Operational Excellence and How to Use It
Many tend to encounter confusion when presented with the topic on “operational excellence”. For some, it’s too broad a topic to be discussed in one sitting. Others find the several definitions available to them to be quite ambiguous, not really capturing what operational excellence really is.
If we look at the dictionary meaning given, operational excellence is described as the philosophy in a work environment where “problem-solving, teamwork, and leadership results in the ongoing improvement in an organization.”
Operational excellence has also been described as a process where the organization or business focuses on the needs of the customers while consistently and continuously improving the current business activities being conducted in the workplace.
This process also ensures that the current employees and other members of the organization are taken care of in such a way that they remain positive, motivated and empowered while going about their tasks.
In this guide, we 1) explore what operational excellence really is, 2) its core principles, and 3) methodologies and tools you can use for increasing your operational excellence.
WHAT OPERATIONAL EXCELLENCE REALLY IS
In order to gain a better understanding of operational excellence, we first need to take a look at the concept of “continuous improvement”, and how it is connected with operational excellence.
In the context of business operations, continuous improvement (CI) – also often referred to as the continuous improvement process (CIP) – refers to the ongoing effort of the organization to improve its processes, products and services.
CIP comes in two forms, depending on the approach taken by the organization.
- Incremental improvement: The continuous improvement is achieved in increments or parts, over time.
- Breakthrough improvement: The improvement happens all at once, or in one go.
Through CIP, there is a greater chance of sustaining the improvements of operations of a business forever, or for an indefinite period of time. However, the focus is not solely on whether the operations improve in their effectiveness or not. Efficiency also has a large role to play.
Say, for example, that the business takes steps to use CIP in improving its operations. The business may also hit two birds with one stone, improving its product, service or process, while reducing costs over time. In the process, it also makes sure that the business continues to grow. That is called operational excellence.
If taken from a leadership point of view, operational excellence is defined as an element of organizational leadership that puts emphasis on the application of certain principles, systems and tools toward sustainable and continuous improvement of key performance metrics of the organization.
Another insightful definition for operational excellence – one that may be easily understood at the employee level – refers to it as the point at which each employee or member of the organization can see the flow of value to the customer or end user, and that each employee is also able to fix that flow before it breaks down.
Thus, it can be said that operational excellence is a continuous journey that involves the proper, ongoing and consistent application of certain tools and methodologies in order to implement the right business processes and practices, and creating the right work culture
CORE PRINCIPLES OF OPERATIONAL EXCELLENCE
In 1988, the Shingo Institute of the Jon M. Huntsman School of Business of the Utah State University started giving out the Shingo Prize for Operational Excellence.
This prize is given annually to organizations that can prove that they have a “world-Class organizational culture” based on applied business improvements and accomplishments and other principles of enterprise excellence. For organizations all over the world, the Shingo Prize is seen as the world’s highest standard for operational excellence.
What follows are the ten core principles of Operational Excellence, as identified by the Shingo Institute in its Shingo Model.
Respect Every Individual
Every person in the organization must have respect: for other members of the organization, for management, for the customers, for suppliers and business partners, for the community that it belongs to, and for society in general.
This does not stop at simply having respect; it must be demonstrated at all times. It is not enough to say that you respect every individual. You should also actively show that you mean it.
People feel more motivated and empowered in their work performance when they know and feel that they are respected.
The model also provided examples of ideal behavior that shows respect for every individual. One is for management to create and implement a development focused on employees, including their individual goals. Involving the employees in improving the tasks or job in their assigned areas is also another, since it shows that their input – beyond the minimum that is expected of them – is highly valued.
In some companies, they also demonstrate respect by providing coaching and mentoring programs for their employees to learn from and enhance their skill sets.
Lead with Humility
Leaders have to exercise humility, instead of keep a clear distance between him and those who are lower than him. A humble leader is one who is:
- willing to seek input from other members of the organization, even those who are under him;
- listen to his subordinates and colleagues with care and caution, evaluating their input;
- willing to learn continuously from various sources.
In short, the leader should not be close-minded and admit that he, too, has shortcomings. By acknowledging that he does not know everything and that he needs help from others, he will effectively shed all prejudices and focus on the resolution of problems or issues that the organization is currently facing.
