Most executives, rightly, regard strategy creation and achieving operational effectiveness as two very different animals. Strategy, they believe, is about how to create value for customers; operational effectiveness is about how to do so at the lowest cost. The two processes work in parallel, and most organizational structures, which group activities by function, reflect that belief.
However, many companies don’t realize that yoking strategy with operational effectiveness can lead to innovative business models. In fact, that’s how several disruptive business models have emerged. Of course, processes, people, organization, and assets must all be aligned so companies can deliver the customer value proposition efficiently.
Take the British restaurant chain Pret A Manger (French for ready-to-eat), which stocks an array of sandwiches, made daily with fresh ingredients, on shelves. Pret A Manger’s take, pay, and eat anywhere process is faster than the conventional order, pay, wait, take, sit, and eat sequence in other fast food chains such as McDonald’s. Most people eat their sandwiches outdoors or in their offices, so Pret A Manger outlets don’t offer much seating. The average store size is smaller than that of rivals and investments in real estate, furniture, and décor are relatively low. Thus, Pret A Manger integrates strategy and operational effectiveness into a cohesive value generating system.
Although many people didn’t notice, Nintendo took a similar route in the video game industry, where new technologies were making games complex; intimidating would-be players; and increasing R&D, manufacturing, and software development costs enormously. Nintendo decided to keep its R&D investments and manufacturing costs low by developing a new gaming console around an old processor and graphical interfaces. However, it used a motion-sensing technology to create a new kind of controller, which was novel and reduced the difficulty of playing games. As a result, Nintendo could introduce the Wii for $250 in the U.S. compared to the Sony Playstation PS3’s $599 price tag and the Microsoft Xbox 360’s $399. Instead of selling consoles at a loss and making money on games, Nintendo has been turning a profit on both.
In the 1990s, low-cost airlines such as Southwest Airlines in the U.S. didn’t offer peanuts to passengers on short-haul flights. They could afford to do so, but cost wasn’t their concern. They were more worried about aircraft turnaround times. Offering peanuts meant that the airline would have to clean cabins after each flight, which would take eight to 10 minutes; reduce the utilization of aircraft; and affect the return on capital employed. The No Peanuts Rule allowed the airline to deliver its value proposition effectively and to focus on the factors most important to its customers.
Companies usually apply operational tools to reduce costs or to increase output for a given strategy, but when strategy guides the choice of tools, the latter can provide customer benefits in an efficient way and generate higher margins. Do you ever worry that peanuts-like operational inefficiencies may be crippling your strategy?
Alessandro Di Fiore is the CEO of the European Centre for Strategic Innovation, based in Milan
