Operational Excellence: Why your company needs this now
18 minutes, 23 seconds read
It doesn’t matter how profitable or successful your company is, there is always scope for improvement.
An organization that stops improving stops growing. However, it can be difficult to find specific areas that need improvement.
The process can be complicated and often requires some major changes. However, in some cases, change occurs in a less overt way – slowly and gradually over time. Operational excellence is one such change.
We’ll talk about operational excellence in this guide and explain how a company can achieve it while highlighting some real-life examples.
Let’s start and know more about operational excellence:
What is Operational Excellence?
The term can be quite difficult to explain as it’s not a process. It can be best defined as a philosophy that embraces leadership and problem-solving to achieve continuous improvement.
It can be quite complicated to approach operational excellence because the term is too broad and often too ambitious.
We must remember that operational excellence isn’t a set of activities that the management performs. It’s a mindset that must be present in the organization.
This might sound pretty simple on paper but it can be quite tricky to apply as it involves getting everyone – from managers to low-level employees – on the same page.
It is the responsibility of the management to explain to everyone what excellence in operations really is and why a company is attempting to achieve excellence.
Now that the definition of operational excellence is clear, we’ll explain how to implement operational excellence.
Continuous Improvement vs Operational Excellence
It’s important to understand the concept of continuous improvement in order to understand operational excellence. While they’re pretty similar, they’re not the same.
Continuous improvement refers to the on-going efforts a company makes to improve its processes, services, or products. The process typically takes place over time in a gradual manner. It does not require major changes or any breakthrough innovation.
It’s important for a company to not only improve but to continue to build and maintain improvements. However, continuous improvement cannot be enough alone.
As the organization continues to refine its products, services, or processes, it needs to work on continuing to grow. This is where the concept of operational excellence comes into play.
Operational excellence embraces certain tools and principles to achieve sustainable improvement. The mindset is achieved when all members of an organization can clearly see the flow of value to the customer.
Seeing the value stream, however, may not be enough – businesses need to actively work on improving both the value proposition and its delivery.
However, operational excellence isn’t only about increasing productivity or reducing costs. It’s about improving standard work culture and producing highly valuable services and products for your buyers to achieve sustainable, long-term growth.
It wouldn’t be wrong to use the word ‘journey’ to define operational excellence. The journey involves finding the right tools for the right processes. Once they sync together, the company reached the ideal organizational culture where employees feel motivated and empowered.
10 Core Operational Principles to Achieve Operational Excellence
The Shingo Institute of the Jon M. Huntsman School of Business celebrates businesses. It gives out an award every year for operational excellence. Named the Shingo Prize, the award is based on a variety of factors including company culture, how well employees demonstrate the Guiding Principles of the Shingo Model, and company results.
The Model defines ten operational excellence principles. Let’s have a detailed look at each principle:
#1: Show Respect to Everyone
The Shingo Model asks to pay attention to everyone – from top-level employees to low-level employees. It says that everyone has potential and worth. You need the help of everyone to identify and correct abnormal flow.
It’s important to pay attention to everyone and treat them with respect. It’s important that merely having respect is not enough, to deliver value stream, one has to demonstrate this respect.
A reliable way to do so is to make employees a part of your decisions. This is how you can fix that flow problem. Treat every employee with respect and listen to what they have to say. This will make them feel motivated, loyal, and empowered, which will eventually help your business achieve continuous improvement.
#2: Don’t Forget Humility
Humility is a quality that all leaders must possess if they want to lead in the right direction and correct every process and flow.
You cannot improve unless you’re able to see your shortcomings and work on what you lack.
People who think they’re perfect or need no improvement will never be able to improve. You must be willing to listen to what others have to say and look at yourself from a critical perspective to identify your flaws.
You don’t have to do what others say, but you must be willing to listen to them. You must create a value stream that every employee can see. And this can be possible only when you’re willing to listen to them.
#3: Try to Achieve Perfection
This might sound a little odd to some people since we are led to believe that perfection isn’t attainable. However, just because you feel it isn’t possible, does not mean you should stop trying to achieve it.
