Looks like operational effectiveness, smells like operational effectiveness…

One core strategic management concept that folks often struggle with is the idea of operational effectiveness (OE). OE is the pursuit of such goals as cost efficiencies, quality improvements, and faster speed of delivery. As Michael Porter put in 1996, OE means “performing similar activities better than than rivals”. Such actions are not a recipe for ongoing or sustainable advantage. Instead they are just part of ongoing improvement path that all decent firms should be on.

oe-tiles1The distinction here is between OE and strategy. The latter involves trying to find activities that generate value for customers (or reduce costs) that are different from rival firms, or which tackle the cost, quality and speed goals in a distinct fashion. This may well be the path to sustainable advantage. See a nice expanded elaboration of this distinction on this blog post I found from the dark ages (well, 2005!).

Times of economic turmoil, such as we are witnessing across the corporate arena, often lead to the necessary self-reflection by executives that is missing in the heady good times. This interview with the Chief Information Officer (CIO) at one of the world’s larger oil companies (Sunoco), offers some candid insights into this firm’s realisations:

“I think there is a realization now that competitiveness does not derive from the raw technology. The competitive advantage doesn’t come from having the same set of Lego bricks that everyone else has access to. It comes from taking that set of Lego bricks and understanding how they can be put together to understand specific issues that your business is facing in your industry. And how you put them together will be very different from someone else in a different company, even though they are a competitor.”

“It was only when we were trying to tighten our belts earlier this year that we asked ourselves, “What would happen if we didn’t get new PCs for 15 months? And was anyone actually complaining that they couldn’t deliver a product, that they couldn’t get cash to a bank, that they couldn’t execute a trade because their computer was too old?” Of course not.”

Sunoco have clearly realised that upgrading technology with too little consideration of its usefulness is not even a source of operational effectiveness. It was just a lazy habit of a firm with very healthy cash flows. Now that the bottom line is a core consideration, the firm is starting to examine more efficient ways to handle such technology.

The article mentions the examination of cloud computing options such as gmail. Such shifts in purchasing of IT infrastructure are very unlikely to be a source of sustainable competitive advantage for any firm (other than the firms providing the infrastructure). As more and more firms go down this path, the bar will simply have been raised. Firms will need to look elsewhere for strategy choices…


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