Understanding Operational Excellence … and Why It Matters
Operational Excellence (OE) is a philosophy and social change in attitude toward the way a company delivers value to its shareholders and customers. Many companies implement OE methodologies with varying degrees of success; however, overcoming the social displacement that comes with changing what and how things are done is the biggest barrier to reaping OE benefits.
Accordingly, OE is why the change needs to happen and the principles behind that change. This helps minimise the social displacement of diffusing new ways of thinking across an organisation and its employees. OE methodologies are the practical application of diffusing new thought. Don’t have time to read now? Download Hexagon’s free Digitizing Operations Guide for your guide on how you can align people, processes and technology to achieve Operational Excellence.
Applying a methodology
Currently, there are three main methodologies in use within the production industry:
1. Lean manufacturing
Lean manufacturing focuses on eliminating waste from a production system. There are “seven deadly wastes” that adherents seek to minimize or remove completely: Overproduction, Waiting, Transport, Motion, Over-processing, Inventory and Defects. Each of these “wastes” adds to the cost and complexity of production – and therefore reduce productivity.
2. Six Sigma
Six Sigma approaches the issue of productivity by focusing on customer experience. Improvements are made by identifying and eliminating variation to create templated, repeatable processes that become more productive (and cheaper to run) over time. Half of all Fortune 500 companies now use Six Sigma to some degree, using the DMAIC framework: Define the problem, Measure its impact, Analyse your measurements, Improve processes and retest, Control processes to maintain gains and improvements.
3. Kaizen
Kaizen teaches that when applied consistently, small changes will compound over time and produce big results. The methodology does not necessarily encourage only making small changes, though; kaizen focuses on the participation of all employees to effect real change. By making every employee a stakeholder and empowering them to suggest and enact change, Kaizen decentralises and accelerates process improvement.
Operational Excellence frameworks make sense
All the operational benefits we normally associate with continuous improvement, dramatically improve once we achieve Operational Excellence. Some common examples include:
• Better time to first production or enhanced output
• Accelerated inventory turnaround
• Cost reduction and supply chain optimisation
Once an operation has achieved Operational Excellence, the strongest benefit is it requires very little management intervention. Employees are self-sufficient in driving the value chain, not only improving productivity and shareholder value but recognising problems with process before they happen and fixing them using pre-established standardised work.
At least, that is how it should be. In reality, 53% of businesses believe that changing culture – the human element of Operational Excellence – is the largest challenge they face. It may be that choosing a framework is easier than onboarding the people who need to work with it.
Only part of the story
Just 40 percent of companies stated that they had an enterprise-wide operational excellence program According to a Business Transformation & Operational Excellence World Summit survey conducted in 2019. OE can open Pandora’s box of end-to-end transformation; however, with a strong vision, an effective change management process, efficient role/resource allocation and a healthy culture, operations leaders can form the backbone of business transformation and become the blueprint for wholesale business transformation.
Don’t forget the tools
Each of the methodologies outlined here unites people and processes to drive improvements. However, true operational excellence includes a third factor – technology. Technology provides a way to formalize and automate many of the processes, freeing people to concentrate on other tasks without compromising the quality of the final product.
OE philosophies work with digital transformation as they provide the guiding principles behind why, what and how an organisation digitises operations. In fact, OE provides the framework for how new tools fit into existing or new systems which deliver results and outcomes for the business.
A common mistake made by organisations is to focus too heavily on a specific toolset as the basis for improvement efforts. Tools do not answer the question of “why,” only the question of “how.” Knowing the “how” without understanding fully the “why” leaves team members waiting for instructions and powerless to act on their own.
Conversely, when team members understand how the tools serve the larger system and its purpose, they are better able to use them toward the desired outcome. In other words, if they understand why the tool is important to the system, they can use the tool in alignment with the purpose of the system. It is an important form of empowerment for team members.
OE gives staff an understanding of “why” this tool in this system. With an understanding of “why”, the all-important employee engagement is much easier to obtain, helping to close the people-process-technology loop at the heart of operational excellence.
To learn more about these process methodologies and how to combine them with technology to drive digital transformation, please download your free copy of The Complete Executives’ Guide to Digitising Operations eBook.