What Are the Key Principles of Operational Excellence?
You’ve probably heard about Operational Excellence a thousand times. But what does it mean exactly? What is the definition and why is it important?
What is the Operational Excellence Strategy?
Operational Excellence is the execution of the business strategy more reliably and steadily than the competition. This strategy is evidenced by the results.
If there are two companies with the same strategy, the Operationally Excellent company will face less operational risks, lower costs, and increased revenues relative to its rivals, generating value for clients and shareholders.
Let’s say, excellence in operations is efficiency, meaning that you do things right. But operational excellence is effectiveness – it is about doing the right things.
Operational Excellence can also be viewed as Execution Excellence. It looks really actual in today’s technology-driven and rapidly changing business models that require companies to undergo a full business transformation.
However, the Operational Excellence’s focus goes beyond the traditional continuous improvement to long-term changes.
Organizations that strive to follow the Operational Excellence concept do two essential things, in comparison with other companies:
- manage their business systematically
- invest in developing the proper culture
Operational Excellence focuses on meeting customer expectations through the improvement of operational processes and the company’s culture. In general words, the key goal is to develop an integrated enterprise-level management system with the ideal flow.
10 Core Principles of Operational Excellence
There is a yearly tradition, supported by the Shingo Institute of the Jon M. Huntsman School of Business that implies giving an award for Operational Excellence. The award is called the “Shingo Prize”. The award is given in accordance with company culture, its results, and how well team players demonstrate the required principles of the Shingo concept.
Let’s delve into the details of each principle.
1. Respect every individual
According to the Shingo, as everyone has worth and potential, then he/she deserves respect. You must demonstrate this respect to your employees and one of the best ways to do it is to involve them in any necessary improvements to their department. The goal of this step is to make them feel more motivated to contribute to the changes positively.
2. Lead with humility
The admission of the fact that improvement is possible and required is the first step to improvement. This is directly connected with the sense of humility.
Managers must be ready to seek info, listen, and learn. Such an attitude gives employees a chance to contribute their best ideas and feedback. Leading with humility means letting go of the past and preconceived notions of the appropriate way.
In case when companies are led with humility, there is a consistent, foreseeable engagement where the work happens. Team members understand that they can point out opportunities for improvement and expect gratitude, rather than repercussions.
3. Seek perfection
Perfection seems an unattainable purpose. Pursuing it, you will stimulate the environment for a culture of operational excellence.
The opportunities to improve the situation are unlimited and people who seek perfection look for long-term solutions rather than temporary fixes. They admit that simplicity is the key to processes that trend toward the ideal.
4. Embrace scientific thinking
Constant learning and experiments lead to innovations. Therefore, it is always useful to know what works and what does not. Exploring innovative ideas, you will encourage your colleagues to do the same without fear of failure.
5. Focus on the process
If your business goes wrong, you are likely to blame other people (as well as yourself). However, in many cases, the problem is rooted in the process but not the person. Even the most successful employees can not permanently produce ideal results with a bad process.
Try your best to first assess what part of the process the error occurred before immediately pointing fingers at the employees involved.
6. Assure quality at the source
You will be able to achieve high-quality results only if each part of the process is done correctly. You can organize work areas in a way that will identify potential problems. If you find a mistake, stop working immediately to correct it before continuing.
7. Flow and pull value
Every company is aimed to provide maximum value to its clients. Therefore, companies should ensure that the process and workflow are continuous because any kind of interruption creates waste and inefficiencies.
8. Think systemically
Companies oriented on Operational Excellent understand that processes are interconnected and that the most essential problems typically occur when work is moved from one process to another. They recognize that it is important to understand these relationships within the system to implement efficient changes.
9. Create consistency of purpose
Another element that Operational Excellence requires is strategic alignment. A company must be sure that it exists, where it is headed, and how it will get there.
The strategy must empower individuals to align their actions, decisions, and innovations. This will provide better confidence and decision making.
10. Create value for the customer
Every customer has his/her own value so you initially should understand their needs. In simple words, Value is what that person is willing to pay for.
Companies must continue to work to understand the needs and expectations of their clients. A company that stops delivering value is not sustainable over time.
What is the way toward Operational Excellence?
We’ve described the core principles of Operational Excellence, so the question becomes what steps can a particular company take to get there?
There is no single answer, however, you may follow a set of markers on the path to success:
- Introduce employees to Operational Excellence. Highlight the desire to provide the ultimate value to clients and use resources efficiently. Team members should understand the principles and be recognized and rewarded.
- Minimize top-down thinking. Operational Excellence excludes the strict top-down concept. It requires another approach where front line employees are empowered to recognize and respond to interruptions in the flow of value.
- Provide flow visualization. Transparency is one more primary concern of Operational Excellence. In case you face roadblocks or process irregularities, you can do something about them. That is why so many improvement tools were created to allow visual management.
- Introduce standard work for normal/abnormal flow. No standard means no improvement. It is like a control group for your improvement experiments. There should be standard work for the cases when processes become out of control.
- Align objectives and accountability. All advanced companies have a clear set of business objectives. It is important to ensure that each individual knows how they can best contribute to reaching the most important goals.
- Set up the framework for improvement. The platform for improvement should have a repository for all opportunities for improvement, allowing cross-functional collaboration, and offering notifications to make sure that progress never stalls.
Becoming a successful high-performance company is the ultimate goal. It is about getting more success than competitors in areas such as strategy development and execution, an effective organization with clear roles, delivering advanced customer service and maintaining, applying its assets, etc. It looks like a never-ending race without a finish line.
Getting a company to excellence isn’t easy. However, it is beneficial for leaders to show a commitment to achieving operational excellence to make employees deliver increasing levels of engagement, innovation, and maintainable growth.