Operational Effectiveness Fully Explain the Two Statements/Quotes

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.

QE4 -- Where are the opportunities?

There are obviously an infinite number of potential opportunities that any organization can have. However, these are quantifiable and a list of the best projects with the greatest ROI should be kept close by at all times. Various projects could also serve strategic roles.

QE5 -- What is the present state of suppliers' power?

Suppliers are an integral part of the supply chain and thus should be scanned for opportunities and movements consistently. An organization should be aware of how potential changes in the composition of their suppliers might affect the state of their current negotiating power and look for opportunities to improve its positioning.

QI1 -- What are our core competencies?

Core competencies can flux over time with new strategies or business models. Keeping tabs on these can be a great asset especially when trying to size up a new opportunity or merger or acquisition.

QI2 -- What are our weaknesses?

This can be determined in regards to either internal or external criteria and is also something that should be kept in perspective. Weaknesses, when properly accounted for, can act as a constraint that prevents organizations from overstepping their bounds.

QI3 -- What is the state of human resources?

Human resource development is often an intangible asset that makes imitation difficult or impossible by competitors. Thus accounting for the state of human resources and the talent and skills that lie within the pool is a key factor for success.

QI4 -- Who are our best performers and why?

Top performers can often be a source of inspiration in strategy development. Therefore is important to constantly scan top performing people or locations to see what beneficial occurrences are reproducible.

QI5 -- Are there a change agent available in a shift in course is needed?

Managers are undoubtedly important in organizations. However, leaders who can act as change agents should be closely monitored and further developed continually for times in which organizational change is on the horizon.

3. How do/does product differentiation in an industry and economies of scale each serve as a barrier to entry? Please discuss these two barriers separately. Besides explaining what the barrier means, explain how a potential new entrant specifically is going to be at a disadvantage. How do you identify/measure this disadvantage? Please provide viable financial measures. Additionally, what are the options for potential entrants who face these barriers, still want to enter the industry, be competitive, and not accept below-normal performance (Please provide two options for each barrier)?

Barriers to entry are situations that prevent or hinder a firm's ability to enter a particular market place. There are many different variables that can produce such obstacles in any given industry. Examples of this can range from buyers and/or suppliers power, government regulation, customer loyalty, various levels and types of competitors, or anything else that would prevent a firm from entering the marketplace. Although these barriers can be potentially overcome, the presence of a barrier offers a significant obstacle that puts the new firm at a disadvantage.

Product differentiation can also provide a barrier to entry. If an industry has one or more players that have sufficiently differentiated their products in terms of consumer perceptions, then it may be difficult to enter into the marketplace. One example of this can be found within the cell phone industry. There are many major competitors; however one stands out above the crowd in terms of product differentiation -- Apple. With the success of the iPhone, Apple was able to distance itself from the other competitors in the market place and thus demand a product premium in the smart phone market. The platform that Apple has built to allow these electronic products to sync, such as the iPad, MacBook, iTunes, and iPod, also prohibits various portions of the segmented market from considering other brands; thus creating brand loyalty.

Even though Apple leads in product differentiation, the other competitors who follow Apple also have their own differentiation strategies. Windows Mobile, Palm, and Symbian platforms are also provided on various hardware combinations in an effort to distance themselves from other competitors as well. Therefore, it would be exceptionally hard to enter this market without some form of product differentiation deployment. Google Android was a successful market entry case utilizing an open source platform that could rival Apple in terms of third party apps. However, Android had all of the resources of the software giant Google behind them and the same path to the market would not have been feasible with less endowed organizations.

Organizations that have reached a level of achieving economies of scale can also create a situation in which there is a significant barrier to entry to other hopeful firms who wish to enter the marketplace. For example, Wal-Mart Retailers have reached a significant level of quantities of scale that have allowed them to build massive infrastructure projects, mainly distribution centers, that simply could not be duplicated by new market entries. This allows Wal-Mart enormous efficiencies in terms of distribution costs per unit and thus can offer a lower price to the consumer or command a greater margin.