This humility will also help create an environment where employees will feel more respected. They will feel that their input is valued, and that their words are going to be heard. As a result, they will feel more motivated to work and perform better.
Just because the phrase “nobody is perfect” is popular does not make it true. And just because it may be true does not mean that you cannot strive for it.
When the organization cultivates a culture of “continuous improvement”, does it end there? Should the organization make it its ultimate goal? Of course not. You should pursue perfection, no matter how unattainable it may seem. By setting the bar high, you will be more motivated to strive for operational efficiency.
One way to demonstrate this behavior is by looking at problems and coming up with long-term solutions, instead of stop-gap or temporary measures. In some organizations, this attitude is demonstrated by how they continuously look for ways to simplify the work, without compromising its quality.
Learn from Nordstrom how they transformed to a culture of continous improvement.
Embrace Scientific Thinking
Taking a systematic approach towards ideas is a good way to ensure innovation and continuous improvement and, subsequently, operational excellence. And it’s not just the good ideas and results that will get this treatment. If anything, more focus may be given to failures in order to correct them.
By setting a guide for response, management can encourage that all members of the organization take on a structured approach towards solving problems.
Employees are also encouraged to come up with new ideas and not let fear of failure or authority stop them from expressing their thoughts and opinions.
Focus on Process
When you evaluate the reasons for failures or botched ideas, the natural response of many is to point fingers towards the person or persons involved, thinking it might be how they performed that caused it to fail. However, there is also a greater possibility that the problem is not with the person, but with the process itself.
Processes can be imperfect, and that is what should first be looked at. When an error occurs, the first order of business is to assess which part or area of the process the error occurred in, so it can be better analyzed.
This will allow the organization to make the necessary adjustments – change materials or components, rearrange work assignments or implement new steps in the process – to get the desired results.
Assure Quality at the Source
The moment an error is detected, it must be addressed immediately. It would be wasteful to let the whole process run its course, when the error or problem has been detected early on, say, on the second or third stage of the process. If you can do it right the first time, then do so.
The portion of production management where plant or factory layout will play a very important role. This ensures that workflow is facilitated and organized in such a way that there would be no wastage, and the problem can be easily detected.
Flow & Pull Value
One of the objectives of the organization is to provide value to customers, and ensure that said value is maximized. There is a real demand from the customers, so the organization should ensure the process and work flow is continuous and uninterrupted. After all, interruptions will mean waste and inefficiencies.
To avoid waste, the organization should evaluate the customer demand and meet exactly that demand, instead of creating more than is necessary. The company should also make sure that resources are readily available when required.
For example, at the factory, they should ensure that raw materials are on hand when needed so as to avoid delays or backlogs caused by unavailable resources.
Learn more about value stream mapping.
Members of the organization should avoid taking on a narrow vision.
In a system, there are different components that are interconnected and interrelated, and it is necessary to understand these relationships and connections so as to make better decisions, especially with regards to operational improvements and efficiencies.
Create Constancy of Purpose
From the beginning, members of the organization are made aware of the goals, vision and mission of the organization. It should not be limited to that time only. It is important for the organization to emphasize on these goals the whole time, in order to encourage its employees to keep their actions and own objectives aligned with that of the organization.
By constantly communicating with the employees and reiterating organizational goals with them, management will be able to successfully create constancy of purpose within the organization.
Create Value for the Customer
It is important for the organization to know what customer needs and demands it is trying to meet, because that is what they are willing to pay for.
Sustainability will be assured if the organization ensures that it continuously delivers value to the customer. Staying in touch with the market, particularly the customers’ needs and wants, is one way.
METHODOLOGIES AND TOOLS FOR OPERATIONAL EXCELLENCE
Through operational excellence, an organization or enterprise can continuously improve in all its areas of performance and, in the process, achieve profitability, growth and sustainability.
To do that, there are several methodologies and tools that have been introduced over the years to achieve operational excellence. We will try to look at each of these tools.
Toyota Production System (TPS)
If you’ve heard of the concept of JIT or just-in-time production before, the TPS will no longer be completely new to you. It advocates “making only what is needed, when it is needed, and only the certain amount or quantity that is needed”.
