— July 10, 2018
Did you ever wonder why some companies are able to build a track record of consistent, long-term growth, while others seem to simply tread water or, worse, lose business and eventually end up closing their doors?
The odds of becoming a successful business are enough to stop would-be entrepreneurs in their tracks. Statistically, it’s estimated that only 20% of new businesses survive past their first year of operation, while half of all businesses will no longer exist after five years. Only one-third make it past their 10th anniversary.
Perhaps surprisingly, the reasons for failure seem to have little to do with market fluctuations or economic downturns. In fact, findings from recent research conducted by the Harvard Business Review indicate that the real difference between long-term success and mediocrity or failure is operational excellence. According to the report, “Firms with strong managerial processes perform significantly better on high-level metrics such as productivity, profitability, growth, and longevity.”
Assuming these conclusions are correct, you have to ask yourself why any business wouldn’t focus on establishing strong managerial processes and demand operational excellence.
According to the Harvard Business Review’s research, many of the businesses that fail to establish strong processes and operational excellence have two major issues in common. First, many of these companies have a more optimistic view of their management processes than they should. As a result, they don’t perceive any problems with the status quo and continue conducting business in the same way that they always have. Second, some businesses overestimate the investment they will need to make in order to improve their processes, while simultaneously underestimating the return such an investment would deliver.
Businesses that are characterized by either managerial complacency or overestimation of operational performance (or both) inevitably face a shaky future – particularly in the face of competitors that recognize these issues and successfully prioritize operational excellence. More and more, companies now understand that effective process management is not simply a nice to have, but an essential investment if they are to achieve success and longevity.
So, what can a business do to improve its odds of not simply surviving, but becoming a long-term, high-performing industry leader?
First, it is important for a company to take the time for self-reflection. Challenge “given” beliefs with a bit of honesty. That means truthfully evaluating how teams across the organization perceive leadership’s commitment to operational excellence. Is there any evidence of the team’s support for this goal? What about other employees and customers: What do they think of how the company operates?
It is equally important to determine whether the company’s operational capability is dependent on certain key individuals, how effectively it has responded to market and competitive changes, and how (or even if) process changes are anticipated, implemented, and communicated. Finally, has there been a commitment to investing in operational excellence – i.e., in capabilities, tools, and incentives – for business teams?
The HBR research also clearly indicates that operational excellence begins at the top with the company’s CEO. Business leaders who focus on internal processes tend to run higher-performing enterprises than those who concentrate predominantly on external issues.
More businesses need to take the time to consider how best to invest in operational excellence, in addition to communicating the company’s commitment to operational excellence and their intention to “walk the talk”.
Organizations should also empower process owners to drive operational excellence within their scope of operations. They must be willing to invest in a process knowledge platform or other essential tools that will enable team members to participate in an ongoing process improvement conversation. Finally, they must provide a governance and communication structure that can sustain the effort, then be willing to make it an integral part of the company’s organizational culture.
By asking the right questions and taking these fundamental steps, businesses can put themselves in a significantly better position to improve their operational capabilities in order to sustain their competitive advantage over the long term. These companies will consistently be more agile than their competitors and more responsive to markets and customers.
By investing in managerial processes and focusing on making operational effectiveness a part of the company’s DNA, businesses will ultimately fuel productivity and growth, while improving their odds of organizational profitability and longevity.