What is Operational Excellence and Why is it Important?

If you read our tutorial on choosing your customer value proposition, you already know the three fundamental business models are:

1. Operational Excellence
2. Product Leadership and
3. Customer Intimacy

That is, of these three core business models, these are the value proposition strategies a company has available to choose from in order to separate themselves from the competition.

The best companies choose one value proposition (different from a unique selling proposition) and go all-in on that one.

For this tutorial, we are going to go deeper into the Operational Excellence strategy with examples and review how some leading companies are applying their strategy.

What is the Operational Excellence strategy?

Companies that choose the Operational Excellence strategy are communicating to their customers,

“We can deliver products and services faster, more
conveniently and at lower price than our competitors”.

Snap fitness (cheaper 24-hour key club) and Walmart are examples of this strategy.

A business that can clearly define their leadership position in this one category can create a viable reason for why the customer should choose them over the competition. Making it possible to own the market in this position.

For example, Anytime Fitness does a good job in communicating their operational excellence position to the gym-goers who want a clean, no-frills 24-hour workout. Customers know that they may not get the highest level of support from the gym staff because of the convenience of 24-hour access. In this case, you can see that this value proposition directly has an impact on the company’s human resources and staffing requirements.

Anytime Fitness is a leading franchisor. Franchisors are unique in that their business model is forced to have at least two market segments that may require different value propositions; 1) franchise candidates and 2) local franchise customers.

In this example, Anytime Fitness is leading the industry with an Operational Excellence value proposition in order to acquire customers to work out in their gym, while simultaneously offering a product leadership position to franchise candidates with a high quality product as compared to the competition.

Implementing more than one value proposition at a time is a topic for another tutorial.

Onward.

Let’s now look at some examples.

Operational Excellence Value Proposition Example: McDonalds.com 

-- And how they use FREE in their unique selling proposition (USP)

One great example of an operational excellent company is McDonalds. Not just because they are the gorilla in the franchise industry, not just because they are the king in the quick service restaurant business, and not just because they are a Dow 30 company (NYSE: MCD).

Those are by products of being a leader in their business and choosing to dominate their competition by choosing Operational Excellence as their value proposition.

And just as important as clearly defining what you are, is clearly deciding what you are not. Here’s a few examples of McDonald’s.

First, their customers know what they are going to get. The same brand, menu, store layout, order process, staff engagements, and food quality. The location does not matter much.

Second, their vendors know what to expect. They produce quality beef, fish, potatoes, dairy, apples and coffee according to regulations and deliver at a price point so that McDonald's franchisees can earn a profit and continue to be an employer and staple in the community.

Third, no one expects McDonalds hamburgers to be the highest quality or the best tasting as compared to Product Leaders competing in the same QSR or franchising industries (visiting a McDonalds in China is a different story as it is truly a family experience). Customers expect a clean, safe, decent experience they can rely upon. If they want the best food, McDonalds doesn't pretend to serve it. Consumer-facing Product Leadership is not their value proposition (although it may be as a franchisor).

Fourth, customers also do not expect to get the best customer service in the business. Again, customers know they are going to order from the menu with minimal options and very little, if any, variance from the list.  If they want two organic grass-fed meat patties, with bacon, avocado, a slice of swiss cheese, no mayonnaise, avocado spread, organic romaine lettuce, with a lightly toasted sourdough bun, McDonald’s won’t entertain this specialized idea even for a celebrity customer.  Customer Intimacy is not their value proposition, nor will it ever be.

But regardless of the value proposition used, great marketing departments use the word FREE in their marketing -- it's one of our favorite things to do in marketing because it is probably the most powerful word a marketer can use.

So powerful that one the best examples is how McDonalds uses the word FREE, to maintain their position as an operationally excellent leader, as well as gain customers using FREE in their unique selling proposition (USP).

This is a great example of how to be a leader as an Operationally Excellent company. After all, giving a valuable FREE gift to a customer in exchange for teaching them how to use a tool that will further reduce McDonald’s staff time while making it more convenient for the customer to order more is an excellent strategy! 

And arguably, on the most valuable piece of real estate McDonalds owns -- above the fold on their website -- McDonalds.com uses the word FREE five times!

If it didn’t work, would one of the most successful companies the world has ever seen do it?

Of course not.

There's a huge lesson there.

Let’s look at another example of an operational excellence customer value proposition: JP Morgan Chase & Co.

First, it is clear that JP Morgan Chase & Co is not leading with a customer-centric message. This immediately gives us a first clue that they are not choosing Customer Intimacy as their value proposition. 

Second, it is possible that their value proposition is Product Leadership, but they are not leading as a clearly innovative organization, nor are they showing how talented their work force is. 

Third, are they trying to show the world how efficient they are? I think so. The primary messaging on the home page, above the fold, is a clear “look at me” message.  They are focusing on a picture of their unnamed CEO (implying that all visitors know who Jamie Dimon is, who must know there is a benefit to seeing his face on the home page) and on their annual report. If this is their main message, there must be something good within that report. And this presupposes that the company thinks they know their customer base knows how to read an annual report and knows how to find the value within this report in order to hire JP Morgan Chase & Co to do whatever they do (because we don’t know what they do based on this primary message).

There are a lot of assumptions here. 

Let’s take a look at another example customer value proposition, for comparison: Travelers

The Travelers Companies, Inc., (NYSE: TRV) sells insurance products and services. They are also a member of the Dow 30 and featured in our Customer Intimacy examples.

Like JP Morgan Chase & Co., Travelers also compete in the Financial Services industry.

But their Customer Value Proposition is different. 

One look at their home page, above the fold, and you’ll quickly see a “you” message, as opposed to the JP Morgan Chase & Co., “me” message.

This immediately gives us a huge clue that Travelers is not competing on the Operational Excellence value proposition.

Another big clue is that the Travelers messaging implies that their product can be modified for the customer, another clue that their value proposition is not operational excellence, and another clue that says they are competing on customer intimacy.

Another big hint that Travelers is competing as a customer intimate value proposition is that there is no mention of product innovation, workforce talent, no mention of R&D and no mention of operating as a lean organization. The messaging is primarily focused on the customer and their ease of website navigation based on what is most important to the customer including a Claim Center, Prevention, Preparation and a phone number implying at least some degree of personalized customer support.

Operational Excellence is a wonderful value proposition. Not only can it provide excellent value to the customer, it forces a company to continually search for ways to improve upon lean operations and streamlining every area of the workflow.