HCi Journal of Information Development

Achieving Operational Effectiveness by leveraging knowledge

By Onno van Ewyk

“Operational Effectiveness refers to any number of practices that allow an organisation to better utilize its inputs by, for example, reducing defects in products or developing better products faster” – Michael E Porter.

This is the second in a series of articles on Operational Effectiveness; the concept juxtaposed with Strategy by Harvard professor Michael E Porter as the other major determinant of organizational success. The first article, Strategy is wasted without "operational effectiveness", introduced the concept and its origins. It also identified the "OE cycle"; four interconnected meta-activities that focus on functional performance and process improvement.

In this article, we look in more detail at the OE Cycle and explore the importance of knowledge and leverage when pursuing organizational effectiveness.

The OE Cycle

The cycle starts with the organisation's capacity to lead and control functional performance (1). Functions are the specialised units within the organisation that work together to produce, and support the production of, its outputs, whatever they may be. Typically these specialised units reflect the fundamental way in which the organisation's activities are grouped in order to exercise control - such as sales, production, logistics, research and development, and so on. They are specialised in order to concentrate expertise, and the greater their expertise, the greater will be their effectiveness. Particularly when the expertise differentiates the organisation from its competitors. Leading and controlling functional performance covers the activities of the organisation's people - its staff - and encompasses all the factors that lead, encourage, and support people to be more effective - factors such as leadership, training, interpersonal relationships, teamwork, etc.

Beyond the application of such personal skills are processes. These are the unit’s standard methods, and by measuring and improving them (2), operational effectiveness is consolidated, maintained, and improved through constant learning and innovation.

But it is not enough just to develop employee effectiveness, and improve processes. Operational Effectiveness also demands that the organisation constantly and systematically seeks out opportunities to leverage personal and process expertise (3) by widening their application and by constantly seeking opportunities to improve quality and efficiency via automation.

The aim, and the end result, is continuous improvement in functional performance (4). It is not enough simply to achieve a certain level of operational efficiency. Operational Effectiveness encompasses the capacity to continuously improve, leverage, and automate.

Applying the OE Cycle in practice

The next logical step in our examination of OE is to explore how the OE Cycle can be applied in practice. There are two ways to do this. The first is to look at the current conventional techniques for implementing each aspect of the cycle. The second is to look for an underlying principle by which all aspects of the cycle can be integrated into a single overall approach.

 Set out in the table below are the current approaches that can be applied to each aspect of the cycle

It is in the integration of all the OE Cycle aspects that most organisations fall down. Processes are often measured and improved on an ad-hoc ‘project’ basis and not as part of the day-to-day running of the unit concerned, that is, as part of the routine 'leading & controlling' of each function. This means that improvements often don’t ‘stick’ over time and opportunities to apply innovations outside a specific local area are missed.

In addition, conventional approaches to automating processes often fail to enhance OE because they are not integrated with functional control and process improvement activity.

This view is supported by comments in a recent article in the McKinsey Quarterly[i] in which the authors point out that there “.. is the tendency to view technology, first, as a panacea and, then after the hype proves unrealistic, as anathema. The experience of the leaders shows that new technology alone won’t boost productivity. Productivity gains come from managerial innovation: fundamental changes in the way companies deliver products or services. Companies generate innovation, in fat years or lean, by deploying new technology along with improved processes and capabilities.”

Knowledge underlies Operational Effectiveness

We can uncover an underlying principle for Operational Effectiveness by starting with the idea of personal effectiveness and asking, what are the key determinants of this? The answers are such ideas as capability, expertise, know-how, talent, and skill. If we summarise all these notions in the single word ‘knowledge’, we can say that personal effectiveness is principally determined by knowledge.

We can extend this principle - that knowledge underwrites effectiveness - to organisations by elaborating on the forms that knowledge takes within an organisation and the effects that these have. The list below does just this, starting, for the sake of completeness, with the antithesis of knowledge – ignorance - and working up through the number levels at which knowledge operates within an organisation.

·      Ignorance invariably means a person is incapable of performing a task satisfactorily or reliably. Ignorance is costly for organisations in many ways – time wasted, materials wasted, poor quality products or services that have to be replaced, alienated customers, etc. 

·      Personal knowledge is what is immediately available to a person to apply to the task at hand. It is the means by which tasks are performed satisfactorily and reliably. Personal knowledge can be extended and made more useful by being codified.

·      Codified knowledge is knowledge that is written down or otherwise communicated. It extends a person’s capabilities beyond personal knowledge. In this way it leverages capabilities. It also helps to increase personal knowledge.

·      Corporate knowledge can be defined as codified knowledge of standardised processes. This provides further leverage by coordinating and making consistent the productive activity of many people. Corporate knowledge also leverages knowledge by providing a ‘jump-off point’ or ‘platform’ for process improvements and the means by which process improvements are communicated and implemented.

·      Embedded knowledge, or knowledge transformed into artefacts such as tools, machines, or computer programs, takes standardised processes a step further and automates them. Embedding knowledge in tools, machines and computer programs also opens up the possibility of performing tasks that cannot be performed by people. This means that the potential for leverage is almost unlimited. But, in order to control these artefacts and utilise them effectively we need to manage two complementary categories of knowledge – knowledge about how to use the artefacts, and knowledge about the artefacts themselves in order to build, maintain, and improve them. The more complex the artefact, the more leverage is gained by, in turn, codifying this knowledge in some permanent form.

Leverage and automation

By considering these types of knowledge in organisations, we can build a picture of the relationships between the various aspects of the OE cycle and how they are connected.

This is illustrated in the diagram below.

Any given organisational task may be tackled at any one of the above knowledge levels. If the is tackled on the basis of ignorance then the obvious consequences will result. The impact on Operational Effectiveness will be negative.

As the task is tackled with progressively higher levels of corporate knowledge, the potential increases for improved quality, speed, consistency, and efficiency. In this way, Operational Effectiveness is a direct function of the way knowledge is managed in order to make it as good as it can be at each level, as well as integrated into the organisation at the highest level possible level.

May 2003

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