What Is Operational Excellence

In "The Discipline of Market Leaders," Michael Treacy and Fred Wiersema describe three distinct value propositions an organization can choose to compete in their market or industry:

1. Operational Excellence,
2. Product Leadership, and
3. Customer Intimacy.

The core of the book is based on five years of research by Treacy and Wiersema into a number of blue chip companies, including Wal-Mart, Dell, Southwest Airlines, Home Depot, Intel, and Sony. Market leaders choose to excel in delivering extraordinary levels of one of these three value propositions, while maintaining reasonable standards in the other disciplines. So, what exactly is Operational Excellence?

Operational Excellence is a well established management philosophy. It is a philosophy of leadership, teamwork, and problem solving, resulting in continuous improvement throughout the organization by focusing on the needs of the customer, empowering employees, and optimizing existing activities in the process.

There are many approaches, frameworks, and models that have been presented under the term Operational Excellence. It is also closely related to other continuous improvement methodologies, such as Lean Manufacturing and Six Sigma. See our list of the top 100 Operational Excellence frameworks and OpEx best practices of 2024.

Operational Excellence Strategy & Framework

An effective and robust Operational Excellence Framework is founded upon 4 core building blocks:

• Strategy Deployment,
• Performance Management,
• Process Excellence, and
• High Performance Work Teams.

Thus, to formulate a Operational Excellence Strategy that will achieve Operational Excellence requires the successful implementation of an integrated Business Execution System that effectively and seamlessly integrates the above 4 building blocks.

Let's delve briefly into each of these components.

Strategy Deployment

Strategy or Policy Deployment is the process that aligns and links business strategy and execution. The (Hoshin) Strategy Deployment Process follows a 6 phase approach:

• Phase 1: Organize the process.
• Phase 2: Conduct current state analysis.
• Phase 3: Define strategic vision elements.
• Phase 4: Develop strategic breakthrough objectives.
• Phase 5: Determine strategic initiatives and tactics.
• Phase 6: Implement strategy and review.

There are many tools and frameworks we can leverage to assist in the Strategy Deployment process, such as Strategy Maps, Strategic Grids, and Hoshin X-Matrix.

Performance Management

Performance Management is the process that translates strategic initiatives into measurable objectives and goals. A powerful tool for Performance Management used in Operational Excellence is the Balanced Scorecard (BSC) framework, developed by Dr. Robert Kaplan and Dr. David Norton. BSC is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals.

There are numerous benefits to developing and deploying Balanced Scorecards in an organization. These benefits include:

• Help the management team focus on the execution of their business strategy.
• Focus and align an organization towards common goals and objectives.
• Enable an organization to understand the relationship between measures and performance.
• Improve communication of organizational priorities across an organization.
• Help employees understand and focus on organizational priorities and realize relevant results.
• Reduce the number of metrics to the few vital key performance indicators.
• Strengthen and formalize the project selection process to focus on key capabilities and enablers.

Process Excellence

Well designed, efficient, and effective Management, Value Chain, and Support Processes are necessary to deliver world-class results. On a high level, to attain Process Excellence, follow this 5-phase approach:

• Phase 1: Select the right projects. Clarify big picture using strategic and operating plan. Prioritize projects based on impact, value, resources, timing. Ensure the projects you select have leadership buy-in, etc.

• Phase 2: Select and train the right people. Ensure the right leadership and ownership. Select the right team leader and team. Develop a training plan, etc.

• Phase 3: Develop and implement improvement plans. Utilize the right improvement methodology for the right project.

• Phase 4: Manage for excellence in execution. Stay focused. Frequently review progress. Remove barriers, check real business impact, continuously communicate progress, etc.

• Phase 5: Sustain the gains. Implement effective control plans. Conduct regular training focused on the process. Review the system effectiveness at least quarterly, etc.

There are numerous frameworks and tools for achieving Process Excellence, including a full suite of Lean Six Sigma methodology tools. Examples include BPI (Business Process Improvement) 7, 8D (8 Disciplines) Problem Solving, DMAIC (Define-Measure-Analyze-Improve-Control), and so forth.

High Performance Work Teams

Operational Excellence can be achieved and sustained with the right attitude, the right mindset, and the right competencies. In the "Empowerment Continuum," the high performance team has the highest level of empowerment. This requires the team to have sufficiency across the areas of authority, resources, information, accountability.

