Operational excellence: What is It?
12 Sep 2018
The staggering reality of business failures
Building and running a successful business is not for the weak-hearted. It takes an open-minded entrepreneur to recognize that you must think and perform differently than your competition in order to truly build a solid foundation for a successful business to thrive.
Harvard Business Review research states that many businesses fail due to two primary issues: lack of strong processes and failure to achieve operational excellence (OpEx). The real difference between long-term success and mediocrity is an operational excellence strategy. The HBR report also notes that “firms with strong managerial processes perform significantly better on high-level metrics such as productivity, profitability, growth and longevity.”
You are likely asking yourself: How can I not implement operational excellence principles? It takes work to keep it elevated as a priority and to keep your leaders focused on defining what operational excellence means to your organization. To truly be successful, you must also create a robust plan to achieve it. A common phrase states that, “As goes the leadership team, so goes the rest of the organization.” This can no longer be a “flavor of the day” activity if you expect to survive and grow into a successful, healthy business.
Defining operational excellence
This is where it gets tricky. We’ve heard the term “operational excellence” kicked around as the must-have, the Holy Grail—but OpEx is not a one-size-fits-all solution. Identifying the necessary elements and how they should be applied to your business are key factors to consider before moving forward.
Wilson Perumal & Company has a great definition to help us understand the purpose behind an operational excellence model:
“Operational excellence is the execution of the business strategy more consistently and reliably than the competition. Operational excellence is evidenced by results. Given two companies with the same strategy, the operationally excellent company will have lower operational risk, lower operating costs, and increased revenues relative to its competitors, which creates value for customers and shareholders.”
Let’s break that down a bit to be sure we are clear. Strategy execution seems to be one of the biggest challenges that companies of all sizes struggle with. It’s relatively easy to create a strategic plan for the next year or so, but making it reality is not. It takes focus, discipline, accountability, and a clear way to measure progress and success.
Here is one of my favorite quotes, attributed to Thomas Edison: “Vision without execution is hallucination.” I have seen this proven over and over again throughout my career. There is no doubt that the planning process is fun—but it takes real work to make that plan come to life.
The next key piece is recognized in the results you experience as operational excellence tools become part of the fabric of your business. Data doesn’t lie, and it is a critical element in enabling us to make the best decisions in a proactive manner to avoid unnecessary fires and issues. Leveraging a scorecard, dashboard, or other tool to capture your key data elements will be a major factor in your ability to move forward with operational excellence. This will also ensure sustainability over time, as you will be in a position to be proactive rather than reactive when issues appear.
I work with my clients to implement a powerful, yet simple business operating model called the Entrepreneurial Operating System© (EOS). A key component of the EOS model is the use of a scorecard which is basically a dashboard that reflects 10 to 15 leading-indicator, activity-based data elements that enable the leadership team to keep a finger on the pulse of the business and react quickly when something is off track.
Moving quickly and taking direct action based on real data changes not only triggers leadership focus, but also enables each employee to track their own success metrics when performing their roles. Inspect what you expect and performance magically improves.
Competitive disruptors are real and must be included in your strategy
In a 2017 report, Business Transformation & Operational Excellence (BTOE) surveyed and evaluated the most pressing issues, priorities, and future trends for operational excellence practitioners.
When considering operational excellence goals across the board, two key areas bubbled to the top: culture and technology. In fact, 49 percent of respondents said they were focusing heavily on sustaining a culture of continuous improvement, while 41 percent said they were implementing new technologies.
We know that culture takes time to develop and must be intentional in all areas of our business, from hiring, promoting, recognition and terminations. As you can see, in many cases we are talking about your most valuable asset—your people. I encourage my clients to ensure they have the right people in the organization who behave in support of their core values. If your people are not aligned with the business’s core values, they will behave in a way that will alter those values to reflect their own views.
