Learning about Operational Excellence requires us first to understand what it is. This article is part of our introduction series that will form you a complete idea of what is Operational Excellence in high level. Introduction series is a part of a bigger OpEx series where we will explore and expand continuously to form as complete picture as we reasonably can about OpEx, from core principles to implementation.
Operational excellence is a fundamental concept in management, focused on achieving sustained improvements at all organizational levels. It blends consistent and dependable performance with the goal of exceeding standard expectations, delivering exceptional value to customers and stakeholders. Let’s start with digging deeper into the words: ‘operational’ and ‘excellence’.
Meaning of the words
The ‘operational’ refers to the daily business functions and processes that generate and deliver value. This includes the whole range of activities from production workflows and supply chain management to human resources and customer service operations. The efficiency and effectiveness of these processes are essential, as they directly impact the quality and speed of service delivery and product manufacturing.
In contrast, ‘excellence’ in this context means having a performance level that exceeds the norm. It involves not just meeting established standards or expectations, but surpassing them to produce superior outcomes. To surpass customer expectations company needs to be fully committed to continuous improvement that pushes everyone constantly forward and boost productivity and quality.
Operational = All the work that is being done within company
Excellence = Done better than customer expects and doing it better again
Operational excellence is dynamic and ongoing. It requires a proactive and constant effort to continuously refine and enhance operations. This effort is not merely focused on cost reduction or efficiency gains—it is about strategically improving operations to consistently deliver outstanding performance. By implementing systematic management strategies, organizations can foster an environment where operational excellence is a core business philosophy, ingrained in the company culture rather than a temporary target.
The drive for operational excellence is deeply rooted in a culture of continuous improvement, and vice versa continuous improvement is deeply rooted in OpEx. Separating the successful companies in OpEx is the demonstrated commitment to refining their processes and systems and having a comprehensive approach. They invest in training and technology, promote open communication, and encourage a culture of innovation and quality at all organizational levels. Operational excellence has to be a fundamental part of every decision and action within the organization, securing long-term success and a competitive edge. In short, Operational Excellence is a improvement strategy that you choose for your organization.
Flavors of Operational Excellence
Operational excellence can be approached through various methodologies or management systems, each offering a distinct flavor, scope or perspective on how to improve and manage business operations. Some are more focused on certain types of business (for example Agile for software development, Lean startup for startups etc.) and some are focused more on specific methodologies (example DMAIC is heavily used in Six Sigma).
To make matters a bit more complicated is that for same flavor there can be differing definitions (for example Six Sigma and Lean have both very wide scope definitions and much narrower definitions) about their scope and reach. And of course countless consultant companies have created own versions to make selling their approach easier, either by modifying or combining existing methods or adding to them (example of added are various “yellow belt” or “blue belt” Six Sigma certifications that are not in the original Six Sigma certificate levels).
There exists also several certification bodies and awards organizations that each have their own criteria and definitions. But all of these flavors emphasize the efficiency and effectiveness of processes but also incorporate broader business objectives such as sustainability, adaptability, and customer satisfaction. Essential is to understand this:
All of the flavors rely on the same fundamental principles and concepts and utilize many same methods and techniques coming from core operational excellence thinking. Scope, emphasis and terminology might differ, and realistically some are better than others, but it all revolves around these same topics we are describing here.
It’s not worthwhile to go through detailed differences and merits of each flavor, we will focus on the core concepts. For reference here’s an overview of some common flavors of operational excellence, but as described there are many more:
Lean Manufacturing
- Originating from the Toyota Production System, Lean focuses on eliminating waste within manufacturing processes. The goal is to create more value for customers with fewer resources by minimizing non-value-added activities.
Six Sigma
- Developed by Motorola, Six Sigma is a data-driven approach that aims to improve the quality of the output of a process by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management tools, including statistical methods.
Total Quality Management (TQM)
- TQM is a comprehensive and structured approach to organizational management that seeks to improve the quality of products and services through ongoing refinements in response to continuous feedback. TQM requirements may be defined separately for a particular organization or may be adhered to standards, such as the International Organization for Standardization’s ISO 9000 series.
Kaizen
- Kaizen, or continuous improvement, is the philosophy of continuously seeking ways to improve operations. It involves identifying benchmarks of excellent practices and instilling small, incremental changes to process or production methods.
Theory of Constraints (TOC)
- This methodology focuses on identifying the most significant limiting factor (i.e., constraint) that stands in the way of achieving a goal and systematically improving that constraint until it is no longer the limiting factor. In manufacturing, the constraint is often used to schedule production to maximize throughput.
Business Process Reengineering (BPR)
- BPR is about radically redesigning core business processes to achieve dramatic improvements in productivity, cycle times, and quality. The aim is to cut organizational layers, eliminate unproductive activities, and reduce redundancies.
