Business Strategy: Challenges, Implementation & Effectiveness
Strategy is not operational effectiveness
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Transcript of Strategy is not operational effectiveness
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Structure
1. Common mistakes in discussing strategy 2. The Limited Advantages of Being Better –
Operational Effectiveness 3. The Significant Advantages of Being Smarter –
Genuine Strategy 4. Smarter can beat Better 5. The Critical and Sustainable Advantages of Being
Better and Smarter – Operational Effectiveness and Genuine Strategy
6. Smarter and Better is Invincible 2 © McDermott, 2012.
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Common mistakes in discussing strategy
• Many people, including executives, often make the mistake of equating operational effectiveness with strategy:
• Strategy is not:
– transferring production to a lower cost location; or,
– Increasing productivity; or,
– Lowering costs
• Improving operational effectiveness is great, but it’s not strategy
3 © McDermott, 2012.
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What is Operational Effectiveness (OE)?
• It’s all about internal performance
• It’s about being:
– Better, or
– Cheaper, or
– Faster, or
– Wider (i.e. more international)
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Nature and Limitations of Operational Effectiveness
Nature of OE
• OE means performing
similar activities better than rivals perform them
• Constant improvement
in operational effectiveness is necessary to achieve superior profitability.
Implications
• Constant improvement or
getting better is seldom sufficient for profitability
• And that is tough – hence many companies exit an industry where they have exhausted all possibilities
5 © McDermott, 2012.
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Operational Effectiveness
Being Better Constant
improvement
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Operational Effectiveness
Constant Improvement
Law of Diminishing Returns and
Others Narrow Gap
7 © McDermott, 2012.
For example, the success of many Japanese companies was based upon being better and cheaper. But you can see that they are seeing their advantage eroded (i.e. South Koreans)
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Nature and Limitations of Operational Effectiveness
Nature of OE
• OE means performing
similar activities better than rivals perform them
• Constant improvement
in operational effectiveness is necessary to achieve superior profitability.
Limitations of OE
• Constant improvement or
getting better is seldom sufficient for profitability
• And that is tough – hence many companies exit an industry where they have exhausted all possibilities
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The Limitations of OE
• Those who rely exclusively upon OE are quickly overtaken
• Just think of the TV, PC industries
– Japanese topple US and Europeans
– South Koreans/Taiwanese topple US and Japanese
– Will Chinese topple South Korean and Taiwanese?
9 © McDermott, 2012.
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Operational Effectiveness Explains Initial Success of Asian Companies
1960s-80s Japanese companies are winners
1990s-2010s South Korean companies are winners
2020s- Chinese companies are winners
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Operational Effectiveness
Being Better
Operational Effectiveness May Deliver Advantage Briefly
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Operational Effectiveness
Temporary Competitive Advantage
Operational Effectiveness May Deliver Advantage Briefly
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Running out of steam: the limitations of OE
• Companies that are copycats simply exploiting differences in operational efficiency soon come undone;
• Once gaps in OE narrow, such companies struggle;
• Because they lack a distinct competitive position.
• In short, they need to learn strategy!
• In Porter’s terms they need to develop a unique competitive position
13 © McDermott, 2012.
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Japanese Winners in the Past
According to Porter, since they were better, they did not need to
be smarter
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Surely they were more than just Better?
• In the 1980s-1990s, Sony was “the Apple” of today. • Surely it was “smarter”, rather than just better? • What’s the difference between Sony then and Apple
today? • Both made great products that are “better”, but Apple
realized that its focus needs to be the consumer experience not simply the products.
• Apple’s success may reflect a total customer-centric business model – that is “smarter”;
• Sony’s focus was, and appears to remain, simply offering “better” products.
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Future Japanese Winners Must Also Be Smarter
Do they have
genuine strategy?
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Genuine
Strategy Operational
Effectiveness
Sustainable
Competitive Advantage
Genuine Strategy and Operational Effectiveness Deliver
Enduring Competitive Advantage
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I am not sure that any competitive advantage is sustainable
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Genuine Strategy and OE
Both are essential for superior performance
Excellence in one is not enough for enduring success or competitive advantage
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Establishing Competitive Advantage
1 • Deliver greater value to customers;
• Kroger, Meijer, Netflix, Nike, Under Armor
2 • Create comparable value at lower prices;
• Coinstar, Dell, Samsung, Vizio
3
• Do both
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Creating Competitive Advantage: Effectiveness vs Efficient
• Leads to greater value-creation
• Higher unit prices
• Apple, BMW
More Effective
• Leads to Lower unit costs
• Can offer lowest prices
• Costco, Lenovo
More Efficient
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OE and Buyers
• Continuous improvements in OE proves of enormous benefits to buyers; – Today we can buy a USB stick at Wal-mart for less than
$5 that has more memory than a computer that cost $000s in the 1980s;
• But this is a nightmare scenario for companies that are sucked into damaging price wars; – Who makes a profit as a PC producer today?
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Examples of Strategically Smart
The Smarts
• Tend to be ‘different’
• Are innovative
The Laggards
• Imitate and emulate their national rivals
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OE and Competition
• Companies converge
• They all follow the exact same strategic path
– From “made-in-China” to “sold-in-Wal-mart”
• And this is a race that no producer wins
– So let’s reduce the number of ‘runners’ – and acquire our rivals
• In a ‘buy or be bought’ world, no one enjoys true competitive advantage
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It does not have to be this way!
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Competitive Strategy is about being different!
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Determining Strategic Position
Activities
• Perform similar activities differently
• Or perform different activities
Value • Deliver a unique mix of value
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What do they offer?
• Often low cost
• Because they do things differently
• But in addition to that they often ‘break the rules’ in order to better meet the needs of their target market
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Nature of Strategic Positioning
• Means performing different activities from rivals or performing similar activities in different ways
• Competitive advantage requires developing a distinct strategic position
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What’s the Solution?
• According to Porter, it’s focusing upon creating a strong competitive position (i.e. developing a strategy)
• Kim & Mauborgne suggest that the solution is developing a Blue Ocean Strategy
• Rumelt suggests that the company must focus all energies on its “big issue” problem
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