Operational excellence is a long term change in organizational culture that focuses on principles, systems and tools to assure key metric improvement and a sustainable competitive advantage. Operational excellence can effect large differences in the performance of two otherwise similar businesses and it can drive return on sales aka operating margin from the low single digits to double digit numbers like 15%, 20% or even 30% in some exceptional cases. Operational excellence is not just a goal, or destination, it is a continuous journey that requires a change in mindset and culture. Companies that achieve operational excellence have management that stress and assure the execution of principles, systems and tools that provide for reduced waste and continuous improvement. Here are seven secrets to help your company achieve operational excellence.
1. Culture: Your biggest single challenge on the journey to operational excellence will be cultural; of this I am certain. Assure you have charismatic team leaders and involve employees at all levels, especially those that do the real work. Identify and motivate champions. Change is never easy, so make sure the team knows what’s in it for them. You can’t communicate too much at these earlier stages of change. No matter how great a manager you are, in the end, you may have to part ways with an employee or two. Don’t wait too long, if that’s what is required to turn a company around, as everyone is better off in the end. Critical to operational excellence strategy is alignment between goals, rewards and outcomes.
2. Metrics: You need to choose a handful of key metrics and measure them on a consistent basis. These metrics should be published for all employees to see. It is imperative to have some type of variable compensation system for those employees that have the most impact on these metrics. If you have been following my newspaper column, you know I am a strong proponent of focus. Focus applies to these metrics as well! Choose between five and ten and choose wisely. Some type of quality metric needs to be at least one of them. You need metrics that matter for your results and more importantly, matter for your customers. Once goals are achieved you should evaluate each goal to see if it should be improved further, or if holding at the goal will allow you to support all stakeholders. As an example, you might have achieved inventory turns of 10X and determine that trying to improve this further may risk hurting lead times without a noticeable improvement in cash flow. The decision could then be made to keep the goal for turns at 10X and focus your resources on another area that needs further improvement, such as quality. Focus is the key to being successful. One last word of caution, don’t let idiots decide on the goals. I once heard of a corporation where it was decided that companies would use customer requested lead time as the start date for the lead time goal, in lieu of promised lead time. That sounds great on the surface, but what if some companies send in purchase orders with the due date before the date you receive the purchase order? Yes this can and will happen. Let cooler heads prevail by doing what makes sense and what gives you a competitive advantage.
3. Think lean: To achieve operational excellence you need to think lean. Your company needs to be a shining example of getting things done efficiently and effectively. Metrics such as inventory turns can almost always be significantly improved, without negatively impacting delivery, if done strategically. Examine every corner of your business to eliminate waste and excess cost. Being lean is not always easy. I took over a business that had inventory turns of less than 4X and started to personally run training programs based on concepts implemented by Toyota. We set a goal of getting turns to 10X, but one of the biggest challenges was that a senior member of my staff kept saying we are not Toyota, or in the automobile industry and can’t do what they did. While the road was not always easy, we eventually achieved inventory turns of 12X, while still offering exceptional lead times to our customers. During the development stage of implementing lean you will want to train your teams on how to perform value stream mapping, implement 5S events and use visual flow tools, as well as providing proper incentive programs.
4. Passion for quality: A passion for quality simply must be part of the culture you implement. It starts from the top down and you as the leader must frequently be the teacher and motivator to assure that passion for quality permeates through all employees. Quality is a habit, not a single act, thus continuous and effective communications are required to assure the message is clear to the entire organization.
5. Differentiate: You must offer customers a compelling value proposition. If it’s customer service, make sure your service is the best. If it’s price, make sure your price is the lowest. If it’s delivery, make you’re your delivery is the best. Don’t get lost. A sustainable competitive advantage will keep attracting customers and keep them coming back for more. It is not a one time lower price, or quick fix.
6. Seek excellence: It’s not enough to be good in the areas you use as differentiators, you must seek excellence. Excellence is the quality of being excellent or very good. Your goal is not to just to be the one-time best, it is to seek excellence continuously. Your competitors do not stand still, thus you must keep moving forward and improving.
7: Celebrate: You and your team are going to work hard to reach operational excellence. Assure you have milestones identified and that you celebrate achievement with the project teams and the company. Celebrating these achievements will help to send a clear message and build the required culture. Work hard, celebrate hard and promote those that move your company forward towards operational excellence.
Companies that seek, pursue and maintain the leadership that operational excellence brings should focus on these seven points. Business functions across organizational boundaries must be continuously optimized. No matter what the differentiator chosen is, operational excellence requires managing costs, quality and processes. Senior management must assure that the required actions are supported across all areas of the company. Implementing operational excellence is not easy and it is not always successful. Often the required skills and experience are not fully available internally. In these cases management should consider the involvement of a third party expert to facilitate and develop the internal teams. When properly implemented operational excellence results in significant financial improvement, improved on-time delivery and improved quality, in addition to the improvements in other areas of focus. The journey of operational excellence is not necessarily easy, but it is a journey that is profitable and well worth taking.
Andy Singer is President & CEO of Singer Executive Development. Singer Executive Development provides powerful training for maximized results that can help assure peak business performance. Mr. Singer can be emailed at email@example.com.