Strategy and performance (i.e. operational effectiveness) are so intertwined it is hard to tell them apart. They are apples and oranges in the same bowl. Failing to properly distinguish them can, of itself, have unintended and painful consequences. Fortunately, answering a few questions can help tell them apart.
Defining the terms
Strategy is the conscious choice of activities that, executed in a particular manner, create a uniquely valuable and sustainable market advantage.
Operational Effectiveness is the ability to perform activities, better than rivals can, to derive a competitive advantage
What Strategy means
Determining strategy is a primary function of senior management – the ultimate responsibility of the CEO and the heads of business units. Strategic planning is the process of evaluating the landscape – internal and external – and then choosing the combination and arrangement of actions and tactics, the resources to support them, and the means for coordinating their implementation long-term.
What Operational Effectiveness means
Operational effectiveness is another primary function of management. It is both a process and an activity. Though a firm may perform thousands of activities, it is the performance of those particular activities that comprise a strategy that are critical to get right. An astutely chosen strategy employs activities that are either different from, or performed differently than, those of competitors. Performing activities better than rivals can is what confers competitive advantage.
Why getting the distinction right matters
In evaluating a situation, one of two conclusions must then be reached:
The activities themselves no longer provide the market advantage they once did; therefore, the activities (or their combination and arrangement) must be altered.
The choice, combination and arrangement of activities are fine; we are just not performing some – or all – of them as well as needed to be able to compete effectively.
If market advantage is lost (i.e. the firm’s strategy no longer works as well) then ratcheting up performance will, at best, coax out short-term improvements until competitors catch up. If the problem lies in lost competitive advantage, then altering what might be a sound strategy risks making the outcome worse, and harder to recover.
The questions to answer
In the past 12 – 18 months:
- What changes have we made to improve our market advantage? To what extent are these changes meeting our objectives?
- How have changes in the landscape altered our market advantage? How do we know, and how have we responded to these changes? How effective has our response been?
- What are we now doing better or worse, and how do we know?
- What is working? What is not working? How do we know?
The bottom line
Answering these questions – thoughtfully and thoroughly – inevitably points the compass needle towards strategy or performance as appropriate avenues of evaluation and treatment.