Obtaining Operational Excellence: The actions taken by top performers

The History:

While Dr. Shigeo Shingo is often credited as the pioneer of operational excellence, it is crucial to recognize that the foundations of this concept extend back to the 18th century, shaped by the innovative leadership and management techniques of engineers and scientists.

In the 18th century, Adam Smith laid the groundwork with his ideas on the division of labor. Moving into the 19th century, Frederick Winslow Taylor emerged as a key advocate for scientific management, dedicated to optimizing workflows for enhanced efficiency. The year 1913 witnessed Henry Ford, founder of the Ford Motor Co., revolutionizing manufacturing through the introduction of the assembly line. The collaborative efforts of Taiichi Ohno and Shigeo Shingo in the 1950s marked a significant milestone, as they collaborated to develop the Toyota Production System. This system, aimed at producing automobiles with fewer resources, laid the foundation for what we now recognize as lean manufacturing. In the 1970s, Dr. Joseph M. Juran made significant contributions by formulating the Juran Trilogy, which encompassed quality planning, quality control, and quality improvement. Dr. Juran went on to establish the Juran Institute. The year 1986 saw the inception of the Six Sigma methodology, credited to Bill Smith, a senior engineer and scientist at Motorola. Building upon the earlier work of Dr. Joseph M. Juran, W. Edwards Deming, and others, Smith's research paved the way for a systematic approach to quality management. As the 2000s unfolded, a pivotal moment occurred with the amalgamation of Lean and Six Sigma, coupled with the integration of various continuous improvement methods. This convergence marked a new era in operational excellence, drawing on a rich history of influential thinkers and practitioners.

Introduction: Directors of Operations face unprecedented pressure to attain operational excellence in the current landscape. In the aftermath of the pandemic, there is a myriad of challenges to navigate. Employees are still acclimating to evolving work methods, profit margins remain unpredictable, and clients contribute to financial uncertainty with their own ambiguous prospects. However, following more than a year of volatility, the imperative for growth and profitability has never been more pronounced. This urgency is compelling many to prioritize operational excellence, with 84% of global decision-makers in this realm planning to increase their spending in the upcoming year. Simultaneously, Deloitte asserts that COOs entrusted with propelling growth should prioritize operational resilience and efficiency. Despite its recognized importance, the concept of operational excellence remains somewhat elusive for many Directors of Operations. In this article, we aim to demystify operational excellence, providing a comprehensive guide for Directors of Operations to formulate their roadmap. We will delve into essential insights and offer a plethora of ideas, tools, and techniques to assist in achieving operational excellence.

Now, WHAT IS OPERATIONAL EXCELLENCE?

Kevin J. Dugan, the founder of The Institute for Operational Excellence, articulates operational excellence as the juncture where every employee possesses the ability to observe the seamless progression of value to the customer and rectify any interruptions or breakdowns in the flow. In an organization dedicated to operational excellence, each individual comprehends their role in contributing to the uninterrupted flow of value to the customer. They exhibit the capability to discern between normal and abnormal flow, and possess the skills to rectify abnormalities autonomously, without necessitating managerial intervention.

INSIGHTS: The proactive responsibility shouldered by every employee in such an environment enables leaders to shift their focus away from micromanaging day-to-day activities. Instead, they can concentrate on fostering continuous innovation and engaging in endeavors aimed at augmenting recurring revenue. This shift in focus from routine management to strategic initiatives marks a hallmark of operationally excellent companies led by individuals attuned to the nuances of value delivery. Let's begin by dispelling misconceptions about operational excellence. Contrary to operational efficiency, which centers on refining how tasks are executed—whether it be delivering products, services, or support, operational excellence transcends mere efficiency. While efficiency seeks enhancements through tools and processes, operational excellence adopts a broader perspective. Positioned as a competitive strategy, it strives to elevate business profitability and overall customer value. Rather than fixating on micro-level inputs like cost reduction or productivity gains, it aspires to foster a corporate culture conducive to sustainable growth. Caroline Goodwin, Operations Director at Tangent, emphasizes that operational excellence involves a profound understanding of the future, enabling the delivery of high-quality standards. Businesses excelling in operations possess a clear vision for the next 6-12 months, ensuring efficient and high-quality deliveries through content, happy, and productive teams. Nick Towers, Co-Founder & CEO of Sagittarius Agency, echoes this sentiment, characterizing operational excellence as an outcome-centric approach. The ultimate goal is not just a successful delivery but a harmonious team and satisfied clients, all anchored in impactful work that delivers tangible value.

Operational excellence strategies typically center on six crucial areas: leadership, employee accountability, risk identification, risk control, knowledge sharing, and change management. The focus extends beyond individual elements, emphasizing the interplay between them to foster continuous improvement. By doing so, these strategies establish the groundwork for superior performance across critical business metrics. For Directors of Operations measured against benchmarks such as labor utilization, operating margins, cash flow, customer satisfaction, and employee turnover, operational excellence emerges as not just a desirable goal but a strategic imperative.

