Operational Efficiency vs Innovation:

Operational Efficiency vs Innovation:

6 people are having a discussion on the topic (Becca, Sarah, Sammy, James, Jack and Molly).

Group Discussion Starts

Becca: Hello everyone, the topic for today’s discussion is Operational Efficiency vs. Innovation. Operational efficiency can typically be defined as the ratio between the outputs obtained from an operation and the inputs which are used in order to achieve that output. If an the operation is highly efficient we can say that less inputs in terms of human effort/ time and cost are required for producing a large output. Achieving operational efficiency can be very advantageous to a firm because this can in turn lower the prices of the products without compromising on the quality of the product.

Sarah: Innovation on the other hand is when the firm comes up with something new and different. This may be a product or a new way of producing things. Innovative ideas are beneficial to a firm largely because they provide a competitive advantage. The competitive edge is magnified when the firm applies for patents to support their innovative ideas. This will prevent other firms from copying what the innovative firm is doing. While an innovative product may be the work of the R&D team, an innovative way of doing things may be the work of management in their aim of achieving a proper strategy.

Sammy: In the past few years, the way companies look at innovation and operational efficiency will depend basically on the economic condition at that time. For example when there is a boom, the companies in a particular industry compete with each other through innovative solutions and ideas. They come up with new products and see that there are potential consumers who will adopt and or use their innovative ideas and methods. On the other hand, when economy lingers in the doldrums companies in an industry compete with each other through cost cutting which can be achieve through operational efficiency.

Jack: Yes I agree with Sammy. Operational efficiency can be employed during bad times in order to cut costs during the production process but at the same time increase the quantity being produced. With this approach in place the firms can in turn lower down the costs at which the products and services are offered to the customers which will then induce the customers to buy the products or use the services. But I believe that in today’s world, more and more companies are developing strategies which involve innovative approaches.

James: I have to disagree with Jack regarding the current scenario of things. I believe that operational efficiency and innovation can go hand in hand with each other in order to give more benefits to a firm. Many firms today are continuous competing to be the industry leader. They work hard to increase their top line as well as bottom line by increasing the sales of their products or services to improve the first goal i.e. top line and cutting down the costs in order to improve the second goal i.e. bottom line. By looking at the situation in this way, I believe that much can be done is a balance is achieve between the two.

Molly: I have to agree with what James said. As we all know, the situation today is that many firms competing in a particular industry simply adopt the operational efficiency approach. They try to employ Six Sigma approaches as well as Lead Systems in order to achieve operational efficiency. Much of their effort goes into such processes and they fail to see the long term of things. They are determined to see short term results that they fail to see the long term scenario of things. In order to have a long term strategy, innovation has to be thought of.

Jack: Also, in order to focus more on the long term goals, any firm should allocate sufficient funds to the R&D department because this is usually the source of innovative and creative thinking. In order to promote innovative and creative thinking, the organizational structure should be designed in such a way that it such thinking. In order to achieve this, the R&D department should be separated from the day to day activities and operations that the frim performs so that they will not be influenced by the traditional method of doing things. In short the R&D department should be isolated from the rest of the organization in order to give them room to think and come up with new out of the box ideas.

Becca: Since we are running short on time, I think we should end the discussion here. On an end note, I would like to say that different firms may adopt operational efficiency or innovation as a driver from their strategy but a lot of benefit can be derived if both operational efficiency and innovation are employed by a firm in a balanced way.