Operational excellence is not a new idea in business. In fact, as long as there have been businesses, leaders have studied ways to improve both quality and efficiency. Operational excellence is a management philosophy that focuses on continuous improvement in the operational areas of an organization.
The operations are the backbone of any company. They are the ones which make sure that all the processes run smoothly, that all the equipment is working, and that there are no hiccups in production. They are also responsible for ensuring that there is a good balance between cost and quality of products, as well as customer satisfaction.
Operational Excellence Origins
As early as the mid-1700s, Scottish economist Adam Smith wrote about the division of labor as a way to improve efficiency. In the 1910s Henry Ford improved upon the assembly line by implementing a moving conveyor belt in his quest to quickly increase production.
In the 1970s, Dr. Joseph M. Juran was credited for defining some of the guiding principles of operational excellence. At the time, he was teaching Japanese business leaders about improving the quality of their products. Meanwhile, Dr. Shigeo Shingo, a Japanese industrial engineer who was also in Japan, began working with Toyota and played a significant role in developing the Toyota Production System (TPS), a precursor of what is now known as “lean manufacturing,” a methodology related to operational excellence.
What Is Operational Excellence?
Operational excellence is a somewhat nebulous concept and difficult to define as it will look different for each individual organization.
It is a business goal that involves functioning at optimal performance. It requires continuous improvement and cost reduction. It is about setting achievable, long-term, and sustainable goals. But it isn’t just about how inexpensively a company can produce a quality product. Operational excellence is a company-wide mindset that creates a “culture of excellence” within the organization. It requires an organization to continually shift and evolve.
Implementing this culture of operational excellence may seem like a complete overhaul. It may feel overwhelming, or even impossible, but with the right tools, operational excellence can be achieved.
At that time, Japanese businesses began to outperform American ones. Business leaders in the United States began to take notice, and companies such as Exxon and Chevron became some of the earliest adopters of the concept of operational excellence.
The 5 Keys to Operational Excellence
As business and business practices evolve in the modern world, the focus of operational excellence evolves as well, though the foundations remain the same: safety and security, cost-cutting and streamlining, positive leadership, sustainable progress, and others. The following 5 keys are instrumental in successfully implementing operational excellence in today’s organizations.
Operational excellence begins with a vision. What are the goals of the organization? This isn’t just about profits and growth, but more specifically about what is at the core of the organization and how that will be expressed. This vision should set a course for the future of the organization.
Writing a vision statement is a great place to start. This is the first step in a strategic plan. Without knowing where you’re going it’s hard to take the first step. A vision statement looks toward the emotional future of the organization. It involves inspiration, aspiration, and motivation. When there are challenges, a vision can act as a guide. It rallies everyone involved and offers employees a sense of purpose. The vision is not a goal, but the purpose behind your goals. For operational excellence to reach its full potential, all stakeholders must share in this vision. The vision should permeate the entire company.
Consider the following when writing the vision statement:
- What is the core focus of your organization?
- What makes your business stand out? What makes it unique?
- What goals do you have in the next 5-10 years?
- Define a one-year target for your vision.
There are a number of models that have been developed to try and capture the essence of operational excellence. The most popular of these is the Shingo Model, 10 principles for “building a sustainable culture of organizational excellence.”
- Respect Every Individual – Human resources are the most valuable resource a company has. Each and every person within the organization should feel valued and respected. When people feel respected and valued, they are far more likely to invest themselves in the work. Respect extends beyond the company. Customers, the community, and all members of society are worthy of respect.
- Lead with Humility – A quality leader possesses humility. Humble leaders empower employees to contribute feedback and ideas because they seek and value their input.
- Seek Perfection – Perfection is not realistic, but aspiration is the key to continuous improvement.
- Embrace Scientific Thinking – Like scientists using the scientific method, organizations should continually innovate and improve. Observe and question, research, hypothesize, test and experiment, analyze, report, and then do it all again. This will significantly impact the goal of operational excellence.
