Continuing our learning path on Operational Excellence we need to discuss what we are trying to achieve with all this, what are the core objectives? This article is part of our introduction series that will form you a complete idea of what Operational Excellence is in high level. And this 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. All well and good, but what do we mean when we say “performance”, what do we exactly want to achieve with all this? What are the objectives of operational excellence?
Discussion of Core Objectives
Operational Excellence can be condensed into three primary objectives: efficiency, quality, and continuous improvement. While organizational performance can be measured in multiple ways—such as financial reporting, market share, or customer satisfaction—these three objectives provide clear targets, and at the same time clear focus areas to guide organization. Efficiency, quality, and continuous improvement are interlinked, often complementing each other and when improvement is achieved in one, also other areas improve. When measured correctly, these also offer a quite ruthless and clear eyed assessment of an organization’s true capability.
Efficiency, or productivity in many instances, is about maximizing output while minimizing input, ensuring that resources—whether time, money, or manpower—are utilized in the best possible way. Important distinction is that efficiency is not about cutting corners, or simply cutting costs but a real reduction of resources needed to deliver the same service or product, with same or better quality, to customer. Sounds a bit complicated, but we’ll expand on that shortly.
Quality is a second target of operational excellence. And by quality we mean going beyond standards (or just acceptable) to consistently exceed customer expectations. It has to permeate every aspect of an organization, from product development to service delivery to product or service delivered to a customer. High quality boosts customer satisfaction, strengthens brand reputation, and reduces costs related to rework and returns.
Continuous improvement is the third objective and arguably the driving force behind operational excellence. It’s about creating an organizational culture that constantly seeks to enhance processes, products, and services. Mr Masaaki Imai defined this excellently that improvement must happen “Everyday, Everywhere, by Everyone”. Continuous improvement ensures that an organization remains competitive and adaptable.
These three main objectives clarify some basic questions about Operational Excellence. What does OpEx really do? Why should we be doing this at all? What should be our targets? Of course the exact how and what have very long answers which we are attempting to clarify in these blog articles, (and more deeply in our training courses) but first we focus on expanding the Efficiency, Quality and Continuous Improvement objectives.
Efficiency
Efficiency is often used interchangeably with productivity, but there are important distinctions to clarify as they are not exactly the same. Efficiency is about maximizing output while minimizing input, ensuring that resources—whether time, money, or manpower—are utilized in the best possible way. So it’s a quite high level definition, encompassing any process or type of work or organization. Productivity is more narrowly defined as amount of getting done in a certain amount of time, so it’s a subset of efficiency concept.
Efficiency is not about cutting corners or simply cutting costs, it is about achieving real reductions in the resources needed to deliver the same or better quality service or product to the customer. There are multiple ways to measure efficiency, for example headcount, cost, energy, equipment, floor space, and time. Each of these elements contributes to the overall efficiency of an organization, and you must yourself select which best reflects the needs of your organization.
Cost Efficiency: Ultimately, efficiency often boils down to cost efficiency, as headcount, space, energy, and equipment all incur costs. Cost efficiency can be measured by comparing the cost of inputs to the value of outputs. This involves analyzing the cost per unit of production and finding ways to reduce this cost without sacrificing quality. With cost efficiency measurements and KPI:s there are some considerations that need to be addressed.
Firstly, just looking at the money can very easily be so abstract or high level that it’s almost impossible to gain any meaningful, actionable information out of it. Yes, we know that this is today our cost efficiency level as a whole, now what… What we want to avoid is to rely on painstaking deepdives (perhaps even manually) each and every time we want to understand where the high level numbers come from.
Secondly, and this happens often, things that can be measured automatically, ie. numbers come straight out of reporting systems, are the things that are being measured. And that information might not be the same as what you want to understand, for example by product line that is being manufactured on several sites. Or comparing two different country organizations which have different way of reporting etc.
To get around this are two things: High level numbers have to be possible to break down in meaningful and clear subsets. Secondly measurements have to serve the needs of process development, not the limitations of reporting systems. But also one way is to focus on certain aspects of efficiency which might make it more clear what to do to improve, for example…
Headcount Efficiency: One way to measure efficiency is by examining the ratio of output to the number of employees involved. This involves looking at how many units of a product or service are produced per employee. Increasing headcount efficiency means either producing more with the same number of employees or maintaining output levels with fewer employees, without compromising quality or employee well-being. Work smarter not harder. As old as that saying is, it still holds true.
