For the last couple of decades, businesses have been doing a lot to improve their internal operations. They’ve ticked off an impressive array of programs that have driven corporate productivity to ever higher levels.
Businesses have undertaken:
– quality programs to dramatically reduce waste, scrap and poor customer satisfaction
– low-cost country sourcing to reduce the landed cost of products
– shared services to eliminate intra-firm inefficiencies in areas like back office finance, accounting, IT and HR
In these efforts, businesses have become more operationally efficient. They need fewer workers to deliver the same amount of revenue (i.e., a measure governments use to determine productivity).
But, operational efficiency is an elusive target because as soon as your firm achieves a new level of high performance, a competitor will try to meet or beat your standard. Operational excellence is a never-ending goal. Smart firms are always looking for new methods, processes, technologies, etc. to give them an advantage. This quest for high performance is what keeps thought leaders (e.g., Tom Davenport) and consultancies like Accenture in great demand.
Lately, I’ve marveled at the financial numbers so many firms are posting on Wall Street these days. If you haven’t noticed, firms that are reporting lower revenues are still reporting pre-recession or better earnings. They are doing so because they are scrupulously managing headcount, discretionary spending and other drains on earnings. Most of these moves are working in the short-term while some (e.g., the elimination of R&D spending) will come back to haunt firms later…