One way to combat the barrier to entry is through a different distribution channel altogether. One case of a successful strategy would be Stihl chainsaws and related equipment. As opposed to utilizing channels such as mass retailers and home supercenters, Wal-Mart, Home Depot, and Lowes for example, Stihl built a network of independent dealers who sell and service the equipment. Not only does this strategy allow Stihl to focus on quality, as opposed to price, but it also allows them the freedom to avoid the influences of the massive suppliers' power that the retail giants maintain.

Another proven way to defeat this type of barrier is to provide a differentiated business model. Aldi's is another case that can be looked to. Instead of trying to follow the same path as Wal-Mart, they offer low costs by eliminating the branding in the product in their product mix by enlisting generic products produced by major suppliers. They also utilize no-frills stores with little in terms of fixtures to keep costs down and facilitate the speed of entry into local markets with new stores.

4. How does a firm and its management team uncover the key success factors (KSF's) in its industry? Discuss how this process would be conducted-where would you look and who would you ask? This may be discussed from a broad, conceptual perspective.

There are basically two broad categories in which a firm can seek the key success factors in its industry; it can either find inspiration for these internally or externally. Examples of internal criteria could be month end figures vs. these figures vs. The previous three years, employee productivity measures, ROI figures, or even stock prices. These measures are all determined internally and are comprised of evaluations of internal performances. Furthermore, these figures are generally based on some amount of historical data involving the organizations past performances.

If a firm looks to external data to compile KSF's, then they may be looking at items such as market share, percent growth vs. competitors, internal financial information compared to industry averages or other calculations of similar nature. The basic premise is that the organization compares its position or performance to externally held data; such as industry averages. This can provide a firm a great deal of information about where it rests among its competitive landscape.

The development of KSF's is also specific to what part of the organization you are in. For example, a logistics manager wouldn't have much need for KSF's that are geared toward providing insight into the company's market share standing. They would probably benefit more from an indicator that provided details into the number of late shipments that was accounted for over a thirty day period. Also, a middle manager would want KSF's that were relevant to their individual job functions and team performance, as opposed to higher level indicators.

Though the KSFs may be customized to fit various functions within the organization, they should also be consistent with the overall organizational strategy. Therefore, for instance, if the strategy included providing a guaranteed next day delivery service to gain a competitive advantage in terms of the competition, then obviously the logistics manager's KFSs would include such a relevant indicator. If the strategy included providing the highest levels of customer service in the industry, then customer complaints would be a priority in many KFSs across the organization.

It is obviously up to top tier managers to develop organizational strategies, but they should definitely seek consultation from those who serve in lower level positions throughout the hierarchy. For example, to find how out how KSFs could be developed in individual departments, top tier management could ask those closest to the task level decision making can consequently help identify the KSFs that are most relevant to them and develop the appropriate indicators.

5. Barney once wrote, "Obviously, that a firm's resources and capabilities have been valuable in the past does not necessarily imply that they will always be valuable." Simply put, what does this statement mean? Provide two well thought out, concise, and mutually exclusive examples/reasons that would support the truthfulness of this quote.

A firm's capabilities and resources that have proven valuable under a set of circumstances may not fare so well under different sets of circumstances. Markets are dynamic in nature and are always in flux. Technological improvements as well as process improvements account for some of the movements however they can come from many various sources and may not be necessarily introduced gradually. Market shocks are definitely becoming more commonplace in to todays interconnected global marketplace.

One readily available example was provided by the earth quake in Japan. Whether you are for or against nuclear power politically, it is safe to assume that the hold industry has felt the financial effects of the wave of political pressure which eroded afterwards demanding a moratorium on new construction in places such as Germany and China (Harder, 2011). Companies such as Westinghouse and GE are the "Coke and Pepsi" of the nuclear industry accounting for over 80% of nuclear plants worldwide (Grossman, 2005). Therefore it would be reasonable to suspect that even though these companies once had resources and capabilities that were valuable, now the political landscape and consequently the market have change these assets may not be as valuable as once before.