What Are the Principles of Operational Excellence? 

Annually, the Shingo Institute, housed within the Jon M. Huntsman School of Business at Utah State University, bestows the Operational Excellence Award upon exemplary organizations. This prestigious recognition is grounded in a comprehensive evaluation of company culture, overall organizational outcomes, and the adeptness with which each employee embodies Shingo's ten guiding principles of operational excellence. The Shingo Institute's award not only acknowledges tangible business results but also places a significant emphasis on the intangible aspects of organizational dynamics, with a focus on ingrained cultural values. It serves as a testament to the alignment of organizational practices with Shingo's principles, highlighting the commitment of every member in upholding the core tenets of operational excellence. This distinguished accolade reflects the dedication of organizations that not only achieve outstanding results but also embody a culture deeply rooted in the principles that define operational excellence according to Shingo's philosophy.

The principles are grouped into either of these three categories: 

1. Cultural enablers
2. Continuous improvement
3. Enterprise alignment

1. Cultural enablers play a pivotal role in laying the foundation for Operational Excellence, emphasizing a bottom-up approach. To achieve maximum value creation, it is imperative that every employee comprehends the significance of their role, recognizes its impact, and feels empowered to contribute to continuous improvement. This transformative process is greatly influenced by robust leadership and coaching initiatives. However, it can also be as straightforward as enhancing visibility and communication within teams and ensuring employees have access to the appropriate tools. Fostering a culture of openness and honesty facilitates the acquisition of essential data, enabling organizations to effectively track and enhance operational performance. By embracing transparency and empowerment, companies create an environment where individuals are not only aware of their role but are actively engaged in the pursuit of excellence, fostering a collective commitment to continuous improvement.
2. Continuous improvement becomes truly impactful when embraced by the entire team. It is only with collective commitment that processes can be refined and enhanced. Employing specific methodologies like the PDCA (Plan-Do-Check-Act) cycle can be instrumental in optimizing internal projects and workstreams, resulting in increased efficiency for the business and improved outcomes for customers. Notably, the pursuit of improvement often involves not just finding gains but also removing inefficiencies, which can be equally or even more effective. A crucial initial step involves dismantling silos and bringing relevant data to the forefront. Subsequently, businesses can progress towards centralization, standardization, and the automation of manual processes that drain valuable resources. This holistic approach to continuous improvement not only streamlines operations but also contributes to an environment of adaptability and innovation, ensuring sustained enhancements in both efficiency and overall performance.
3. Enterprise alignment is a crucial aspect of Operational Excellence, as it revolves around business outcomes. To achieve a comprehensive understanding, it's imperative to adopt a business-level perspective when assessing initiatives and their performance.

This involves not only reflecting on the successes and insights gained from individual projects and workstreams but also evaluating how they collectively contribute to driving value. To accomplish this, a top-down view is essential, necessitating the implementation of robust reporting mechanisms. By taking this holistic approach, organizations can ensure that their initiatives align seamlessly with overarching business objectives, fostering a cohesive and synergistic environment where individual efforts combine to deliver maximum value.  

Ten Core Principles of Operational Excellence

1. Respect Every Individual:

 Fostering a culture of respect within the organization, extending to employees, customers, and suppliers.

 Instilling a commitment at all levels to treat everyone as a fellow human being with inherent worth and potential.

2. Lead with Humility:

 Encouraging leaders to admit mistakes, abandon biases, and pursue continuous improvement.

 Developing a team culture where leaders seek input, listen to constructive criticism, and promote an environment of mutual respect.

3. Seek Perfection:

Cultivating a mindset and culture of continuous improvement by actively striving for perfection in every process.

 Instilling a collective belief that there is always room for improvement and fostering a mindset of continuous refinement.

4. Embrace Scientific Thinking:

Promoting a culture of experimentation, continuous learning, and embracing failure as integral to innovation and improvement.

Encouraging the exploration of new ideas and consistently refining the team's understanding of reality.

5. Focus on Process:

Recognizing that the majority of quality problems are in processes, not people.

 Shifting the emphasis from blaming individuals to assessing and improving the underlying processes when issues arise.

6. Assure Quality at the Source:

  Advocating for the correction of errors at their source to achieve perfect quality.

  Ensuring that each element of the process is perfected at its origin to enhance overall quality.

7. Improve Flow and Pull:

 Maximizing customer value by providing products or services in response to demand without interruption.

 Balancing the supply and demand to prevent oversupply and minimize waste.

8. Think Systemically:

 Considering the interconnectedness of every person and process when optimizing the entire operation.

 Encouraging a holistic understanding of the organization's dynamics to inform decision-making and improvements.

9. Create Constancy of Purpose:

  Instilling in every employee a clear awareness of the organization's purpose, vision, and strategic direction.

  Empowering employees to take risks, innovate, and align their actions with a singular organizational purpose.

10. Create Value for the Customer:

  Recognizing that value, from the customer's perspective, is receiving what they want, when they want it.

  Highlighting the critical importance of delivering effective value to ensure the organization's longevity.

