No executive in the world would turn down operational excellence if you handed it to them on a platter even if they don’t exactly know what it is. It just sounds like something awesome. But operational excellence isn’t like an hors d'oeuvre you can pluck off a tray. In order to be achieved, it must be clearly understood, injected into the culture, and supported with a methodology to guide decisions. The principles of excellence must become ingrained in everyday activities. Getting there isn’t easy, but it is operationally excellent companies that can achieve rapid growth and sustain a leading market position.
What is Operational Excellence?
Business Dictionary defines operational excellence as,
“A philosophy of the workplace where problem-solving, teamwork, and leadership results in the ongoing improvement in an organization. The process involves focusing on the customers' needs, keeping the employees positive and empowered, and continually improving the current activities in the workplace.”
That’s not a terrible definition, and it certainly includes some of the elements of operational excellence, but there’s a simpler and more useful way to define it. Operational excellence is the execution of the business strategy more effectively and consistently than the competition. This occurs when every employee can see the flow of value to the customer and fix it when the flow is interrupted.
We are often asked if continuous improvement and operational excellence are the same. They are not, but they are closely related. Continuous improvement involves constantly adjusting processes to reduce waste, improve quality, and maximize human potential. It focuses on making each existing process perfect. Operational excellence goes further. It involves setting the organization up for growth, which means understanding what the market wants and creating an uninterrupted value stream that always feeds the need, even if it changes.
Therefore, operational excellence is not confined to the executive suite or the factory floor. It involves every person at every level of the organization because every role is doing something that brings value to the customer and is therefore on the critical path to success.
The Principles of Operational Excellence
Many consider Dr. Shigeo Shingo to be the father of operational excellence. Throughout his life, he wrote 18 books on related topics. Long before the popularity of Lean manufacturing or Six Sigma, Dr. Shingo wrote about the ideas of ensuring quality at the source, flowing value to customers, just-in-time inventory, and going to the Gemba. He worked closely with Toyota executives, including Mr. Taiichi Ohno, who helped him to apply his conceptual ideas to the real situations.
Each year, the Shingo Institute at Utah State University offers the Shingo Prize for Operational Excellence. The award is based on the Shingo Model’s ten guiding principles.
Respect for Every Individual
The principle of respect must be applied by and for every person in an operationally excellent organization. It applies to employees, customers, partners, suppliers, and the community. When people feel respected, they are likely to become emotionally invested in achieving the desired outcomes. Most people say that being respected is the most essential thing that they want from their job.
What does respect look like? Employers demonstrate respect when they create development plans for employees that include appropriate goals, when they involve employees in continuous improvement, and when they provide consistent coaching for problem-solving.
Lead with Humility
The first step to improvement is the admission that improvement is possible and necessary. This requires a sense of humility. Leaders must be willing to seek input, listen, and learn. This attitude empowers employees to contribute their best feedback and ideas. Leading with humility involves letting go of the past and preconceived notions of the “right” way.
When an organization is led with humility, there is consistent, foreseeable engagement where the work happens. Employees know that they can point out opportunities for improvement and expect gratitude, rather than repercussions.
While perfection is an unattainable goal, pursuing it creates the environment for a culture of operational excellence. Our notions of what is possible can be changed with altered points of view, meaning that the opportunity to improve is unlimited.
Those seeking perfection look for long-term solutions rather than temporary Band-aids. They recognize that simplicity is the key to processes that trend toward the ideal.
Embrace Scientific Thinking
Scientist insists that ideas are tested rigorously with experimentation, observation, and analysis. Applying this thinking in business helps teams understand new concepts, learn from failure, and adjust paradigms.
Operationally excellent organizations follow a structure for solving problems and allow for ideas to be tested without the fear of failure.
Focus on Process
Even the smartest and most engaged employees cannot consistently produce high-quality results with poor processes. While it is common to blame people when something goes awry, most of the time the problem is related to a failed operation, not the person doing the work.
When leaders focus on the process, they get to the root cause of what created the error and improve it. They also make sure that all resources including information, materials, parts, and equipment meet the standards before they are used in a process.
Assure Quality at the Source
Excellence can only be attained when every element of work is performed correctly the first time. If there is a problem, it must be uncovered and fixed where and when it was created.
Quality can be assured only when the work environment is organized so that potential problems become visible immediately. When something does go wrong, the process must be stopped and corrected before the error moves further down the pipeline.
Flow & Pull Value
Maximizing value for customers means creating it in response to demand and maintaining an uninterrupted flow. When the flow is disrupted or when excess inventory occurs, waste is produced. Backlogs in work-in-progress create opportunities for error.
Therefore, it is necessary to avoid creating or storing more product or services than are immediately required based on customer demand. It is also essential to make sure that the resources needed to create value are available when needed.
