Mental effort is a key investment

By DAVID ROBB*

When we consider why New Zealand's business performance is lagging compared with that of other OECD countries we often fall back on our remoteness from key markets, demographics and reliance on commodities. Or we tie ourselves up in arguments about whether the Government is too restrictive, or not helpful enough.

In my view, businesses should also spend time looking to themselves to identify their problems and the solutions.

To some extent it is the quality of our management thinking and practice that is holding us back and we need to lift our game. If businesses are to compete on an international scale they must pursue improvements in management practices, such as the vital area of operations management.

Based on my experience in consultancy and executive education, I offer a framework that may provide a guide to operations improvement initiatives in businesses.

The framework involves four aspects: establishing direction - aligning operations with business objectives; eliminating bad practice - moving to the performance frontier; positioning on the performance frontier; and innovation and mitigating trade-offs - shifting the performance frontier.

These facets cover, at least conceptually, all the activity areas of managers seeking improvement. Many firms have room for improvement in most of these categories.

Business strategists emphasise the importance of achieving coherence within and among functional areas in a firm by insisting that objectives and policies in each area are aligned with the business strategy.

Surprisingly few firms have a clear vision of where their operations are headed, a vision based on their business strategy and readily articulated by staff at all levels.

Although some may express incredulity toward various aspects of strategy, there is little excuse when managers create policies and staff act in ways that pull in diverse directions.

Within a given industry, business objectives naturally differ between firms.

And different priorities necessitate a different set of policies and operations practices.

Perhaps of more concern than poor performance is the chilling reality that many firms do not know where they are in terms of performance on key dimensions. Fundamental to simultaneously improving performance on more than one dimension is establishing, recording and acting on critical performance metrics. The desired level of key performance indicators (KPIs) should be considered from a firm's customers' perspective as well as its own, and drive specific process improvements to secure strategic advantage.

One common management error is a belief that acquiring sophisticated technology and equipment is sufficient to achieve advantage. Hardware will not enhance performance unless it's correctly deployed. And many firms are discovering that competitive advantage is attributable more to people than technology.

Enormous gains are often to be had in terms of profits from providing a better inventory balance which often means higher inventories in some areas. Such a strategy leads to increases in market share by stealth. It requires extensive time for competitors to respond, particularly with the long lead times experienced by many firms.

Companies seeking excellence must also jettison the notion that one size fits all.

I'm convinced that an underlying reason for poor or non-existent segmentation is lack of analytical skills. Some managers scurry for cover when faced with anything more complicated than an average. When managers utilise tailored policies, taking uncertainty into account is vital for improving performance.

Why shouldn't businesses take a leaf out of Team New Zealand's book, which exacted so much from computer simulation of yacht performance?

The second impediment is companies believing that the best path is always through the direct route.

Generating successful performance initiatives in business operations takes time, money and mental effort. If more made that investment, however, we would be taking a large and practical step to restoring New Zealand's economic performance.

* David Robb (BE (Hons), MBA, PhD, PEng) is associate professor of operations management in The University of Auckland Business School's Department of Management Science and Information Systems.

A fuller discussion of these issues is available through the Business School website.

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