Redefining Operational Excellence

New Strategies for Maximixing Perforamnce and Profits Across the Organization

Andrew Miller

• Publisher: AMACOM
• Year: 2014
• ISBN:
  9780814433980
• Topic: Business
• Subtopic: Operations
• Index: Business

Discover new strategies for maximizing performance and profit across your organization through the concept of operational excellence.

Companies must learn that you cannot fire and budget-slice your way to sustainable growth. Our world is too complex, too interconnected, and technology too quick-evolving for organizations to achieve dramatic results simply by eliminating waste and increasing standardization. Maybe these methods worked before--occasionally--but not anymore.

Redefining Operational Excellence boldly claims that the old ways of hunkering down and refocusing the business strategies are no longer viable. Operational excellence is about a mindset, and a company culture that questions current models and focuses not on slashing and subtracting but on adding value, making improvements, and increasing speed.

This groundbreaking guide covers it all--processes, people, and operations--and shares specific strategies to:

• Drive innovation and collaboration
• Engage customers
• Attract and retain top people
• Align strategy and execution
• Optimize speed

Operational excellence is about finding money and performance boosts in hidden areas businesses don't normally look. With this indispensable, all-encompassing resource, you'll discover where!

CHAPTER 1



THE NEED FOR A NEW DEFINITION

ORGANIZATIONS HAVE USED THE TERM operational excellence for years, although there is no common understanding of what it really means. Is it a methodology or a mind-set? Is it focused on processes or results? Where do customers and employees fit in? Until recently, operational excellence has generally been associated with manufacturing and production, but that is changing.

The old connotation of operational excellence—focused on manufacturing throughput, standardizing processes, and eliminating waste—is a relic. It’s time has passed. Our world is too complex, too interconnected, and too fast moving to focus solely on solving problems and standardizing processes. Today’s customers are well educated, and today’s employees need to be more empowered in order to stay engaged.

The old associations that organizations made with operational excellence have grown stale; our thinking about operational excellence has changed. Companies now recognize the value of improving performance not only on their production lines but also in the ways their employees interact with customers, suppliers, and other business partners.

Operational excellence is a journey, not a destination. This more holistic view of a company and what it does changes the way organizations do business. This chapter and ultimately this book will outline why that change is necessary and how to go about making it.

THE BEGINNINGS OF OPERATIONAL EXCELLENCE

The current association we have with operational excellence derives from our experiences with such methodologies as Six Sigma and Lean manufacturing.

Six Sigma focuses on the elimination of all flaws in a process and the standardization of processes wherever possible. It encourages companies to strive for perfection in any process.

In the 1980s, Motorola developed Six Sigma as a way to use data and statistics to remove defects from their manufacturing processes. It has since been adopted by many other organizations, most notably by Jack Welch and General Electric (GE) in the 1990s. Organizations took the initial concept and applied it outside manufacturing to other business processes, with varying results.

Lean focuses on the elimination of waste within a specific process or activity. It was developed, also in the 1980s, for the Toyota Production System as a way to eliminate waste in manufacturing processes. Toyota’s principles focused on removing waste from the process in order to maximize customer value. As with Six Sigma, Lean has been adopted in general business processes to help companies focus on creating value for the customer.

Both Six Sigma and Lean have their benefits, but they also have their limitations.

The Limitations of Six Sigma

The assumption is that companies employing Six Sigma automatically achieve operational excellence, but the truth could not be more different. Making use of Six Sigma as the equivalent of operational excellence is like saying, “I have a black belt in karate; therefore, I am a martial arts expert.” Six Sigma is only a small component of operational excellence, one of many methodologies employed to achieve it.

Six Sigma focuses on the removal of the root cause of errors (defined as elements that fail to meet customer expectations) and on minimizing variability in processes. Essentially, Six Sigma helps you fix root problems and maximize standardization, but those two efforts alone do not result in operational excellence.