JIT manufacturing is aimed at the reduction of flow times in the production process as well as the shortening of the response time from suppliers and to customers. This principle also applies in TPS.
Taking the principles of JIT, Japanese automobile maker Toyota developed its own system, combining it with the concept of jidoka or “autonomation”, which is basically defined as “automation with a human touch.”
Combining these two together, Toyota came up with the principles embodied in what is now known as the “The Toyota Way”.
- Continuous improvement towards the realization of goals and objectives
- Respect for people and promotion of teamwork to stimulate personal, professional and organizational goal
- Long-term philosophy over achievement of short-term financial goals in decision-making
- Implementation of the right process to produce the right results
- Develop your people and your partners to increase their value to the organization
- Continuous solving of root problems to drive organizational learning
The TPS introduced the words “muda”, “mura” and “muri”. Waste (or “muda” in Japanese) may be created through “muri” (overproduction) and “mura” (inconsistencies in the production process. TPS specifically identified seven types of waste or muda:
- Waste of overproduction or overburden
- Waste of time on hand or waiting period
- Waste of transportation and shipping
- Waste of processing
- Waste of keeping stock in hand
- Waste of movement
- Waste of making defective products
Identification of these wastes is the first step towards eliminating them, which is the primary objective of the TPS.
Lean Manufacturing or Lean Production (Lean)
Lean provides a systematic method to eliminate waste within a production or manufacturing system. It takes its roots from TPS. Its philosophy focuses on “making obvious what adds value by reducing everything else”.
Elimination of waste, however, is not the only thing that Lean is concerned about. The common goals of the Lean principle include:
- Quality improvement. This puts emphasis on the organization making conscious efforts to gain an understanding of the needs and wants of the customers, and developing design process that will enable them to meet those requirements and preferences.
- Waste elimination. If there are activities or resources of the company that are being wasted, or causing the company to have waste, and does not add value to the product or service, then there is a need to eliminate them.
- Activity time reduction. If the organization can shorten or lessen the time it takes to perform one process or activity, without compromising on quality and incurring waste, then it should do what it can. The less time it would take, the less costs will be incurred, and there will also be less waste.
- Cost reduction. Profit maximization is always on the sights of all organizations, and one way to do that is to reduce overall or total costs.
Lean also based its principles from that which was originally introduced by TPS. However, Lean took it a step further by introducing its own 7 wastes or ”muda”, with the acronym TIMWOOD.
- Transport – These are waste incurred during the act of moving products or materials that are not really needed for production.
- Inventory – These refer to the items or components in inventory that are not being processed but are merely being held in storage in the In-Process and Finished Goods inventories.
- Motion – Equipment, machinery and manpower may be moving more than is necessary during the production process.
- Waiting – Waste may also be incurred in between steps or stages of the production process, when there is a waiting period.
- Overproduction – If the organization produces more than the demand, or produces when there is no demand yet, waste is incurred.
- Over Processing – There is waste if the product underwent too much production or processing, such as re-tooling or rework, due to poorly performing equipment and tools and a poorly-designed production process.
- Defects – Inspection, detection and fixing of defects will also lead to waste when there should have been no defects from the very beginning.
The concept of Lean is not limited solely to manufacturing and production, since it has also found its way to Lean services. This is where lean principles are applied to the service industry, such as call centers service providers.
Software application development and maintenance and other areas of information technology also found the Lean principles to be applicable, giving rise to Lean IT.
This refers to a set of tools and techniques that are designed for purposes of improving processes or, to be more specific, the quality of the output of processes. The tools and techniques are applied to identify the defects in the process and what causes them, and also identifying variability in the entire production or manufacturing flow, and minimizing them.
Through Six Sigma, an enterprise will be able to increase its performance and simultaneously decrease process variation which, in turn, will reduce the number of defects of a process and improve profitability.
Along the way, employee morale will also get a boost as the company’s reputation will also go up, thanks to its quality products and services.
Six Sigma follows the following protocols:
- Creation of teams that will be assigned to projects with a direct impact on the organization’s profitability and growth.
