Japanese companies outpaced their competition on the heels of operational effectiveness especially in the 1970s and 1980 with such operations as total quality management, continuous improvement etc. Operational effectiveness means performing activities better, faster and with lesser defects than your competitors. It means using the state of the art facilities and employing best in class tools. Operational effectiveness holds tremendous advantages and can enable a company achieve superior performance.
As powerful as operational effectiveness can be however, its effectiveness is limited to the ability of the organisation to control the technology behind it. Unfortunately that’s pretty impossible. Best practices are easily emulated. When this happens, the maximum value a company can produce at a given cost using the available technology, skills and management practice shifts outward, lowering cost and improving value at the same time. This results in improved effectiveness across board but relative improvement for no one.
As companies continue to benchmark they become more indistinguishable one from another. This explains why organisations can adopt the best technology and still struggle. Operational effectiveness can hardly give a company an advantage over the competition at least not for a long time.
Competitive advantage results from the ability of a company to distinguish itself by creating a difference it can preserve. That means doing something entirely different from competitors or doing the same things as the competition does differently. This gives a company a strategic position in the market place. It is not possible to be a superior performer in the market place without a strategic position. There has to be something distinct about you, something different you can emphasize about yourself. May be you are able to offer your products and services at a lower cost because of a certain advantage or you are able to provide superior quality that people are willing to pay for and sale at a premium.
In the face of increasing competitiveness however, I find out that business executives are getting increasingly confused about what strategy is. So you find organisations adopting best practices, acquiring the latest IT tools and hoping business will improve. When their expectations fail, they blame it on the environment. Well, the very purpose of strategy is to master the competitive environment and enable the company deliver superior results.
The whole noise about for failing strategy lies on executives misunderstanding of what strategy really is. So too often managers mistake operational effectiveness for strategy. So when they choose being in the cloud against having their own servers they think they are being strategic. So what is strategy really? Strategy means choosing a unique position, it is about choosing a unique set of activities to produce superior value.
The job of the strategist is to master competition. That means to tame the forces of competition in the environment. Notice I said forces because competition is not limited to what happens between a company and its rivalries. Yes competition is about the rivalries among other companies that focus on thesame market as they do. But that’s just the primarily level. The forces of competition includes the activities of the suppliers from whom a company buys raw materials, the buyers of the company’s products or services, the threat posed by new entrants into your market and the threat of other products or services that can substitute the company’s product. This framework developed by Michael Porter is referred to as Porters five forces of competitive strategy.
As a result of these forces, the strategist has to create a position for the company that differentiates it so that the company can stand against the effect of these forces. Now you can’t achieve this by improving your operational effectiveness. As good and important as operational effectiveness is, its just not enough. What makes the difference in the performance of organisations is their competitive positioning.
For many executives today however, positioning cannot do the job. It is too static in the light of today’s hyper competitive environment. Well, truth is that the dynamic changing environment is not beyond control. If it were the like of Alphabet, Google, CocaCola and Toyota cannot have the leading positions and superior results they do. Such superior performing companies are backed by competitive advantages they have so far been able to preserve. The only way to control the environment is by establishing a distinctive positioning that can be preserved.
Knowing this is one thing, knowing how to apply it in your own peculiar situation whether you’re in IT or agriculture or banking. But the first step is to understand that trying to improve performance and attain superior results by operational effectiveness alone will only lead to frustration. The next step to to understand strategy and how it works.
The three basic things the strategist does are:
• Create a unique and valuable position involving a different set of activities. You will either serve the few needs of many customers, serve the broad needs of a few customers or serve broad needs of many customers in a narrow market.
• Choose what not to do. This means making a trade off. Forgoing one market in order to serve another.
• Create a fit among the various activities in your value chain.
Brian Reuben
