What is Operational Excellence (OpEx)?

Operational excellence can be defined as the ability to execute a business strategy consistently and more efficiently than the competition. This results in higher revenue, lower operational risk, and lower operating expenses. It is not easy to define operational excellence. It’s not uncommon to find definitions that seem too broad or too narrow. Therefore, it’s so common for us to see a lot of the same things: being world-class, being the best globally, excellence at all we do.

A simpler definition by the Institute for Operational Excellence states that every employee can see the flow and adjust it before it stops flowing. This definition of operational excellence works because it applies to all levels within an organization, including the C-level and plant floor workers. Every person should know that there should be visible product flow or information in their area. They should also be able to recognize if this flow is abnormal or normal and what to do if it is the former. In other words, the product flows in a certain way from one process to another at a particular time and to a particular location. If it doesn’t, then something is wrong.

The second part of this definition states that employees should be able to solve problems themselves without having to consult a manager or report it to management. This is where employees are expected to focus on maintaining flow and management on growth.

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Continuous Improvement vs Operational Excellence

Continuous improvement refers to the ongoing effort to improve an organization’s processes or products or services. It is usually gradual over time, and not through breakthrough innovation. Continuous improvement increases the likelihood that an organization will continue to improve and grow.  While continuous improvement is essential, it’s not enough. It is essential that the organization continually improves its processes, products, and services to continue growing. Operational excellence is the key to success. Operational excellence refers to a mentality that embraces certain principles to achieve sustainable improvement within an organization. Simply put, operational excellence is when everyone in an organization can see the flow value to the customer. However, just seeing it is not enough. They should also actively work to improve its value and delivery.

Operational excellence does not mean lowering costs or increasing productivity at work. It is about creating a company culture that allows you to create valuable products and services for customers and achieve long-term sustainable growth. Operational excellence requires the application of the right tools to the correct processes. The ideal workplace culture can be created when employees are supported in a way that allows them to remain empowered, and motivated.

Structure

A few key building blocks are required to build a culture of operational excellence:

Operational Excellence Structure

Performance Management

The balanced scorecard approach is used to focus on all aspects of the business, not just the financial. It also includes the customer, internal business processes, and skills growth. Robert Kaplan and David Norton, the inventors of balanced scorecards, tell you what knowledge, skills, and systems your employees need (skills development) to innovate and build strategic capabilities (internal processes), that ultimately lead to greater value (financial). Performance management includes (Key Performance Indicators) KPIs, continuous improvement, and management reviews.

Process excellence (Continuous Improvement)

This means that an organization must be process-centered. This is a well-designed and efficient support system. Lean manufacturing techniques such as Six Sigma, Kaizen, and the 5-S System are some of the tools that can be used to achieve process excellence. Lean management tools aim to reduce lead time, which is the average time taken to complete a process from start to finish. This includes waiting time between processing steps.

Team performance

is about building high-performance teams by empowering, educating, and engaging employees. This involves establishing strong values and principles, creating leadership roles, coaching, and continuing competence development.

Leadership and culture

involves attracting and retaining the right people, creating a culture that encourages the desired behaviors, and continually developing the leadership competencies.

10 Core Principles of Operational Excellence

The Shingo Model is the foundation of operational excellence. The Shingo Model is a set of principles that can be used to build a culture of excellence in organization building. These principles are broken down into three dimensions: Continuous improvement, cultural enablers, and enterprise alignment. The Shingo Model is based on three key insights. Ideal results require ideal behavior, purpose and systems drive behavior and principles inform ideal behaviors. We will now look at eight of these principles.

1- Seek perfection

This step is often met with resistance because most people quickly point out that perfection is not possible. Although perfection might seem impossible, it doesn’t mean that you shouldn’t try. You can create a new mindset in your company by setting high standards. Look for long-term solutions when faced with a problem. Always try to simplify your work without compromising on the quality.

2- Keep your eyes on the process

There is a natural tendency to blame others when things go wrong. The problem is often in the process and not the individual. Because even top employees cannot consistently produce perfect results when they are working in a poor process. Instead of pointing fingers at employees when a mistake is made, you can assess which part of the process it occurred. After you’ve done this, you can adjust to get the results you want.

3- Respect All Individuals

Shingo Model emphasizes the importance of respecting everyone’s potential and worth. It’s not enough just to show respect for others, you must also show it to them. Involving your employees in the necessary improvements to the department is a great way to show respect. This will make them feel empowered and more motivated to help the department improve. Learn more about creating a culture that is engaging every employee, from the CEO to the shop-floor staff.

4- Assure Quality at The Source

High quality is only possible if all parts of the process are done correctly. It is helpful to arrange work areas so that potential problems can be identified immediately. If you make a mistake, it is important to immediately stop and fix it before moving on.

5- Accept Scientific Thinking

Innovation is continuous experimentation and learning. It is always helpful to be able to identify what works and what doesn’t. Employees can be encouraged to explore new ideas by you.

6- Lead by Humility

Leaders must be humble. People can admit their mistakes and seek out a better way to improve. Humility is the willingness to listen to and accept suggestions from all employees, no matter their position within the company.

7- Create Constancy for Purpose

Day one should inform employees about the company’s goals and mission. However, this should not stop on day one. These principles and goals should be reiterated every day. Every employee should have a clear understanding of why the company exists, where it is going, and how it will get there. This will allow them to align their actions and goals with the company.

