Unlocking shareholder value: The strategic imperative of superior business operations

For a decade, consultancies like BCG have emphasized operational excellence’s crucial role in face of declining growth rates.

A cursory search for the best CEOs of all time will list the usual suspects at the top – Steve Jobs, Henry Ford, John D. Rockefeller, and so on. From a stock market-centric viewpoint that makes sense – these leaders delivered unprecedented earnings to shareholders. However, dig a little deeper and a common narrative surfaces, attributing their success to groundbreaking innovations and strategic mergers. This tendency to place a higher emphasis on product innovation or acquisitions when it comes to total shareholder return strategies is understandable. Yet, the unsung hero behind their enduring success lies in the mastery of excellent business operations—an aspect often overshadowed by the glamour of product innovation or high-profile acquisitions.

These luminaries, such as Jobs, Ford, and Rockefeller, weren’t just visionaries; they were operational maestros. Apple consistently earns a spot among Gartner’s Supply Chain masters, Ford revolutionized manufacturing with the assembly line, and Rockefeller’s vertical integration forged an oil-industry monopoly. While product innovation and mergers steal the spotlight in discussions about shareholder returns, recent studies underscore that companies excelling in business operations are 33% more likely to outperform their peers on the stock market—an often-overlooked key to competitive advantage.

The Unrecognized Power of Business Operations

The concept of leveraging operational excellence for enhanced shareholder returns isn’t novel. For a decade, leading strategy consultancies, including BCG, have emphasized the pivotal role of operational excellence in a landscape of diminishing growth rates. Recent events, notably the disruptive force of COVID-19, have further underscored the imperative of operational agility. A recent BCG study reveals that companies adept at navigating the complexities of operating-model change are seven times more likely to outperform their peers—a testament to the growing correlation between operational agility and shareholder return.

The COVID-19 pandemic serves as a poignant exclamation point on this insight. Analyzing global pandemic-era data unveils a stark correlation between operational agility and shareholder value. The Financial Times ranked companies which prospered during the pandemic as of June 2020. To nobody’s surprise, Amazon.com was the biggest winner with an increase in market capitalization of $401bn. While all online shopping exploded during the pandemic, it was the speed with which Amazon scaled its operations which put it squarely at the top. In March 2020, Amazon hired 100,000 people.

In April it added another 75,000. The remarkable pace at which Amazon adapted its internal operations, combined with the inherent supply chain infrastructure advantage it already possesses (Amazon has over 1,137 active facilities around the world, including 519 in the U.S), made it a pandemic winner. By mid-2021, Amazon had 400,000 drivers worldwide, 40,000 semi-trucks, 30,000 vans, and a fleet of more than 70 planes. Not only did Amazon grow disproportionately during the pandemic, but it also set up the foundation to win after the crisis ended.

Amazon is not alone; other pandemic winners, including Apple, Tencent, Alphabet, Netflix, and Zoom, share a common thread—exceptional business operations. Specifically, their ability to deliver services end-to-end by eliminating or reducing functional siloes, and the ability to translate their new business strategy into day-to-day operations. These are three key “drivers” of dynamic business process transformation. We refer to these as “Open Market rules”, “Unified Accountability”, and “Dynamic Operating Engine”, and will get back to them later.

Why Don’t More Companies Tap into Excellent Business Operations for Shareholder Returns?

Despite the logical appeal of operational agility, why do companies remain hesitant to harness this competitive advantage fully? The answer lies in the entrenched emphasis on revenue growth through products or cost-cutting for increased profits. Shifting the cultural focus toward business operations transformation represents a formidable challenge, with Business Transformation projects facing a daunting 70% risk of not meeting objectives.

However, this failure rate need not be accepted as inevitable. Drawing on decades of practical experience and collaboration with Fortune 500 companies, a model for successfully revolutionizing business operations emerges. Anchored in the three drivers of dynamic business process transformation—Open Market rules, Unified Accountability, and the Dynamic Operating Engine—this model offers a transformative approach.

The Dynamic Process Transformation Model: A Blueprint for Revolutionizing Business Operations

The Dynamic Process Transformation model presents a living, dynamic transformation that establishes a positive ongoing spiral of agility, efficiency, and effectiveness. Unlike traditional approaches that result in cyclical obsolescence, this model ensures a consistent and self-improving trajectory. It is anchored in three drivers mentioned previously:

1. Open Market Rules: Leaders of dynamic process operations use well-established and accepted Open Market Rules of operations in contrast to traditional functional mindsets. In other words, create a mindset where functional operations deliver services to employees as if they had to compete for their business. Look for external customer-centric companies like Apple for inspiration on this mindset. Apple builds trust with its customers by being in touch with their needs, by constantly evolving product offerings, by being transparent about its products, and by effectively pulling the customers into their offerings. Similarly, dynamic process leaders will be mindful to blend the minimally mandated “push” of legal, ethical, and corporate standards with the open market forces arising from employees, competitors, technology capabilities, and external benchmarks.
2. Unified Accountability: The historically siloed functional evolution of business operations also leads to unclear accountability of end-to-end process outcomes. To be clear, functional organizations within the company play vital performance, efficiency, and compliance roles. You do want finance to strictly manage capital investments and supply chain to ensure high delivery service levels. The challenge is to assign single accountability for outcomes that must cross functional silos. That’s where the principle of Unified Accountability comes in. You might design an end-to-end process to streamline the process of sales orders all the way to collecting cash for them. However, if there isn’t one single accountable person who can speak for the constituent functions of sales and finance in this example, you have a problem.
3. Dynamic Operating Engine: The two drivers above must be complemented with a methodology which systemically implements these behaviors in the organization. We need a methodology that converts the constantly changing business process goals into consistent and repeatable day-to-day employee actions. This is what we refer to as the Dynamic Operating Engine.

In Conclusion

In today’s dynamic business environment, operational agility is non-negotiable. Clear data underscores the significant shareholder value unlocked through excellent business operations. While Business Operations Transformation has historically been viewed as a hit-and-miss endeavor, the Dynamic Process Transformation model offers a structured and proven approach. It begins with envisioning business operations as a competitive advantage, steering away from the notion that they are merely the cost of doing business. Embrace the three drivers of Dynamic Process Transformation to propel your organization toward operational excellence and, in turn, unparalleled shareholder returns.

Tony Saldanha, Former VP, Global Business Services & IT at P&G and Co-founder of Inixia penned this piece for Business Today.

Views are personal and do not represent the stand of this publication.