Operational Excellence: An Overview

What is Operational Excellence?

Operational excellence is defined as the process of executing a business strategy more consistently and more reliably than the competition, resulting in increased revenue, lower operational risk and lower operating costs. Defining operational excellence, in reality, isn’t easy. You’ll often find definitions that are too broad or too narrow that they seem highly plausible on paper – being world class, being the best globally, excellence in everything we do – look familiar? 

Another popular, more simple definition from the Institute for Operational Excellence is as follows: Every employee can see the flow of value to the customer and fix that flow before it breaks down. Defining operational excellence this way works because it applies to all levels of an organization, from C-level to plant floor workers. Each person knows that, for their specific area, there should be a visible flow of product or information and they should be able to recognize whether that flow is normal or abnormal and what to do if it’s the latter. In other words, a product flows from process A to process B in a specific quantity, at a specific time, to a specific location; if it doesn’t happen this way, something is wrong.

The second part of the definition means that when something goes wrong, the employee should know how to fix the problem without seeing a manager, reporting it to management or calling a meeting. The idea here is employees focus on maintaining flow while management focuses on growing the business.

Operational Excellence and Continuous Improvement

Operational excellence and continuous improvement go hand-in-hand when it comes to achieving a lean organization; however, they aren’t the same thing. Continuous improvement can be defined as an ongoing effort to improve an organization’s processes, products or services over time. It happens incrementally over time, rather than instantly from a single breakthrough.

While continuous improvement is important, it’s generally not enough on its own as an organization continues to grow and refine its processes, products and services. This is where operational excellence steps in. Operational excellence is more of a mindset that accepts certain principles and tools to create sustainable improvement within an organization.

Operational excellence is about applying the right tools and processes to create an ideal work culture that empowers employees to take ownership of the flow of the operation and ensure continuous improvement remains a constant.

What Drives Occupational Excellence?

Flow. That’s the driving force behind operational excellence in one word - seeing the value of flow and understanding how to fix it when it’s blocked. Imagine your plant allows tours where anyone can walk in and see all operations in action; visitors can see exactly how many processes or stations the product is from being shipped to the customer. A brewery, for example, typically has sales and operations offices above the floor where brewing, fermenting, bottling and packaging take place. Visitors on a brewery tour can stand and look around at all processes, from where sales are made, down to where the product is made and packaged.

This is a great example of a visual system that allows everyone, even visitors, to visualize flow from start to finish. Anyone should be able to answer questions like, “is our product on time to meet customer demand?” and “is everything flowing like it should be?” There are a few principles to ensure your flow is visual to everyone and that everyone can see the value of flow.

• Design lean value streams. Take the time to create an end-to-end value stream flow, starting from when an order is placed/service is requested, to the time of delivery to the customer. Value stream maps are a great way to visualize this flow.

• Make those lean value streams flow. Make sure your designed value stream flows freely by communicating it through some form of formal training. This ensures everyone understands the objectives and is clear about the desired outcomes. Training also helps them learn any new tools you might want to implement to achieve this flow. Finally, it’s important each person knows how the stream flows in and out of their individual areas.

• Make flow visual. There are two ways to make flow visual for operational excellence: using static or dynamic visuals. Dynamic visuals (animations or videos) let employees know the current status of flow and dynamic visuals (still images) indicate how flow should work based on the design.

• Standardize work for flow. Once a workflow has proven to be successful, it’s important to standardize the work applied to that area of the flow.

• Make abnormal flow visible. Making abnormal flow visual does two things: it lets employees see when abnormal flow happens or is about to happen so they can correct it, and it also prevents future occurrences without having to ask management for help. Use visualizations like green, yellow, and red zones and times certain material should move down the stream to each process.

• Standardize work for abnormal flow. Flow will inevitably breakdown. Standardizing what to do when this happens helps you get back up and running quickly, ideally without asking management for help.

• Continuously improve flow. It’s important for employees to always look for ways to improve flow through proven tools, such as kaizen and kanban, in different ways.

Operational Excellence Framework

Operational excellence builds on a few building blocks: strategy development, performance management, leadership and culture, process excellence and team performance.

• Strategy development involves developing and communicating the vision, mission and purpose of your organization’s workflow. A popular method for strategy development includes the seven-step strategic planning process known as Hoshin Kanri – a top-down goal-achieving process also known as catch-ball. Hoshin Kanri is a technique for creating and maintaining open feedback loops across all levels of the company through a two-way stream of information sharing.

