent organisational whole that will succeed in the
chosen markets.In
future articles, we will explore this "OE Cycle" in more detail. [1] "What is strategy?", Michael E. Porter, Harvard Business Review, Volume 74, Number 6This article may be reproduced only with the permission of HCi (email HCi ). Copyright HCi, 2001-2. | |
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