While an organization transitions from a more traditional top-down organization to an organization built around high performance work teams, the role of a supervisor or manager changes to the role of a leader and coach, with six distinctive capabilities: living example, coach, barrier buster, result catalyst, facilitator, and business analyzer.

Improve Operational Excellence

The foundational Operational Excellence Strategy focuses on the aforementioned 4 building blocks. To further improve Operational Excellence, there are additional building blocks we can integrate into our Operational Excellence Strategy. These include:

• Digital Transformation: Embrace digital technologies and automation to streamline processes, increase efficiency, and reduce costs. There are numerous emerging technology trends that drive Digital Transformation. Notable ones include Robotic Process Automation (RPA), Artificial Intelligence (namely Machine Learning), Mobile, Internet of Things (IoT), Cybersecurity, Big Data & Analytics, Cloud, Social Media, Blockchain, and so forth. The applicability of technology is largely dependent on the industry and organization.

• Lean Management & Enterprise: Incorporate Lean Management, Lean Enterprise, and Lean Six Sigma methodologies to drive continuous improvement in operational business processes. This approach focuses on eliminating waste, reducing variation, and improving overall efficiency—thereby not only driving Process Excellence, but also driving Customer Satisfaction.

• Supply Chain Optimization: Evaluate and optimize the entire supply chain to enhance responsiveness, reduce lead times, minimize costs, build resiliency, and mitigate risks. This can involve implementing advanced inventory management systems, optimizing logistics networks, leveraging data analytics for demand forecasting, and fostering collaboration with key suppliers and partners.

• Customer-centric Design (CCD): Shift the focus towards customer-centric operations by gaining a deep understanding of customer needs, preferences, and pain points. Use this insight to redesign processes and develop innovative solutions that better meet customer expectations. Regularly collect feedback, conduct customer surveys, and leverage data analytics to continuously improve Customer Experiences.

• Talent Management: Invest in Talent Management and Talent Development Programs to empower employees and build a culture of continuous learning and improvement. Offer training and development opportunities, establish mentoring programs, and encourage cross-functional collaboration. Engaged and skilled employees are more likely to contribute innovative ideas and drive Operational Excellence.

• Risk Management: Integrate Risk Management best practices into operational processes to proactively identify and mitigate potential risks. Implement robust risk assessment frameworks, establish contingency plans, and regularly monitor and evaluate risks. By effectively managing risks, your client can ensure Business Continuity and minimize Disruptions.

• Agile Methodologies: Adopt Agile methodologies, such as Agile or Scrum, to increase flexibility, responsiveness, and adaptability in project execution and product development. These approaches enable faster decision making, iterative development, and close collaboration between teams, resulting in improved operational efficiency and accelerated time-to-market.

The applicability and priority of these secondary building blocks to further improve Operational Excellence will vary depending on your organization's industry, specific business challenges, and goals.

Why Implement Operational Excellence

The pursuit of Operational Excellence generates numerous business benefits. Here are several of the most impactful ways Operational Excellence can drive efficiencies, savings, and other benefits to your organization:

• Simplifies Business Processes – OpEx makes jobs easier and more fulfilling for employees, which means higher employee satisfaction and lower employee turnover.

• Improves the Quality of Products – OpEx helps to better define, simplify, standardize, and control the processes involved in Product Design, Development, and Manufacturing.

• Increases Throughput – OpEx helps to improve productivity, which in turn improves deliveries and can lead to increased capacity and sales.

• Permits Smaller Lots – OpEx helps to reduce inventory waste, quality loss, and production delays.

• Increases the Competitiveness of Organizations – OpEx helps to reduce wastes, lead time, total cost, and resources usage. These savings can be passed on to customers, making your offering more competitive.

• Saves Jobs – OpEx helps to reduce costs and delivery lead times, which benefits the company and customers. Non-deployment of these tools and techniques potentially make companies non-competitive and this could lead to loss of work to offshore companies.

This article provides a very rudimentary introduction to Operational Excellence. To develop a more in depth understanding, we suggest downloading a free copy of the 48-slide Introduction to Operational Excellence presentation and consulting the business training guides below. Also, watch the video below for a glimpse of Flevy's breadth of OpEx and Lean Six Sigma best practice materials.

Operational Excellence Subject Matter Experts

Flevy's document contributors are Subject Matter Experts in their respective industries. Below, we have showcased our authors that specialize in Operational Excellence and Lean Six Sigma. Each of these authors and their respective consulting firms have developed training guides on Operational Excellence.

