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Sustained growth through operational excellence (Economist Intelligence Unit)

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A survey by the Economist Intelligence Unit (EIU) showed that achieving operational excellence is on the agenda of IT executives worldwide. …

A survey by the Economist Intelligence Unit (EIU) showed that achieving operational excellence is on the agenda of IT executives worldwide.

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  • 1. Sustained growth through operational excellence An Economist Intelligence Unit report sponsored by SAP ®
  • 2. Sustained growth through operational excellence Preface Sustained growth through operational excellence is an Economist Intelligence Unit report sponsored by SAP. The Economist Intelligence Unit bears sole responsibility for this report. The Economist Intelligence Unit’s editorial team conducted the interviews and wrote the report. The findings and views expressed in this report do not necessarily reflect the views of the sponsor. Ken Waldie was the author of the report and Dan Armstrong was the editor. Richard Zoehrer was responsible for layout and design. Our thanks are due to all of the survey respondents and interviewees for their time and insights. February 2008 © The Economist Intelligence Unit Limited 2008 3
  • 3. Sustained growth through operational excellence The power of visibility O perational excellence is a simple concept with complex implications. Consistently doing things well across every element of the value chain is clear enough in principle. But it is a moving target: To maintain their competitive While operational transparency is a fundamental goal of operational excellence, the pay-off is much 6.25 broader. As the connections between strategic 12.5 objectives and day-to-day operations become more50 25 transparent, everyone in the organisation can see advantage, successful enterprises must constantly adapt to new situations. Traditional competitors Which of the following do you consider the most important component of operational excellence? consolidate just as unfamiliar ones arrive on the scene. Customers discover new needs as they come to Ability to have end-to-end visibility into financial performance, operational activities and customer relationships across all business units and geographies expect better quality and lower prices. New markets 45% emerge in a shrinking world. These dynamics do not Ability to add value for customers through the entire product lifecycle 40% alter the fundamentals of operational excellence. Ability to integrate quickly with external systems and partners to facilitate But they do force companies to be excellent at doing collaboration and exchange 13% different things. Other 1% Don’t know The more experience executives have 1% with operational excellence strategies, how his or her efforts contribute to the big picture. the more benefits they see And if visibility into operations can be translated into customised role-based dashboards, employ- ees can be motivated to innovate within their own space. Moreover, the demonstration of links between operational performance and strategy encourages Regardless of where a company focuses its opera- the building of collaborative solutions. tional excellence strategy, successful execution Transparency also benefits customers and exter- requires connecting long-term goals with short-term nal partners. Visibility into customer relationships management control. This means aligning and link- empowers the business to develop a deeper under- ing performance measures across the organisation standing of customer needs, and to rapidly perceive and beyond. Ideally, senior executives would be able and act on changing patterns of demand. Another to monitor financial performance, operational activi- key operational excellence benefit is the ability to ties and customer relationships in real time, from collaborate more easily with external partners and one end of the value chain to the other, across all systems (including regulators). business units and locations. In practice, operational excellence may serve as 4 © The Economist Intelligence Unit Limited 2008
  • 4. Sustained growth through operational excellence 7.5 15 a company’s principal strategy driver, encompass- ness units and geographies” was the top-ranked 60 ing other tools such as total quality management component of operational excellence. 30 and Six Sigma. Or it may be part of an even broader game plan. For example, Arjan Kaaks, CFO of the Dutch brewing company Grolsch, says that his com- Most important component of an operational strategy (by stage of development) pany includes various aspects of excellence in its End-to-end visibility business strategy and planning processes. “In par- 52% ticular” he says, “we use the balanced scorecard to 40% 45% ensure that we consider every aspect of excellence Customer value-added in our operations including both financial and non- 38% 40% financial elements. The balanced scorecard provides 44% the framework to implement operational excellence Rapid external integration 10% principles.” 13% 16% Regardless of how operational excellence is Implemented operational excellence strategy implemented, visibility into operations is its most Recognise operational excellence principles fundamental contribution to business results. In Developing operational excellence strategy a survey of 946 executives in mid-sized companies around the world conducted by the Economist Intelligence Unit, the “ability to have end-to-end visibility into financial performance, operational activities and customer relationships across all busi- What is operational excellence? In its simplest terms, operational excel- intimacy. Doing things well across the lence is simple enough, execution is another lence means consistently doing things well organisation is fundamental, but most suc- matter. A drive for efficiency is implicit, but across the value chain as a way of gain- cessful companies do one thing exceedingly this must be achieved in a coordinated way ing competitive advantage. In its broadest well and identifying and reinforcing core by building links across the organisation so terms, it is a discipline that drives corporate competitive strengths is part of operational that all functions share a harmonised set strategy. In their book The Discipline of excellence. of performance metrics. The ultimate goal Market Leadership, Michael Treacy and Fred The definition in this paper has three is a “single source of truth” where senior Wiersema suggest that operational excel- elements: executives have shared visibility into all lence is one of three “value disciplines” that l superior performance and visibility parts of the organisation, enabling manage- a successful organisation must choose from across the value chain ment by facts. The ideal result is a high-level as its underlying operational model. l value-added delivered to customers dashboard for senior executives with the In practice, operational excellence is a l effective integration with external ability to drill down into different business means to achieving the other value disci- partners. functions, including operations, finance, IT, plines: product leadership and customer While the concept of operational excel- and sales and marketing. n © The Economist Intelligence Unit Limited 2008 5
