What is Operational Excellence?

Operational Excellence is the mindset to continuously strive to be better than the competition through strong and consistent execution of your business’ strategy. It is not a program or isolated initiative, but a culture that needs to be embraced by the entire organization. To achieve excellence, many different types of continuous improvement methodologies and tools are used like Lean Thinking, Six Sigma and Scientific Management, but also broader concepts like organizational structure and leadership development. The ultimate goal of Operational Excellence is to create more value for customers and thereby achieve sustained growth.

Our Operational Excellence Framework can be seen below:

Nearwater Consultancy Operational Excellence Framework

Our framework consists of two overarching themes required to achieve Operational Excellence: Foundation and Enablers. Foundation means that you have all the basic elements in place in your organization including a Strategy, Organization Structure, Processes & Systems and Products & Services. Call it the “brain” of your organization. Enablers are needed to ensure that the Foundation is brought to life and delivers value to clients. They include Performance Management, Leadership, People & Culture, Continuous Improvement and Risk & Quality Management. They ensure that all elements of the Foundation are executed well, steered properly and continuously reviewed to become even better. Enablers are the “heart” of your organization and pump oxygen to the “brain”. Read more about each element below.

Foundation

Strategy

It is crucial to not only have a good strategy in place but to also ensure that it is communicated and put into action throughout the organization. A strategy starts with a vision, which is broken down into multi-year and annual objectives. These objectives need to be clearly communicated and progress needs to be reviewed on a regular basis including feedback loops. Useful tools and methodologies include Hoshin Kanri 7 step-process and a catch-ball system.

Organization Structure

An organization structure is defined as “a system used to define a hierarchy within an organization. It identifies each job, its function and where it reports to within the organization.” The organization structure needs to reflect the strategy and enable effective delivery of products and services. Each job needs to have clear roles and responsibilities. Useful tools and methodologies include the McKinsey 7S Framework and the RACI matrix.

Processes & Systems

In order to have excellent delivery to clients, you need to have streamlined processes and systems. Processes need to be simple, fast, repeatable and error-proof with all waste removed. ICT systems need to support those processes to be as much as possible STP (straight through processing). Your whole ICT infrastructure should be well designed, innovative and user-friendly for both employees and customers. Lean Six Sigma is the primary methodology used for process improvement and specifically tools like the SIPOC diagram and Value Stream Mapping.

Products & Services

Your products and services need to be relevant and add value for your target customers with the level of quality that they expect and that you promise them. Your offering should be focused and in line with your strategy and brand. Product development should be agile with quick time to market and based on deep customer insights. Useful tools and methodologies include Agile and Product Roadmap.

Enablers

Performance Management

Performance management is the process of measuring, monitoring and steering the whole organization as well as sub-elements like departments, individual employees and processes. Doing it well means that leaders and employees have access to all the information they need to take and execute the most appropriate actions and decisions. Performance Management flows out of your strategic objectives and includes elements such as KPIs and dashboards with the underlying data collection, action plan monitoring and visual management. Useful tools and methodologies include SMART criteria, Balanced scorecard, Gemba or Management By Walking Around.

Leadership, People & Culture

Bringing the foundation to life requires having the right people with the right mindset. This means that you need to have strong leadership who embody the values of your organization, communicate the vision and lead by example. You need to attract and retain the right employees by hiring based not only on skills but also on values, providing a good working environment, communicating what is expected as well as stimulating personal development. Happy employees means happy customers. Finally, you need to establish a culture that fits your organization and its strategy to enable the behaviors that result in achieving your objectives.

Continuous Improvement

Continuous improvement is not only a methodology but also the mindset to continuously improve your business to seek perfection. Also known as Kaizen, it is used for identifying opportunities for streamlining work and reducing waste. To create and embed the mindset, employees need to be equipped with the right knowledge and be encouraged to create new work habits that include applying continuous improvement tools and methodologies. These include Lean Six Sigma, Kaizen events, 5S, Root Cause Analysis (e.g. Ishikawa diagram or 5 Whys) and PDCA (Plan–Do–Check–Act).

Risk & Quality Management

Risk management is the process of identifying, assessing and controlling internal and external threats to an organization. A risk management plan puts in place procedures to avoid potential threats, minimize their impact and manage the outcome should they occur. Quality management ensures that an organization, product or service is consistent and meets expectations. A Quality Management System (QMS) is a set of policies, processes and procedures put in place to achieve quality objectives of an organization. ISO (International Organization for Standardization) has standards for both Risk and Quality Management and having these standards in place will help you to achieve and maintain Operational Excellence.

The Shingo Prize

Every year, the Shingo Institute of the Jon M. Huntsman School of Business gives out an award for Operational Excellence called the Shingo Prize. This prize is based on company culture, company results, and how well every employee demonstrates the Guiding Principles of the Shingo Model.

Guiding Principles of the Shingo Model:

  1. Respect every individual
  2. Lead with humility
  3. Seek perfection
  4. Assure quality at the source
  5. Flow and pull value
  6. Embrace scientific thinking
  7. Focus on process
  8. Think systemically
  9. Create constancy of purpose
  10. Create value for the customer
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