ISO 9001
- ISO 9001 is part of the ISO 9000 family of standards related to quality management systems. It is designed to help organizations ensure that they meet the needs of customers and other stakeholders while meeting statutory and regulatory requirements related to a product or service.
Baldrige Framework
- Based on the Malcolm Baldrige National Quality Award criteria, this framework offers a comprehensive organizational assessment model that covers seven areas of focus: leadership, strategy, customers, measurement, workforce, operations, and results.
Agile Manufacturing
- Agile manufacturing leverages technology and tools to achieve flexibility and responsiveness to changes in the market. This approach prioritizes adaptability, rapidly customizing products to meet client demands.
Digital Transformation
- This approach integrates digital technology into all areas of a business, fundamentally changing how the company operates and delivers value to customers. It often incorporates elements of AI, IoT, and predictive analytics to enhance operational efficiency and innovation.
Depending on an organization’s specific needs, industry, and objectives, one or a combination of these methodologies may be implemented to drive their operational excellence initiatives.
Main aspects
Operational excellence has four aspects: efficiency and effectiveness, sustainability and reliability, each critical elements in business performance.
Efficiency
Efficiency is about optimizing resources—doing things correctly to enhance productivity while reducing waste and unnecessary expenses.
Effectiveness
On the other hand, effectiveness involves undertaking the right actions—those that align with the organization’s strategic objectives and increase customer satisfaction.
Sustainability
Sustainability is a vital component of achieving operational excellence. It encompasses developing operations that are not just effective in the short term but also viable in the long run. This includes adopting practices that are environmentally responsible, economically feasible, and socially considerate.
Reliability
Reliability is another fundamental aspect of operational excellence. Within the realm of business operations, reliability means consistent performance and quality over time. It entails delivering uniform service or product quality consistently, which, in turn, fosters trust among customers and stakeholders. Reliability also includes the resilience of business processes, enabling the organization to sustain stable operations even in challenging conditions.
Operational excellence requires a delicate balance among these elements. It demands systems and processes that are both robust and adaptable, capable of supporting immediate business needs while also preparing for future challenges and opportunities. This proactive approach is crucial for staying competitive in a fast-evolving market environment.
By integrating efficiency, effectiveness, sustainability, and reliability, organizations lay a solid foundation for achieving operational excellence. Concentrating on these core aspects ensures that businesses not only meet but also surpass the performance standards expected by their customers and industry peers, distinguishing themselves in the marketplace.
Dimensions of Operational Excellence
Operational excellence encompasses several key dimensions, each vital for the sustained success of an organization. These are also tied together in many ways, overlapping and influencing each other.
Strategy alignment
One of the primary dimensions is strategic alignment. This involves synchronizing operational strategies with the broader business objectives to ensure that every action and initiative supports overarching goals. Effective strategic alignment means operations are not just efficient in isolation but contribute directly to business growth, profitability, and customer satisfaction. Fundamental aspect of effectiveness is ensured in whole business level with this.
Processes
Process focus is at the core of almost all different flavors of OpEx. And for good reason as efficiency, continuous improvement and quality focus all rest on the shoulders of processes. Process defines how value is created, and without understanding how there is no possibility to improve efficiency, quality or performance. Processes need to be designed and optimized to support efficient and effective operations. This involves standardizing procedures to reduce variability, simplifying or removing tasks to eliminate unnecessary complexity, and ensuring that workflows are streamlined and logical.
Process improvement also is tied with technology, especially with questions of: what is the best technology to do this, how does technology impact this process. This applies to all tech, automation, robotics, AI etc. Process focus has to ensure that organization is fully understanding what “Don’t automate waste” means, and understand in which way technology will serve in best possible way.
Quality focus
Quality focus is integral to operational excellence. Aspects of efficiency and reliability are impacted by quality by a very large degree. It goes beyond basic compliance with standards to embrace a culture where every employee strives for excellence in every task. This dimension involves rigorous quality control measures, continuous quality improvement practices, and a commitment to delivering products and services that meet or exceed customer expectations. Quality must be embedded into the DNA of organizational processes to ensure that their output consistently aligns with high standards.
People and leadership
People are at the heart of operational excellence. Without the commitment and competence of an organization’s workforce, even the best processes and technologies would falter. It is essential that employees are not only skilled but also empowered and motivated to seek improvement opportunities. This requires a continuous investment in leadership, training and development, ensuring that the workforce is capable of adapting to new methods and technologies.
Moreover, fostering a culture that values transparency, accountability, and continuous improvement is vital. Such a culture encourages employees to take initiative and contribute to the organization’s objectives, enhancing the collective capability to achieve operational excellence.
