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Posts Tagged ‘operational efficiency’

Efficiency is NOT a strategic direction!

In General Mish-Mash on September 6, 2011 at 11:48 pm

Towards Strategic Repositioning

Note: This is an edited version of a paper prepared in July 2008. I have included it here because it is relevant other bits of mish that have recently been – or are about to be – mashed!

Setting the Scene 1 – McDonald’s

In 2003, McDonald’s announced losses of over $300m for the final quarter of 2002. It was the first time the company had resorted to red ink in its 48 year history.

The losses were the result of a drop in sales. Share prices plummeted. There were serious doubts about its future.

Despite having 30,000 restaurants in over 100 countries and more than 47 million customers a day, it had stagnated.

The pressure brought to bear on the company came from issues that had, in essence, changed its brand position.

The issues facing McDonald’s were simultaneously shrinking their market, their sales, their margins, and their brand equity. The issues included the challenge of obesity and especially childhood obesity, price wars with its main US competitors, anti-globalisation movements and, the killer for the fast food burger, a change in consumer habits.

Setting the Scene 2 – The A-League

In 2003, the game of soccer in Australia had reached such a nadir that there was a parliamentary enquiry into how it was administered.

Unlike McDonald’s, Soccer Australia had used exclusively red ink for its entire 27 year existence. The game was riddled with political and ethnic problems. In Australia it had low brand equity,  low attendances, and very dim prospects.

Yet it had control of the Australian franchise of the most popular sporting product on the planet.

*****

These two scenarios, though carrying quite different antecedents resulted in very similar responses.

Someone had to make a strategic decision. The competing strategies were to either battle on or make fundamental change(s). In both cases the decision was to stop, pause, re-think, and completely re-shape their businesses.

In both instances a stake was placed in the ground. The stake represented a “point of no return” commitment to change.

While the resulting change fingered all aspects of these businesses operationally, there was much about the process that was marketing driven.

The NSW Licensed Club Industry – Circa 2008

In 2007-8 the NSW licensed club industry is operating under pressure.  Pressures are being applied from a variety of sources.

Changes in consumer behaviour are shrinking the size of the market for club products, increases in competition shrinks the market place even further, the current economic cycle and changes in some regulations are driving sales down.

Other regulations (smoking, harm minimisation) and the tax impost are driving costs up.

This operating environment hamstrings any ability to re-invest in the club business and leads to an inability to live up to the raison d’etre of many clubs.

Being unable to finance their reason for being leads to an inability to justify or support the “community benefit” defence against attacks.

The industry and its operators are on vicious cycle.  Their vulnerability as a target magnifies and is an easy mark for those intent on attacking 2 of the core products of our industry – gaming and alcohol. If community relevance is in doubt then so must be the “licence” to trade in the 2 core licensed products.

It is not pretty.

Responding to the Pressure

There seems to be 2 choices in responses to this pressure cooker:

  • Option 1 – battening down and trying to outlast the conditions
  • Option 2 – transforming our business model to take advantage of the prevailing conditions

Option 1 – Riding Through the Storm

Choosing to play the waiting game, reducing the size of our businesses while we wait,  assumes that the fundamental model of our business is right and the conditions we face are a temporary aberration.

It assumes the paradigms under which we are now operating are “in sync” with our normal environment and the current conditions will, at some time, settle back to that normalcy.

This is what we have been doing.

Our attention has been on battening down the hatches and getting ourselves lean, strong, and fit enough to emerge bruised but intact when the storm subsides.

This takes the form of our emphasis on operational efficiency and effectiveness.

Option 2 – Overcoming the Conditions Through Transformation

Choosing the second option assumes that our model, relative to the operating environment, has hit a systemic flaw and the conditions are a symptom of a deeper malaise.

It assumes the environment has shifted and that our paradigms need to change to accommodate that shift. That is:

“what was normal, is no longer”.

To counter this involves a strategic examination of the environment and how we connect and communicate within that environment.

It doesn’t assume that over time the “storm” will change but that we must change so that we take advantage of it.

Selecting this path is also to select a path that contains inherent risk and angst.