  • 5. Sustained growth through operational excellence Experience matters O perational excellence strategies are delivering competitive advantage for a growing number of mid-sized companies around the world. Nearly 90% of survey respondents say their companies recognise operational excellence as This is not to suggest that experience with opera- tional excellence diverts focus from customer value. On the contrary, it indicates that within an estab- lished operational excellence strategy, customer value is likely to be addressed by improving visibility a strategy and planning tool. More than half say they into customer relationships, as part of a broad and have implemented a formal operational excellence systematic effort to achieve excellence across the strategy or are in the process of developing one. entire value chain. Another third say they have integrated the principles The more experience executives have with opera- of operational excellence into other strategy and tional excellence strategies, the more benefits they planning instruments. see. Over three-quarters of survey respondents These different levels of experience with opera- with operational excellence experience cited lower tional excellence shape executive opinions about its costs or improved efficiency as among the top three most important components and benefits. The more benefits, and half of them cited increased revenues. operational excellence experience they have, the About 22% of companies with formal operational more likely respondents are to rate end-to-end vis- excellence strategies had both reduced costs and ibility as its most important element. Respondents improved customer service, compared with 20% of with less experience tend to give the top ranking to companies that had recognised operational excel- the ability to add value for customers. lence principles and only 16% of those still the proc- ess of developing an operational excellence strategy. Agility is another important operational excel- About the survey lence benefit. About one-third of respondents Between November 2007 and January 2008, the Economist Intel- with operational excellence experience said that ligence Unit conducted a large survey of operational, financial, their companies were able to respond faster to cus- sales and marketing, and IT executives throughout the world. The tomer demands, competitor actions or both. Other survey yielded 946 responses from senior executives of mid-sized agility-related benefits included improved customer companies with annual global revenues between $20 million insights to facilitate development of new products and $500 million, with 81% over $50 million. (Sub -$50 million and services and improved ability to expand into new companies were permitted in some countries where smaller firm markets. sizes are the norm.) Nearly one-third of respondents were based in Asia-Pacific, followed by about 28% in Western Europe and 26% in North America. The rest were situated in the Middle East/Africa, Eastern Europe and Latin America. 6 © The Economist Intelligence Unit Limited 2008
  • 6. Sustained growth through operational excellence The challenge of execution E very executive wants his or her com- pany to do things well. Systematically achieving this in every corner of the organisation is another matter, and few executives claim to have Senior executives generally agree that they are aiming for real-time end-to-end visibility into operations across the entire reached this goal. Responses to the EIU 2007 opera- tional excellence survey and in-depth interviews value chain. But this is rarely achieved. with business leaders provided insights about the tools companies are using to implement operational excellence strategies. needs and satisfaction of the client is much more Visibility in the real world difficult. “We can’t be surveying our patients and Senior executives generally agree that they are aim- our residents every day,” MacLellan points out, add- ing for real-time end-to-end visibility into opera- ing that “also, for those metrics to be credible, they tions across the entire value chain. But this is often need to be third-party sourced.” While this makes infeasible and is rarely achieved. Innovations like real-time end-to-end visibility impractical, it doesn’t 7.5 RFID chips and wireless technology would appear to stop Morrison from keeping a sharp focus on the cus- 15 make real-time product tracking and record entry tomer experience. “We visit our patients every day,60 30 effortless. However, it is often difficult to extend the reach of corporate IT systems to end users, especially where personalised services are involved. While this Has your company invested in the following technologies to achieve its operational excellence goals? (Select all that apply) limits the scope of real-time performance monitor- % adopting % rating most important ing, it does not preclude it. Integrated ERP systems (Finance & HR) 52% Morrison Healthcare Food Services, for example, 34% provides meals to thousands of hospital patients Inventory management systems 44% and residents of seniors’ homes across the US every 11% day, and it also operates retail dining facilities in Customer Relationship Management (CRM) systems 43% many of those institutions. CEO Scott MacLellan 20% says the first step in the journey towards real-time Business intelligence or analytics systems 39% visibility was to standardise point-of-sale systems. 18% “That is giving us literally real time information,” Production planning systems 33% he says. “We’re seeing what’s selling, what it’s sell- 9% ing for, what’s not selling, and so on. We can spot Demand planning systems 26% trends as they happen.” 5% But he goes on to say that understanding the © The Economist Intelligence Unit Limited 2008 7