- Training all members of the organization in “statistical thinking”, and key personnel in project management and advanced statistics.
- Establishment of a supportive management environment.
- Emphasis on the DMAIC approach to problem solving.
Six Sigma also introduced several tools, methodologies and approaches, not just the DMAIC. We will go through the most commonly used ones.
Learn more from the following Six Sigma Case Study.
DMAIC is short for the “Define Measure Analyze Improve Control” process. Although it is known to be a part of Six Sigma, it can also be used as a standalone tool for the same purpose: to improve processes. DMAIC is specifically used for projects that are aimed at improving business processes that already exist.
The five phases of this process are:
- Define the problem and proceed to identifying the project goals, customer requirements, activities aimed at improvement, and various opportunities for improvement.
- Measure performance of the process.
- Analyze the process in order to determine the root causes of variations, defects and poor performance.
- Improve process performance by eliminating the root causes identified previously.
- Control the improved process performance, including that of future process performance.
This methodology means “Define Measure Analyze Design and Verify”. It is also known as the DFSS process, which stands for Design For Six Sigma.
Just like the DMAIC, it may also be used as a standalone tool, despite how it has always been closely associated with Six Sigma. DMADV is used primarily for projects that are aimed at the creation of new product or process designs.
Just like the DMAIC, DMADV also has five phases.
- Define the design goals, carefully ensuring that they remain consistent with the demands of the customer as well as the strategy of the organization.
- Measure the characteristics that are critical to quality (CTQ characteristics), product capabilities, production process capability, and risks.
- Analyze the process and identify the weaknesses or areas that need improvement.
- Develop and design an improved alternative based on results of analysis.
- Verify the improved design through testing, pilot and trial runs. After that, the process should be implemented and turned over to the rightful owners.
This is a management theory concerned with the analysis and synthesis of workflows in order to improve labor productivity and overall economic efficiency. It is basically based on the premise that science may be applied to management and the engineering of business processes. This was first conceptualized by Frederick Winslow Taylor, which explains why it is also known as Taylorism.
A famous follower of this methodology is Henry Ford, who used it to coincide with his own principles of mass production in factories. The emphasis of scientific management was on:
- Assembly-line factories in large-scale manufacturing; and
- Rationalization and standardization of work through:
- Division of labor
- Time and motion studies
- Work measurement
- Piece-rate wages
Taylor talked about four principles of scientific management:
- Replace rule-of-thumb work methods with methods that have tasks subjected to scientific studies and experimentation.
- Take active part in the scientific selection, training and development of workers, instead of letting them train themselves or seek self-improvement on their own.
- Cooperate with the workers in order to monitor compliance with the scientifically developed methods and tasks.
- Divide work equitably between managers and workers. In fact, Taylor even encouraged the division of work to be nearly equal. The managers are in charge of applying scientific principles in planning and managing the work, while the workers are in charge of actually carrying out the tasks set out by the managers.
Today, scientific management is no longer as widely applied as before, due to some criticisms volleyed against it, which include increased work monotony and turning workers into machines or automatons.
Employee self-esteem is also getting a hard hit when this is applied, since there is a tendency for them being overworked and getting tired with their tasks.
However, some of its principles are still being applied to this day, but with certain modifications.
Kanban is a method designed for the management of knowledge work, effectively balancing the demand for work to be done with the available capacity and capability to actually start new work. Many associate the word “kanban” with the scheduling system that is used in Lean Manufacturing and JIT Manufacturing.
Incidentally, “kanban” is a Japanese term that literally translates to “billboard” or “signboard”. It was conceptualized by TaiichiOhno of Toyota, and his objective was to come up with a tool that will help improve manufacturing and operational efficiency. Perhaps the most concrete example that we can use is that of a manufacturing system that makes use of cards, or kanban cards.
In the assembly line of the production process, cards will be used to display a sequence of specifications and instructions, showing the flow of components or raw materials coming in and moving along the line.
The Kanban Method does not tell you to change the processes that are currently in place. Instead, it encourages evolving the process that you have now.
There are three founding principles in the Kanban method:
- Start with what you have (and do) right now. It means you will work with what you currently have. You are not going to implement major changes, or introduce new processes.
