Why efficiency isn’t a recipe for success

By on July 24, 2013

Is there any strategic life left in the obsession with striving for efficiency gains? Alastair Dryburgh reports

Probably not. Simply being efficient was never a recipe for success anyway. What was important was being more efficient than the competition.

So if most of your competitors were good, you needed to be excellent. On the other hand, if your competitors were abysmal, mere mediocrity was more than enough to best them.

Think of Japanese cars in the 1970s – poor by today’s standards, but far superior to the contemporary offerings of British Leyland.

But what happens when all your rivals are about as efficient as it’s possible to get? It’s brilliant for consumers, who enjoy a wide choice of high-quality, low-priced offerings. Rotten news for producers, however, as they struggle to distinguish themselves in any way other than by price.

In the PC market, both Dell and HP are efficient producers of good products, but Dell makes very little money in its consumer business, and HP has a meagre operating margin on its PCs.

Contrast these struggling players with Apple. Apple may or may not be as efficient as Dell or HP, but efficiency has little to do with its runaway success and 25% operating margins.

Innovation, distinctive products and a cult following, however, do. Look also at Google, which deliberately cultivates inefficiency, by allowing its engineers to spend 20% of their time doing anything they find interesting, even if much of it never results in successful products.

You can’t distinguish yourself through efficiency any more – everyone knows how to do it. The battleground has moved to brand, innovation, distinctive products, or even competition on values.

Efficiency in the service of these can have value. But pursued as an end in itself, it looks more and more like a recipe for extinction.

** Alastair Dryburgh is the contrarian consultant, specialising in solving problems that can’t be solved by normal means. He is also the author of Everything You Know About Business is Wrong (Headline). More at www.alastairdryburgh.com

 

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