  • 7. Sustained growth through operational excellence and in that respect we’re getting real time informa- investing in four or more of them, compared with tion,” MacLellan says. “Every single person in our 20% of those with some operational excellence 10 company, me included, is required to visit patients or experience and less than 10% of those with no oper- 20 residents when they go into one of our units. So I will ational excellence experience. 80 40 go up and say, ‘how’s your food? Is there anything Moreover, substantial majorities said that their we can get you?’ And we get immediate feedback: ‘it was great; it was not great; I need this; I need that’. What is your company doing to improve efficiency? (Select all that apply) And we’ll fix that on the spot.” % adopting % rating most important Evaluating and improving overall business processes Companies with a formal operational (HR, Finance, Operations and IT) 32% 71% excellence strategy are the heaviest Improving internal systems/processes so that employees can be more efficient in their daily activities investors in all of these technologies. 18% 65% More effective alignment of people skills with emerging business needs 53% 14% Transforming raw data into useful information 48% 10% The survey revealed that companies are advancing Improving systems to make it easier for customers to work with us the quest for visibility into operations by investing 44% 4% in a variety of information technologies. At the top Improving agility to adapt to business cycles, shifting customer demand of the list is integrated enterprise resource planning and the actions of competitors 43% (ERP) systems. More than half of respondents said 13% Improving systems to make it easier for external partners to work with us their companies had invested in this technology, and 35% one-third rated it as most important. 4% Other companies have focused on smaller-scale systems that provide visibility into segments of the top-priority technology had been successful or very value chain or that provide integrated business successful in promoting revenue growth, wider mar- analytics. The most important investments are those gins, improved customer satisfaction and greater designed to increase visibility into customer rela- customer retention. Success in new product develop- tionships. Although slightly more companies have ment was not as robust, with a majority reporting invested in inventory management systems than in success only for investments in demand planning customer relationship management (CRM) systems, systems. the latter was rated as most important by nearly More than 75% of respondents who reported twice as many respondents. More than one-quarter demand planning, production planning and business of respondents’ companies have also invested in pro- intelligence or analytic systems as their most impor- duction planning and demand planning systems. tant investment said the investment had promoted Companies with a formal operational excellence revenue growth. CRM was the most effective in strategy are the heaviest investors in all of these promoting consumer satisfaction and in increasing technologies. More than 30% of companies with customer retention, while inventory management a formal operational excellence strategy reported systems were rated best for increasing margins. 8 © The Economist Intelligence Unit Limited 2008
  • 8. Sustained growth through operational excellence The drive for efficiency on page 10. This compares with about one-quarter of Companies with a formal operational excellence firms with some operational excellence experience strategy are distinguished by their broad-based and only 8% of companies with no experience. approaches to efficiency improvements. Of course, By far, the top-ranked approach is to carry out firms that fail to adopt an operational excellence systematic efficiency evaluations and improvements strategy want to improve efficiency as well. But they at the business process level, encompassing func- tend to take less systematic approach. More than tions such as finance, IT, operations and marketing/ 40% of survey respondents whose companies had sales. More than two thirds of respondents said that formal operational excellence strategies reported all seven efficiency-improving strategies had proved that they had adopted at least five of the seven successful. efficiency-improving strategies shown in the chart Economic downturns as an opportunity C ompanies with formal operational excellence strategies are more likely than other businesses to confront economic slow- downs with by simultaneously controlling costs and gaining market share. Operational excellence helps where a majority reported innovating to create new products or services during downturns. The degree of experience with operational excel- lence also correlates strongly with the probability that a company includes five or more of the seven them build the agility that is crucial for success in strategies shown in the chart on page 10 in its game both areas. But in practice operational excellence plan for managing periods of slow economic growth. tends to be more powerful for leveraging strengths This broadly-based approach also applies to cost than for controlling costs. Companies that recognise reduction. More than three-quarters of respondents this are often able to seize market share from com- from companies with formal operational excellence petitors who are pre-occupied with cost-cutting dur- strategies reported that their downturn management ing periods of slow growth. plans included overall aggressive cost control, and Respondents who said their firms are pursuing a 38% said this included reducing staff while retaining formal operational excellence strategy were more core competencies. Companies with no operational likely than others to report downturn strategies that excellence experience, on the other hand, were included increasing customer share of wallet and almost as likely to say they would reduce staff (35% aggressive pursuit of market share from competitors. of those respondents), while they were significantly Moreover, companies that had or were developing an less likely to engage in aggressive cost control (just operational excellence strategy were the only groups 54% of those respondents). © The Economist Intelligence Unit Limited 2008 9
