Momentum Line – why operational efficiency isn’t enough

THE MOMENTUM LINE

In the late 1990’s I was the leader of an elite group responsible for organizational development of an Australian energy utility.  Part of the teams mandate was strategic planning including board level and executive plans.

The primary mission of the team was to transform the organization into the best utility in Australia. The team talked about the journey to being recognized as a truly great company.  My team consisted of a small group
selected from within the organization and some key external consultants, the key one being Peter Smiles (now deceased) principal of Peter Smiles and Associates.

The team was an incubator of ideas, concepts, pilots and innovative activities.

One key driver identified in the incubator was that status quo thinking would not lead to the organization ever becoming number one.  Indeed environmental scanning clearly lead the team to believe that status quo would lead to the
opposite outcome, that is the organization would fall behind and that the longer that strategy was adopted the further behind we would be.

The concept of the momentum line was born.  If our performance today was 100% then a status quo approach would mean a continuously falling relative performance, marked against our peers, going forward due to natural environmental pressures.

As we analysed the environmental changes that were occurring, that were reasonably foreseeable or that emerged through our “what if” analysis, the evidence was overwhelming.  We looked at other markets for utilities that had undergone change and we looked at other industries that had undergone change and saw predictable behaviours.   Some 20 years later case studies abound that support the analysis.

Changes include:

  • Non traded goods and services becoming traded; eg global supply chains
  • Regulatory changes; eg mining tax, removal of trade barriers and tariffs
  • New competitors; eg apple’s iphone, National Broadband Network and Telstra alliance, low cost country manufacture
  • Alternative products or services; eg internet dating, on line travel agencies, Amazon as a retailer
  • Supplier failure, channel failure, key customer failure: eg Nissan and Mitsubishi in Australia’s
    closure has led to many automotive parts manufacturers having to move into other sectors or to close down.
  • Resource cost moves that cannot be passed on; eg regulated markets such as retail electricity for domestic consumers
  • Global crisis eg credit costs and availability

We contended at the time that simple productivity and cost efficiency initiatives could stem the decline at the early stages, ie internally optimizing the organization (strengths and weaknesses) but that to continually close the gap would require innovation and new business models and external optimization (opportunities and threats).

Of course to be a truly great company met we had to grow returns rather than the flat line of maintaining the value added to the shareholder.   A challenging objective but one that ultimately paid off as the company, whilst a minnow in the sector, became the number three financial performer and number one electricity utility in the annual independent assessment.

So companies today can learn from years of predictable patterns.  By all means stick to the knitting but whatever you do do not adopt a do nothing approach.  It will take a lot more input later to correct a declining organization than it will to get the strategy right now.  Use the energy of the company now to adopt actions that continue to build strong foundations over time that allow new innovative offerings, supporting core activities, strong customer relationships and builds new channels.

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