The Hindu Business Line : Operational excellence, a launchpad for strategy

Is your company ready for aggressive growth and diversification? What is the critical factor that indicates whether a company’s strategic plans will succeed or not? Is there a single prerequisite for success in strategic endeavours? Believe it or not, more than the logic or inherent strength of strategic plans, the mundane aspects of running a company determine the success of its plans.

Yes, we are talking operational performance in the existing lines of business here. Experience shows that companies which focus on achieving excellence in their existing operations are the ones best able to embark on ambitious strategies and succeed. Companies which take their present operations for granted or hope that new strategic plans will pull them out of operational deficiencies have to think again. In other words, a company performing poorly in its current lines of business cannot strategise its way out of trouble.

If you think about it a bit, the reason for this paradox is clear: present operations provide the base on which future strategies can be built. The stronger and more robust the present set-up, the easier it is for a company to embark on a more ambitious course of action with confidence.

It is not just financial performance in terms of bottomline or accumulated reserves, but the entire range of activities which define how well the present or ongoing operations are carried out. In other words, how successfully a company implements its operational excellence or Opex framework provides it with the inherent strength and resilience to face the uncertainties of executing bold strategic actions.

Three elements define the Opex framework: how a company carries out its client acquisition or customer facing roles; how efficiently it organises its production or service delivery roles and the cost effectiveness of the entire company. To summarise:

Aggressive sales posture: Given a highly competitive market in all sectors, how does a company ensure that it acquires a steady stream of clients or sales orders? How aggressively focused are its sales and marketing policies, people and processes? What is the quality and depth of its product or service offerings? How responsive and aligned to the needs of the customer in terms of sales proposals, pricing and timing of delivery/implementation are the frontline sales teams and the customer support teams at the back-end ? How clearly and comprehensively laid out are the sales proposals or ‘request for proposal’ responses? How powerfully or innovatively presented are the company’s marketing collaterals? How effective or immediate are the company’s after-sales service practices in combating areas of client dissatisfaction? Finally, how wholesome or credible are the company’s client-facing sales teams? Performance in these areas, and not just low prices, define aggressive sales posture. In other words, the company’s hunger for more business is reflected in every facet of its sales roles.

Excellence in delivery of service/product: The overall quality of products or services delivered to clients fundamentally determines the robustness of its delivery operations. In this element are factors such as how well-defined are the delivery processes and how well-established is the process adherence discipline within the delivery set-up? How good are the delivery teams in terms of their skills profile and their overall technical bandwidth? Output quality factors such as error or defect rates, first-time acceptance, customer returns, warranty instances, field failures and so on also profile the company’s delivery performance. Critical process details such as weekly project reviews or production shortfall analyses point towards system rigour. Likewise, the time competence of the entire delivery system to meet client deadlines. In short, having got customers after aggressive sales efforts, is the company delighting them through delivery excellence?

Optimal cost structure: Ultimately, sales, delivery and all other factors come together to determine a company’s bottom-line financial performance. There are obvious financial features such as gross margin and net margin ratios, working capital ratios and investment returns. More importantly, one needs to look at the underlying actions which result in these financial ratios. How carefully negotiated are the purchases of bought-out materials and services? What is the focus on productivity and waste avoidance in the delivery system? What is the cost of management overheads in the structure? How carefully controlled are the decisions on actions which cannot be directly billed to clients? What is the value addition of every senior manager; every corporate function? In short, how conscious is the decision-making system about the value to be obtained before authorising substantial spends?

While not specifically provided for in the Opex framework, we must see people practices and systems focus as embedded in all three aspects of operations. In the absence of excellent people practices and systems discipline across the landscape, a company cannot claim high operational excellence. These are over-arching qualities and a pre-requisite for good operations; as good housekeeping practices they critically determine the culture of excellence.

Finally, how does one use the operational excellence framework? On a 10-point scale, the company’s scores on each of the three elements need to be evaluated, giving a total Opex score out of 30 points. For example, the most aggressive sales-oriented company in the business would get 10 on ‘sales posture’. The idea is to benchmark ourselves against the best performing company or the ideal company on each factor.

Now how do we interpret these Opex scores as a predictor of success in aggressive strategic games? On a total of 30, if your company or division scores 12-15, you should be focusing on how to improve operational performance in your present business; strategic options outside of your present business or even aggressive growth in present business lines, however tempting, are not for you. Scores between 15 and 22 indicate that you may be ready for a growth strategy with moderate risks, though you will continue to have to improve the operating fundamentals of the company. Score above 23 and you can be looking at ambitious and, perhaps, high-risk strategies for the future.

The operations excellence framework is very much in your favour and good scores provide helpful winds in your strategy sails.

(The writer is a management consultant and heads Alter-Ego Consulting. He can be reached at avrammohan@yahoo.com)

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