  • 9. Sustained growth through operational excellence 10 20 80 40 What strategies has your company established to maintain Respondents were asked to rate the success of profitability during periods of slow economic growth? (Select all that apply) their most important strategy for managing eco- % adopting % rating most important nomic downturns. Overall, initiatives that leverage Overall aggressive cost control competitive advantage are considered more effective 68% 36% than those focused on cost control. Aggressive pur- Innovating to create new products or services 46% suit of market share from competitors received the 18% highest overall success ranking (91%) for increasing Expanding into different market areas 40% revenue. Close behind was innovating to create new 14% products or services, which outperformed all of the Aggressive pursuit of market share from competitors 36% other strategies for successfully widening margins 9% (74%), increasing product launches (84%) and Reducing staff while retaining core competencies 34% improving customer satisfaction (75%). 6% Cost-focused strategies were much less success- Increasing customer share of wallet, up-/cross selling to existing customers 33% ful. Overall aggressive cost control was rated highly 10% (72%) only for increasing margins, which was also Implementing scalable production processes 32% the only category where a bare majority reported 7% success from cutting staff. The growth imperative O perational excellence has tra- ditionally been associated most strongly with efficiency and competitive advantage. Increasingly, however, agility and visibility into operations have also been recognised as drivers of Another 8% planned to grow through M&A alone. Another 8% —a minority which tended to have little interest in operational excellence—said that growth was not a priority for their company. Senior executives with operational excellence expe- sustained growth. In particular, end-to-end visibility rience strongly agree that it can support both organic is a critical tool for recognising core competitive and acquisition-led growth. The obstacles to growth— strengths and aligning all business functions to as well as the solutions provided by an operational strengthen them. excellence strategy—differ depending on whether the The survey shows clearly that mid-sized compa- growth is organic or comes from acquisitions. nies see growth as imperative. More than half of respondents said their firms planned to grow organi- Organic growth cally, and more than 29% planned to grow both Companies pursuing organic growth say the most organically and through mergers and acquisitions. important obstacle is the inability to move suffi- 10 © The Economist Intelligence Unit Limited 2008
  • 10. Sustained growth through operational excellence ciently quickly to exploit market opportunities and sitions into existing operations is seen the biggest to challenge competitors. Many see operational obstacle. Key solutions are identifying gaps that can excellence as an effective strategy for overcoming be filled by acquisitions and more efficient processes this challenge, because it provides the visibility of integrating acquired companies, both of which into operations needed to become more agile. In can be achieved through operational excellence particular, operational excellence supports the two strategies. most important organic growth strategies named by “If you’re looking at organic growth, you’re working off of a plat- form,” says Marsulex Function Corporate Focus Departmental Focus CEO Laurie Tugman. Operations Improving visibility into customer Increasing operational flexibility “You’ve established demand, including what, where and agility a standard within the and why company, and you’re levering off of that. IT Supporting other functions Enhancing end user support and overall business You can sometimes do that with acquisitions, Finance Better integration of financial Tighter control of financial assets, especially if they’re planning with all departmental liabilities and cash flow and control systems ‘tuck ins’,” he adds, “but in the end you’re Marketing Enhancing CRM systems Stronger collaboration with acquiring a group of and Sales customers and partners employees with a dif- ferent culture.” He respondents: anticipating customer needs as they goes on to say that while there’s no question that an emerge and identifying core people assets that con- operational excellence strategy will help in this set- tribute to competitive advantage. ting, it is more difficult than organic growth: “You’ve Senior executives stress that keeping existing still got to make sure that the people understand and customers satisfied can also be a growth driver. Scott believe why it is that we’re going to approach things MacLellan, CEO of Morrison Healthcare Food Services differently and with an operational excellence point sees this in terms of differentiation: “Operational of view.” excellence helps us to differentiate ourselves from our competition. We need to make our existing clients Aligning business functions to support growth thrilled with us, to the point where we have a refer- Different functions drive growth in different ways. ence list that can’t be matched in the industry. We can Each brings its own expertise to bear in a shared also refer happy customers to associated companies effort that spans every part of the business. How for some of their other needs. As a result, operational they do so is the subject of a series of forthcom- excellence becomes a primary driver of growth.” ing short papers focussed on four functional areas: operations, IT, finance, and marketing and sales. The Growth through acquisitions most common actions they take to support growth When it comes to growing through mergers and are briefly summarised in an accompanying table. acquisitions, an inability to quickly integrate acqui- © The Economist Intelligence Unit Limited 2008 11