- Focus on Process – When something goes amiss, instead of blaming people, examine ways to improve the process. Fix the process, not the person.
- Assure Quality at the Source – If perfection is the goal, errors and imperfections must be caught and fixed immediately at their source.
- Improve Flow & Pull – Customer demand should be what influences production flow. Anything that disrupts this flow is wasteful.
- Think Systematically – It is essential to understand the complexities of a process in order to make meaningful improvements. Ideas and information must be able to flow freely within the organization.
- Create Constancy of Purpose – There must be a clearly communicated and defined purpose for the organization.
- Create Value for the Customer – Ultimately, the customers’ needs and wants are the driving force behind an organization.
The right organizational structure is imperative for operational excellence to be successful. Without the appropriate structure, operational excellence is unsustainable. That may mean putting your organization’s current structure under the microscope.
As mentioned above, embrace scientific thinking. Once you’ve set the vision and have aligned your stakeholders, identify opportunities for improvement. This could include restructuring your organization, but it doesn’t have to. It’s about optimizing your business as a whole which starts at the foundation of how it is structured.
Factors such as the business’s size, industry, and business model all come into play, along with the current organizational structure. For example, in manufacturing, increased production and quality improvements are important goals and specific areas that are greatly influenced by operational excellence, whereas in a service-based industry, operational excellence ensures that the customer experience is optimal.
What functions are you specifically trying to improve? Are you looking for better communication? Or are you hoping to improve standardization? Principles of operational excellence can be implemented in any type of business structure, but you must understand the structure and have a strategy for implementation.
It is no accident that “respect every individual” is the first principle of the Shingo model. The success of a company hinges on the people involved. Positive leadership is key, but each member of the organization must feel valued.
Employees must feel like they are contributing to the cause. Defining job roles, duties, and responsibilities is essential. Streamline processes and workflows. Develop KPIs (key performance indicators) so that employees know exactly what is expected of them. Share the company vision so they know why they are doing what they are doing.
Everybody loves to be praised for a job well done. Share successes. Empower employees. Invest in training and re-training. Create incentives and career advancement opportunities, and watch your employees thrive. This will create the culture and environment in which operational excellence is achieved.
Finally, utilize tools and methodologies to implement operational excellence in your organization. Some common methodologies include:
- OKAPI – OKAPI is a methodology that uses SMART KPIs (Key Performance Indicators) to guide goals:
- Specific – Specificity is key. Your KPIs should drive the focus.
- Measurable – The KPIs need to be quantitative, not qualitative.
- Attainable – The KPIs should be realistic, but should also push you beyond your comfort zone.
- Relevant – The KPIs need to be relevant to your objective or vision.
- Timely – Each KPI should have a specific timeline.
- Lean manufacturing – Lean manufacturing is a production method designed to increase efficiency. It stems from the Toyota Production System mentioned at the beginning of this article and focuses on eliminating waste and reducing costs within a production system. Waste may include overproduction, long wait times, product defects, or even untapped human potential.
- Six Sigma – Six Sigma is another set of tools that seeks to improve business processes. This results in a better customer experience overall, whether a product or a service. It does so by eliminating defects. Each project follows a specific methodology and has defined targets.
- Kaizen – Like other methodologies mentioned here, Kaizen focuses on quality control. The Japanese term translates to “change for the better” and focuses on incremental improvements. Kaizen relies on five pillars: personal discipline, teamwork, company morale, quality, and suggestions for improvement. Kaizen, more than any of the other methodologies mentioned, requires a positive company culture for successful implementation.
Bring Operational Excellence to Life with Comidor
The next generation of operational excellence requires optimized processes and data at every stage. Comidor enables organizations to complete tasks fast and effectively through a streamlined workflow automation solution. Personnel from all departments keep your operations improving and agile. Model, improve and automate your processes to respond quickly to possible changes while increasing productivity and efficiency.
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Operational excellence is a worthy goal for any organization, though it is not an endpoint. Like your business, it is ever-evolving, growing, shifting, and changing.