Each year, Harvard Business Review selects the best CEOs of the year. This year, the CEO at the top of the list was surprising: It wasn’t Bezos, Sergey or Musk, but rather Pablo Isla who was selected as the top performer in the world. Pablo is the CEO of Inditex, and if you don’t recognize his name or the name of the company, don’t worry — that’s why I’m here!
Pablo prefers to remain anonymous — he shies away from the spotlight and is more engaged behind the scenes in the enormous company that he manages. But everybody recognizes the brand names of this successful fashion company: Zara, Pull and Bear, Massimo Dutti and others.
Since he was appointed to the position in 2005, Pablo has led Inditex to global expansion and insane growth, and the value of its stock has increased sevenfold. On average, the company opens a store every day and it already boasts 7,300 stores in 93 countries around the globe.
How has Inditex achieved such great success? Is it because of the company’s amazing design abilities, its genius marketing campaigns, its connections with celebrities, or its meticulous Instagram strategy? All of these things are significant, but they are less important than something else: In the end, the key to a company’s success is its operational excellence.
Pablo is a leader in the “close sourcing” (vs. outsourcing) method, meaning that the company’s production plants are close to the headquarters. This may seem economically illogical and contrary to the trend toward outsourcing in fashion. While most of its competitors have outsourced their production to China, Zara’s production is based mainly in Spain and Portugal. This approach makes it possible for Zara to move extremely quickly, to adopt trends at lightning speed and get them on the shelves at peak time, while its competition is considerably slower. The marketing advantage here is clear — in the fashion world, the ability to be relevant to trends makes all the difference.
But to do this economically, so that production in Europe can be inexpensive enough to compete with China’s low production costs, Inditex needs outstanding operational excellence — a supply chain that is nothing short of a work of art. This excellence provides Inditex with the ability to move quickly, but even more important, it enables the smooth integration of online and offline purchasing: its operational layout is totally digital and indifferent to whether you begin the purchase digitally and then transfer the purchase to a store, or vice versa.
Many of the marketing breakthroughs that we are familiar with are based on operational innovations. While it is usually the vice president of marketing or the CEO who gets credit and attention, very often it is the operations manager who is actually responsible for a true breakthrough, and usually this sort of breakthrough is much more difficult to duplicate.
When Steve Jobs was about to resign from his position, the natural candidate to replace him was Jony Ive, Apple’s head designer. Jony was responsible for all of the company’s breakthroughs — from Mac color computers to the iPod and of course, the iPhone. Jony seemed like a junior version of Steve Jobs — and he spoke like him too: he knows how to lead, design, and sell amazing products — and he even wears black all the time.
But surprisingly, the board gave the position to Tim Cook, the company’s operations manager. Cook’s key strength was in managing the company’s intricate supply chain. He was the one who knew how to make things happen; not the one who would say where the company was going. This surprising step raised some eyebrows, but it turned out to be a good decision. Apple’s success only continued to grow. And while it might have seemed to an outsider that the company was primarily about innovation and marketing, behind the scenes Apple is a tremendous development and production machine.
Elon Musk might be on the stage tomorrow, announcing the next Tesla. But in March, 2016, when he announced the Tesla Model 3, they received 500,000 orders (including a preliminary pre-payment). In the year that followed, they only delivered about 4000 cars — less than 1% of the orders. Musk candidly admitted that the company was in an “operational hell” and subsequently invested most of his time in production and logistics. That’s where his bottleneck is — not in the vision.
Throughout the history of business there have been several innovative breakthroughs that have originated in operations. Ford developed the production line for vehicles, in order to produce a car for every worker. And there is another example from a different field — it’s hard to imagine, but in the past there was no unified standard for marine transport containers, which caused such transport to be ridiculously expensive, until a logistical genius invented the container that we are familiar with today, which now serves as the basic recognized unit for ships, ports and even the trucks that haul them — a standard that made the entire process simpler and less expensive. And there are many other operational innovations that have changed the world and that we are rarely think about, such as the barcode, which was invented in 1970 and is still used today on every product sold in supermarkets.
Software companies (such as Google, for example), which managed to avoid involvement in operations at first, can no longer escape reality. Most of the opportunities in the virtual environment have already been exhausted: the media, music and information industries have already been conquered and all that remains for these huge companies is to begin conquering physical things. The fact is that reality requires operations. Transport, production, assembly, distribution, storage. People in the new world who wanted to avoid all of this physical labor are beginning to understand that you have to dirty your hands and achieve unprecedented excellence in operations if you want to shine on the world stage.
Despite the great importance of operations, we must be careful not to allow it to dictate our direction. Operations, by its very essence, strives only to optimize and repeat the processes that it is familiar with. This is why many companies focus on what they know how to do best instead of what the consumer needs. As a result, operations can be the enemy of innovation. It does not matter which amazing idea is raised, or which piece of marketing ingenuity — if operations doesn’t embrace it and perform perfectly, it simply will not work.
On the other hand, operations can and must be the engine for innovation. Truly successful companies listen first and foremost to consumers and seek solutions that work for them, but then go on to carry out those solutions with excellence.
Operations is really not a gray area, operations is the new black — it always was and always will be in fashion. Ultimately, what Pablo and Zara have done is to be close to operations and embrace it, both physically and ideologically. Because that’s the way it is: even the most trendy innovation that we see on dazzling billboards and catwalks is actually, behind the scenes, made possible by excellence in operations.