Mid-size firms see operational excellence as growth enabler

More than 50 percent of mid-sized companies have either already implemented a formal operational excellence strategy or are in the process of developing one, according to a global survey of 946 senior executives in operations, IT, finance, and sales and marketing completed in January 2008 by the Economist Intelligence Unit and sponsored by SAP. The most important element of operational excellence is end-to-end visibility across the value chain, ideally in real time, said the respondents.

Among companies that have already implemented an operational excellence strategy, most see it as a driver of growth, rather than simply a way of holding down costs or promoting efficiency. The most effective companies also use it to pursue market share aggressively during economic downturns when many of their competitors are focused on cost-cutting, according to the survey.

The study found that the more experience a company has with operational excellence, the greater the benefits. About 25 percent of companies with formal operational excellence strategies were able to reduce costs while simultaneously improving customer service, claimed executives who responded to the survey.

Few companies have achieved the ultimate goal of real-time end-to-end visibility across the entire value chain, but many have made substantial progress. Visibility into operations helps to give companies the agility needed to move rapidly to take advantage of growth opportunities.

Other key findings of the study include:

• Most mid-sized companies see growth as essential. More than half the respondents said their firms plan to grow organically, and more than 80 percent aim to grow both organically and through mergers and acquisitions. Another 8 percent plan to grow through M&A alone. Only 8 percent — which tended to be those with little interest in operational excellence — said they had no growth strategy.
• Operational excellence supports organic growth. Respondents said that operational excellence is a means of achieving two objectives that promote organic growth: anticipating emerging customer needs and identifying the core skills that underlie competitive advantage.
• Operational excellence supports acquisition-led growth. Respondents also said that operational excellence helps companies recognize gaps that can be filled by acquisitions and also provides the tools for more efficiently integrating acquired companies.
• Companies with operational excellence experience invest most heavily in IT. More than 30 percent of companies with a formal operational excellence strategy reported investing in four or more of the six IT categories listed in the survey. This compares with 20 percent of those with some operational experience and 10 percent of those with no experience.
• Companies are taking a broad horizontal approach to improving efficiency. More than 70 percent say they are improving efficiency by systematically evaluating and improving business processes at the functional level (HR, finance, operations and IT). The second-ranked approach (65 percent) is improving systems and processes to make employees more efficient, for example by providing role-based dashboards. More than half of respondents (53 percent) identify more effective alignment of skills with emerging business needs as an efficiency-improvement priority.

Sustained growth through operational excellence
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About the survey
The research is based on a global survey of 946 senior executives from mid-sized companies in various industries. It includes companies with annual revenues between $20 million and $500 million. The survey was conducted in November and December of 2007.

About the Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group, which publishes The Economist newspaper. The Economist Intelligence Unit provides geopolitical, economist and business analysis on more than 200 countries, as well as strategic intelligence on key industries and management practices. With more than 300 full-time professionals in 40 offices around the world, supported by a global network of more than 650 contributing analysts, the Economist Intelligence Unit is widely known for its unparalleled coverage of major and emerging markets. More information about the Economist Intelligence Unit can be found at www.eiu.com.