  • 11. Sustained growth through operational excellence Good is the enemy of great I mplementing an effective operational excellence strategy requires strong senior management support combined with the right resources and tools at every level. Few companies claim to have achieved complete success. Real-time The single most important obstacle is the lack of people skills in critical operational roles and across the enterprise. While many companies have succeeded in establishing operational excellence as a guiding force in parts of their organisations, close end-to-end visibility across the value chain is widely to one-third of survey respondents cited inadequate seen as the ultimate goal. Yet most respondents say linkages among internal departmental systems as a this goal remains elusive. principal hurdle. 12.5 Operational excellence and shareholder value 25 100 50 Does the pursuit of operational excel- return on equity and divided into quartiles. For companies in the middle quartiles lence improve financial performance? Both Then the companies in each quartile were in terms of equity returns, and who fall be- interviewees and survey respondents associ- grouped by their progress in implementing tween the two extremes of embracing and ated operational improvements with a range operational excellence strategies. ignoring operational excellence, the picture of financial benefits, from wider operating The results, while not One-year total equity return and operational excellence progress margins to faster revenue growth. But a definitive, suggest that there better test may be what investors think: is a link between operational First quartile 36% 26% 36% 2% As independent third parties putting their excellence and stock price Second quartile 24% 29% 37% 10% money on the line, equity investors have a returns, at least in the short Third quartile big incentive to scrutinize companies care- term. The companies with the 24% 37% 29% 10% Fourth quartile fully in order to pick those that will yield highest stock price returns— 22% 38% 31% 9% higher-than-average returns. those in the first quartile— Key Have implemented In the process of developing To find out whether a focus on op- are also most likely to have Recognise the concept Do not make use of the concept erational excellence leads investors to implemented an operational evaluate firms more favorably, we looked at excellence program. About 36% of the first is less clear. Perhaps equity investors are the one-year total return on equity among quartile companies have already implement- only willing to invest in companies that have public companies in the survey. Because ed an operational excellence strategy, versus already implemented a program, rather than the survey focused on small- to medium- 24% of second and third quartile companies simply expressing their intent to do so. If so, sized firms—no companies with more and only 22% of fourth quartile firms. Mean- companies in the process of developing an than US$500m in revenues were accepted while, only 2% of first quartile companies operational excellence program may offer —most were privately held. The 170 public say that they do not recognise the concept, investors an opportunity to buy before the companies in the sample were ranked by versus 9% of fourth-quartile firms. market recognises their value. n 12 © The Economist Intelligence Unit Limited 2008
  • 12. Sustained growth through operational excellence Corporate culture also plays an important role. the enemy of great. We have done a very good job Marsulex CEO Laurie Tugman puts it this way: “It’s for a long time. So to get people to go from what has always easier to strive for operational excellence already been successful to challenge and in some when people can see the immediate benefit and cases to completely deconstruct and rebuild some of need—because the customer values it or it’s our standards and our systems has been difficult for essential to getting the next contract.” It’s more all of us. Because if you’ve got a formula that works, difficult, he says, in situations where “you’ve got an it’s hard to break it and rebuild it. That cultural operation that has been moving along and by their success has been the obstacle of getting ourselves to definition they’ve been successful, but they aren’t the next level.” necessarily excellent in their operations.” Those people, he says, are inclined to ask “’why do we need to become world class’, and I think resistance to change is often the biggest factor.” Morrison CEO Scott MacLellan agrees: “Good is Conclusion: Putting operational excellence in action E mbarking on an operational excellence strategy should not be undertaken lightly. As with most fundamental, organisation-wide initiatives, success requires planning, commitment, to become truly outstanding and build market-dis- rupting strengths. l How can barriers to execution be overcome? measurement and continuous follow-up. The key Execution requires the systematic function-by-func- questions to ask are: tion assessment of visibility, efficiency, competitive strengths, and the contribution of every corporate l Do we really need to be great? An operational component towards creating customer value. There excellence strategy begins with a commitment to must be a relentless effort to link strategic objectives excellence and continuous improvement across the with day-to-day operational decisions. organisation. This thinking must be embedded in the corporate culture. In many cases this requires break- l How should results be measured? Above all, ing with past thinking—especially if performance is operational excellence must be focussed on achieving already good. measurable results. This means harmonising perform- ance metrics across the organisation, and integrating l What do we need to excel at doing? Vision from operational excellence with other business strategy the top is required to identify areas of core competi- and planning instruments either as an umbrella strat- tive strength where the organisation has the potential egy or a component of a broader game plan. © The Economist Intelligence Unit Limited 2008 13
  • 13. Appendix: survey results Sustained growth through operational excellence Appendix: Survey results 1.25 2.5 Between November 2007 and January 2008, the Economist Intelligence Unit conducted a global online survey10 of 946 senior executives from various industries. Please note that not all answers 5 up to 100% because of add rounding or because respondents were able to provide multiple answers to some questions. In which region are you personally based? What is your primary industry? Financial services 10% Asia-Pacific 32% IT and technology 8% Europe 31% Transportation and travel 6% North America 26% Construction, engineering, operations 6% Consumer products (non-durables) Middle East and Africa 8% 5% Consumer products (durables) 5% Latin America 3% Energy (oil and gas) 4% Automotive 4% Logistics service providers 4% Government/public sector What is your title? 4% Pharmaceuticals 4% Board/C-level 30% Wholesale distribution 4% Apparel and footwear SVP/VP/director 14% 4% Industrial machinery and components Manager 35% 4% Mill products (including fabricated metals, packaging, paper) 4% Head of business unit 7% Retail 3% Department head 10% Chemicals 3% Other 4% Manufacturing 3% Professional services 3% Other 3% Healthcare 3% Education 2% Entertainment, media and publishing 2% Telecoms 2% Agriculture and agribusiness 1% Energy/natural resources (non-oil and gas) 1% 14 © The Economist Intelligence Unit Limited 2008
