What Is Operational Excellence?

Operational excellence is a term that is often used when discussing strategies to maintain or enhance business performance. Operational excellence occurs when an organization implements and executes its day-to-day business operations better than its competitors in their market or industry. It’s a philosophy in which problem-solving, teamwork, and leadership skills focus on continuous improvement and lower costs when compared to competitors or substitutes.

Companies that focus on a strategy of operational excellence understand their core values of consistency, simplicity, lower errors, and faster turn around; how these values benefit their customers; and how to fix issues that get in the way of their operating model. This concept applies to every function in the organization. Everyone in operationally excellent organizations understands how they can contribute to the goals of the enterprise to reduce costs, increase volumes, automate activities, and streamline procedures.

What Does Operational Excellence Look Like?

Operational excellence encompasses a myriad of practices and business principles. However, the way that practices and principles are applied can vary across industries. Success with implementation of these concepts produces competitive advantage in the marketplace. There are five essential operational excellence principles woven through them.

1. Create Value for the Consumer

Operational excellence involves meeting the needs of your customers as efficiently as possible. What are their pain points? What do they need? It’s critical your products and services align with these demands. This means you really understand what the customer really needs, what they value, and what they don’t need. A successful, operationally effective organization provides the exact offerings and solutions without unnecessary features that add costs that don’t address their needs or pain points.

Keep in mind that consumer demands always change, especially in today’s fast-moving digital world. So to consistently produce value, you will need to study market trends to keep up with your target audience and market segments. You have to understand your customers’ true needs better than your competitors.

2. Maintain the Flow of Value

The main goal of every business should be to offer solutions to customers’ problems and pain points. That way, you’re offering maximum value. Whatever workflow your company has developed should offer superior value, and it should be safeguarded so there are no no interruptions in a continuous flow of disciplined and carefully controlled processes.

3. Focused Quality

Prioritize quality over quantity. It’s better to perfect one product than to create a group of mediocre items. Everyone appreciates quality goods and services. However, quality comes with a price. Smart operationally efficient businesses provide “focused” quality where it matters most. Adding quality when it is not required by the customer will only add cost and drive prices higher, which in turn causes customers to switch to your competitors.

“Focused Quality” requires verifying that every change and each process strives to enhance the value of the product/service being offered. Products should be reviewed to ensure that they are meeting the essential quality requirements of the customer you choose to serve.

4. Think Systemically

A business that has different departments should work together to collaborate, coordinate, reduce waste, and adopt and “enterprise” teamwork. This means greater unity and communication across functions in order to achieve excellence. Management and staff should understand the purpose of each department and encourage collaboration across the organization.

Concentrating on one department only enhances one part of the process. Therefore, achieving operational excellence and price competitiveness requires synergy and alignment of everyone to achieve a streamlined and efficient operation.

5. Embrace Experimentation & Learning

Organizations should understand the value of experimentation. Developing innovations that drive lower costs and reduce waste won’t happen overnight. Businesses that thrive on operational excellence learn from and thrive on failure. They focus on discovery, best practices, and ‘new to the world’ next practices that enhance efficiencies and reduce errors that add costs.

In our digital world, technologies and customer needs constantly change. Businesses need to adapt to these shifts by continuously learning and discovering strategies that will help make these transitions as seamless as possible.

How Do You Achieve Operational Excellence?

Achieving operational excellence in the workplace requires establishing a robust training and development plan that focuses on the five key principles outlined above. The training should involve people at all levels of the enterprise and aim to empower them with the practical skills, principles, and tools centered on quality, customer service, collaboration, and innovation.

CMOE provides a wide range of organizational effectiveness services that support businesses on their journey to achieve greater operational excellence. These services can provide guidance on identifying gaps in your organization’s operating model and specific practical actions you can take to establish a high-performance culture in your organization.

What Are Operational Excellence Tools?

