OPERATIONAL EXCELLENCE   

Want to follow an Operational Excellence as a competitive strategy? Here is how you need to execute 

Line-of-Sight led a survey of more than 100 CEOs to measure how they evaluated the execution capabilities of their organization. This survey took place in Q1 2021 when most businesses were transitioning to a post-pandemic world.

Line-of-SightSM helps companies execute better by measuring and managing five critical capabilities necessary for successful execution (or KSEs): strategic understanding, leadership, balanced metrics, activities & structure, and human capital; it also assesses market discipline - the ability to execute in a way that remains true to the strategic intent. These factors are aggregated to form an overall Organizational Health index measured on a scale from 0 to 100.

Line-Of-Sight was curious about the strategies CEOs are following as they navigate their way out of the pandemic. It turns out that only 21% of CEOs surveyed are following an operational excellence strategy. Operation excellence is a strategy aimed at delivering a combination of low price, ease, speed, hassle-free use, and convenience.)

At first glance, it makes sense that the two other paths to competitiveness be more popular in 2021: indeed, In the post-pandemic, the most popular strategy appears to be customer intimacy (50% of CEOs), followed by product innovation (24%).

As we highlighted in this article on customer intimacy, the pandemic caused massive shifts in demand, and organizations benefited from being intimately attuned to changing customer needs. Similarly, economic disruption in 2020 compelled companies to creatively adapt their business models, services, or delivery - so innovation was at a premium.

In many sectors, however, competing based on price or service was also a matter of survival; companies that experienced extreme growth in the pandemic (defined as growth higher than 50% year over year) had to be extremely disciplined about their operations and margins to deliver their products and services consistently and profitably.

It turns out that CEOs competing based on operational excellence have a unique execution model compared to their peers:

• They rate their performance on activities and structure higher: 80 points vs. 73% average of all companies
• They rate their leadership performance slightly lower: 72 points vs. 74 on average
• They rate their performance on human capital significantly lower: 58 points vs. 67 on average

Taken together, these data points paint the picture of how these companies compete:

• They run organizations in which priorities are clearly spelled out, ensuring that employees are not wasting time on secondary tasks
• They communicate a clear strategy that determines resource allocation up and down the organization
• Their organizational structure is simple and closely mirrors the value chain steps
• They put knowledge in processes rather than employees.

All this is aligned with the way the Institute for Operational Excellence defines it as “the point at which each and every employee can see the flow of value to the customer and can fix that flow before it breaks down.”

The Line-Of-Sight survey also sounds like a warning for CEOs pursuing operational excellence strategies.

First, employees in the post-pandemic have higher expectations when it comes to the purpose of their organizations. It is therefore concerning that CEOs give themselves low marks on their own leadership since this is the leaders’ job to articulate that purpose.

Second, there is pent-up demand for job changes this year since many employees postponed transitions due to the adverse environment. If companies do not invest enough in their employees' training and development, promote knowledge sharing, or make their company attractive for hiring and retention, they will experience a much greater turnover than pre-pandemic - and high turnover is disruptive to businesses built on stability.

Finally, the economic environment will remain chaotic for the foreseeable future, and it is indispensable to build flexibility and resilience in operations, especially if they are built on scale and efficiency to deliver stable, mature products. If CEOs are reluctant to disrupt their stable core business, they should consider setting up separate teams or units tasked with creative adaptation to shifting demand - as Harley Davidson just did by setting up a separate division for its electric motorcycles.

Upcoming posts will continue to mine Line-of-Sight data to shed light on the most successful execution strategies in the post-pandemic.