Sometimes I hear people say that their strategy is operational effectiveness. However Michael Porter explains that operational effectiveness is NOT a strategy, and should not be seen as a strategy. Why?
Operational effectiveness as viewed by Michael Porter
Whilst researching some information for my book, “Strategy Mapping for Learning organizations” I was reminded of some material Michael Porter wrote back in 1996, but that is still relevant today. He was making the point that being ‘operational effectiveness’ is not a strategy. It is important and even a mandatory requirement of doing business. It is not a strategy, it is a necessity.
Operational effectiveness (OE) means performing similar activities better than rivals perform them. 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. In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways.”
Of course, you have a strategy for being operationally effective. You may have a strategy for being a cost leader. But that is not the same as having a strategy for positioning and differentiating yourself in a market. Operational effectiveness is a part of a wider strategy to remain competitive whilst differentiating yourself in other ways. It is not a strategy in its own right.
Please do not confuse strategy with operations, and strategy effectiveness with operational effectiveness
One of the important distinctions I make in modern, fourth generation balanced scorecard design is that they are focused on strategy execution, rather than measuring day to day operational performance. This is an important distinction. It provides a completely different purpose to the work you do. It frames how different performance management systems serve different purposes in an organisation. You of course need a scorecard for operational management and checking your effectiveness. You may also need a higher level one to check that your strategy is working. (To learn about the difference have a read of “Strategic vs Operational balanced scorecards“)
Being operationally effective is different from a strategic position, or your choice of how to be operationally effective
The central message here is very clear. Of course do thing effectively, benchmark, adopt good practices, use six-sigma and lean, outsource if you think that will help. However, most of these are copycat approaches to strategy that may help you keep up with your competitors. They are a necessity. They are not the basis for a distinct or sustainable competitive advantage. Read more about different types and approaches to strategy in “The Strategy Zone“
A series of strategy questions includes
About doing similar activities in different ways:
- Should these be activities we aim to do differently?
- Can we do these activities differently?
- Can we do them in a way that will give us a sustained advantage (or can they simply be copied)?
- Should we do them at all?
About doing different activities:
- What could we do differently to the rest of the industry/market?
- If we did, would it distinguish us amongst our customers?
- If we did would it position our delivery differently to our competitors?
Are you thinking about this as well?
- What is Strategy? Michael E Porter, Harvard Business Review Nov-Dec 1996.
- To learn more about being strategic visit our extensive collection of strategy articles in “The Strategy Zone“
- To lean more about different types of performance management approach and how you can use them to improve operational effectiveness, visit our “The Performance Improvement Zone“
- To learn how to design, implement and use strategic balanced scorecards, with strategic themes to improve strategy execution and learning, visit “The Modern Balanced Scorecard Zone“