What Is operational excellence?
You'll not easily find a consistent answer when seeking a definition of operational excellence. According to IBM, OpEx can be described as:
An approach to business management that emphasizes continuous improvement across all aspects of the business and within all business processes by creating a culture where management and employees are invested in business outcomes and empowered to implement change.
An approach to business management that emphasizes continuous improvement across all aspects of the business and within all business processes by creating a culture where management and employees are invested in business outcomes and empowered to implement change.
Kevin J. Dugan, the founder of The Institute for Operational Excellence, defines it as a point where every employee can identify the value stream to their customer and solve it when that flow breaks down or is interrupted.
In an operationally excellent company, everyone understands their respective contribution to the customer's flow of value. They can identify a normal or abnormal flow and know how to fix abnormality without assistance from the frontline or upper management.
Operational excellence can be described simply as a philosophy that embraces leadership and problem-solving as a key to continuous improvement.
Operational excellence Vs. continuous improvement
Continuous improvement (CI) and operational excellence (OpEx) are often confused. While they go hand in hand, they are not the same thing.
Continuous improvement involves ongoing efforts to improve your business operations to improve quality, cut costs, reduce waste, and maximize human potential. The focus is on making existing processes, products, and services perfect. It happens incrementally over a period rather than an instant thing from a single breakthrough.
While continuous improvement is crucial, it's still not enough as the business continues to grow and enhance its processes, products, and services. Operational excellence sets the company up for growth by understanding what the target market wants and creating an uninterrupted stream of value that continuously feeds the need.
Operational excellence is more about applying the right processes, methodologies, and tools to create an ideal work culture empowering every employee to take ownership of the operation flow and ensure continuous improvement.
The core principles of operational excellence
Based on the Shingo Model, the guiding principles of operational excellence form the basis of creating a sustainable culture of any organization's operational excellence.
Each year, the Shingo Institute offers the Shingo Prize as an award for operational excellence. The prize is based on company results and culture and demonstrates how well employees demonstrate the guiding principles of the Shingo model to achieve world-class performance.
Respect every individual
The principle of respect emphasizes that everyone has potential deserving respect. An operationally excellent organization must respect employees, partners, customers, suppliers, and the community. Employers can show respect by involving employees in any necessary improvements to their respective departments and creating development plans.
Lead with humility
The first step to continuous improvement is knowing and admitting that improvement is necessary and possible. This requires humility. Leaders should always be willing to listen, seek input and learn from everyone of positions or status within the organization.
Seek perfection
While it's almost impossible to attain perfection, setting the bar high creates the environment for an operational excellence culture. We have the opportunity to improve infinitely, and we can change our perceptions of what's possible if we adopt a different mindset. In the face of a problem, try to find long-term solutions and always strive to simplify your work without reducing quality.
Embrace scientific thinking
Innovation often results from constant learning and experimentation. Operationally excellent companies follow systematic structures to solve problems and test new ideas without fear of failure.
Focus on process
When something goes wrong, instead of immediately blaming people, assess what aspect of the process the problem occurred in. You can then focus on the root cause of the error and fix it for better results.
Assure quality at the source
Operation excellence requires the completion of every task correctly the first time. Problems must be identified and solved where and when they arise. Quality is attained in a well-organized work environment where potential errors are immediately visible and corrected before they have significant impacts.
Flow & pull value
Maximize value for the customer by creating value in response to demand and ensuring uninterrupted flow. While trying to avoid interruption of flow, avoid waste by not oversupplying.
Think systemically
Efficient businesses understand the interconnectedness of processes and that the most common problems often happen when work moves from one process to another. Therefore, it is essential to understand the relationship and think systematically when optimizing the operation.
Create consistency of purpose
There must be unwavering awareness and understanding about why the business exists, where it's headed, and how it will get there. This allows individuals to align their actions, innovations, decisions, and overall objectives to pursue one purpose.
Create value for the customer
Customers define value by communicating what they want, when they want it, and for what they are willing to pay. Long-term success is attained by delivering this customer experience effectively, efficiently, and consistently.
Why is OpEx important?
As it aims to improve systems and processes, OpEx impacts various industries, including healthcare, manufacturing, construction, technology, etc.
For example, if a business wants to achieve operational excellence by transforming itself into a lean operations management company, it must embrace the following attributes:
- Overproduction of products
- Consistent inventory excess
- Frequent employee downtime
Organizations benefit from waste elimination, profit growth, and operating expense reduction with a lean management approach.