You must take steps to perfect every process and improve the flow of knowledge so you can hit the bull’s eye and attain operational excellence.
The key lies in setting the bar high and to continue to work harder to achieve your goal. This is a very important part of achieving excellent operations.
You can make things easier by looking for ways to simplify your job and looking for long-term solutions without compromising on your work.
#4: Consider Scientific Thinking
We live in a technologically advanced world. A business cannot grow without looking at things from a technological perspective.
You must innovate and experiment to find better ways of doing the same thing. The first step is to ‘learn’ and to ensure that every employee can see the needs of a customer and fix what’s wrong.
Remember that constant learning and experimentation is important to innovate. Hence, gain knowledge and find out what works and what does not work.
Explore new options and encourage your employees to do the same. By doing so, you will reduce fear and your employees will be more interested in embracing new technology, which is very important because we typically tend to hate the idea of change.
#5: Pay Attention to the Process
Things may not always go as expected. It is surprisingly common for plans to fail, and when that happens most people end up looking for individuals to blame. However, it might not always be the fault of an employee or individual. You should rather pay attention to the process.
Even your standard work processes may not always work. Things change and so do the requirements. What works today may not work tomorrow.
Instead of blaming others, concentrate on how to fix that flow or the problem that’s causing processes to fail. You might have to make some adjustments to achieve operational excellence.
#6: Ensure Quality at Every Stage
Operational excellence is all about quality; however, a business can maintain quality only if it is aware of it at every stage.
You must keep an eye on the process and ensure things are organized in a neat manner so that you can identify abnormal flow before it’s too late.
Consider reorganizing processes so that it’s easier to identify potential issues before they become an issue. Some problems can be very easy to identify and solve but some can be very difficult to manage.
Having a clear protocol to follow can make things easier. It’s important to create a standard work process manual that can be followed when mistakes occur.
#7: Have a Constant Flow to Create Value
The aim of every business should be to improve the flow of work and provide more value to consumers. The only way to do is to ensure workflow and value are continuous, i.e.: without inefficiencies and wastes.
The first step, however, should be to know what your customers truly want. The value proposition should include goods or services that they’re interested in. There’s no point in working to create standard work processes that do not take into consideration the final buyer.
#8: Think Neatly and Systematically
A business involves several different processes and departments that must come together to achieve one common goal – better value and operational excellence.
Employees and managers must understand how different departments are connected and what impact they have on each other. It can be difficult to make the right call without this information.
A narrow vision will not take you anywhere.
#9: Create Constancy
Everyone must be aware of the company’s mission statement and goals.
They should be neatly and regularly communicated to all workers so that they’re fully aware of what they’re meant to achieve.
This information will help them align their own goals and actions with the company’s goal.
#10: Emphasize Customers and Create Value for Them
The last rule emphasizes the importance of customers and the need to create value for them. As mentioned earlier, you must find out what customers need to be able to create the right value for them.
It should be something that customers are willing to pay for. Since customer expectations and demands change every now and then, it is important for businesses to continue to work on value because what works today might not work tomorrow.
This will help you achieve operational excellence.
Operational Excellence: Real-Life Examples
Operational excellence allows a business and its leadership to improve all areas of performance, including profitability, decision-making, customer, partner services, human resources capabilities, and ongoing investment.
Businesses with excellent operation capabilities possess the structure and processes that give them the control, visibility, management practices, and tools necessary to achieve their goals.
Here are some examples:
In 2012, British multinational aerospace, defense, and security behemoth BAE Systems was in the news due to a proposed merger with EADS, a plan that didn’t get the approval of investors and other stakeholders.
It’s believed that this proposed merger would’ve threatened the company’s operation excellent efforts. Many argued that it didn’t make any strategic sense to join hands with EADS as it would’ve affected BAE in a negative manner.
Plans were eventually dropped; however, this example is often quoted to highlight how important it is to be careful when making business decisions. Something that looks good on paper might hard the company.
