This guide will help you achieve operational excellence and identify the biggest challenges your business is facing along the way.
Table of Contents:
1. What do people think Operational Excellence is (and what actually is it)?
2. What are the benefits of Operational Excellence?
3. 5 Challenges Preventing Achievement of Operational Excellence
4. How to Achieve Operational Excellence
Is it operating so excellently that your entire business runs like a well-oiled machine 100% of the time?
After doing a quick Google, you'll find that the definition of operational excellence is far more complex than that, and really depends on where you look.
This study on operational excellence defines it as:
"A strategy organizations can use to deliver quality, price, ease of purchase in such a manner that no other organization in the industry can match."
This definition from businessdictionary.com defines operational excellence as:
"A philosophy of the workplace where problem-solving, teamwork, and leadership results in the ongoing improvement in an organization. The process involves focusing on the customers' needs, keeping the employees positive and empowered, and continually improving the current activities in the workplace."
So, operational excellence helps organizations surpass their competitors, focus on customers and empower employees.
That's a lot of possible outcomes packed into two words.
Here's a simpler definition:
Operational excellence is a constant state of maximizing an organization's outputs (e.g quality, profit, customer experience, number of products and services) while requiring minimal inputs (e.g time, money, number of employees) to get there. An operationally excellent organization does more with less - as its default state.
Principles of operational excellence are:
Operational excellence and continuous improvement are quite different.
Continuous improvement is an ongoing effort to make processes, systems and tools better.
Operational excellence is a state you achieve when efficiency is so deeply intertwined with your organization's culture that it becomes the new normal.
Why operational excellence is important and how can you master operational efficiency in order to achieve operational excellence, and ultimately how to achieve business excellence?
That's what we'll dive into in this guide.
Why is operational excellence important? If doing more with less isn't enough of a reason to start pursuing operational excellence, here are some more specific and measurable outcomes.
Less revenue, time and employee resources are needed to achieve better results.
Since operational excellence is a data-driven approach where everything is constantly measured and assessed, investing time, money and employees in situations that don't result in a measurable outcome is a thing of the past.
To improve operational excellence is all about streamlining and continuously focus on improving processes, systems and tools.
Increased quality and better processes are a natural byproduct of having more transparency and additional sets of eyes on what was previously hidden from view.
Warehouses, factories, stores, and physical sites are a goldmine of data most business leaders aren't fully aware of.
When operational excellence is achieved, this data becomes more accessible. Better data drives better decisions that yield more value in the long term.
Operational excellence frees up employees so they have more bandwidth to focus on activities that drive value - which ultimately drives customer satisfaction.
For retail and hospitality employees, operational excellence frees up time to spend helping customers.
RELATED: A Guide to Improving Retail Store Operations
For employees in industries like construction and manufacturing industry, operational excellence frees up time and energy to focus on core competencies like quality and productivity.
"Employee empowerment is a prerequisite for operational excellence."
Employee empowerment is a prerequisite for operational excellence, as we'll discuss later on.
Empowered employees are more than likely having a better experience and increased levels of job satisfaction.
Operational excellence means doing more with less. And giving employees the resources to do more with less is the definition of empowerment.
Related: What do your frontline employees need from you to be fully empowered in 2021? Download our State of the Frontline Employee Workplace Survey to find out!
In turn, this boosts retention and further reduces costs by avoiding expensive loss of expertise and rehiring/training expenses when employees turn over.
Since operational excellence cuts costs, increases quality and everything else mentioned above, it ultimately increases profits.
Multiple studies about operational excellence, like this one from the Economist Intelligence Unit, have found that the initiatives organizations undertake on the road to operational excellence - like boosting efficiency, diving into data and making internal communications more transparent - result in more profit.
There isn't a single industry that hasn't been impacted in some way by COVID-19.
Let's face it, the crisis has forced many organizations to do more with less in both reactionary and proactive ways.
And while there are countless examples of companies who have quickly risen to the challenge and entirely reinvented the way they operate, there are just as many examples of companies who didn't.
We don't know what the future holds, and achieving operational excellence is the best way to minimize disruptions.
Achieving operational excellence helps your organization stay competitive and make customers happy while keeping costs low.
According to McKinsey,
If there's one key takeaway here about challenges preventing operational excellence, it's this - no specific team, unit or individual is to blame.d
It takes a very conscious effort by everyone at all levels of the organization to enhance operational excellence - from senior management to frontline employees - to start the operational excellence marathon and make it to the finish line.