  • 14. Appendix: survey results Sustained growth through operational excellence 1. What is your principal functional role in your organisation? 2. What are your company's annual global revenues in US dollars? Finance 34% US$20m to US$50m 19% Marketing and sales 24% US$50m to US$100m 30% Operations 23% US$100m to US$250m 34% Information technology 19% US$250m to US$500m 17% 3. Which of the following statements best describes your 4. Which of the following do you consider the most important company’s approach to operational excellence? component of operational excellence? We have implemented a formal The ability to have end-to-end operational excellence strategy 26% visibility into financial performance, operational activities and customer We are in the process of developing relationships across all business a formal operational excellence units and geographies 45% strategy 30% The ability to add value for We recognise the concept of customers through the entire operational excellence in our product lifecycle 40% strategy or planning, but do not have a formal operational The ability to integrate quickly excellence strategy 34% with external systems and partners to facilitate collaboration and We do not include operational exchange 13% excellence in our strategy or planning 9% Don’t know/not applicable 1% Don’t know 1% Other 1% © The Economist Intelligence Unit Limited 2008 15
  • 15. Appendix: survey results Sustained growth through operational excellence 7.5 15 60 30 5. Which of the following statements best describes your 6. How does your company plan to grow during the next company’s view of the perceived benefits of operational two to three years? excellence? (Select up to three) Organically (by entering new markets, Greater efficiency by increasing capacity, by acquiring 54% new customers or by selling more to Reduced operating costs existing customers) 53% 54% Both organic growth Increased revenues and M&A 29% 50% Improved customer service Through mergers 41% and acquisitions 8% Faster responses to changing demand 27% Growth is not a priority for our company 8% Improved customer insights to facilitate development of new products and services Don’t know 2% 14% Improved ability to expand into new markets 6+ 12% 12.5 Improved regulatory compliance 50 12% 25 Faster responses to the actions of competitors 7.5 8% Other 15 1% 60 8. What are the biggest obstacles to your company’s ability to 30 grow organically, in your view? (Select up to two) Inability to move quickly enough to exploit market opportunities and challenge competitors 7. What are the biggest obstacles to your company in achieving 44% operational excellence, in your view? (Select up to three) Time-to-market delays in launching new products and services 28% Lack of essential people skills in critical operational areas Lack of scalability of operational systems 51% 26% Lack of end-to-end real-time visibility into operational processes Difficulty in integrating and/or expanding legacy systems for senior management 26% 35% Lack of capacity for product-line growth and expansion into new Inadequate linkages among internal departmental systems geographical areas 29% 26% More complexity in products, manufacturing and/or service operations Other 28% 9% Inadequate integration/collaboration with external partners Don’t know 26% 2% Shortened product life cycle and time-to-market delays in launching new products or brands 22% Increased geographical dispersion of internal operations 17% Delays and/or inability in carrying out financial analysis to support new investments 15% Other 5% Don’t know 2% 16 © The Economist Intelligence Unit Limited 2008
  • 16. Appendix: survey results Sustained growth through operational excellence 7.5 5 15 10 60 40 30 20 9. How is your company enabling future organic growth? 10. What are the biggest obstacles to your company’s ability (Select all that apply) to grow through acquisitions, in your view? (Select up to two) Anticipating customer needs as they emerge Inability to quickly integrate acquisitions into existing operations 59% 40% Identifying core people assets that contribute to competitive advantage Inability to obtain sufficient value from acquisitions after they are assimilated 58% 31% Adding functionality to existing systems to support growth Inability to manage acquisitions in unfamiliar business lines or geographical areas 54% 31% Supporting idea development to identify, assess and execute Inability to identify and assess acquisition opportunities before competitors opportunities for innovation 29% 44% Other Providing integrated, single-view data reporting for management 9% 10 decision making Don’t know 37% 5% 20 Focusing on faster time-to-market when launching new products 80 33% 40 Providing individual employees with role-based information that allows them to continuously innovate within their own space 32% Questions for IT respondents only Other 7.5 What is your IT department doing to support your organisation's 3% strategy for growth? (Select all that apply) 15 Don’t know 1% 60 Refining systems to align more closely with business needs 30 73% Enhancing end user support 59% Expanding existing systems 11. How is your company enabling future growth through 58% acquisitions? (Select all that apply) Reducing total cost of ownership of technology 50% Identifying gaps in product/service offerings that can be filled by acquisitions Devising faster and more efficient deployment processes 58% 46% More efficient processes for integration of systems of acquired companies Improving IT training systems 48% 41% More efficient processes for due diligence of proposed acquisitions Designing role-based interfaces to improve user efficiency and 46% to control data access Implementing systems easily adapted to different currencies, regulatory 33% regimes or business models Building in flexibility for future integration of legacy systems and systems 26% of acquired companies and partners Other 32% 4% Building new scalable systems from the ground up Don’t know 29% 5% Other 2% © The Economist Intelligence Unit Limited 2008 17
