Strategy is wasted without "operational effectiveness"

According to Michael E. Porter, Harvard Business School Professor and world-renowned expert on strategy, success requires both the right strategy and "operational effectiveness".

"Managers must clearly distinguish operational effectiveness from strategy. Both are essential, but the two agendas are different. The operational agenda involves continual improvement everywhere there are no trade-offs. Failure to do this creates vulnerability even for companies with a good strategy. The operational agenda is the proper place for constant change, flexibility, and relentless efforts to achieve best practice. In contrast, the strategic agenda is the right place for defining a unique position, making clear trade-offs, and tightening fit."[1], says Porter.

Porter is the first management guru to clearly label the domain of organisational activity that directly complements strategy. By coining the term "operational effectiveness" in this way, he opens up the possibility of exploring the other side, as it were, of the management coin in a systematic way. His purpose of course is to point up the importance of strategy because simply being good at something doesn't guarantee you success. You must have good direction and purpose

But, as he also points out, if you are not at least as good at what you do as your competitors then the best strategy in the world won't help you. While dealing out a critique to those who see operational effectiveness as a substitute for strategy, he also criticises those who have neglected operational effectiveness for the more fashionable pursuit of strategy alone.

The relationship between these two factors goes a little deeper than simply mutual dependency. They inform each other. Operational effectiveness is about having functions in the organisation that work well. These functions are, of course, the organisation's skill sets or 'core competencies' and therefore, as Porter points out, must fit together and work together to implement the strategy. On the other hand, the possible strategies available to an organisation are constrained, at least in the medium term, by the skill sets available to implement them. A motorcycle manufacturer may pursue a strategy to diversify into car manufacture, but is unlikely to be able to, say, enter the ice cream business because the functional skills required are radically different. Strategy may demand capability, but capability in turn constrains strategy.

Operational effectiveness may also create the opportunity for strategy development by inventing new technologies or methods. For example, the experimentation to find improved glue in 3M that led to the invention of the post-it note.

By creating the strategy /operational effectiveness dichotomy, Porter has paved the way to explore operational effectiveness in its own right as the other major player in organisational success.

"It refers to any number of practices that allow a company to better utilize its inputs by, for example, reducing defects in products or developing better products faster", says Porter.

OE is about continuously improving functional performance. To do this, managers lead and control the functional activities within the organisation, measure and improve the processes that they are responsible for, and leverage those processes through standardisation, communication and automation to then close the loop to provide ever increasing efficiency and effectiveness. It is strategy’s role to mould these functions into a coherent organisational whole that will succeed in the chosen markets.

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