• Performance management consists of using the balanced scorecard approach to get away from solely focusing on the financial aspect of a business and including the customer, internal business processes and skills growth. Balanced scorecards tell you the knowledge, skills,  and systems that your employees will need (skills growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver value to the market (customer), which eventually leads to higher value (financial), according to the creators of the balanced scorecard approach, Robert Kaplan and David Norton. 

  Performance management also includes things like KPIs, process management, continuous improvement and management reviews.

• Leadership and culture involves attracting and hiring the right people, establishing a culture that enables the desired behaviors to execute the strategy, and continuously developing the competencies of leadership.
• Process excellence means, to practice operational excellence, an organization must be process-centered, that is, having well-designed, efficient support processes. Tools used to achieve process excellence include lean manufacturing techniques like Six Sigma, Kaizen and the 5-S System. These lean management tools strive to continuously reduce lead time – the average time it takes to complete an entire process, from start to finish, including the time spent waiting between processing steps.
• Team performance involves building high-performance work teams through continuously increasing engagement, empowerment and education of employees. This means implementing strong values and principles, developing leadership roles, coaching and continuous competence development. 

Operational Excellence Principles

Operational excellence centers around the principles of the Shingo Model. The Shingo Model consists of guiding principles that are the basis for building a sustainable culture of organization excellence. They are divided into three dimensions: Cultural enablers, continuous improvement and enterprise alignment. The Shingo Model revolves around three insights: that ideal results require ideal behaviors, purpose and systems drive behavior, and principles inform ideal behaviors. Below we look at eight of these principles.

• Respect everyone: The idea behind the Shingo Model is because everyone has worth and potential, everyone deserves respect. Not only should you have respect for others in your organization, you should demonstrate this respect to them. How do you demonstrate respect?

  One of the best ways to show respect for employees, for example, is to involve them in any necessary improvements to their departments or areas. Since they are the ones on the front lines of their department each day, this helps them feel more empowered and motivated to contribute to positive changes. They know the flow better than anyone, having to work in it every day. Asking for their input on changes that directly affect them shows respect.

• Humility: More specifically, lead with humility. Humility goes hand-in-hand with respect in that it involves a willingness to hear other people’s ideas and take suggestions for them, no matter that person’s position or status within the company.
• Strive for perfection: There is often backlash associated with this operational excellence principle as most people point out perfection isn’t possible. While this may be true, establishing this mindset to strive for perfection sets the bar high and creates a strong way of thinking when presented with a problem. Striving for perfection means looking for long-term solutions to problems and always trying to simplify work processes without compromising quality.
• Think scientifically: Constant experimentation and learning breeds innovation. Following a disciplined process of problem solving through experimentation and learning encourages employees to consider new ideas without the fear of failure because failure is part of and built into the scientific method. The scientific method involves using repeated cycles of experimentation and direct observation that automatically lead to new ideas. A few examples of thinking scientifically are using a structured approach for improvement and problem solving, encouraging employees to learn by experimentation, and using consistent methods for data collection and analysis.
• Focus on the process: When something goes wrong, the first human instinct is to try and figure out who to blame. In many cases, however, the cause of an issue or failure is rooted in the process rather than the person. Another way to look at it is, a great employee can’t consistently produce quality results with a bad process.

  When a mistake or failure happens, implement a new way of thinking, one that avoids immediately pointing fingers at those involved and instead, assesses where in the process the failure occurred. Focusing on the process means identifying and solving the root cause of the issue within a given process, requiring all process material, data and other inputs are up to specifications before implementing them into the process, and documenting each process and managing any changes to operations.

  Focusing on the process also means assuring quality at the source. Quality is assured when potential problems and deviations in flow are visualized, employees have the ability to stop the process to fix errors before continuing, and process results are analyzed for variation.

• Focus on the flow: Interruptions create waste and other inefficiencies. Making sure processes and workflows are continuous helps lead to maximum value to the customer. A big key to focusing on the flow is heijunka (product leveling). Heijunka involves creating products only in response to demand and not creating more than what is necessary.
• Think systematically: This means understanding the relationship between your system’s many interconnected parts and how they all work together. This helps with better decision making by avoiding taking on a narrow vision of your business. Thinking systematically means getting rid of silos and other barriers that hinder the flow of information and ideas throughout the whole organization, documenting how the value chain connects together with various processes, and striving for seamless cross-functional collaboration.
• Understand your purpose: Make sure your employees know, with 100 percent certainty, why the organization exists, where its going and how it’s going to get there. Having this information allows them to align their own actions and goals to match those of the company. Continue to emphasize these goals consistently from day one.

