Operational excellence isn’t a new concept. Since the Industrial Revolution began in the mid-18th century, businesses have sought to improve their operations by various means – mass production, lean manufacturing, Six Sigma – for more than 250 years.
But operational excellence is more than a methodology. When fully realized, it’s a philosophy that is embedded into a company’s culture and spans much more than the manufacturing floor. In the end, it can also produce enviable benefits, including improved financial results, that justify the hard work change requires.
Operational excellence = focused improvements, integration, investments
Operational excellence means harvesting value through the manufacture and delivery of a product or service in a highly integrated way, fully incorporated into how a company makes decisions, plans and products. Companies pursuing operational excellence look at how they can compete based on producing goods or services at the lowest cost, but still at a very high quality.
There are many reasons and many ways to strive for operational excellence. But companies on that path share a number of attributes.
- They focus relentlessly on operational improvements. The three primary areas of focus within operational improvements are product leadership, customer intimacy and operational excellence. Companies can and do plan around all three.
But it’s important for organizations to understand who and what they are, and in most cases choose one to skew toward. That decision influences all other decisions a business makes. Companies known for operational excellence hone in on it and drive their business by it.
Amazon offers a good example of what operational excellence can do for an organization. Yes, the company has leading products and services and certainly is close to its customers. But the mark it has made in end-to-end service – from order to last-mile home delivery to customers – creates a unique space for the company. Managing sourcing and distribution well and on such a wide scale requires laser focus on operations. Sophisticated global logistics offer Amazon a competitive advantage and a way to diversify its business, aligning operational strategy with business strategy.
- They understand that operational excellence begins with the customer. One misunderstanding about operational excellence is that it’s internally focused on operations only. It really starts with customers and understanding their requirements. Then a business can look at operations to determine how to meet that demand and supply a cost-effective, high-quality product to the customer.
- They integrate improvement efforts and business strategy. Sometimes an operational excellence effort or continuous improvement group is a bolt-on in the organizational structure and not part of the overall business strategy. However, in an organization interested in operational excellence, the manufacturing and supply chain group has a seat at the table where business decisions are made. The person responsible for continuous improvement is a peer of those in the C-suite and has accountability at the highest level of the business. Rather than a short-term improvement initiative, operational excellence is part of structured, executive-supported systems and is embedded in company culture.
- They create a well-rounded team to spearhead improvements. Many organizations focus on technical expertise when creating a team to drive operational excellence and manage continuous improvement efforts. They hire Six Sigma experts or lean practitioners and give them cost-reduction goals.
But to transform an organization’s business, it takes an additional skillset: EQ, or emotional intelligence, along with IQ. These individuals understand people and what motivates them and won’t leave employees behind as the organization changes.
- They invest in areas that will improve operations. To understand whether businesses are truly pursuing operational excellence, examine where they put their resources. Have they invested in the people who manufacture their products? It’s clear when businesses haven’t spent money to train and develop employees. Have they invested in equipment? If not, pursuing operational excellence is going to be difficult.
And have they invested time to review and develop effective processes? Sometimes managers are frustrated with their workforce, but that doesn’t necessarily mean employees don’t have the skills to work at a high level. Often, processes aren’t set up to make them successful.
- They know how product development and innovation fit into the picture. Too many companies look at manufacturing operations as a necessary evil, as opposed to a partner that can help fulfill customer needs. In an organization focused on operational excellence, the marketing team pulls in the manufacturing group very early in product development to say, “This is what we see as the market need. Can we make it?”
Companies that pursue operational excellence do innovate, but much of it centers on making their supply chain more flexible and transforming how they produce. This goes back to companies understanding who they are. Look at Apple. Its competitive advantage isn’t manufacturing; it’s marketing and innovation. So rather than owning manufacturing facilities, Apple contracts with others to make products. It’s very important for companies to recognize what business they’re in and then lean into that strength.
The payoff: better financial results
Organizations can benefit in many ways by focusing on operational excellence: improved product quality, greater customer satisfaction, fewer fires to put out and more engaged employees, to name just a few. Financially speaking, operational improvements are also well worth the time and effort, typically boosting financial results and earnings growth.
Aristotle said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” If that’s the case, then companies in the habit of operational excellence stand to reap great rewards – financial and otherwise.