How to achieve and sustain operational excellence in the digital age

Key takeaways
  • Operational excellence helps organizations improve their business performance and profitability
  • The fundamental questions about operational excellence answered
  • Blog summaries that discuss the principles of operational excellence and how to achieve it for sustainable business growth
8 December 2022 – In today’s digital world, forward-thinking executives are increasingly viewing operational excellence as a key driver of top-line growth and no longer as just a tool for incremental process improvements at an operational level. As a result, they’re starting to align operational excellence teams at all levels to enable end-to-end business transformation.

Find out more about operational excellence; its benefits; how to achieve it and measure its success; and more below.

What is operational excellence?

Operational excellence is the organizational ability to respond to any change – such as a digital transformation – with agility. It is achieved when an organization embeds a company-wide, people-driven, customer-focused and problem-solving culture of continuous improvement (CI) that values and rewards its people. A CI culture helps you reduce costs and operational risk, and increase revenue and productivity. But ultimately, it helps you remain competitive and produce high-quality, innovative products for your customers.

According to BTOES (Business Transformation & Operational Excellence), operational excellence “focuses on meeting customer expectation through the continuous improvement of the operational processes and the culture of the organisation.” The Shingo Institute, which awards the Shingo Prize for Operational Excellence, has identified 10 guiding principles in the Shingo Model’ as forming the basis for building a sustainable culture of organizational excellence.

Leadership and employee behaviors such as “lead with humility”, “respect every individual”, “create a fault-tolerant environment” and “embrace scientific thinking” feature prominently when looking at principles for creating a culture that increases value to customers over the long term.

 

Download the how-to guide Building high-performance teams for more about developing teams that relentlessly pursue performance excellence.

Discover more about how operational excellence applies to your organization:

Components of operational excellence

It is achieved through a culture of continuous improvement. To achieve sustainability, organizations need to promote positive change within a holistic environment, a collaborative workforce, and a committed leadership and management system.

Learn how to achieve operational excellence

Operational excellence framework

This framework provides direction for how an organization executes strategy, manages performance, and instills process excellence and a high-performance culture. It therefore helps a business grow and adapt to change with agility.

5 steps to transforming your operational excellence framework

Digitalized operational excellence strategy

An organization can only embed a culture of integrated, continuous improvement through successful digital transformation. A digitalized company has the mindset and tools to respond to change with agility, and thus achieve operational excellence.

Learn how to digitalize your operational excellence strategy

Operational excellence implementation

The secret to a successful implementation strategy lies in the initial stages of its execution. Here are seven guiding principles to help manufacturing and supply chain operational environments translate great concepts into results-driven methodology and actions.

Explore the 7 principles of a winning operational excellence implementation strategy

Operational excellence system

A world-class operational excellence system builds a unified workforce that demonstrates curiosity, commitment and collaboration in all it does. By adopting a system that displays the nine key features described in this blog, organizations can harness the benefits of people development for sustainable and world-class success.

Discover what makes a world-class operational excellence system

Loss and waste analysis 

Operational excellence requires efficient production. By conducting a loss and waste analysis, organizations are able to identify and address areas of inefficiency. The results of the analysis direct the strategic implementation of best practices to improve production and profitability.

How to conduct a loss and waste analysis for operational excellence

Why is operational excellence important?

It helps organizations improve their business performance and profitability by increasing workplace efficiency, decision intelligence and end-to-end supply chain management and investment.

It provides the focus that managers and their teams need to consistently deliver their products or services to the customer on time, at the right price and with minimal effort.

 

Research by Harvard Business Review states that organizations operating at peak operational excellence enjoy 25% higher growth and 75% higher productivity than their less developed peers.

 

Operational excellence offers organizations a big competitive advantage. But it doesn’t require grand gestures. Striving for small, incremental improvements can deliver large impacts. It keeps a company on track with its customers, consistently meeting (and even exceeding) their needs with products and services they want.

 

What are the benefits of operational excellence?

The benefits include:
  • More effective communication at all levels of an organization
  • Greater process and resource efficiency
  • Collaborative leadership
  • Reduced costs
  • A healthy and united performance culture
  • Improved supplier partnerships
  • Accountability
  • Customer satisfaction

A maturity-based and integrated CI approach to operational excellence enables manufacturers to benefit from a number of improvements that optimizes their competitiveness, profitability and reputation.

 

What are the 3 components of operational excellence?

  1. Creating a holistic, integrated environment with strong customer focus
  2. A collaborative workforce built on knowledge-sharing, training and teamwork
  3. Committed leaders who demonstrate their commitment to the pursuit of operational excellence among all employees

How do you achieve operational excellence?

It begins with a vision of the organization’s future. To align this vision and help uncover potential divisions and differences among the entire leadership, discuss the following seven areas with them:

Customer satisfaction
What specific customer satisfaction improvement action items need to be initiated immediately?
Value flow design
What measurable results and key performance indicators must be achieved and when?
Breaking down goals
What specific business process improvements will we achieve over the next six months (or 12 months, 18 months, 24 months)?
Understanding success
In what three areas have we achieved breakthrough business results?
Immediate actions
What five immediate actions are required to initiate, invigorate or enhance our operational performance?
Measuring operational improvements
Do we have clear, time-phased, measurable objectives for operational performance improvement, and is accountability clear?
Understanding skills gaps
What outside consulting assistance is needed to assist our organization to achieve business goals more speedily?

