What is Operational Excellence?
Executing a business strategy more effectively and consistently than the competition is called Operational Excellence. Ideally, 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 improving your business operations to reduce waste, cut costs, 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 by understanding what the market wants and creating an uninterrupted value stream that continuously feeds the need.
The Principles of Operational Excellence
Long before the popularity of Lean manufacturing or Six Sigma, Dr. Shigeo 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 apply his conceptual ideas to 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. Employers demonstrate respect when they create development plans for employees that include appropriate goals, involve employees in continuous improvement, and 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. When an organization is led with humility, there is consistent, foreseeable engagement where the work happens.
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.
Embrace Scientific Thinking
Scientists insist that ideas are tested rigorously with experimentation, observation, and analysis. Operationally excellent organizations follow a structure for solving problems and testing ideas without the fear of failure.
Focus on Process
While it is common to blame people when something goes awry, the problem is usually related to a failed process design, not the person doing the work. When leaders focus on the process, they get to the root cause of 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 happens when the work environment is organized so that potential problems become visible immediately. The process must be stopped and corrected before the error moves further down the pipeline when something goes wrong.
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 excess inventory occurs, waste is produced. In addition, backlogs in work-in-progress create opportunities for error.
Operationally excellent organizations understand that processes are intertwined and that the most significant problems often occur when work is moved from one process to another. Therefore, they recognize that it is essential to understand these relationships within the system to implement positive change.
Create Consistency of Purpose
There must be clarity about why the organization exists, where it is headed, and how it will get there. The strategy must be deployed so that individuals can align their actions, decisions, and innovations with the overall objectives.
Create Value for the Customer
Only the customer defines value by conveying what they want and for what they are willing to pay. Therefore, long-term success is achieved by organizations that deliver customer value effectively and efficiently consistently.
The Road Toward Operational Excellence
While there is no single right path, there are a set of mile markers that successful organizations have passed.
Reduce Top-Down Thinking
Traditional companies operate in a strict top-down fashion, with all directions coming from the top. Operational excellence requires a different approach. Front-line employees are empowered to recognize and respond to interruptions in the flow of value. The upper levels of the hierarchy exist to manage the organization’s strategic direction and provide the resources employees need to succeed in a constant feedback loop.
Although the 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.
Implement Standard Work
Without a standard, there can be no improvement. 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. Standard work is also essential for effective time management.
Align Objectives and Accountability
Part of strategy deployment is ensuring that each individual knows how to 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
Structuring 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.
Getting an entire organization to excellence isn’t easy. Still, as leaders show a commitment to achieving operational excellence, employees step up and deliver increasing levels of engagement, innovation, and maintainable growth.