  • 17. Appendix: survey results Sustained growth through operational excellence 12.5 5 25 10 100 40 50 20 Key Questions for IT respondents only In the previous question, you checked the following actions Questions for IT respondents only Very successful your organisation is taking to ensure that its IT systems can What was the effect of Successful support its growth strategy. Which one of the actions you your first-ranked choice from Neither successful nor unsuccessful chose is the most important? the previous question in the following areas? Unsuccessful Very unsuccessful Refining systems to align more closely with business needs 41% Don’t know Devising faster and more efficient deployment processes Promoting growth in revenues 10% 13% 55% 27% 3% 3% Enhancing end user support Promoting growth in margins 10% 7% 51% 35% 3% 3% Expanding existing systems Increasing launches of new products and services 10% 10% 40% 39% 6% 2 4% Reducing total cost of ownership of technology Promoting high customer satisfaction 7% 18% 58% 21% 3% 1 Building in flexibility for future integration of legacy systems and systems of acquired companies and partners 6% Building new scalable systems from the ground up 5% Improving IT training systems 5% Designing role-based interfaces to improve user efficiency and to control data access 7.5 3% 10 Other 15 20 2% 60 80 30 40 Questions for sales and marketing respondents only Questions for sales and marketing respondents only How are your marketing and sales departments aligning to What is your company doing to ensure that your marketing and support the organisation’s strategy for growth? (Select up to two) sales systems can support your organisation’s growth strategy? (Select all that apply) Faster responses to evolving customer needs 42% Enhancing Customer Relationship Management systems 66% Stronger collaboration with customers and partners 37% Improving tracking and analysis of customer purchase patterns 45% More effective integration of sales, production and delivery systems 34% Enabling remote access to customer information for sales teams 36% Improved visibility into market demand and customer behaviors 33% Expanding data sharing with customers and logistics providers 33% Better customer care 24% Streamlining order tracking systems 32% Higher service standards 16% Improving visibility into order fulfillment processes 31% Other 2% Increasing billing accuracy 26% Other 4% Don’t know 1% 18 © The Economist Intelligence Unit Limited 2008
  • 18. Appendix: survey results Sustained growth through operational excellence 10 12.5 20 25 80 100 40 50 Questions for sales and marketing Key Questions for finance respondents only respondents only How is your finance department aligning to support the Very successful What was the effect of organisation’s strategy for growth? (Select all that apply) Successful your first-ranked choice from the previous question in the Neither successful nor unsuccessful Tighter control of financial assets, liabilities and cash flow following areas? Unsuccessful 71% Very unsuccessful Faster, more relevant and more accurate financial reporting Don’t know 69% Promoting growth in revenues Improved due diligence to support mergers and acquisitions 18% 55% 21% 3% 3% 15% Promoting growth in margins Improved ability to handle (international) financial transactions 9% 46% 35% 4% 5% 13% Increasing launches of new products and services Improved ability to integrate foreign regulatory regimes 13% 44% 34% 4% 5% 11% Promoting high customer satisfaction Other 27% 52% 17% 2 2 8% Not applicable/don’t know 2% 10 6.25 20 80 12.5 40 50 25 Questions for finance respondents only Questions for finance respondents only What is your company doing to ensure that your financial In the previous question, you checked the following actions systems can support your organisation’s growth strategy? your organisation is taking to ensure that its financial systems (Select all that apply) can support its growth strategy. Which one of the actions you chose is the most important? Better integration of financial planning to departmental and control systems 77% Better integration of financial planning to departmental and control systems 43% Improved transactional efficiency, visibility and security 71% Improved transactional efficiency, visibility and security More timely and accurate customer billing to reduce delayed receivables 28% 49% More timely and accurate customer billing to reduce delayed receivables 13% More reliable systems for ensuring compliance and avoiding penalties 42% More reliable systems for ensuring compliance and avoiding penalties More appropriate levels of granularity in financial data 5% 40% More appropriate levels of granularity in financial data 5% Improved access to financial information about acquisition targets 30% Improved access to financial information about acquisition targets 5% Other 3% Other 1% Not applicable/don’t know 1% © The Economist Intelligence Unit Limited 2008 19
  • 19. Appendix: survey results Sustained growth through operational excellence 6.25 12.5 12.5 25 50 100 25 50 Questions for finance Key Questions for operations respondents only respondents only Very successful How is your operational function aligning to support the What was the effect of organisation’s strategy for growth? (Select up to two) Successful your first-ranked choice from the previous question in the Neither successful nor unsuccessful Improving management visibility into operational functions following areas? Unsuccessful 40% Very unsuccessful Don’t know Increasing operational flexibility and agility 35% Promoting growth in revenues 18% 57% 22% 2 1 Creating organisational efficiencies to meet customer demand 29% Promoting growth in margins 16% 57% 22% 4% 1 Integrating processes across the value chain 28% Increasing launches of new products and services 7% 34% 46% 5% 1 7% Planning for additional operational resources to meet customer demand 26% Promoting high customer satisfaction 15% 48% 31% 3%3% Building new systems with scalability in mind 20% Ensuring that growth strategy is supported throughout all company entities 10% 7.5 Other 15 1%5 60 10 30 40 20 Questions for operations respondents only Questions for operations respondents only What is your company doing to ensure that your operational In the previous question, you checked the following actions systems can support your organisation’s growth strategy? your organisation is taking to ensure that its operational (Select all that apply) systems can support its growth strategy. Which one of the actions you chose is the most important? Integrating processes in sales, marketing, manufacturing, product development, customer service and other functional areas Integrating processes in sales, marketing, manufacturing, 61% product development, customer service and other functional areas Establishing end-to-end visibility of processes throughout the organisation 39% 52% Establishing end-to-end visibility of processes throughout the organisation Improving visibility into customer demand, including what, where and why 26% 49% Improving visibility into customer demand, including what, where and why Improving visibility into the supply chain, including suppliers and partners 24% 12.5 35% Improving visibility into the supply chain, including suppliers and partners 25 Other 11% 2% 100 50 Not applicable/don’t know 1% Questions for operations Key respondents only Very successful What was the effect of Successful your first-ranked choice from the previous question in the Neither successful nor unsuccessful following areas? Unsuccessful Very unsuccessful Don’t know Promoting growth in revenues 20% 58% 20% 2 1 Promoting growth in margins 12% 49% 35% 3% 1 Increasing launches of new products and services 13% 45% 34% 5% 1 3% Promoting high customer satisfaction 19% 55% 21% 3% 1 2 20 © The Economist Intelligence Unit Limited 2008