American multinational automotive giant was struggling during the 2008 recession and had to file for bankruptcy in 2009. The company took a year to bounce back to profitability in 2011, only a year after making one of the world’s biggest IPOs.
GM came back with the intention to offer the best value to the customer. The company could see the flow and introduced more than 1,500 data management jobs and tools to make processes easier.
The company decided to start a new age of innovation, which has helped it achieve operational excellence. It’s a good example of a company using technology to see the flow and improve things.
Chevron is a well-recognized name today; however, it wasn’t always this popular.
The company is engaged in almost every aspect of the gas, geothermal energy, and oil industries and heavily relies on core strategies.
It works with suppliers all around the world as a part of its ‘Chevron Way’ philosophy, which proved to be a major success and helped the company more than double its revenue within a span of ten years.
The company followed Six Sigma and other operational excellence principles to become one of the world’s biggest enterprises in terms of revenue. It seems to have realized the importance of continuous improvement and seems to follow these principles to achieve the required level of business growth.
Operational Excellence Challenges
Operational excellence doesn’t come without its challenges and the path isn’t as straightforward as it seems. Here are some of the most common challenges enterprises face when they try to bring continuous improvement to achieve business growth.
Employees are not always connected enough to broader business needs. For things to work well, every employee has to be on the same page and understand what a business is trying to achieve.
The aim shouldn’t be to earn more money but to bring continuous improvement to processes, products, etc.
Once you improve every aspect of your business, you will begin to make money. So, work on making your employees understand your business strategy.
Things will not change right away. It can take months and in some cases years for results to show. Sadly, not everyone’s patient enough to wait this long to see their efforts bear fruit.
The best way is to create standard work processes and manuals that highlight the time lag and the need to not pay attention to it. Additionally, you can make short-term goals to keep people motivated.
Once people see their hard work pay off, they will be more than willing to continue to work hard.
Not Willing to Change
In a competitive market, businesses are willing to adapt their infrastructure to change in a quick and efficient manner.
You will not be able to stay ahead in the race if you decline to upgrade or change. Companies like Nokia and Kodak took a hit only because they did not change when everyone else did.
You might have to deal with very complex data during the continuous improvement process.
The thing with data is that we may end up with a lot of it, including information that isn’t required. This can make the process complicated and more time consuming, especially if you are still using older methods of analyzing data.
When it’s very difficult to comprehend data, people often begin to make decisions without it, which can cost a lot in the long-run.
For a business, it is important to identify useful data. Data management and matching tools can make the job easier. You can’t really run a business – big or small – without proper data. It’s needed to identify abnormal flow, opportunities, and weaknesses.
Without data, an enterprise may not be able to achieve operational excellence.
Earlier, we talked about the importance of systemic thinking. Despite it being an operational excellence principle, it’s very rare for the managements to follow it.
A large number of companies do not have a clear plan to bridge the gaps between functional areas and processes.
Organizations use a variety of techniques to overcome these challenges. Kaizen, Lean, and Six Sigma are some of the methodologies that have been proven to be effective.
The road to operational excellence isn’t easy, but if you know the right steps you will achieve it.
Operational Excellence and Risks
Enterprises must follow Six Sigma and other such methodologies to be able to mitigate risk. You can’t go to every customer and fix their problem, you need to have a macro look at it.
It doesn’t matter what kind of business you own, you will face a variety of risks including internal and external risks. While you can’t control the risk factor, you can take steps to reduce it.
Businesses, however, seem to be having a bad time dealing with this factor. BP Deepwater Horizon oil spill, over $63 billion in failed U.S. technology projects, and naked credit default swaps are some of the high-profile examples that highlight the dangers of poor operational execution and failed risk management.
Despite skilled managers, these debacles and disasters caused companies billions of dollars. Each project had regulators, oversight mechanisms, and compliance systems designed to mitigate risk yet nothing could stop these projects from failing.
So, what went wrong?
The answer lies in two words –systemic failure.