An effective operational excellence strategy requires an OKR (objectives and key results) framework to set specific goals and targets. Operational excellence also requires building and monitoring KPIs (key performance indicators), such as qualified leads, conversions, and customer retention. KPIs allow you to measure the success of your strategies and make data-driven decisions—a crucial factor in driving quality, creating value, and reducing costs.

Operational excellence tools include KPI software that helps your team easily track performance and acquire real-time data. There are KPI tools—like Salesforce, Geckoboard, and Tableau—which companies can plug into their existing business software solutions. They can help your team set up dashboards to track products/sales and provide real-time analytics.

Why Is Operational Excellence Fundamental to Strategic Success?

In the 2019 Global State of Operational Excellence report, 40 percent of professionals across industries expressed that their organizations have an operational excellence deployment program. Approximately 57 percent said operational excellence was growing in popularity due to advanced technologies and customer demands.

As a result, organizations are aiming to be a cost leader. This requires companies to consistently execute and test strategies, adapt to change, fully capitalize on opportunities, and avoid disruptions and threats. All of these efforts will produce a competitive advantage.

A business that reaches operational excellence is likely to exhibit the traits below:

  • Exceed quality requirements across all products/services
  • Higher levels of efficient use of resources (employees, materials, equipment, etc.)
  • Customer satisfaction
  • Better sales results
  • Lower employee turnover rate
  • Improvement in company culture
  • Better cash flow and margins

Operational Excellence: The Leadership Factor

A frequently overlooked element of operational excellence success is the role of leadership in the whole process. It takes a sincere desire and commitment of leaders at all levels to get behind the operational excellence plan and to successfully put it into practice.

There are five key leadership practices and competencies that are absolutely required to succeed with an operational excellence strategy. The Center For Management and Organizational Effectiveness has studied this process and discovered the following game changing factors that are the keys to success.

1. It takes considerable leadership will, determination, and personal resolve to transform the culture of any organization and have people truly embrace an operational excellence mindset. This discipline is not only required in the adoption phase of an operational excellence but also in the sustainability phase. This is when people desperately need good leaders who won’t give up when people push back on O.E. initiatives or when people revert to old habits. Leaders need the energy to push through resistance to change and demonstrate their commitment to new work methodologies and systems.

2. Leaders must demonstrate respect for everyone within the operation excellence effort. To do this, the leader has to be a coach and teach others to respect their colleagues and peers. In the real world of operational excellence, respect looks like this:

  • Building education and development programs that provide growth opportunities for the team
  • Acknowledging those who have done great work and achieved specific operational excellence milestones
  • Being transparent but caring during communications and interactions with colleagues at all levels

3. Progress requires leadership humility and the ability to take ownership of one’s own work when it falls short of expectations. Operational excellence requires everyone, including leaders, to:

  • Ask for feedback and input
  • Listen to and learn from feedback
  • Work through rigid thinking or inflexibility of others
  • Try out new ideas and keep an open mind
  • Take smart risks

4. Operational excellence can’t be achieved when people choose not to follow defined processes. No matter how smart and talented your team is, if people don’t execute a well-thought-out plan or methodology and focus on process requirements, they won’t drive results. Therefore, investing time in developing proven, sound processes is essential.

Work that is focused on process can be exemplified by the following:

  • Ensuring that there are clear goals and targets for key processes
  • Having clear and systematic standards defined for:
    • Inputs
    • Processes
    • Outputs
  • Ensuring that well defined standard processes are available to people
  • Ensuring that people are trained on the process
  • Ensuring that standard processes are followed
  • Ensuring that people understand the purpose or reason for operational excellence standards and processes

5. Leaders of O.E. organizations have to be inspiring others to make a difference and elevate the organization’s performance, products and services. In order to unleash the motivation of people in your organization, you need to avoid the following motivation killers:

  • Being overly controlling and micromanaging people
  • Being overly demanding and expecting unrealistic results
  • Being unrelatable, aloof, or distant
  • Being inaccessible and difficult to communicate with
  • Being unwilling to embrace differences in the way people think or their unique personalities

With these five considerations in mind, leaders can achieve extraordinary results for key stakeholder groups.