Look Inward, Angel: Companies Turn to Internal Data for Operational Efficiency

It appears that Socrates’ injunction “Know thyself” is a sound business strategy as well as a personal beacon. A new study from The Economist Intelligence Unit (EIU) and Celerant Consulting reveals that companies’ lack of internal knowledge and communication is a major barrier to achieving operational excellence.

The survey of 276 North American senior execs from eight industries (life sciences, energy, manufacturing, chemicals, healthcare, retail, telecom, and consumer packaged goods) reports that top performers have better communication between senior managers and frontline employees and make more effective use of measurement and performance data. But even these companies say they find it difficult to achieve operational efficiency, which 46% of the respondents consider one of their companies’ top three objectives (the other two are improving customer retention and increasing shareholder value).

Most respondents are disappointed with strategy execution. Only 43% of executives rate their companies as having been successful or very successful at implementing strategic initiatives in the past three years. The “c” word is again an important factor here: 41% cite clear communication from senior management to frontline employees as the essential ingredient of success. Twenty-five of the respondents also say that it is the most difficult technique for companies to master. Top performers have learned it pretty well—the 78 high-performing companies in the survey are more successful than the others at internal communication and capturing frontline employees’ suggestions for implementing strategic initiatives.

Not surprisingly, respondents who haven’t done well on the strategy side have problems with data collection and analysis. Fifty-six percent of the executives surveyed say their companies don’t have enough data to make effective decisions on operational performance; just 36% report that their organizations use timely, accurate information to measure and steer the success of strategic efforts. But top performers again distinguish themselves by having better performance management systems and using them to guide strategy.

There’s a lot of tough stuff coming down the pike. Execs say the globalized economy presents great potential threats to efficient operations in the form of competition from lower-cost labor markets, regulatory changes, increasing raw material prices, and a dearth of qualified workers. The answer? Look inward. Self-knowledge will be the prime focus of most companies in the year ahead. Respondents say their single largest performance-improvement effort will be organizational realignment (15%), business process re-engineering (14%), or a major technology implementation (11%).

For more information, contact Jeremy Eagle of the EIU at (212) 554-0649 or visit http://www.eiu.com.

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