Michael Porter

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I. Operational Effectiveness Is Not Strategy
According to Porter, various management tools like total quality management, benchmarking, time-based competition, outsourcing, partnering, reengineering, that are used today, do enhance and dramatically improve the operational effectiveness of a company but fail to provide the company with sustainable profitability. Thus, the root cause of the problem seems to be failure of management to distinguish between operational effectiveness and strategy: Management tools have taken the place of strategy. Operational Effectiveness: Necessary but Not Sufficient Although both operational effectiveness and strategy are necessary for the superior performance of an organization, they operate in different ways. Operational Effectiveness (OE): Performing similar activities better than rivals perform them. OE includes but is not limited to efficiency. It refers to many practices that allow a company to better utilize its inputs. Strategy: Performing different activities from rivals’ or performing similar activities in different ways. Moreover, Porter states that a company can outperform rivals only if it can establish a difference it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. However, Porter argues that most companies today compete on the basis of operational effectiveness. This concept of OE competition is illustrated via the productivity frontier, depicted in the figure above. The productivity frontier is the sum of all existing best practices at any given time or the maximum value that a company can create at a given cost, using the best available technologies, skills, management techniques, and purchased inputs. Thus, when a company improves its operational effectiveness, it moves toward the frontier. The frontier is constantly shifting outward as new technologies and management approaches are developed and as new inputs become available. To keep up with the...
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