  Operational excellence also dictates, not only should your employees clearly understand the purpose of the company, but they understand their individual role and how it leads to the success of the company. To do this, regularly communicate the purpose and direction of the company, avoid aligning goals in a cascading manner (top down), and involve individuals when creating performance objectives.

Operational Excellence Methodologies

There are many methodologies you can use to achieve operational excellence; most of them fall under the “lean” umbrella. Below we’ll look at a few methodologies within lean manufacturing as well as the principle of six sigma.

• Lean manufacturing: Lean manufacturing is a systematic method designed to minimize waste while keeping productivity constant. By eliminating waste, you can focus on what adds value to your processes, which leads to value for your customer.  Under lean manufacturing are several tools, principles and techniques you can use to achieve this.
  • Kaizen – The Japanese term “Kaizen” translates to “change for the better.” The driving force behind Kaizen is continuous improvement. By making teams work together proactively and take responsibility for their areas within the organization, they can constantly make incremental improvements to the process.
  • 5-S System – The 5-S System is an organizational method derived from five Japanese words: seiri, seiton, sieso, seiketsu and shitsuke. Translated, these words mean organize, tidiness, clean, standardize and sustain. The 5-S System improves safety, increases productivity, improves uptime and improves overall morale.
  • Kanban - Kanban (meaning “billboard” or “visual signal”) is a visualization technique that helps eliminate inventory and overproduction waste by regulating the flow of goods inside and outside the plant. The use of Kanban cards on a board can be placed in a visible area to signal when inventory needs to be replenished. This method helps produce only what is in demand by the customer, reducing inventory and waste.
  • Six Sigma: Six Sigma is a set of methodologies, tools and techniques used to achieve process improvement and defect minimization. It includes five principles: focus on the customer, find the problem, get rid of waste, put the process in motion and create a culture of change and flexibility. Six Sigma is implemented using one of two methodologies: DMAIC or DMADV.

    DMAIC – define, measure, analyze, improve and control – is used when organizations want to improve existing processes. DMADV – define, measure, analyze, design and verify – is used when an organization is creating a new process. Six Sigma is a great tool to help achieve operational excellence as it focuses on process improvement and flow.

Challenges of Operational Excellence

Operational excellence seems fairly straightforward on paper, however, the road to achieving it presents itself with some common road blocks every organization needs to get around before success is achieved.

• Reduce top-down thinking: The traditional top-down fashion in which companies tend to operate can lead to complications when striving for operational excellence. This isn’t telling you to get rid of the hierarchy. It means operational excellence requires a different approach from the top when it comes to ensuring flow.

  Front-line employees should feel empowered to contribute to the fixing interruptions to flow, as they are the ones who deal with it on a daily basis. They have first-hand experience with the process and the issues that come from that process.

• Detachment: Detachment of employees from the broader view of the business is very common and can make it hard from them to get onboard with operational excellence. If employees don’t fully understand the overall business strategy and how their individual role fits into that strategy, they’re more likely to take a lackadaisical approach to their job.
• Lack of progress: Hard-working employees like to see progress. Is the work they’re doing actually achieving growth and providing value to the customer? Sometimes when progress is slow, morale dips and employees become unmotivated to keep working towards operational excellence.
• Lack of willingness to adapt: Although fairly self-explanatory, the lack of willingness to adapt or adapt and make changes quickly can stop operational excellence in its tracks. In a competitive market, companies need to be ready to adapt fairly quickly to keep up with their competition, whether that be changing infrastructure, technology, processes or how products flow downstream.
• Overly complex data: Data-driven decisions are important; however, there is such a thing as too much data. When data is so complex and hard to understand or sift through, companies start making decisions without it.

Often, operational excellence comes down to how your organization accepts change. Process improvement projects might take people away from their normal schedule for a bit while they learn and adopt new processes. This does require a new mindset, but there are other ways to soften the abruptness of continuous improvement. For example, sometimes running a pilot program before implementing a company-wide change or a change to an entire department might help work out issues before other employees need to take the time to train.

Additionally, communication needs to be at the forefront of everyone’s mind while changes and implanting processes are being done. Revise, adjust and recommunicate is key.