Without a clear idea of where you’re headed, how can you know how to get there?

Most executives will agree that Operational Excellence is good. Many will argue that it’s a crucial factor for success. But what is it? Despite the widespread positive perception, there isn’t a lot of agreement around what Operational Excellence (OE) is.  

The term “Operational Excellence” gets thrown around a lot, and common definitions rarely help. OE is described as everything from specific improvement tools to ambitious company goals to ambiguous philosophies. For all the ways the term gets used, there are even more ways that companies go about pursuing it. While there is no universal “right way” to achieve Operational Excellence (OE), we’ve noticed that most successful programs share a few core characteristics. This series is intended to filter all the noise and help you focus on the few things that make a big difference – the 10 Fundamentals of an Effective Operational Excellence Program.

Setting the Direction

For these 10 Fundamentals to be useful in achieving OE, we should first align on a few things. 

Defining Operational Excellence

The first thing to tackle is to define OE. Absent a clear definition for what it is, it will be impossible for your organization to agree on its value or much less on how to get there.

There seem to be two predominant ways OE gets defined incorrectly.   

1. Misleading Definition #1: First, it is commonly used as a synonym for tools and methodologies like Lean, LSS, BPM, Agile, etc. In this case, the term OE is hijacked by a lot of practitioners and consultants to give old tricks a new life, piggybacking on the latest wave of interest. Calling OE a set of tools is good for those selling the tools, but it is of little use to a company seeking help. Are they Operationally Excellent just from having implemented the tools? What if the tools don’t work, is OE just not for them? Surely not.  
2. Misleading Definition #2:The second way is to define OE as a set of lofty but ambiguous goals. Definitions such as “being world class” or “excellence in everything we do” are very common because they are easily agreed upon – who doesn’t want to be world class? Though these definitions aren’t technically wrong, they are of little help because they offer no redirection or focus. When a company says it now wants to be “excellent in everything”, were its employees previously shooting for mediocre results? These definitions are the execution equivalent to the “be all to everyone at all times” strategy.  

The companies that most effectively and efficiently pursue Operational Excellence have this in common – they have a very clear vision for what Operational Excellence means and thus why it is a worthwhile endeavor. Their vision typically defines it through 2 characteristics – it defines a desired outcome rather than the tool or methodology to achieve it, and it defines the outcome in a measurable way. In other words, these companies take a lofty goal like being “world class” and define it within the parameters of their strategy and corporate values to know exactly what that looks like.

Operational Excellence is sustainably delivering leading performance across all measures of value by consistently executing a sound strategy.  

We use the above definition as a starting point or an outline for companies to fill in the missing pieces. To get a clear vision for OE, we need to further define two pieces – what is “leading performance” and what are the necessary components for “consistently executing” a strategy?.  

Leading Performance – Setting the Vision for Operational Excellence 

How any organization defines leading performance, or even acceptable performance, will drive everything else. Defined too broadly, it will be of little use in translating an idea into better actions. Defined too narrowly, and it can create misalignment within the organization. For example, if Operational Excellence is seen only as related to EHS performance, it creates or reinforces a divide between the parts of the organization worried about EHS performance, and the rest of the organization trying to “run the business”.  

The Institute of Operational Excellence comes close with their definition as “Each and every employee can see the flow of value to the customer and fix that flow before it breaks down”. This may suffice as it relates to value to the customer, but it excludes value to the company and its broader stakeholders. Instead “Leading Performance” should be defined to align to your strategy and corporate values, which naturally include customer value. Your strategy will define what good looks like in terms of profitability, growth and customer satisfaction. Your corporate values should establish all the issues that matter in achieving your strategy, usually as of some measure of safety, environmental performance, employee satisfaction and community improvement. This holistic definition of performance is broad enough to capture everything important to the organization, but specific enough to measure.

Consistent Execution – Understanding What It Takes 

What does it take to consistently execute your strategy? Execution can be broken down to its two basic components – the systems in place to manage the work to be done to execute the strategy, and the culture that drives how well and consistently the work is done. Every company has both, and many companies have multiple variations of each. Operational Excellence requires the management systems and the culture to work together, building on each other to enforce the right level of consistency to effectively and efficiently execute the strategy.

In the following series, we will explore 10 things related to both the management systems and the culture necessary to deliver any strategy in an operationally excellent way and enable leading performance. These 10 are related to fundamental factors that apply to any industry or company. We will look at characteristics of the management system itself, how effective programs establish and manage those systems, and specific ways in which the culture can ultimately impact the program’s success. 

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This post is an excerpt from the white paper “The Fundamentals for Transforming Your Organization Through Operational Excellence.” Download the complete white paper here.

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