The Important Coexistence of Strategy and Operational Excellence

We discuss how prioritizing business strategy and operational excellence together can help your organization thrive amid innovation and disruption.

The goal of any business is not simply to generate revenue but also to create value for its customers. In renowned Harvard Business School professor Michael Porter’s book, “HBR’s 10 Must Reads – On Strategy,” he describes the importance of both strategy and operational excellence to create this value.

His take is simple. If your company wants to improve cost structure, focus on operational excellence. If you want to drive growth in terms of revenue, market and customers, focus on developing a sustainable long-term business strategy.

In today’s world, you need to prioritize both. It is crucial to have streamlined operational excellence practices in addition to sound business and IT strategies as they each have an enormous impact on your overall profitability and customer and employee experiences.

Operational Excellence Versus Business Strategy

Let’s look at each operational area.

• Operational Excellence: This focus entails improving, transforming or automating your operations and optimizing key capabilities and value streams to achieve desired business outcomes.
• Business Strategy: This focus entails using business agility and innovation to envision opportunities that competitors miss and then transform your organization to meet those opportunities.

Operational excellence minded businesses focus on efficiency — getting the product to the customer quickly and conveniently while keeping costs down. On the other hand, more strategy-focused businesses prioritize product innovation or technological advantages. They invest in developing and differentiating their product rather than getting it to the customer easily and inexpensively.

For example, McDonald’s is an operational excellence-focused model. Their goal is to quickly serve a limited selection of affordable, consistent tasting food options to its customers. For example, when many competitors experimented with plant-based burgers in an effort to follow customer trends, McDonald’s has not yet added a vegetarian burger to its menu. This is a conscious decision, as adding new unique items to the menu would impact their supply chain as well as their operational excellence objective of providing low-cost, hassle-free food to customers.

Putting Operational Excellence and Business Strategy into Practice

We’ll look at Jiffy Lube as an example of a business focusing on operational excellence and strategy. They offer a simplified set of worry-free offerings such as 5-min oil changes, quick 20-min checkups, tire rotations and other preventative services. Jiffy Lube is easily accessible at more than 2,000 locations nationwide. This makes it operationally efficient by taking care of customers quickly with a succinct ‘menu’ just like quick-serve restaurants.

Being the largest player in the quick lubes market segment is also made possible by Jiffy Lube hiring highly trained ASE certified technicians and expanding their services to brakes, tires, filters and more. The company is also implementing business strategy, concentrating on improving their product, not simply getting it to the customer. Jiffy Lube is trying to gain a competitive advantage by showing customers, “We’re more than just an oil change.”

Jiffy Lube has created a consistent image in the market, prioritizing the customer’s time and budget while also innovating their services to drive more traffic. This shows how business strategy and operational excellence practices must work together to deliver promises to customers.

A successfully implemented combination of operational excellence and strategy will translate into two things for your business:

• Profits it generates for its customers (stakeholders, shareholders, employees), and
• Enterprise Value, which is the measure of a company’s equity market capitalization.

Prioritizing these practices will help your organization prosper, even in volatile environments.

Conclusion

If your company solely prioritizes improving cost structure and simplifying processes by adopting continuous improvement practices and does not consider changing market conditions and customer needs, you will not be able to keep up in today’s competitive marketplace. Now that competitors can match offerings with relatively low barriers to entry – thanks to the internet, easier access to cash, and other items – a combination of strong operational excellence and strategy focuses will give your business a competitive advantage.