Continuously improving
The continuous improvement cycle is a fundamental aspect of operational excellence, emphasizing an ongoing commitment to refine and enhance business processes. This cycle is pivotal for organizations striving to maintain a competitive edge and adapt to the rapidly changing business environment. Central to this approach is the philosophy of Kaizen, which originated in Japan and focuses on making improvements in everywhere all the time.
Kaizen and Continuous Improvement
Kaizen, meaning “change for the better,” encourages all employees to contribute ideas that improve efficiency, effectiveness, and overall workplace culture. This philosophy is not limited to specific departments or functions; it permeates every level of an organization, fostering an environment where continuous improvement is part of the daily routine. By regularly implementing changes, big or small, companies can achieve greater productivity and quality without the disruption that larger-scale investments might cause.
PDCA Cycle (Plan-Do-Check-Act)
The PDCA cycle is another cornerstone of the continuous improvement process. This iterative four-step management method is used to control and continually improve processes and products. It involves:
- Plan: Identifying a goal or needed improvement, developing a plan to achieve this, and determining success metrics.
- Do: Implementing the plan on a small scale to test its effectiveness.
- Check: Evaluating the results of the test to determine if the desired outcome was achieved.
- Act: If the plan was successful, implementing it on a larger scale and continuously assessing outcomes. If the plan was not successful, revising the theory and planning a new test.
This cycle ensures that operations are consistently being reviewed and improved, which not only enhances processes but also drives innovation within the organization. The ability to quickly adapt and refine processes gives companies a significant advantage in high-velocity markets.
By embedding the continuous improvement cycle into their operational strategy, organizations ensure that they are always moving forward, never complacent, and are prepared to meet the future challenges head-on. This dynamic approach to improvement helps maintain high standards of quality and efficiency, crucial for long-term success and operational excellence.
Together, these dimensions form a comprehensive approach to operational excellence. Strategic alignment ensures that all operational activities are purpose-driven and oriented towards achieving specific business goals. Process focus enhances the efficiency and effectiveness of these activities, ensuring that resources are used in the most productive manner possible. Strong focus on quality guarantees that the results of these efforts meet the highest standards, thus fulfilling customer needs and securing their loyalty. Committed and competent people in organization are essential, and in fact nothing else will matter if this element is not in place. And finally Continuous improvement mindset and approach has to be successfully ingrained in all areas of operations and organization to make word excellence a reality.
Measuring Success in Operational Excellence
A critical aspect of operational excellence is the ability to measure success effectively. Accurate and relevant metrics are essential for assessing performance, guiding decision-making, and ensuring continuous improvement within an organization. These metrics not only help track progress but also inspire a data-driven culture that fosters accountability and transparency.
Performance Metrics
To determine the effectiveness of operational excellence initiatives, organizations must establish clear, quantifiable performance metrics. These metrics typically cover a range of areas including efficiency, cost, quality, and customer satisfaction. Common examples include:
- Efficiency metrics: Measures like productivity, cycle time, throughput, and capacity utilization that indicate how efficiently resources are being used.
- Cost metrics: Total operational costs, cost per unit, and cost savings achieved through operational improvements.
- Quality metrics: Defect rates, inspection counts, and compliance rates, which assess the quality of outputs and processes.
- Customer satisfaction metrics: Customer satisfaction scores and net promoter scores (NPS) that gauge how well the operations meet or exceed customer expectations.
Balanced Scorecard Approach
The Balanced Scorecard is another tool used to measure operational excellence. It provides a comprehensive view by balancing financial measures with non-financial metrics. The scorecard includes perspectives like:
- Financial: How do our operations impact our financial performance?
- Customer: How do customers see us?
- Internal processes: At what must we excel?
- Learning and growth: Can we continue to improve and create value?
This approach ensures that operational improvements are aligned with overall business objectives and reflect a balanced organizational performance across multiple dimensions.
Continuous Feedback Loop
Implementing a continuous feedback loop is crucial for sustaining operational excellence. This involves regular reviews of performance data to identify trends and areas for improvement. It also requires adjustments to operations based on this feedback, thereby creating a dynamic system that evolves with changing business needs and market conditions.
By effectively measuring success through these metrics and approaches, organizations can ensure that their pursuit of operational excellence remains focused and fruitful. This not only helps in achieving immediate operational goals but also aligns with long-term strategic objectives, enhancing overall business resilience and competitiveness.
Conclusion
Now we understand the core meaning of the two words Operational Excellence, and also many flavors that may be associated with those words. Important is to remember the main aspects of Efficiency, Effectiveness, Sustainability and Reliability and equally the dimensions of Strategy, Processes, Quality, People and Continuous Improvement. This leads us to next article in our series of Introduction: core objectives. What do we really want to achieve with this all?