EY report: Operational effectiveness biggest growth driver in next decade

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Beijing, 28 May 2013 — EY’s latest report “driving profitable growth: the productivity challenge in China” concludes that improving operational practices may represent the single biggest driver of productivity gains over the next decade. The report finds that the most profitable companies surveyed share common features of success in operational effectiveness, which is key to productivity improvement in China.

It is widely accepted that raising productivity will be critical if China is to keep growing and avoid the so called middle income trap. Government policy is already pushing companies to improve their productivity. And the pressure will only increase in coming years.

This report assesses how ready companies in China are for the challenge of productivity improvement and sets out the key areas that high performing companies will need to tackle to take their productivity performance to the next level.

The most striking finding was the extent of transformational approach to productivity improvement adopted by top performing companies. They have built expertise and capabilities across a wide range of competency areas, which typically go beyond incremental changes and on to development and execution of a clear transformation agenda designed for lasting improvements across the business, straddling traditional organizational silos.

Top performing companies have developed particularly strong capability – or maturity – in five specific operational areas: long range strategic planning, standardization of operating processes, robust internal controls, effective workforce planning and strong technology infrastructure. All five of these practices are strongly correlated with high profitability and would therefore appear to be an obvious area of focus for companies seeking to drive a step change in their productivity.

Nigel Knight, Ernst and Young Greater China Advisory Leader comments, “The encouraging message from this analysis is that these improvements do not typically require significant financial investments and can be readily replicated between companies and sectors. They do, however, require strong and sustained leadership involvement and commitment to drive through change.”

He adds, “Leaders at all levels need to consider how their organizations can immediately start to build and implement the capabilities that will be essential to meet the challenges of China’s productivity imperative.”

Implication for companies

Performance gaps will likely continue to widen as competition intensifies in China. In a number of industries such as automotive and machinery manufacturing, consolidation is already well underway.

For companies, survival and success will depend on upgrading productivity through integrated, targeted operational initiatives that can drive year-on-year performance improvements.

“The challenges go beyond simple cost cutting, if they are to continue to grow profitably, there is a compelling need to focus on changing the way business is done. These include deeper and longer lasting improvements in their management and operational practices, creative use of technology and the application of innovation to their businesses. ” Nigel concludes.

Mr Xiaoping Zhang, Partner at EY says, “We have seen from our survey that top performing companies are already adopting a broad, transformational approach to productivity improvement, with a strong emphasis on strategic alignment and on putting in place the critical foundations – standardized processes, robust internal controls, effective workforce planning and technology infrastructure – needed to support continued profitable growth.”

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About this report
The survey on which this report is based was designed by EY and carried out by FT Chinese between November 2012 and January 2013. In total, senior executives and managers from over 1,700 companies in China responded to our questionnaire. Follow-up interviews have also been undertaken to test and validate the main findings.

The survey sought views on both trends in the Chinese business environment and individual organizations’ operational practices. For this purpose we targeted both executives with a strategic view of their firms’ performance as well as senior managers with more knowledge of day-to-day operations.

To our knowledge, this has been the largest survey of companies’ operational practices ever undertaken in China. 

About EY
EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information about our organization, please visit www.ey.com.

EY refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

This news release has been issued by EY, China, a part of the EY global network.