There is a third option. This involves taking the actions necessary to stave off the prevailing conditions while we critically examine and then shift the paradigm of our model. Essentially though, this option is merely the sensible, even necessary, method of approaching Option 2.

Cycles – Vicious or Virtuous

We are always in some type of cycle.

The question is whether the cycle is vicious – a slippery slide to undesirable destinations – or virtuous – a more difficult path but with attractive outcomes.

The indications are there that we are on a cycle that is vicious.

What we face is not a simple aberration but a systematic and predictable downward trend. There may be a coincidence of events causing magnification to some problems – a perfect storm type coincidence – but the signs are that many of the issues we face are here for the long haul.

In my opinion, there is one possibility for shifting the cycle from vicious to virtual – and that would be a major reform to gaming taxation. Such a shift would give us room to do what most successful businesses do – invest in ourselves.

Even if this happened, I think we would still need to ask whether it would represent a turning of the cycle or just a shift up the existing cycle. Any future stutter or stumble causing a quick slide downwards again.

We predicted much of what we face today. That, in itself, suggests that the conditions are not an aberration but part of some type of system.

Operational Effectiveness and Strategy

As an industry there appears to be very little movement on addressing any of the issues we face. Well, little movement beyond providing guidelines for governance, checklists for compliance and tools aimed at improving operational effectiveness.

Our communciations have been limited to trotting out facts and figures about the impacts we have on employment, community infrastructure and projects, welfare, sport, and charitable organisations.

As an operator, we are doing many of the things you’d expect – in summary we are:

  •  finding ways to cut our cloth so that we operate in a way that suits a contracted market situation.
  •  looking for ways to convince people that we are relevant to the their community
  • developing messages to try and counter the strident critics.
  • developing communications that will create a desire to visit us.
  • developing reporting mechanisms that tell us with ever-increasing accuracy how much more we need to cut, how much less there is to spend, and how long it will be before we expire if we don’t cut.

Despite my language, I do not mean, in any way, to diminish the importance of committing to and exploring ways to improve the efficiency and effectiveness of our operation.

However, it is important to understand that operational effectiveness is not strategy.

Paradoxically, for an industry to have efficiency as its primary focus, the end result is imitation and homogeneity … and the inevitable result is diminished returns.

We, our industry – indeed, probably much of enterprise – have allowed operational effectiveness to supplant strategy as the key driving force.

In our case strategy has been forced at gunpoint to get into the back seat.

We have recently been through and continue to exercise improvement to our practices that will increase our effectiveness. That has been, and continues to be, necessary – even vital.

But it is not sufficient.

There are worrying signs that strategy is seen as nothing more than a communications campaign. Strategy is pigeon-holed as a segment of the marketing function – a creative way of selling the things we have always done and continue to do. It is a thinking that is very dangerous.

The evidence for this?

  • promotions continue unabated and unchanged for lengthy periods
  • suggestions of change to product mix are met with horror
  • potential group initiatives beyond  group wide promotions are not supported, even undermined (eg standard of core membership benefits)
  • the expression, “our competitors are doing this so we should” is almost a mantra from some quarters.
  • price increases or reduced discounts are statements of sacrilege.
  • our Board becomes increasingly concerned about operational issues. They “sweat the small stuff”, so to speak.
  • severe reluctance to make choices

There is good reason for the existence of this evidence – I think.  It is endemic and systemic.

We have no well-defined strategic position that can be used to support a paradigm shift by our operational managers. We cannot engage our site managers from a central group strategic position because we cannot get that position to hold water – at the moment.

Further – the pursuit of operational effectiveness is at all times tangible, it is actionable, measurable and can be very re-assuring. It is easy for a focus on operational effectiveness to dominate the agenda at the expense of strategy.

Developing a Strategic Position.

Now is a great time to redress the balance between operational effectiveness and strategy. It may even be a necessary time.

It is time for us to stop, pause, re-think and re-shape – to place the stake in the ground.

While this process can be driven by marketing and financed by the marketing budget, it can only work if we collectively grab the stake and drive into the ground. We all need to commit to the process and its outcome(s), … whatever they may be!