Operational excellence is a management philosophy that focuses on continuously improving an organization's processes, systems, and workflows to optimize performance and deliver value to customers. Operational excellence happens when an organization consistently and reliably outperforms the competition through constant improvement and a dedication to customer value. When two companies have the same strategy, the operationally excellent company will have higher revenues, lower costs, and less risk. This type of execution is only possible with outstanding leadership and a culture that supports problem-solving and transparency.
The benefits of operational excellence are significant and wide-ranging. They include:
Increased efficiency and productivity: Operational excellence helps to minimize waste, reduce errors, and improve processes, leading to greater efficiency and productivity. This results in cost savings and increased profitability.
Improved customer satisfaction: Operational excellence focuses on delivering value to customers, which leads to improved customer satisfaction and loyalty. By continuously improving processes and offering high-quality products or services, organizations differentiate themselves from their competitors and build a strong reputation in the market.
Better decision-making: Operational excellence requires a data-driven approach, meaning decisions are based on accurate and timely information. This leads to better decision-making and more effective strategies for the organization.
Increased employee engagement: Operational excellence requires a collaborative approach, which increases employee engagement and morale. Organizations create a culture of constant learning and development by involving employees in the continuous improvement process and giving them the tools and resources they need to succeed.
Agility and adaptability: Operational excellence requires organizations to be agile and adaptable in response to changing market conditions and customer needs. By continuously improving processes and systems, organizations are more responsive to changes and better positioned to take advantage of new opportunities.
Reduced risk: Operational excellence means identifying and mitigating risks, reducing the likelihood of costly errors and incidents. By continuously monitoring and improving processes, organizations eliminate disruptions to their operations and ensure that they are operating safely and efficiently.
Ten proven leadership behaviors help organizations achieve operational excellence. These principles were developed by the Shingo Institute at Utah State University's Shingo Prize for Operational Excellence. In the days before modern business methodologies like Lean manufacturing and Six Sigma, Dr. Shingo worked with Toyota executives to foster the ideas of ensuring quality at the source, reducing waste through just-in-time inventory, and maximizing the flow of value to customers.
Demonstrate Respect and Prioritize Recognition
Respect isn't something that many leaders talk about. Still, looking at how leaders of the most successful organizations approach their work, you will find signs of respect throughout the operation. For example, high-quality products show respect for customers. One-time payments show respect for suppliers. Professional development opportunities show respect for employees. While C-level leaders aren't necessarily involved in the daily execution of these activities, they cultivate a culture where such respect is the norm.
Respect is fundamental when it comes to employees. When employees are respected enough to engage in problem-solving related to the operations they perform, they become more personally invested in the outcome of every task and more likely to produce the desired result.
Leaders should recognize and reward the contributions of individuals and teams who demonstrate excellence in their work, which can motivate others to strive for excellence as well.
Practice Humility and Accountability
For some people, the most challenging part of solving a problem is admitting that there is a problem. No one likes to make mistakes, but acknowledging that improvement is possible and necessary is the only way to achieve better results than the status quo. Leaders of operationally excellent organizations reject the notion that "the way we have always done it is the only right way."
One reason this is so important is that leaders who refuse to adjust course will never be able to leverage one of the organization's most valuable resources, employee feedback and ideas.
Leaders should hold themselves and their teams accountable for their performance and results and ensure they are transparent about their progress toward the operational goals.
Strive for Perfection through Incremental Improvement
Leaders of operationally excellent organizations refuse to accept band-aid solutions. Instead, they search for the root causes of problems and implement effective countermeasures. Next, they recognize that unnecessary complexity leads to waste and defects, and they seek simple solutions where possible. Finally, they understand that not every change has to be revolutionary or disruptive. Small changes, implemented consistently, move each operation closer to perfection.
Elevate Scientific Thinking and Data-Driven Decision Making
Leaders in most organizations have experience and often "know" what's the right thing to do. Operationally excellent leaders are willing to hold their ideas up to the same rigor that scientists apply to test a theory. Does the data support the underlying assumptions? Can an idea be tested in a controlled way to validate its accuracy? Once implemented, how can the change be measured over the long run? Applying this type of analysis is how leaders can learn and adjust.
Focus on Processes, Don't Blame People
When something goes wrong, the easiest thing to do is blame the person closest to the error. However, even the most brilliant and conscientious employee won't produce excellent results with flawed processes, information, or materials. The most successful leaders understand that errors and defects are signs that it is necessary to reevaluate the process and find the root cause of the issue. All of the inputs to the process are subject to review, including information, materials, parts, equipment, and operator instructions.
Build-in Quality at the Source
Operationally excellent organizations produce work outputs correctly, the first time, more frequently than others. Quality isn't something that can be applied to a product as it gets sent to the customer. Instead, it is assured only when processes are designed so that potential problems become visible as soon as they occur, and employees are empowered to halt further production until the cause is uncovered and corrected.
Concentrate on the Flow & Pull of Value
Reducing waste is vital in the pursuit of excellence. The most problematic waste occurs when the flow of value to the customer is interrupted or when value is created in response to targets on a spreadsheet rather than demand from the customer. It is helpful to find ways to visualize this "flow & pull" of value so that workers can respond to backlogs and react to unexpected waiting.
Encourage Systematic Thinking
Leaders of operationally excellent organizations know that no process happens in isolation. Everything that goes on is connected. Most problems occur when work transitions from one state or function to another. That means that ensuring quality and consistency requires cross-functional collaboration. Leaders are responsible for removing obstacles that stop ideas, information, and material resources from flowing across departmental or functional boundaries.
Establish Consistency of Purpose with Clear Communication
Excellence is not achieved without a strategic alignment of goals from the board room to the front line. Everyone must have clarity about why the organization exists, its strategic aims, and the milestones on the path to success. Goals must cascade through the organization so that every person can make decisions and suggest innovations that are in line with the overall objectives.
Leaders who promote operational excellence should communicate clearly and consistently with their teams about the goals, expectations, and standards of the organization.
Create Value for the Customer
We don't get to decide if we beat the competition; only our customers do. Customers assign value by determining what they are willing to pay for. This isn't a complicated concept, but many organizations struggle to see through the eyes of the customer. You can innovate in a way that surprises and delights the customer. Still, the customer's needs, desires, preferences, and budget must be well understood and considered at every step of the way.
John F. Kennedy believed that “Leadership and learning are indispensable to each other.” I think that’s a great unifying theme of these essential behaviors. Leaders must be willing to learn, able to implement practices that embed learning, and capable of supporting the learning of every employee. When that happens, excellence is no longer a fantasy; it’s a predictable result.
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