Operational Excellence Business Training Guides

Flevy is the leading online provider of business frameworks, methodologies, and training guides. These documents are of the same caliber produced by top tier consulting firms, like McKinsey, Bain, and Deloitte. Most documents were developed by seasoned executives and consultants with 20+ years of experience. The training guides selected below have all been developed by management consulting firms specializing in Operational Excellence. The select training guides below have all been developed by the subject matter experts showcased above.

	Strategic Planning: Hoshin Kanri (Hoshin Planning) [NOTE: Our Hoshin Kanri presentation has been trusted by an array of prestigious organizations, including industry leaders such as Apple, Facebook, Boeing, [read more]		Strategic Planning - Hoshin Policy Deployment Our Strategic Planning Process, based on Hoshin Policy Deployment, provides an organization with proven and effective methods to develop, communicate and align its strategic [read more]
	Kaizen [NOTE: Our Kaizen presentation has been trusted by an array of prestigious organizations, including industry leaders such as Apple, Bayer, University of Michigan, [read more]		Lean - Value Stream Mapping (VSM) Value Stream Mapping (VSM) is a lean management technique used to analyze the flow of materials and information currently required to bring a product or service to a [read more]
	Total Productive Maintenance (TPM) Total Productive Maintenance (TPM) is a comprehensive approach to equipment maintenance that aims to optimize equipment efficiency, reliability, and performance. It [read more]		The 8D Problem Solving Process & Tools The 8D Problem Solving Process has become a standard in many industries as problem solving or improvement process, as internal Corrective Action Request (CAR) Process or [read more]
	Lean Manufacturing In this Lean Manufacturing presentation, we explore the Lean philosophy, which is rooted in the Toyota Production System (TPS). Lean aims to enhance customer value by [read more]		Gemba Walk The Gemba Walk is a powerful Lean management tool that has its origins in Toyota's manufacturing processes. Gemba refers to the actual place where value is created, and a Gemba [read more]
	Lean Office In this Lean Office presentation, we delve into the Lean philosophy, drawing inspiration from the principles of Lean Manufacturing and the **Toyota Production System [read more]		CX Improvement Program: Delivering Service Excellence Enhance your organization's CX with our Delivering Service Excellence PPT. Equip your staff with the skills to create quality customer experiences, differentiate from the [read more]
	014_Introduction to Process Mapping Leveraging the 012_Introduction to Mapping, this module takes a detailed look at process maps, swim lane diagrams and brown paper maps. Process maps are easy to construct and [read more]		5S Techniques 5S good housekeeping and workplace organization is a set of basic management principles that are widely adopted in industries today. Also commonly known as 5S System, **5S [read more]
	Lean and Kaizen for Rapid Process Improvement This presentation has 114 slides and and comprises of the following: * What is Kaizen? * The 10 Commandments of Continuous Improvement * Value versus Waste concept * The 7 [read more]		Lean Six Sigma 50 Tools & Templates Please read the Preview Document "Lean Six Sigma 50 Tools Bundle Information Booklet" for complete details. The 50 Lean Six Sigma Tools file can download to your desktop [read more]
	Lean - Standard or Standardized Work The Lean - Standard Work Training Module includes: 1. MS PowerPoint Presentation including 113 slides covering - History of Lean Manufacturing, - The Five Lean [read more]		Lean Six Sigma GB/BB Training 1600+ Slides, 74 Minitab Files This Green Belt, Black Belt Training Design Aid Bundle includes: 21 PowerPoint Presentations 1630+ Slides 74 Minitab / Excel-based Exercises Use it as-is or to improvise [read more]
	Introduction to Operational Excellence (2-day workshop) This workshop introduces various concepts of best-class practices, such as TQM (Total Quality Management) WCM (World Class Manufacturing), Agile and Flexible [read more]		White Belt Operational Excellence - The Path to World-Class This 2 day Lean White Belt presentation is suited for the executive management and consists of 193 slides in all and comprises of the following: This is meant for the senior/top [read more]
	007_Process Metrics Being able to measure a processes performance is a hallmark of Lean Six Sigma and selecting the appropriate metric is critical. LSS metrics fall into one of three categories: [read more]		016_Voice of Customer Gathering the Voice of the Customer is one of the easiest and one of the most difficult tasks a process improvement professional faces. It is easy because when you have a clearly [read more]

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