6 people are having a discussion on the topic (Becca, Sarah, Sammy, James, Jack and Molly)
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.
From the discussion, we can conclude that even though there is no clear cut answer as to whether operational efficiency or innovation is more beneficial, an indication is present which shows that if both are used in a balanced way, the firm will derive a lot of benefits. This is so because operational efficiency will basically act as a tool to deal with the short term goals of a company. On the other hand, innovative approaches can be used in order to achieve the long term goals of a company. In this way by employing both approaches the company can obtain a lot of advantages.
1 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
2 Greater the operational efficiency of a firm means lesser the firm has to spend in order to produce a larger no. of products.
3 With operational efficiency quality products can be set at a low price.
4 Innovation is basically when a firm comes up with something new and different. This may be in the form of new products or new way of producing things.
5 The employment of operational efficiency and innovation by a company will largely depend on the state of the economy at the time of employment. When the economy is good firms tend to compete using innovative approaches whereas when the economy is on the downturn, companies tend to compete by adopting operational efficiency methods.
6 Many firms today go by the innovative approach.
7 A balance between operational efficiency and innovation can be achieved which will be highly beneficially for the firm. Operational efficiency can be used to improve the profits and the short term goals of the firm where as innovation is the solution to the long term goals of the firm.
8 R&D plays an essential role in providing the firm with innovative and creative solutions.
9 R&D term should be isolated from the rest of the organization and from the day to day activities of a firm in order to foster innovative thinking.
10 For a firm to benefit, it has to employ both operational efficiency as well as innovation because both of them target different goals of the firm.
This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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