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Operational Effectiveness

Since the 1970s and 1980s, Japanese firms revolutionized the way we think about strategy, putting the spotlight on operational effectiveness. This focus highlighted competition between rivals on quality (think of TQM, Six Sigma, Kaizen), speed (think of JIT) and cost (think of lean manufacturing).

Operational effectiveness is about management tools and techniques that can be applied to do similar activities as rivals more efficiently. A focus on operational effectiveness has led to the advent of concepts such as continuous improvement and the learning organization. Organizations use tools such as benchmarking to ensure that they are keeping up with their industry's best practices. Performance measurement, leadership, change management, business process improvement, and business process reengineering are important concepts in operational effectiveness.

According to Michael Porter, operational effectiveness is an important part of strategy, but there exists a problem where businesses believe operational effectiveness is strategy. The problem is that best-practices and management tools can be copied. As a result, operational effectiveness does not lead to a sustainable competitive advantage. In fact, while productivity gains have been made since the push for operational effectiveness by Japanese companies, these gains are typically catpured by customers or by other members of the value chain. No relative gains were retained as increased profitability by companies that tried to compete solely on quality, speed and cost.¹

According to Robert S. Kaplan and David P. Norton, operational effectiveness is important, but what is most important is the ability of an organization to link its overall strategy with its operations.² We call this strategic positioning and fit. McDonald's is a great example of how operational effectiveness reinforces the fit between an organizations operations and its strategic position. McDonald's provides standard quality food at a low cost without too many frills. By keeping their menu limited, McDonald's keeps the number of inputs needed to a minimum, and the complexity of assembling customers' orders low. Customer orders are assembled on a type of assembly line, where every ingredient is in the same order in every restaurant. Special warming ovens were created to keep burgers patties etc. in a ready to serve condition, without having to be cooked specially when an order is placed. As a result, its operations keep costs low, ensure a standard quality, and allow customer order to be prepared quickly. When combined with its strategic position, the type of food it serves and how it is marketed, McDonald's has ensured a sustainable competitive advantage.



1. Porter, M. E. (1996). What is strategy? Harvard Business Review, Novermber-December.
2. Kaplan, R. S. & Norton, D. P. (2008). The Execution Premium: Linking Strategy to Operations for Competitive Advantage. Harvard Business School Press.

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