Operational excellence can give you the competitive edge!

By Elisabeth Goodman, 4th September 2017

According to Sadun, Bloom and Van Reenen, writing in the Sept-Oct 2017 issue of Harvard Business Review, a disproportionate amount of emphasis is put on the competitive advantage of strategic planning, to the detriment of operational excellence.

Competitive advantage of operational excellence_HBR Sept-Oct 2017
From: Why do we undervalue competent management? Neither great leadership nor brilliant strategy matters without operational excellence. Raffael Sadun, Nicholas Bloom and John Van Reenen. HBR Sept-Oct 2017, pp. 120 – 127

What is operational excellence?

Their definition of operational excellence, or good management practice, goes beyond a more traditional focus on Lean and Six Sigma process improvement techniques.  It covers four broad dimensions, and 18 specific aspects.  The four dimensions are:

  1. Operational management – which includes Lean process management
  2. Performance monitoring – which includes the use of key performance indicators (KPIs)
  3. Target setting – which includes a clear link between organisational strategy, and individual goals (aka. a clear top-to-bottom cascade of objectives)
  4. Talent management – which includes setting stretch goals, employee development and retention

What is the evidence for the competitive advantage of operational excellence?

As Sadun et al say, MBAs and management experts such as Michael Porter distinguish between strategy and operational effectiveness, and put greater emphasis on CEOs’ priority being on strategy for competitive advantage.

The authors of this HBR article have been carrying out in-depth research since 2002 on more than 12,000 organisations in 34 countries, in conjunction with the London School of Economics.

They have found that operational excellence is a massive challenge for organisations and that the large persistent gaps in these practices are associated with large persistent differences in organisational performance.

The better managed organisations are more profitable, grow faster, are less likely to die, focus on innovation as well as efficiency, attract talent and foster employee well-being.  All in all they demonstrate sustained competitive advantage.

Achieving operational excellence boils down to three things

Erroneous self-assessment, a blame culture, overestimating the costs involved and underestimating the potential benefits can all get in the way of adopting good management practices.

Managers, especially in family businesses, can worry about potential loss of control if they bring in others with greater expertise in operational management.

The workforce may not have the numeric, analytical and other skills to implement operational excellence.

And it requires a shift from working in silos, to collaborating across teams; reassurance that greater process efficiency won’t lead to redundancies; and “walking-the-talk” by management (CEOs included).

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So achieving operational excellence boils down to three things:

  1. Commitment from the top: with a clear vision, visibility and role modelling by senior leaders (i.e. all key approaches for managing change)
  2. Understanding and ensuring availability of the required skills i.e. those associated with all four broad dimensions of operational excellence, as described above
  3. A shift in mentality at all levels to adopt these management practices as a way of working

About the author

Elisabeth Goodman is the Owner and Principal Consultant at RiverRhee Consulting., a consultancy that specialises in “creating exceptional managers and teams”, with a focus on the Life Sciences. (We use training, facilitation, coaching, mentoring and consulting in our work with our clients.) Elisabeth founded RiverRhee Consulting in 2009, and prior to that had 25+ years’ experience in the Pharmaceutical Industry in line management and internal training and consultancy roles supporting Information Management and other business teams on a global basis.  

RiverRhee is a support supplier for One Nucleus and a CPD provider for CILIP (Chartered Institute for Library and Information Professionals).

Elisabeth is accredited in Change Management, in Lean Sigma, in Belbin Team Roles, MBTI (Myers Briggs Type Indicator) and is an NLP (NeuroLinguistic Programming) Practitioner. 

She is a member of CILIP and of APM (Association for Project Management) where she was a founding member of the Enabling Change SIG.

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