Harvard Business Review Daily Stat reported recently that for software firms operational skill is the key to avoiding corporate failure. In the short post the reference a study done by Why Software firms Fail.
From the HBR snippet (accents are mine):The best way for a software firm to increase its survival chances is not to boost R&D or marketing skills but to increase its operating capability — its knack for efficiently deploying people and capital, according to researchers led by Shanling Li of McGill. Their study of 870 U.S. software companies over the period 1995-2007 shows that companies with high levels of innovation-related competitive actions but low operating capability were 466% more likely to fail than the average.Additionally from the research note itself:"The impact of OP capabilitieson firm failure rates is almost twice that of MK and five times that of RD.""Comparing firmswith high OP (top 25th percentile) to low OP (bottom25th percentile) further supports the importance of OP capability: the firms with low OP capability fail atfive times the rate as those with high OP capability."
The study shows the importance of operational capabilities and the need to for management focus in this area in order to sustain its competitive advantages.
As always though, the first step to improving Operational Capabilities is to first measure it. But how do you do that?
One specific potential measure the researchers hit upon (though they roll it up with other inputs) is gross margin. That is - the difference between your operating revenue and the cost of goods sold. I actually think this makes a lot of sense. The goal of operations, as suggested in this study, is to "use resources cost effectively" and that firms gain "an operating advantage byefficiently leveraging their resources to create operating income".
So what do you think? Do you have someone at your firm whose job it is to focus on improving gross margin?