Efficiency is not Business Strategy

Companies spend hundreds of millions of dollars on IT to improve internal efficiencies. The expense includes enhancement of internal core technology systems, design of internal workflows, integration between systems and decision processes, simplification of processes, lean manufacturing methods, et cetera. In the software world, rapid software development methodologies, like Scrum, with overlapping stages of concept, design, development and testing help in reducing time. All this need for speed is excellent and an absolute must to stay in business. But this need for speed is certainly not business strategy.

If you don't agree with this line of thinking, then let's assume for a moment that I'm wrong. This means that operational efficiency is your business strategy, which is how you are going to compete with your business rivals. Let's examine this topic.

At constant quality, operational efficiency means that you can keep your cost lower than your competitors. How do you communicate your operational efficiency as a "strategy" to your customers to gain market share? If efficiency is your strategy, then the only answer is low price.

If the only thing that is different between your product and your rivals' products is price, then how would you stop your rivals from achieving the same internal efficiencies and matching your prices? So you run and you run to catch up with the ...

Congratulations! You have just figured out a great way to commoditize your product with price as the only basis of competition.

Similarly, you can use internal efficiencies to deliver higher quality to your customers. Such gains in quality are again not beyond imitation by your rivals.

Operational efficiency is NOT business strategy.

Postscript: This issue is quite debatable. Therefore, here are my thoughts on some of the firms, like Foxconn Technology, that are heavily dependent on internal efficiencies and lower costs to stay in business: http://techenbiz.blogspot.com/2010/07/no-survival-without-operating.html.