Register now or log in to join your professional community.
Operational effectiveness and asset optimization are parts of opration management. corporate strategy aims to improve operation management and consequently operational effectiveness. higher efficiency decreases the operation and capital expenses. also helps the company in procurement, inventory and production planning. even though these are totally issues and belong to different layers.
Strategic planning and Operational effectiveness are interdependent, but two completely different functional departments. A concrete and well thought out strategy lays the foundation for operational excellence.
No, Operational Effectiveness (OE) doesn't eliminate the need for strategy. OE and strategy are both essential to superior performance, which, after all, is the primary goal of any enterprise. But they work in very different ways.
A company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs.
OE means performing similar activities better than rivals perform them. OE 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. In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways.
Constant improvement in OE is necessary to achieve superior profitability. However, it is not usually sufficient. Few companies have competed successfully on the basis of OE over an extended period, and staying ahead of rivals gets harder every day. The most obvious reason for that is the rapid diffusion of best practices. Competitors can quickly imitate management techniques, new technologies, input improvements, and superior ways of meeting customers’ needs. The most generic solutions—those that can be used in multiple settings—diffuse the fastest. Witness the proliferation of OE techniques accelerated by support from consultants.
The second reason that improved OE is insufficient—competitive convergence—is more subtle and insidious. The more benchmarking companies do, the more they look alike. The more that rivals outsource activities to efficient third parties, often the same ones, the more generic those activities become. As rivals imitate one another’s improvements in quality, cycle times, or supplier partnerships, strategies converge and competition becomes a series of races down identical paths that no one can win. Competition based on OE alone is mutually destructive, leading to wars of attrition that can be arrested only by limiting competition.
