Operational effectiveness means to achieve goals with minimal use of reasources. Therefore, definition of strategic goals is made in efficient way as well. In other words, it is delivering products or services cost-effectively without decasing the quality of results - the maximum productivity level is reached.
Operational effectiveness levels
The operational effectiveness might be measured on two levels and it is recommended to access them in direction from micro to macro:
- micro for example the machine, an employee, the workstation, tasks on the shop floor,
- macro for example whole enterprise or an organisation, an industry or national level.
Moreover, the operational effectiveness might be seen at three company's management levels:
- strategic - long term planning (financial planning, strategic business planning, marketing planning),
- tactical - weekly or monthly basis to reach strategic goals (productivity, demand, relationships with suppliers, capacity planning, resources planning, production planning, material planning),
- operational - daily schedules (ordering, purchasing, operations and control in shop floor, scheduling of deliveries).
Analyses of effectiveness
A start point in analysing the operational effectiveness might be answering below questions:
- How effective is the company in using inputs to create outputs?
- Is the company using right combination of inputs producing the right combination of outputs at current price point?
- How the company will react to increase of prices?
- How effective is the company in transerring established process into daily practice?
- Has the company improved the production capacity over time?
- How is the company rated versus competitors?
A. B. Badiru proposes below measurements of the operational effectiveness:
- Absolute operational effectiveness (AOE) calculated by dividing actual output by ideal output,
- Relative operational effectiveness (ROE) calculated by dividing actual output by the best observed output (historical data use is necessary),
- Productivity calculated by dividing output by input,
- Efficiency calculated by dividing productivity by best-practice productivity.
Examples of improving operational effectiveness
Santa R. and others point how important it is to have proper support from system side to set, measure, maintain, control and improve the operational effectiveness by:
- decreasing operational costs,
- decreasing number of errors,
- increasing flexibility,
- increasing reliability,
- improve quality,
- other measurements of costs, quality, dependability, flexibility and speed.
Advantages of Operational effectiveness
Operational effectiveness comes with several advantages. These include:
- Increased efficiency: By optimizing operations and streamlining processes, companies can become more efficient and reduce wasted resources. This can lead to cost savings and improved customer satisfaction.
- Improved quality: By focusing on improving processes and operations, companies can ensure their products and services meet customer expectations and industry standards. This can lead to higher customer satisfaction and loyalty.
- Reduced risk: By having effective operational processes in place, companies can reduce the risk of errors and incidents that could potentially damage their reputation. Additionally, these processes can help to identify and mitigate potential risks.
- Increased productivity: By optimizing operations, companies can increase their productivity and output. This can lead to improved customer service and higher profits.
Limitations of Operational effectiveness
Operational effectiveness has certain limitations that need to be considered. These include:
- An operational approach doesn't always provide long-term solutions or strategies. It is concerned with the current situation and can fail to address the future needs of the organization.
- Operational effectiveness does not take into account the external environment or the competitive environment in which the organization operates. It focuses on internal operations and processes which may not be sufficient to remain competitive in the long run.
- Operational effectiveness ignores the importance of innovation and creativity for an organization’s growth and success. It is focused on efficiency and cost-effectiveness and does not take into account the need for creativity and innovation.
- Operational effectiveness can lead to a lack of flexibility if the organization focuses too heavily on cost-effectiveness. This can lead to the organization being unable to respond quickly to changes in the external environment, resulting in a loss of competitive advantage.
One of the approaches related to operational effectiveness is to use the following tools and techniques:
- Lean Manufacturing/Six Sigma: This approach seeks to reduce waste and increase efficiency by using a combination of statistical analysis, tools and techniques to measure, analyze, improve and control processes.
- Total Quality Management (TQM): This approach focuses on improving quality through continuous improvement and customer feedback. It promotes a culture of customer focus and employee involvement.
- Business Process Reengineering (BPR): This approach focuses on optimizing existing business processes to improve efficiency and reduce costs. It involves analyzing business processes and identifying opportunities for improvement.
- Kaizen: This approach focuses on continuous improvement. It encourages small and incremental changes that can be implemented over time to improve overall performance.
- Supply Chain Management (SCM): This approach focuses on managing the entire supply chain, from sourcing raw materials to delivering finished products to customers. It involves integrating the different stages of the supply chain to ensure maximum efficiency and cost-effectiveness.
In summary, other approaches related to operational effectiveness include Lean Manufacturing/Six Sigma, Total Quality Management, Business Process Reengineering, Kaizen and Supply Chain Management. These approaches focus on reducing waste, improving quality, optimizing business processes, encouraging continuous improvement, and managing the entire supply chain.
- Auditing operational effectiveness (2018), The Institute of Internal Auditors, Australia
- Badiru A. B. (2013), Handbook of Industrial and Systems Engineering, Second Edition. Industrial Innovation Series., CRC Press, USA
- Porter M. E. (1996), What Is Strategy? in HBR’s Must-Reads on Strategy, Harvard Business Review, Great Britain
- Santa R., Ferrer M., Hyland, P. (2006), System effectiveness and operational effectiveness : can an optimal balance be obtained? , in Proceedings of the 20th ANZAM Conference: Management : pragmatism, philosophy, priorities, MiliaLindfield NSW, Australia
Author: Dominika Zaich