  • 20. Appendix: survey results Sustained growth through operational excellence 7.5 10 15 20 60 80 30 40 15. What is your company doing to improve efficiency? 15a. In the previous question, you checked the following actions (Select all that apply) your organisation is taking to improve its efficiency. Which one of the actions you chose is the most important? Evaluating and improving overall business processes (HR, Finance, Evaluating and improving overall business processes (HR, Finance, Operations and IT) 71% Operations and IT) 32% Improving internal systems/processes so our employees can be more Improving internal systems/processes so your employees can be efficient in their daily activities 65% more efficient in their daily activities 18% More effective alignment of people skills with emerging business needs 26% More effective alignment of people skills with emerging business needs 14% Transforming raw data into useful information 4% Improving agility to adapt to business cycles, shifting customer demand and the actions of competitors Improving systems to make it easier for customers to work with us 13% 5% Transforming raw data into useful information Improving agility to adapt to business cycles, shifting customer demand 10% and the actions of competitors 5% Improving systems to make it easier for customers to work with you 8% Improving systems to make it easier for external partners to work with us 5% Improving systems to make it easier for external partners to work with you 4% Other 5% Other 12.5 1% Don’t know 5% 25 100 50 Key Very successful 16. What was the effect of your first-ranked choice from Successful the previous question in the Neither successful nor unsuccessful following areas? Unsuccessful Very unsuccessful Don’t know Promoting growth in revenues 19% 53% 24% 1 3% Promoting growth in margins 13% 53% 28% 3% 1 3% Increasing launches of new products and services 12% 44% 35% 5% 1 3% Promoting high customer satisfaction 18% 55% 22% 2 2 © The Economist Intelligence Unit Limited 2008 21
  • 21. Appendix: survey results Sustained growth through operational excellence 10 10 20 20 80 80 40 40 17. What strategies has your company established to maintain 17a. In the previous question, you checked the following profitability during periods of slow economic growth? strategies your company established to maintain profitability (Select all that apply) during periods of slow economic growth. Which one of the strategies you chose is the most important? Overall aggressive cost control 68% Overall aggressive cost control 36% Innovating to create new products or services 46% Innovating to create new products or services 18% Expanding into different market areas 40% Expanding into different market areas 14% Aggressive pursuit of market share from competitors 36% Aggressive pursuit of market share from competitors 9% Reducing staff while retaining core competencies 34% Reducing staff while retaining core competencies 6% Increasing customer share of wallet, up-selling/cross-selling to existing customers Increasing customer share of wallet, up-selling/cross-selling 33% to existing customers 10% Implementing scalable production processes 32% Implementing scalable production processes 7% Other 2% Other 12.5 1% Don’t know 25 3% 100 50 Key Very successful 18. What was the effect of your first-ranked choice from Successful the previous question in the Neither successful nor unsuccessful following areas? Unsuccessful Very unsuccessful Don’t know Promoting growth in revenues 20% 49% 24% 4% 1 1 Promoting growth in margins 17% 49% 26% 5% 1 2 Increasing launches of new products and services 13% 35% 41% 7% 1 3% Promoting high customer satisfaction 13% 43% 38% 5% 1 2 22 © The Economist Intelligence Unit Limited 2008
  • 22. Appendix: survey results Sustained growth through operational excellence 7.5 15 7.5 60 15 30 60 30 19. Has your company invested in the following technologies to 19a. In the previous question, you checked the following achieve its operational excellence goals? (Select all that apply) technologies in which your company has invested to achieve its operational excellence goals. Which one of the technologies Integrated ERP system (Finance & HR) you chose is the most important? 52% Integrated ERP system (Finance & HR) Inventory management systems 34% 44% Customer relationship management (CRM) system Customer relationship management (CRM) system 20% 43% Business intelligence or analytics systems Business intelligence or analytics systems 18% 39% Inventory management systems Production planning systems 11% 33% Production planning systems Demandplanning systems 9% 26% Demand planning systems Other 12.5 5% 4% 25 Other Don’t know 100 3% 9% 50 5% Key Very successful 5% 21. Does your company have initiatives underway to improve 20. What was the effect of 5% your first-ranked choice from Successful efficiency and drive down costs in your functional area? 5% the previous question in the Neither successful nor unsuccessful following areas? Unsuccessful Yes, we have initiatives underway Very unsuccessful to improve efficiency and drive Don’t know down costs 69% Promoting growth in revenues 15% 51% 28% 2 3% No, we do not have any initiatives for improving efficiency and Promoting growth in margins driving down costs 25% 12% 51% 30% 2 4% Increasing launches of new products and services Don’t know 6% 9% 32% 47% 6% 1 5% Promoting higher customer satisfaction 16% 48% 29% 3% 4% Promoting/increasing customer retention 13% 46% 34% 3% 1 3% While every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in the report. © The Economist Intelligence Unit Limited 2008 23
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