Remember that issues can be related to one process and not the entire system.
Here’s how to reduce the danger:
Identify Business Risks
The first step is to identify the risks including sources. The process is quite complicated and creative. You might have to use a variety of tools to get the job done.
It’s also important to seek help from others. Managers or top-level employees may not always be aware of the risks. This is why it is important to listen to others.
Risk identification requires the collaboration of different perspectives and diverse minds that represent all constituencies.
Create a Control System
Once you’ve identified risks, it’s time to take steps to create a control system to mitigate each risk.
The process involves finding sources and listing risks in terms of danger or importance. Since resources are typically limited, you might not be able to ‘reduce’ all the risks at once.
Plus, risks might often be interlinked, mitigating one may affect others as well.
Test as Often as You Can
Things might not get better right away. You must test and re-test to identify sources and ways to mitigate risk.
Also, remember that new risks may appear every now and then. You might not be able to identify these risks if you do not test.
The Journey Toward Operational Excellence
Now that the principles and definition of operational excellence are clear, it’s time to talk about the steps one can take to achieve excellence.
It can be complicated to answer this question because there’s no single answer to this question. Nonetheless, here are a few things you can do to achieve operational excellence:
Explain the Concept of Operational Excellence
Introduce the concept of operational excellence in a way that emphasizes its importance and how it helps offer value to the customer.
Help employees understand the guiding principles. Moreover, consider rewarding employees who take the desired step. It can motivate others to follow the same. You must explain both the concept of operational excellence and also the tools needed to achieve business growth.
Keep Everything in the Right Direction
Traditional companies typically operate in a top-down fashion, which can make it difficult to attain operational excellence.
The top management gives all directions despite having no real experience of dealing with certain events and circumstances. While it’s a common practice, it’s not the right one.
Operational excellence requires businesses to take a different approach. Front line employees need to be empowered to clearly recognize and respond to disruptions in the flow of value.
The main job of the upper levels of the hierarchy is to manage the business’s strategic direction and to provide and manage the resources needed to maintain the flow of work.
Visualize the Flow
The main objective of operational excellence is to create a continuous flow of value; however, that’s not all.
In addition to flow, businesses also need to take care of transparency.
You must do something about poor resources, roadblocks, process irregularities, and badly aligned goals. They play an important role in the flow of value to the end consumer; however, they can be difficult to take care of.
A reliable way to manage things is to visualize the flow of flow. After all, we tend to remember more of what we see than what we read or hear. Plus, visuals are also easier to understand.
Introduce the Concept of Standard Work for Both Abnormal Flow and Normal Flow
It can be hard to attain operational excellence or deliver value to the consumer without the presence of a standard.
The standard can be defined as a control group for your continuous improvement experiments. This will make it easy to deliver value to the customer and achieve operational excellence.
Align Accountability and Objectives
Your business must have a clear objective. The objective needs to be clear and possible to achieve.
Something as vague as ‘to earn money’ is not a good objective. A large number of entrepreneurs and leaders use the popular Hoshin Kanri approach.
This strategy involves making sure each individual is aware of their role and that they do their best to help the company achieve its goals.
Collaborate and Improve
It’s crucial to have some structure to your improvement work so you can attain operational excellence.
Make sure to create an improvement platform that provides a central repository for all improvement opportunities, allows for cross-functional collaboration, and offers active notifications and alerts to ensure a business can achieve continuous and operational excellence.
The latest technology can help businesses store knowledge so that there’s never a loss of information and you can easily reach operational excellence.
Operational Excellence: It’s for Everyone
Excellence is a complicated concept since it involves many processes, the flow of value, and many more aspects. However, we hope this operational excellence guide will help you attain the level of flow excellence that you desire.
Operational excellence is more important than ever and your business needs it NOW.
Companies that do not improve or do not try to attain operational excellence often find it difficult to make a mark.
Whether you run a small business or a large organization, the management can change processes by adapting Six Sigma and other such principles to attain operational excellence.
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