Unfortunately too often just headcount is reduced without chanching the process or way of working. This might result in improved efficiency on the surface at first (and in some cases remaining personnel picks up the slack that was previously existing), but all too often backfiring either by quality issues or employee morale. Worst case is that the problems start to accumulate in hiding, overworked employees starting to cut corners and cover-up mistakes made in a hurry. And when the problems accumulate enough, it’s very expensive and difficult to correct.
Time Efficiency (Productivity): Time efficiency involves analyzing the time taken to complete processes and finding ways to reduce it. This can be measured by cycle time, lead time, and throughput time. Streamlining processes, reducing bottlenecks, and employing time management techniques are key strategies for improving time efficiency.
Time efficiency is incredibly powerful, and many Lean (or Lean Six Sigma) methods and principles focus on this quite intensively, as it incurs so many benefits outside of just saving time. Smaller inventories, reduced quality costs etc. We will go through these in great detail in our later articles. However practice has shown that too often measuring times has been neglected, or there is no understanding at all how long things take to get completed, or no easy way to measure times that this very powerful understanding is left underutilized.
Energy Efficiency: Energy is another factor, and for energy intensive businesses highly relevant. Measuring energy efficiency involves tracking the amount of energy consumed per unit of production. Reducing energy usage not only cuts costs but also supports sustainability goals for which many companies have very ambitious targets. Energy-efficient equipment, optimizing production processes to reduce energy waste, and implementing energy management systems can all contribute to higher energy efficiency.
Floor Space Efficiency: Efficient use of floor space means maximizing the productive use of available space. This can be measured by the amount of output produced per square meter of space. Techniques such as reconfiguring layouts to optimize workflow, utilizing vertical space, and implementing space-saving technologies can help improve floor space efficiency.
Equipment Efficiency: Equipment efficiency can be measured by evaluating the uptime and productivity of machinery. This includes analyzing metrics like Overall Equipment Effectiveness (OEE), which considers the availability, performance, and quality output of equipment. Regular maintenance, upgrading outdated machinery, and training employees to use equipment correctly can enhance equipment efficiency.
The objective is real efficiency gains, not just transferred costs to another area. True efficiency improvements should result in lower overall costs while maintaining or improving output and quality. And all objectives target setting should reflect that.
At the end of the day, it all comes back to cost efficiency. Improving the efficiency or productivity of headcount, space, energy, equipment, and time will be reflected in getting more done with lower costs. It might be very beneficial in practical terms to focus on some aspect (for example time efficiency) to get results, but the overall picture remains the same. Operational excellence is about achieving sustainable improvements that deliver value across all aspects of the organization, ensuring that efficiency gains are real and impactful.
Quality
First it must be established what the word Quality means in OpEx context. Quality as a word is defined as “degree of excellence of something”, and “a high standard”. From here in our context means that it extends beyond mere compliance with standards to consistently exceeding customer expectations. Quality involves everything from the initial product design and development stages to the final delivery and customer service experience.
Objective of Operational Excellence is to achieve high Quality: “Consistently exceed customer expectations”. And to turn it around, truly excellent operations consistently exceed customer expectations. So it’s a target, and a result of Operational Excellence.
When we talk about quality, it’s essential to recognize its different aspects. There’s the quality that the customer sees—how well the product or service meets their needs and expectations. This external quality is crucial because it’s directly tied to customer satisfaction, brand reputation, and ultimately, the success of the business. Customers expect products and services to work as promised, and any deviation from this expectation can lead to dissatisfaction and loss of trust.
On the other hand, there’s internal quality, which includes the processes and systems within the organization that ensure the final product or service is of high quality. Internal quality involves everything from the efficiency of production processes to the accuracy of documentation and adherence to best practices. Maintaining high internal quality standards ensures that the entire operation runs smoothly and efficiently, reducing the likelihood of errors and rework.
Furthermore internal quality recognizes the fact that only high quality of processes and management systems are capable of producing high quality services and products to customers. That is the reason why ISO9000, EFQM and other quality certifications focus so much on company internal processes and management.
From the point of view of Efficiency, Quality directly impacts through the principle of “first time right.” Achieving quality from the outset saves huge amounts of work and resources. When a product or service is done right the first time, it eliminates the need for costly corrections and rework later on. This principle acknowledges that it’s much more expensive to fix problems in the later phases of production or after the product has reached the customer. The worst-case scenario involves a product recall or significant reputational damage, which can be catastrophic for any business.
Lastly, quality is important not just for practical reasons but because it’s the right thing to do. Striving for quality reflects an organization’s commitment to excellence and integrity. It shows that the company values its customers and is dedicated to providing them with the best possible products and services. This commitment to quality builds trust and loyalty, fostering long-term relationships with customers. And equally importantly, on a personal level it is motivating to work in this kind of environment.