By determining where it wants to go and outlining its short- and long-term goals, an organization can then develop its unique continuous improvement action plan.

To achieve meaningful business improvement, it is crucial to ensure all functions within your organization are on the same page and working toward the same goals.

While an immediate, easy consensus is unlikely, the process of thinking, discussing and reaching a conclusion is, in itself, a good learning experience and a major advance toward an essential singleness of purpose and vision for the entire team. After successfully working out solutions to the preceding questions, the management team should have a common, agreed-upon operational direction.

This business strategy acts as a roadmap that carefully and clearly segments the company’s transformative journey into sensible steps.

Read more about how to achieve operational excellence.

 

How do you measure the success of operational excellence?

Success in this instance is most commonly measured in terms of delighted customers, improved processes and reduced costs (although these metrics may vary slightly according to industry).

This is according to a research report by Proqis.

An integrated, continuous improvement strategy is consistently looking for ways to improve processes and optimize workflow through simplification and automation and thus, reduce costs through enhanced efficiencies. Reduced costs can cover a range a financial indicators that include operating costs, cost per activity and margins.

However, all that depends on an organization’s ability as a whole to delight their customers. Satisfied customers who return for more business and who help grow the company are the greatest indicator of an organization achieving operational excellence. For that to happen, the people engaging with customers need to be supported by a robust CI culture and strong leadership role models. A people-driven, customer-focused, digitalized and integrated continuous improvement strategy is the ticket to sustainable success.

 

What are examples of operational excellence?

Examples include:
  • Engaged, accountable frontline employees that understand the flow of value
  • Improved process visibility enabling better decisions
  • A culture of continuous process improvement
  • Efficient supply chain, operational and process management
  • Collaborative leadership and lean management encouraging integration
  • Faster lead times
  • Human resources development based on training and knowledge-sharing
  • Minimized overproduction
  • Creating value based on customers’ needs

 

Why do you need to take a maturity-based approach to operational excellence?

A maturity-based approach ensures that the organization pursues CI initiatives that are relevant to its specific needs and implemented at the right pace. First and foremost, an organization needs to understand its existing baseline capabilities. In other words, it needs to identify its strengths and weaknesses with regard to aspects such as digitalization, internal and external processes, and people development.

Only by understanding its current gaps in maturity can an organization improve itself.

An analysis of its current maturity levels gives an organization the data it needs to design an appropriate CI strategy that guides implementation seamlessly and executes sustainable improvement initiatives logically.

 

How does operational excellence relate to digital transformation?

Digital transformation helps organizations achieve operational excellence in the workplace by providing the tools to design and build smarter factories and lean manufacturing systems in order to develop innovative products, materials and solutions.

Manufacturing companies are becoming more complex and globally distributed, accelerating the need for increased innovation, collaboration and visibility. They face unprecedented challenges as global economic forces drive competition and open opportunities in new markets.

Digital operational excellence helps these organizations become more efficient, flexible and collaborative to keep up with rapidly changing demands. By improving operational visibility and getting the right information to the right people at the right time in an integrated format, organizations can improve overall decision-making and be more competitive in a global manufacturing environment.

Fundamentally, an incremental, maturity-based approach prepares the organization to adopt and adapt to new technologies at the correct pace. This approach empowers organizations to conduct their transformations through a five-stage journey of performance improvement. By stage 5, organizational maturity supports an integrated continuous improvement strategy. Operational excellence is realized in boosted productivity, reduced inefficiencies and increased revenue.

 

How do you get everyone committed to operational excellence?

An organization will only achieve sustainable operational excellence if all its employees – including its leaders – are involved and committed to delivering positive change. Here are some guidelines to get an entire company working together in pursuit of operational excellence.

Share the CI vision
The organization’s integrated, continuous improvement strategy needs to be included in every meeting agenda. Leaders and their teams must be thinking and discussing it in daily meetings to keep energy focused and people committed.
Listen to people
Adjusting to change is not easy. Leaders and their teams need to feel confident about their abilities to contribute to the organization’s CI vision. Reassurance comes through regular communication that highlights progress, understands people’s concerns and addresses any issues without delay.
Help employees upskill
Training programs that provide the knowledge and skills to support an integrated, CI strategy are key to successful and sustainable implementation. Investing in people’s capabilities helps improve their confidence, which encourages new behaviors and positive change.
Encourage accountability
By giving people ownership, organizations benefit from a mature and proactive workforce. Their direct involvement in CI initiatives gives them a front row seat when the results come in, which perpetuates a positive cycle of enthusiasm, innovation and inclusion.
Reward results-driven positive change
To sustain energy levels and commitment, organizations need to ensure that employee successes are lauded and rewarded. Acknowledgement is key to establishing a motivated workforce keen to achieve.
Lead the CI culture
An integrated, CI culture is only possible if all levels of an organization are actively involved in its success. Organizational leaders plays a vital role, encouraging positive change through their own actions and mindsets. A committed leadership is achieved by breaking down functional silos, allocating work sequentially and driving digitalization.

Download the how-to guide Driving employee engagement on the CI journey for tips and techniques to keep your people committed to operational excellence.

Download the guide