The past decade has seen a frenzied and desperate quest for operational efficiency. Layoffs, cost cutting, and reorganizations have been continual, as firms tried to preserve their profitability.
In
general, this approach has not worked. Fortunately, other, happier
outcomes are possible, given a different approach. Sustained prosperity,
I think, requires improving both your top line and your bottom line. I think
sustained prosperity requires working on both on costs and on value
and doing this in ways that can offer unique, lasting, competitive
advantage.
For many years, I have been citing the evidence that cost cutting and cookie cutter process improvement methods have not been working. A company can outperform its rivals only if it can establish a difference that it can preserve.
A growing body of evidence shows that cost cutting alone does not lead to sustainable competitive advantage or even profitability. Many prominent academics and business practitioners are finally going on record, saying, in effect, that the emperor lacks clothing. It's about time!
To be sure, cost cutting and operational efficiency are necessary to be competitive -- they are necessary, but not sufficient. Michael Porter, the famous business strategist, says there are two reasons for this.
First is that though cost cutting raises the bar for everyone, it tends to not lead to competitive advantage. Cost competition produces an absolute improvement in operational effectiveness, but it leads to relative improvement for no one. Indeed, whole industry sectors have become unprofitable.
There are cases, airlines are one, where almost every firm in the entire industry has gone bankrupt! No lesser a figure than Peter Drucker says that even the booming computer industry has had net negative profits for long periods.
Porter's second reason why such dismal results are so common is even more compelling -- competitive convergence. The more companies use the same methods and employ standard process methodology (TQM, re-engineering, benchmarking, time-based competition, etc.), the more they look alike. The more companies outsource activities to efficient specialists -- often the same ones -- the more generic these activities become. Porter's conclusion: "Competition based on operational effectiveness alone is mutually destructive, leading to wars of attrition that can be arrested only by limiting competition."
Indeed, says Porter, whole industries are collapsing in waves of mergers and acquisitions. "Lacking strategic vision, company after company has no better idea than to buy up its rivals."
This knowledge comes too late for some. Too many firms have slashed costs to the point where they disappeared up their own balance sheets.
The Trudel Group was founded on the concept of business innovation. Our consulting work is custom. We help selected clients become different in ways that offer business advantage. We only work with selected clients who aspire to leadership, and only on engagements where we are convinced that we can add high value. Our proven methods, skills, and experience have helped leading firms develop or maintain sustainable advantage.
If you aspire to leadership and want to break out of the pack, it is likely that we can help you as well. If you have a specific need, let's talk. If you want to learn more about our methods and philosophy, an in-house workshop is a good way to start.
Sustained prosperity is possible! There are many existence proofs, from the Intels and Microsofts to a myriad of smaller firms you've probably not heard of. Why not prosper? Contact us now. OCI award Sound bite suggestion.
John D. Trudel, CMC
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