What
It Takes to Stay Ahead of the Competition
Bottom
Line: For companies, sustaining a
consistently high level of performance requires unique capabilities that may
differ sharply from the strategies they used to succeed in the first place.
Leading firms set themselves apart by
achieving a high level of performance and meeting or exceeding consumers’
expectations relative to the competition. It’s usually an arduous, years-long
process. But sustaining that level of performance is a completely different
challenge — one that few companies can overcome in the modern business
landscape.
There’s
plenty of substantive advice available on how to attain high-quality
performance in the first place. Researchers have variously touted the ability
of firms to create barriers to entry for competitors, for example, or
to draw on unique capabilities to differentiate
themselves. But rivals learn quickly, once-novel strategies can eventually be
duplicated, mistakes can be made, and complacency can set in. What it takes to
sustain top-quality performance, therefore, is also deserving of study — but it
has received comparatively little attention from researchers. Indeed, most
analysts have implicitly assumed that the capabilities required to attain
high-quality performance are the same as those needed to sustain it.
A
new study aims to shed light on the issue by analyzing which
capabilities enable companies to sustain a consistent and high level of
performance. It should be noted that for the study, the quality level and consistency of
performance are two distinct concepts. Whereas a firm with a high quality
level outshines its competitors in the short term, consistency involves
maintaining that high level with minimal variance for a five-year period.
The authors analyzed data on 147 business
units within large companies in the manufacturing sector that were based in
either the U.S. or Taiwan. The reason to zero in on U.S. firms is obvious: They
tend to set the tone for the global economy. The researchers chose to study Taiwanese
firms as well in order to consider the differences between Eastern and Western
cultures in their management approaches and assess any impact on performance.
(In the final analysis, no significant differences between them appeared.)
Taiwan also has a well-established reputation for advanced manufacturing.
To assemble a sample, the authors reached out
to executives whose companies had won awards or earned acknowledgment from
associations dedicated to recognizing high-performing businesses. The authors conducted
surveys with quality or operations managers at the firms, who could speak to
the specific strategies employed, and with general managers, who could field
questions about the firm’s overall performance and the nuances of its business
environment. For a subset of companies, the authors also obtained
financial-performance data from the business unit’s accountant as well as
internal audits that gauged the quality of its products and services.
After
controlling for firm size, competitive intensity (pdf) of a given industry, and level of uncertainty faced — in the form of rapid technological
developments or changing market conditions — the authors found that four
particular capabilities emerged as integral to sustaining high-quality
performance:
Improvement. This capability was defined as a firm’s ability to
make incremental product or service upgrades, or to reduce production costs.
Innovation. Defined as how strong a company was at developing
new products and entering new markets.
Sensing
of weak signals. Defined as how well a company can focus
on potential banana peels in order to improve overall performance, including
analyzing mistakes, actively searching out production anomalies, and being
aware of potential problems in the surrounding business environment.
Responsiveness. Defined as a business’s ability to solve problems
that crop up unexpectedly and to use specialized expertise to counter those
complications.
But these capabilities influenced different
aspects of sustaining high performance, the authors found. For example,
innovation capabilities primarily help firms maintain a certain level of
quality, whereas the capacity for improvement affects mostly the consistency
component. That’s probably because innovations are typically unique events that
meet customers’ immediate needs and establish a certain level of quality,
whereas incremental improvements are geared toward ensuring the long-term
reliability of products and services, which translates into consistency.
Meanwhile, a firm’s capability for
responsiveness had no significant effect on consistency, but had a decided
positive impact on its level of quality — presumably because responding to
quality-related problems quickly and efficiently is also a way of exceeding
customers’ expectations in a one-off way.
Sensing of weak signals had a strong positive
effect on consistency, but a moderately negative impact on the level of
quality. This suggests a potential trade-off, the authors note, because
maintaining both a high quality level and consistency is essential to
sustaining performance. The authors speculate that a focus on sensing weak
signals mandates that firms spend a lot of time collecting data and analyzing
the occasional blip, which could cause them to get mired in minutiae and
distract them from the more important tasks associated with sustaining a high
level of performance. Although the benefits may pay off over time, a
concentration on preventing failures rather than seeking out successes could
also lead firms to take a short-term view and be overly conservative, too
concerned with simply surviving, and to thus shy away from taking chances.
Intriguingly, the capabilities that increase
consistency (improvement and sensing of weaknesses) are unaffected by the level
of competitive intensity or uncertainty surrounding a firm, whereas those that
affect the level of performance (innovation and responsiveness) depend heavily
on the external context, the authors found. Presumably, the value of innovation
and responsiveness is higher in the face of unanticipated external shocks,
whereas improvement and sensitivity to failure are capabilities that are more
internally oriented. As a result, firms may need to invest in certain
capabilities more than others, depending on their business environment.
Matt Palmquist
Source: “An
Empirical Investigation in Sustaining High-Quality Performance,” by Hung-Chung Su (University of Michigan–Dearborn) and
Kevin Linderman (University of Minnesota), Decision Sciences, Oct.
2016, vol. 47, no. 5
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