The solidity of your organization will directly impact your ability to successfully achieve your operational excellence goals. This is true when it comes to making any change sustainable. You must resolve any dysfunction before taking on a major initiative such as implementing new technology platforms and applications. It’s important to protect your investment to support the achievement of the desired ROI and not rush to implement a new tool which ends up supporting broken processes and systems. Take the time to truly understand and document how you want to run your business, then find the right tool to enforce your operations—not the other way around.
The BTOE survey also assessed the competitive disruptors that are driving the desire to move quickly with operational excellence initiatives. The following key areas are directly contributing to this sense of urgency:
- Threat of new competition—especially in our global economy
- Needs of the customer—we must truly know our customers and what they want, not what we think they want
- Need to reduce cost—critical to manage fluctuating revenue and competitive pricing
- New technologies—culture first, and then move forward as the business demands
Your biggest competitive advantage: Your culture and your people
Don’t fall victim to the latest trends and fads. They’re not going to give you the benefits you are looking for until you are able to truly leverage your people, specifically the alignment of their behaviors to your culture. Your culture defines who you are to your customers, your vendors, your employees, and your community. Make no mistake that culture is real and a critical element in everything you do. Protecting your core values and truly making them part of your day-to-day operations will give you a competitive advantage. It will also enable you to attract and retain key employees who think the way you think and behave in a way that aligns to your core values and culture.
It truly comes down to having the right people who have the skills to apply operational excellence principles effectively and consistently. This is a key element that leaders need to not only be aware of, but also focus on while developing and coaching their people. A well-defined focus on culture and development is key to implementing positive and long-lasting change. People want to know how they contribute to the organization’s success and that their performance plays a key part in that success.
An effective operational excellence model must include a people-focused approach which meets the demands of today’s customer. At the same time, however, it must also meet the expectations of a drastically changing workforce, including multiple generations who all think and behave differently.
Take care of your people and they will take care of your customers. In today’s world, you must move fast or you will be left behind. Don’t waste time expecting your employees to come to you with every issue or obstacle they encounter. Encourage and empower your people to identify and resolve those challenges when they happen.
Leading and managing operational excellence strategies
Your leaders need to have the skills and talent to truly move the organization to the next level. They need to be strong leaders and task managers who guide your employees in the quest for success. Combine these two and you will find an organization that is accountable, disciplined, and motivated to move the needle towards operational excellence. When you have a culture based on accountability with strong leaders who are laser-focused on strategy execution, you will find:
- Improved employee engagement and satisfaction
- Stronger, more capable teams
- Positive behaviors
- Improved communications
- Effective operational controls
- Quicker response to solving issues
- Proactive coaching and development practices
- Continuous improvement with sustainable changes
- Higher level of customer satisfaction
- Positive financial results driving growth and expansion
Are you ready to move your organization to the next level?
Are you going to set your business up for success and stay in front of the fast and furious changes going on across the business landscape? The time to act is now—before it’s too late. Operational excellence is not just for the big businesses. Every small and medium-sized business needs to clearly understand not only what operational excellence is, but what it means for their organization. A strong strategic plan with a skilled team to execute will be a key factor moving forward. Consider the following questions when evaluating your current operational efficiency:
- How healthy is our culture?
- How strong is our leadership team?
- Are we truly enforcing and protecting our culture or is it just the flavor of the day?
- Do we have the right team in place to support a successful operational excellence program?
- Are we using a business operating model such as EOS to manage operations?
- Are we growing fast or has our growth stalled?
What got you here won’t get you there. As a business owner or member of the leadership team, you need to stay focused on the future, where your market is heading, and plan to leverage this inevitable change that continues to increase in speed. The time to make those decisions is now. Your people are your competitive edge. Take care of them; lead them in the right direction; celebrate the successes; and encourage a continuous improvement mindset while empowering them to truly drive the change that is critical for your business success.
I look forward to your comments. Please share your thoughts on and experiences with operational excellence tools and strategies. Be sure to look for my next blog, as I dig a little deeper into how to achieve operational excellence—where the rubber meets the road!