8- Create value for customers

You must understand the customer’s needs to create value for them. Value is simply the price that a person will pay. Companies must work hard to understand their customers’ needs and expectations. A company that ceases to deliver value to customers is not sustainable.

9- Flow Value and Pull Value

Every organization’s goal is to offer maximum value to customers. Organizations must ensure continuous process and workflow because interruptions can lead to inefficiencies and waste. It is important to assess customer needs to make sure your organization is meeting them only.

10- Think systematically

There are many interconnected parts in a system that all work together. Understanding the relationships between these parts will allow you to make better decisions. Avoid limiting your vision of your company and removing any obstacles that may hinder the flow of information.

Operational Excellence (OpEx) Methodologies

An organization can achieve operational excellence by improving its company culture and performance. This leads to long-term sustainable growth. Businesses should look beyond the typical one-time event to consider a long-term strategy for change. Many methodologies have been introduced over the years to mainstream business culture to achieve operational excellence. Below are three of the most well-known ones.

Six Sigma

Six Sigma consists of a collection of tools that can be used to improve business processes and produce a better product. Six Sigma aims to improve the customer experience by identifying and eliminating variation. More than 50 percent of Fortune 500 companies have adopted Six Sigma in some way. Six Sigma has saved Fortune 500 companies $427 billion in the last 20 years, according to research. A business process performing at a six sigma level will not produce more than 3.4 defects per million opportunities. Any failure to meet customer expectations is a defect.

LEAN

LEAN is about eliminating waste from a production process. It states that a company should only focus on the value that it adds to its business. LEAN also teaches you that every process has a bottleneck and that focusing your efforts on fixing that bottleneck will lead to the fastest path to success. LEAN’s key principles focus on increasing the quality of products and services and eliminating unnecessary costs.

  • Kaizen – The Japanese term Kaizen means “change for the worse.” Continuous improvement is the driving force behind Kaizen. Kaizen is about empowering teams to work together and taking responsibility for their areas of the organization. This allows them to make incremental improvements.
  • 5S System – The 5S System is an organization method that derives its name from five Japanese words, seiri (seiton), seiketsu, seiketsu, sieso, and shitsuke). These words can be translated as organizing, tidiness and clean, standardize, sustain, and others. The 5-S System increases safety, productivity, uptime, and overall morale.
  • Kanban – Kanban is a visual technique that regulates the flow of goods within and outside the plant. It helps to eliminate inventory waste and overproduction waste. Kanban cards can be displayed on a board to indicate when inventory should be replenished. This allows customers to only produce what they need, thus reducing waste and inventory.

Kaizen (this is a subset of LEAN)

Kaizen is ” continuous improvement” both in Japanese and in English. It was used to make positive, ongoing changes at work. Kaizen’s guiding principles are that a positive process will result in positive results, that teamwork is essential to success, that every process can be improved, and that there are no limits to what you can do.

To promote continuous improvement, organizations implement kaizen. To improve the workplace, employees will collaborate. Kaizen is a method that teaches you that small changes can be made over time to produce big results. However, Kaizen does not encourage making only small changes. Instead, it emphasizes the involvement of all employees in achieving real change.

Kaizen emphasizes the importance of continuous improvement. It is not enough to make one change and hope it sticks. Continuous improvement is essential. Kaizen has been used by many businesses to increase productivity, reduce costs, and improve customer service.

What are some of the Challenges?

Although it may seem simple on paper, operational excellence is not easy. Every organization must overcome these common obstacles before it can achieve success.

Reduce top-down thinking Trying to achieve operational excellence can be complicated by the traditional top-down approach companies use. This doesn’t mean you should get rid of hierarchy. This means that operational excellence is not possible without a different approach to flow.

As they deal with interruptions every day, front-line employees must feel empowered to help fix them. They are familiar with the process and the problems that result.

  • Inability to adapt: Although it is obvious, a lack of willingness or ability to quickly adapt or make changes can cause operational excellence to stall. Companies must be able to quickly adapt to a changing market.
  • Too much data: Data-driven decisions are important, but there’s a limit to how much data you can handle. Companies can’t make decisions without data if it is too complicated to interpret.
  • Detachment: Detachment is a common problem for employees. It can hinder their ability to achieve operational excellence. Employees who don’t understand their role in the overall strategy of the business and their roles within it are more likely to be unable to effectively perform their jobs.
  • Insufficient progress: Hard-working employees want to see improvement. Are they achieving growth? Do they provide value for the customer? When progress is slow, employees can feel discouraged and lose motivation to work towards operational excellence.

Operational excellence often comes down to the way your organization accepts and embraces change. People might be required to take time off from their regular work schedules to learn new processes and process improvement projects. Although this requires a change of mindset, there are ways to ease the shock of continuous improvement. Sometimes, it is possible to run a pilot program before you implement a company-wide change. Or a change to a whole department. This can help to resolve issues before the rest of your employees have to.

In conclusion

All organizations that strive for continuous improvement must achieve operational excellence. While tools and projects are useful, they don’t create lasting change. Only when operational excellence principles are deeply embedded in the culture of an organization can lasting change occur. So, make sure both management and employees are aware of the core principles that underpin operational excellence.