When asked to identify companies we consider operationally superior, Dell, Amazon, Apple, Disney, and Walmart come to mind. Are these companies operationally excellent because they fix root problems and maximize standardization, or is their operational excellence due to their quality management system? The answer is neither. They are operationally excellent because they go well beyond these activities. These companies engage their customers, they constantly innovate, they continuously improve how they operate, and they move at optimal speed. They may use Six Sigma approaches, but applying Six Sigma does not equal operational excellence.

Six Sigma principles never would have helped Apple develop the iPod or motivated Dell to develop an approach for customers to customize their own computers through the Internet. Six Sigma never would have helped Disney develop a customer-first culture where employees are expected to drop everything they’re doing to replace a child’s ice cream that fell on the ground.

Those innovative ideas didn’t start with a problem that needed resolution. They came from a different way of thinking, a different mind-set that was focused on people and customer loyalty and effecting change.

Why Lean Makes You Fat

Today, we try to “lean” everything. We have lean approaches in health care, banking, pharmaceuticals, and many other industries.

The limitation with Lean is that it focuses on the removal of waste and the preservation of value, but not on the actual creation of value. Lean might help restore previous levels of success, but it doesn’t help you achieve greater heights. Lean is too often used as a methodology, not as a mind-set. Organizations focus on tools and methods, not on changes and behaviors. People are trained in the lean methodology but not so much in the lean mind-set.

When you focus on tools and methods, you become a slave to them and tend to deemphasize, if not remove altogether, critical thinking about growth and value creation.

Lean is an effective way to increase productivity for repeatable tasks, but it doesn’t help develop new ideas or strategies.

Don’t rely on methodologies and tools as crutches to avoid using judgment. Instead, focus on critical thinking and common sense.

Operational excellence comes from the ability to relentlessly pursue improvements in performance and profitability by focusing on value for the customer. Unfortunately, Lean provides a much narrower focus than that.

REDEFINING OPERATIONAL EXCELLENCE

Methodologies have their place and can be effective as management tries to improve performance in a specific area of an organization or attempts to resolve issues. But methodologies are limited in their ability to drive operational excellence and consider holistic strategies. For true operational excellence, we need a more comprehensive approach that is focused on people and on effecting change.

Companies need to engage the voices of customers and business partners to drive innovation, execution, continuous performance improvement, and, ultimately, profitability. Again, operational excellence needs to happen on the front lines of your organization; it happens when employees are empowered to use judgment that is in the best interest of the organization. When methodologies are used, they are often relied on so heavily that employees don’t have to use judgment. When you take away the ability of employees to use their judgment, they quickly lose interest, become less engaged, and default to the tools. This is not a recipe for success.

Figure 1-1 depicts the components of operational excellence for an organization:

Attracting and retaining top talent

Innovating and collaborating

Aligning strategy and tactics

Acquiring and keeping the customers you want

The figure also depicts that each of these components is enhanced by the ability to optimize speed and is motivated by the impulse to maximize profitability (or, for not-for-profit organizations, effectiveness). Chapter 2 expands on each of these components, and, starting with Chapter 3, I devote one chapter to each. Chapter 7 highlights the important role optimizing speed plays in the effective operation of the four components.

How many of these components do methodologies like Six Sigma and Lean relate to? Very few. So how can we use them synonymously with the term operational excellence? We can’t. Doing so would be like entering a martial art...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Acknowledgments
• Introduction
• Chapter 1: The Need for a New Definition
• Chapter 2: Making Operational Excellence Happen
• Chapter 3: Attracting and Retaining Top Talent: Don’t Settle for Second Best
• Chapter 4: The Innovation Equation: The Importance of Collaboration
• Chapter 5: Aligning Strategy and Tactics to Enhance Performance
• Chapter 6: Acquiring and Keeping the Customers You Want
• Chapter 7: Optimizing Speed Maximizes Profitability
• Chapter 8: Centers of Excellence: Not So Much
• Chapter 9: Industry Perspectives
• Chapter 10: Getting Technology Out of Your Way
• Chapter 11: A Bright Future with Operational Excellence
• Appendix: Are You on the Path to Operational Excellence?
• Index
• About the Author