Operationally excellent organizations understand that processes are intertwined and that the most significant problems often occur when work is moved from one process or team to another. Therefore, they recognize that it is essential to understand these relationships within the system to implement positive change.
The object is to remove any barriers that prevent ideas, information, materials, or ideas from flowing throughout the organization.
Create Consistency of Purpose
Strategic alignment is required for operational excellence. There must be certainty about why the organization exists, where it is headed, and how it will get there. The strategy must be deployed to the extent that individuals can align their actions, decisions, and innovations with the overall objectives of the organization. This allows for greater confidence and better decision making across the board.
Organizations with a consistency of purpose clearly communicate the mission and direction with everyone. They set individual and team goals that are well aligned with the overall strategy and goals.
Create Value for the Customer
The bottom line is that only the customer gets to define value by conveying what they want and for what they are willing to pay. Long-term success is only achieved by organizations that deliver customer value effectively and efficiently consistently.
Creating value for the customer is a simple idea, but it is not easy. Excellent organizations continuously work to gain a deeper understanding of their customers’ needs and expectations.
The Road Toward Operational Excellence
Now that we’ve talked about the definition of operational excellence and its core principles, the question becomes what specific steps can an organization take to get there? While there is no single answer, there are a set of mile markers on the path that successful organizations have passed.
Introduce Employees to Operational Excellence
It is essential to introduce the concept in a way that emphasizes the desire to provide the ultimate value to the customer, with the most efficient use of resources along the way. Employees should understand the guiding principles and be recognized and rewarded when they see the world through that lens. The tools that you will use to achieve operational excellence are important but start with the concept itself.
Reduce Top-Down Thinking
Traditional companies operate in a strict top-down fashion with all direction coming from the top. Operational excellence requires a different approach in which front line employees are empowered to recognize and respond to interruptions in the flow of value. Ideally, the upper levels of the hierarchy exist to manage the strategic direction of the organization and to provide the resources that employees need to be successful in a constant feedback loop.
Although the overarching objective of operational excellence is to create an unhindered flow of value to the customer, another of its primary concerns is transparency. If you can see roadblocks, process irregularities, resources that aren’t at capacity, and poorly aligned goals you can do something about them. That’s why so many improvement tools are designed to allow visual management. People process images much more quickly than text, that’s why icons, signs that use color and shape, and dashboards are so popular.
Introduce Standard Work for Normal and Abnormal Flow
Without a standard, there can be no improvement. We mentioned the importance of scientific thinking. The standard is like a control group for your improvement experiments. In most cases, processes will run normally, and the usual standard can be applied, but there should also be standard work for when processes become out of control so that the people on the front lines know exactly what they should do.
Align Objectives and Accountability
The most successful companies have a clear set of business objectives. Many use the Hoshin Kanri approach to strategic planning to set the company on its path to “True North.” Part of strategy deployment is ensuring that each individual knows how they can best contribute to achieving the most important goals. Performance evaluation is based in part on engagement with improvement work.
Set up the Framework for Collaboration and Improvement
Having some structure to your improvement work is crucial. Your improvement platform should provide a central repository for all opportunities for improvement, allow for cross-functional collaboration, and offer active alerts and notifications to make sure that progress never stalls. The technology will serve as a knowledge bank for the organization so that no lessons learned are ever lost.
While the path to operational excellence may seem straightforward, if it were easy, everyone would be doing it already. There are some common challenges that organizations must overcome to experience success.
People are often not connected enough to broader business needs. It is common for employees not to understand the business strategy or see how their role enhances contributes to customer value.
Lack of Progress
People may be working very hard, but are tasks underway that are moving the needle on growing the business? Do leaders make room for growth-related activities?
Lack of Appetite for Adaption
In a competitive market, organizations need the ability to adapt their infrastructure to change. What’s more, this process has to happen quickly and efficiently. Many organizations do not succeed in changing courses in time to keep up with their competition.
Overly Complex Data
Some organizations believe that more data is better, and it is, but only too a point. When data is so complex and difficult to understand, people begin making decisions without it.
We mentioned the importance of systemic thinking as a principle of operational excellence. Unfortunately, it is somewhat rare. Many organizations don’t have a management plan in place to bridge the gaps between processes and functional areas.
To help overcome these challenges, many organizations use a business methodology to operationalize the principles of excellence. Some of the most popular are Lean, Six Sigma, Kaizen, and TQM (Total Quality Management). Whether or not your organization chooses one of these models, operational excellence can be achieved when the principles become part of the DNA of the organization.
Getting an entire organization to excellence it isn’t easy, but as leaders show a commitment to achieving operational excellence, employees step up and deliver increasing levels of engagement, innovation, and maintainable growth.