- Agree to pursue incremental and evolutionary change. It is a “slow but sure” approach. Instead of drastic changes or turnarounds, you are going to seek an evolution or slow shift or transition. Setting this attitude will set up the right attitude and work environment in the organization.
- Respect the current processes, roles and responsibilities. Major changes often bring fear in the minds of members of the organization. They will fear for the stability of their jobs and positions. Kanban takes this fear out of the equation.
Kanban encourages the use of the following 5 core properties.
- Visualize the flow of work.
- Limit work in process.
- Manage the flow.
- Make process policies clear and explicit.
- Improve collaboratively. The use of models and the scientific method is highly encouraged.
Kaizen, which is a Japanese term that means “improvement”, is defined as the “practice of continuous improvement”. If you take a look at the kanji characters for the word kaizen, it can be broken down into kai (change) and zen (good). That is why it is interpreted as a way for organizations to “change for the better” for continuous improvement and operational excellence.
Basically, kaizen is used to create a culture of continuous improvement. All employees and workers are actively engaged and participative in improving business and work processes, and the organization as a whole. They will work proactively together to achieve regular and incremental improvements to the production process.
As a lean manufacturing tool, it encourages continuous improvement in product quality, technology, processes, productivity and safety. Waste elimination is, of course, part of this bigger picture that it paints.
There is one simple principle in Kaizen, and that is to look at the state of things, and see how they can be improved. Improve them once, twice and, if necessary, improve them over and over again. Many use Kaizen because it helps organizations increase their productivity, quality and customer satisfactions, while lowering costs and risks to employees or workers in the workplace.
You may have encountered the 5S methodology in your workplace. It is often described as a workplace organizational and “housekeeping” tool, which is also considered an effective tool in seeking continuous improvement and operational excellence.
This has also been one of the techniques applied in JIT manufacturing.
5S originally pertains to five Japanese words: seiri, seiton, seiso, seiketsuand shitsuke. Translated to English, the first letters also start with S.
The factory or production area may be crowded, giving workers a harder time to move around and perform their tasks. The clutter may be due to a lot of unnecessary items getting in the way, or being stored in nearby areas when they aren’t really needed in the process.
The disorganization of these materials may also lead some workers to waste time in looking for the parts they need, because they will end up rummaging through items they do not really need, just to locate those that they do.
Thus, there is a need to sort the items or components that are needed, and those that aren’t. Only the essentials or the items that are needed should be present in the work area. All items that are not necessary in the production process or operations must be removed.
Set in Order
A disorganized work area may lead to a lot of waste: waste of time looking for items needed, waste of motion and energy on the part of the workers, waste of space due to excess inventory, waste of defective products because of disruptions in the process flow, and waste due to unsafe conditions.
Set in order and arrange all the items that are needed so that they are easy to find and use. It is also advised to label them properly for easier identification.
A clean workspace is a good place to work in. Workers will feel more motivated to perform their best, and they will also be inclined to avoid incurring wastage. Worker morale will greatly benefit from a well-lit, well-ventilated and clean work area.
Injuries and other workplace-related safety hazards will also be avoided. This also means that machines and other tools used in the process are kept in top and working condition.
5S dictates that the work area, and everything in it, must be kept clean every day. For example, at the end of the day, someone should clean up before leaving the work area, so it will save time in cleaning up the next day, before the processes are began anew.
There is a possibility that, over time, dirt and waste will accumulate if left unchecked. Therefore, there is a need to standardize.
Management often imposes on all employees to conduct 5S in their respective workplace at the end of each working day. This means integrating the Sort, Set in Order and Shine principles in their individual tasks.
5S should not be a one-time thing, or a once a month thing, or even a once in a year endeavor. See to it that it becomes a habit among the workers, to avoid backsliding and going back to their old ways.
With the right mindset and culture, combined with the appropriate tools, an organization can achieve operational excellence. We may not have touched on all these tools and methodologies to implement and measure continuous improvement and operational excellence, but there is a wealth of resources out there, talking about these various useful tools.
It’s just a matter of looking harder and finding the one that works best in your current organizational setup.
In Palo Alto we talked with venture capitalist Alex Taussig about the investment process and …