Several other benefits impact businesses outside improving operational metrics, including:
- Improved teamwork, collaboration, decision-making, and innovative problem-solving.
- Earlier detection of problems
- A more productive and empowered workforce
- Lean, predictable, and scalable operations
- Better value to customers and improved interactions and service (customer experience)
- Enhanced and more open communication between company levels
Which industries can benefit from OpEx?
Since operational excellence focuses on business processes, several industries can benefit from a well-structured program. However, various sectors will be looking to improve different processes.
The following industries stand to benefit from OpEx:
Manufacturing - As the Fourth Industrial Revolution continues, manufacturing factories are under pressure to improve productivity, reduce downtime and avoid waste as much as possible.
Construction - Construction industries focus on employee health and safety as operational excellence.
Healthcare - Like others, the healthcare industry always seeks to cut costs while delivering exceptional patient care. According to McKinsey, high-quality care facilities focus on lean operations, supply utilization, and clinical standardization to achieve clinical operations excellence.
Several other industries like Food & Beverages, Aerospace, Technology and Heavy Industry utilize operational excellence directly or indirectly to create lean, scalable, and predictable processes that allow them to stay relevant and have a competitive advantage.
Operational excellence methodologies
To achieve operational excellence, you can employ a variety of approaches and methodologies, most of which fall under the lean umbrella and Six Sigma.
Lean Manufacturing
Lean manufacturing is a methodological strategy for reducing waste while maintaining a steady output. By reducing waste, you can focus on what adds value to your operations, which leads to value for your customers. To do this, you can use various tools, principles, and practices in lean manufacturing.
- Kaizen is a Japanese phrase that means “change for the better.” Continuous improvement is the driving factor behind Kaizen.
- Kanban visual signal or billboard is a visualization approach that controls the flow of products inside and outside the factory to decrease inventory and overproduction waste. You can place a board in a conspicuous spot that indicates with Kanban cards when stock needs refilling.
- The 5-S system is a system of organizing based on five Japanese words, which translate to Sort, Set in order, Shine, Standardize, and Sustain. This system increases productivity, safety, and uptime.
- Leader standard work creates a coherent, structured framework so that managers at all levels can manage people, processes and, consequently, company performance in the best possible way.
Here’s an article you might enjoy if you’re interested in Lean Manufacturing.
Six Sigma
Six Sigma is a collection of strategies, tools, and techniques for process improvement and defect reduction in standard work. It has five basic principles: focus on the client, identify the problem, eliminate waste, start the process, and foster a change and adaptability culture.
DMAIC or DMADV are the two approaches used to implement Six Sigma:
- DMAIC (define, measure, analyze, improve, and control) is used to improve current processes.
- DMADV (define, measure, analyze, design, and verify) is applied to develop new processes.
Because it focuses on process optimization and flow, Six Sigma is an excellent instrument for achieving operational excellence.
We go deeper into Six Sigma in this article.
Keys to achieving operational excellence
While there's no single, definite right path, here are some strategies organizations use to achieve operational excellence.
1. An honest assessment of where the organization is
You must first know where the business is before deciding where you want it to go and how it will get there. The best way to achieve this is by an honest assessment of the business maturity level through:
- Engagement of the workforce
- Process capability
- Use of new technology
- How disciplined all employees are at the execution
2. Define your goals and objectives
Starting with a clear vision is essential when implementing an organization-wide change. Then, outline the goals you want to achieve both with broad objectives and specific KPIs that will constantly measure your performance and success.
3. Involve employees
It’s easier to get the resources and time required to implement operational excellence when all employees are on board. Everyone should be included and educated on the benefits for themselves and the entire company, from the executive team to frontline managers and entry-level workers.
4. Ensure continuous improvement
Unlike other initiatives, operational excellence isn't a one-time thing. Developing a culture of operational excellence requires a commitment from everyone to be consistently ready for change. It also requires continuous improvements, constant communication, and workforce engagement to keep the business ahead of the competitive curve and sustain growth.
5. Set the right metrics
Failing to measure progress and success can be detrimental to your operational excellence efforts. Having meaningful KPIs that reflect your business vision, goals, and objectives is essential. This makes it easy for employees to track results and stay motivated to keep improving since their efforts visibly bring results to the company.
Learn more about operational excellence
Operational excellence usually comes down to how a business accepts change. Process improvement projects might affect regular schedules as people learn and adopt new changes. This requires a new mindset. Additionally, there should be open communication while changes and new process implementation are underway.