It's easier to continue with the "If it ain't broke, don't fix it" mentality than it is to challenge the status quo - especially if the status quo has existed for years without issue.
Here are 5 of the biggest challenges preventing the achievement of operational excellence.
Frontline workers in stores, warehouses, factories, restaurants and sites are responsible for doing the work that keeps the wheels of a business turning.
And unfortunately, the places where frontline employees spend their days are typically not places the organization has much visibility into.
When an organization has no visibility into processes and data from the field and the frontline, it's virtually impossible to spot the inefficiencies that make operational excellence difficult.
Industries employing frontline employees like retail and hospitality have some of the highest turnover rates out there.
And in industries like manufacturing and construction, the cost of turnover is the loss of highly technical and skilled expertise.
Running a well-oiled machine when the parts in the machine keep changing is no easy feat.
This stems from a top-down, old-school style of management where head office or corporate decides what happens, and stores, sites and field teams get it done.
Remember, head office should exist to support employees - not the other way around.
Paper checklists, manual reporting, sending 50 page work instructions by email - these operational processes haven’t evolved in decades.
Just like that weekly 9AM Monday meeting where no one has anything to say, but no one is brave enough to stop showing up, many operational processes exist simply because they’ve always been done that way.
But there's an easier way to get through these operational processes without sacrificing any accuracy - to the contrary, in fact.
More on that later.
A 2019 study on global operational excellence trends found that 21% of managers, executives and directors ranked resistance to change as the main obstacle preventing the achievement of operational excellence at their companies.
Often we think of frontline employees as being the biggest resistors to change. McKinsey has found that 70% of change management programs fail because of employee resistance, in fact.
But it goes both ways. Unless employees are shown the benefits and clear reasons why they should be part of a change, the status quo will remain the much safer and easier option.
Management can be just as much of a resistor to change as frontline employees can - and for any change to be successful, you have to lead by example.
Operational excellence requires the participation of the entire organization, from the CEO down to the shop floor.
The best way to jumpstart operational excellence is to think about how to get rid of what prevents employees from going above and beyond every day.
This could be fairly easy to fix, like digitizing an outdated tool.
Or it could be more complex, like rethinking your entire culture as an organization.
To achieve operational excellence, management has to both lead by example and listen.
Chances are, employees in the middle of all the action and on the frontline with customers have more insight into what's preventing operational excellence than leadership does.
Who will be responsible for identifying the biggest inefficiencies?
Who will come up with new procedures?
Who will need to be on the team that investigates possible solutions?
Those are just a few questions to get you started.
As much as possible, try to involve frontline and deskless workers - their expertise, observations and input - in your governance as much as possible.
Consulting employees who aren't usually consulted is a great way to boost engagement, too.
If something's being done manually, it's probably not being done properly.
To start, focus on the low-hanging fruit of inefficient processes.
Then, streamline these processes to achieve operational excellence.
A few good places to start are digitizing paper checklists, manual reporting and sending and receiving of work instructions.
What's more, digitization has been proven to increase productivity and drastically reduce speed-to-market - a double win.
Decide on the performance metrics you'll use to measure operational excellence and process improvement.
A few examples:
Use the SMART method to set your key metrics, and monitor them continually. After all, you can't improve what you can't measure.
An empowered employee has been given the tools and knowledge they need to perform to the best of their ability, using their own judgement as much as possible.
Operational excellence can't exist without empowered employees.
That's because it's employees who will implement the new processes and systems that make operational excellence happen.
To empower your employees, show them how what they do every day impacts the bigger picture - whether that be meeting output targets or making customers happy.
Because ultimately, anything any employee does in any industry should be an impactful, revenue-driving activity.
Empowered employees are engaged employees, and engaged employees are 15-20% more productive.
When your workforce is geographically dispersed, and many colleagues who work together may never meet in person (which, let's face it, is everyone these days), it's imperative to invest in technologies that jumpstart your journey to operational excellence.
The right tech stack for your organization will help you achieve these key objectives:
Here are a few of the most inefficient operational processes that are prime candidates for an operational excellence makeover:
Retail & Hospitality
Manufacturing & Logistics
If increased profits, data-driven decisions, happier employees and an improved customer experience aren't reasons enough to focus on operational excellence, consider that the adaptability of businesses in the future depends on making business operations as efficient as possible.
Some of the main benefits of operational excellence are:
5 of the biggest challenges standing in the way of operational excellence are:
Steps and strategies organizations can use to reach operational excellence are:
Ultimately, operational excellence is a reflection of how well a business is serving its employees, stakeholders and customers. So why not start achieving it today?
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