Quality must be rigorously measured and managed. This involves implementing robust quality control and assurance processes, continuous monitoring, and improvement practices. But again same considerations as in efficiency measurements apply. Quality measurements have to be clearly defined so that they are actionable, and again measuring what you need to know, not just what the system happens to provide automatically (but with low information value).
There are several methods and whole systems for managing and improving quality. During these articles and trainings we will of course dig in deep also form this perspective. Quality is a cornerstone of operational excellence. It encompasses both what the customer sees and the internal processes that ensure high standards. Remember that Quality is not just about meeting standards: it’s about exceeding them and doing the right thing for the customer and the organization. Striving for quality in every aspect of the business is essential for achieving and sustaining operational excellence.
Continuous Improvement
Now we come to the third and equally crucial core objective: continuous improvement. Operational excellence holds as a core principle the notion that efficiency and quality—our previously discussed objectives—must not only be achieved but also constantly developed. This means that improvement is not a one-time effort: it’s an ongoing pursuit. Continuous improvement is about making consistent improvements, from strategy level to daily incremental changes that lead to significant long-term gains. It’s the recognition that the journey towards excellence is never truly complete.
Important note: If you are just superficially searching around for Continuous Improvement definitions (this applies to Lean also), they all too often point to small improvements done day-to-day. But this is only a part of the story, OpEx really covers the levels from strategy and strategic projects to small improvements done every day by everyone and this is part of the core objectives. Do not satisfy yourself with just small improvements, you need all levels!
“Excellence is a Habit, not an Act. It takes Practice and Perceverance”
Aristotles
The idea behind continuous improvement is fundamental. It acknowledges that in a competitive world, standing still is not an option. Everyone around you—your competitors, industry standards, and technological advancements—will continue to move forward. To remain relevant and competitive, you must continuously seek ways to improve. This relentless drive for improvement is what differentiates world-class companies from the rest.
“No Problem is a Problem!” In operational excellence, continuous improvement also recognizes that nothing is perfect. There are always opportunities to make things better, whether it’s a process, product, or service. For leaders in organization this requires accepting the fact that in real organization, real operations, there are always problems. If you don’t see any, it means they are hidden. Employees at all levels must be empowered to identify inefficiencies, suggest improvements, and implement changes. It’s about fostering an environment where every team member is actively engaged in the pursuit of excellence.
Moreover, continuous improvement in operational excellence is not just about the presence of improvement. The pace at which these improvements are made. Every company with competition strives to improve, but the critical question is whether the improvements are happening fast enough. Are you keeping pace with or outpacing your competitors? World-class companies recognized for their operational excellence are capable of improving their performance in double digits every year, year after year. This level of improvement is what sets them apart and propels them to the forefront of their industries.
To achieve continuous improvement, organizations must adopt structured methodologies and frameworks. We’ve already pointed out in previous article about many possible frameworks and how they have differences in approach or scope. Techniques like Kaizen, Six Sigma, and Lean Management (and many others) provide systematic approaches to identifying and eliminating waste, reducing variability, and enhancing quality. These frameworks will be extremely beneficial and helpful and in this article series we will be covering underlying principles, techniques and methods. Important for your organization is to recognize that true Operational Excellence is achieves core objectives described in this article, efficiency, quality and continuous improvement.
As in other two main objectives also Continuous improvement requires a robust system for measuring and monitoring performance. You must be able to answer a key question: “Are we improving in efficiency and quality fast enough?”. Key Performance Indicators (KPIs) and metrics should be regularly reviewed to track progress and identify areas for further enhancement. Feedback loops are essential, providing real-time data that can inform decision-making and guide improvement efforts. Regular audits and assessments can help ensure that improvement initiatives are on track and delivering the desired results.
In conclusion, continuous improvement is a cornerstone of operational excellence. It’s the principle that efficiency and quality must not only be achieved but continually enhanced. This constant pursuit of improvement is what keeps organizations competitive and drives long-term success. By fostering a culture of continuous improvement and adopting structured methodologies, organizations can achieve significant, sustainable gains. The goal is not just to improve but to improve faster and more effectively than the competition, ensuring that you remain at the cutting edge of your industry.
Conclusion
What do we want to achieve with Operational Excellence? Efficiency, Quality and Continous Improvement! And as you can see already from the lenght of these short introductory articles, there is lot to cover on how to achieve this with OpEx. But it also raises a question: I think we are already doing ok, why should I put effort on this? Let’s explore why this all is so important as our next topic is “Importance of Operational Excellence”.