Operational Effectiveness
Fully explain the two statements/quotes below and why they are true. In the answer explain what is meant by "operational effectiveness" (first quote) and fit and sustainability (second quote). Please explain as if you are speaking top managers around the corporate office for them to realize how our company is going to achieve true competitive excellence and not settle for mediocrity.
First quote: "Constant improvement in operational effectiveness is necessary to achieve superior profitability. However, it is not usually sufficient. Few companies have competed successfully on the basis of operational effectiveness over an extended period, and staying ahead of rivals gets harder every day."
The first distinction that must be made is that operational effectiveness and strategy are two separate constructs; though the often reside in parallel and/or work in tandem. Strategy is a set of strategic goals in which the organization pursues while operational effectiveness is the ability to continue to improve on these ambitions in perpetuity or at least until there is a change in strategy. The relationship between operational effectiveness and strategy are summarized in the following illustration:
Figure 1 - OE & Strategy
Therefore, an organization cannot rely on operational effectiveness alone. For example, even with a level of operational effectiveness that is the best in the industry, if the strategy is misguided then the organization will lose hopes to sustaining a competitive advantage. Thus if an organization is to achieve competitive excellence, it must have the right mix of both components.
Second quote: "Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage."
Strategic fit is determined by how well an organization's resources and core competencies fit in a niche in the external environment. If there is not proper alignment of these concepts then the sustainability of that advantage will be fleeting at best. This is among one of the most important considerations in all mergers and acquisitions. Even if there is a substantial opportunity in the market somewhere, if it is not properly aligned with the core competencies of management and the organizations resources then it is reasonable to suspect that the competitive advantage that was once identified will lose ground in regards to the competition. To maintain a competitive advantage in the long run, all of the resources, both tangible and intangible, must be able to support the strategy in the long-term.
For example, to illustrate the point let's consider a shoe manufacture in Canada that has stumbled upon a fast-food chain in Texas that is for sale and offers a substantial ROI -- say 40%. Even though the initial investment may bring fair returns, it is reasonable to suspect that the returns will be diminishing because the core competencies required to operate these operations are so different. So the ROI may go from 40, to 30, to 20, to 10, and eventually become a liability. The shoe manufacture should instead look toward something that would fit its strategy better; possibly a shoe string operation or something of that nature.
2. Best Buy is a specialty retailer of consumer electronics & home office products. The organization does not have any contracts with their suppliers. With strategy in mind, I am trying to investigate whether or not this is a positive issue for Best Buy. Before offering an intelligent response, I need to assess the situation externally and internally. What are 5 key questions that relate to external assessment could I ask and have answered and why would we specifically ask each of those questions? We must do the same thing for internal assessment-What are 5 key questions that relate to internal assessment we would like to have answered and why?
QE1 -- What are the industry trends?
Trends in the industry may be one of the most relevant places to look when trying to derive an organizational strategy. This can consist of consumer preferences, technological improvements, and/or horizontal or vertical integrations.
QE2 -- What is the current state of the competitive landscape?
Knowing how many players are in the industry as well as their composition and strategies can be a vital asset. Although, most companies don't readily provide their most intimate details, there is generally enough information that is made public to read between the lines.
QE3 -- What are the barriers to entry?
Having an accurate handle on the real barriers to entry can help an organization determine whether or not new competitors might emerge and if so from where. It could also be invaluable if a competitor falls out of the market then it would be relevant to know who will tackle their market share.
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