What Are the Top 3 Operational Excellence Methodologies?

1. Lean Manufacturing:

Lean manufacturing is centered around the systematic identification and elimination of waste in every process. The methodology emphasizes focusing on steps that add value to the process while eliminating non-value-added steps. The primary goal is to reduce costs by producing more units with fewer materials. Key principles of lean manufacturing include improving product and service quality, eliminating non-value-added elements, and reducing overall costs. Seven sources of waste identified in this methodology include mistakes, overproduction, over-processing, transportation, motion, inventory, and waiting.

2. Six Sigma:

Six Sigma is a systematic method of process improvement aimed at enhancing quality and customer experience by minimizing variation in production. Companies implementing Six Sigma strive to maintain quality levels below 3.4 defects per million opportunities (DPMO). Developed in 1986 by Bill Smith at Motorola, Six Sigma is widely adopted, with approximately 50% of Fortune 500 companies implementing it to some degree. The methodology utilizes the DMAIC framework (Define, Measure, Analyze, Improve, and Control) to systematically address and improve processes.

3. Kaizen Method:

Kaizen, meaning "continuous improvement" in Japanese, is a methodology that focuses on small, frequent, and consistent improvements in existing work processes at all organizational levels. It encourages every member of the organization, from executives to frontline employees, to contribute to continuous improvement. Kaizen emphasizes that small, consistent changes will compound over time to yield significant results. Unlike some methodologies, Kaizen places more emphasis on improving organizational culture than introducing tools. It encourages innovation, teamwork, and the active participation of every employee in the continuous improvement process. Kaizen can be implemented alongside other methodologies like Six Sigma and 5S.

TOP PERFORMERS

1. 1. In the realm of healthcare, operational excellence takes center stage in fostering a culture where staff is empowered to deliver safe and reliable care, optimize resource utilization, eliminate errors, and enhance health outcomes. A notable example in this regard is SickKids, one of the world's leading children's hospitals located in Toronto. Their operational excellence journey commenced in 2012 through a highly successful multi-year continuous improvement program.

At the core of SickKids' approach to operational excellence was a dedicated team of five full-time staff, primarily equipped with backgrounds in industrial engineering. This team's mission was clear: empower staff to identify improvement opportunities, design efficient processes, and implement viable solutions. The strategy involved comprehensive training programs, including the Daily Continuous Improvement Programme and process improvement at the yellow and green belt levels.

Jeff Mainland, the executive VP at SickKids, emphasizes the critical role of employee empowerment in achieving true excellence. According to him, implementing a lean management system serves as a potent method to maximize employee engagement, aligning their efforts with organizational success. SickKids' commitment to operational excellence not only reflects in their continuous improvement initiatives but also underscores the transformative impact it can have on healthcare delivery, ensuring a focus on quality, safety, and ultimately, the well-being of patients.

1. 2.  In the real estate sector, operational excellence often centers around the technical intricacies of construction work, emphasizing the need to document and streamline processes for heightened efficiency.

MonteVista Homes, a builder of quality, energy-efficient homes in Oregon, encountered significant setbacks attributed to ineffective business process documentation, Luke Pickerill, the president of MonteVista Homes, highlighted the challenges arising from the operational and organizational complexities of coordinating with 75 to 100 individual trade partners, each potentially having varying numbers of employees.

To address these challenges, MonteVista Homes embraced a more operationally excellent model. This strategic shift allowed them to overcome issues related to inconsistent processes. They successfully documented processes in a secure and easily accessible manner, significantly reducing the time required to onboard new employees and contractors to a mere few hours. This transformation has liberated management to redirect their focus toward exploring innovative ways to enhance customer satisfaction and drive revenue growth. MonteVista Homes' experience underscores the transformative impact of operational excellence in real estate, not only in mitigating challenges but also in fostering agility and customer-centric growth.

1. 3. Operational excellence in the realm of information technology is characterized by a relentless focus on continuous improvement in processes and organizational culture.

Wipro, a global leader providing IT services, business and technology consulting, outsourcing, and system integration solutions, exemplifies this commitment. In May 2007, Wipro undertook a significant project for Order Entry to address challenges in fulfilling orders promptly, which was eroding customer trust and impacting revenue flow.

Wipro's intervention aimed at enhancing the operational excellence of Order Entry's order management system resulted in notable improvements

1. Improved Customer Experience: Wipro implemented changes that rendered a more flexible and predictable service, contributing to an enhanced customer experience.

2. Predictable Cost Base: By streamlining processes, Wipro enabled Order Entry to fulfill orders at a more predictable cost base, ensuring greater financial stability.

The success of this project earned Wipro the prestigious Business Transformation & Operational Excellence Award for Best Project in Customer Experience. This accolade not only underscores Wipro's ability to tackle complex challenges in information technology but also highlights the tangible impact of operational excellence in improving customer satisfaction and contributing to overall business success.

1. 4.  Operational excellence is a cornerstone for many manufacturing companies aiming to minimize waste, enhance process flow, and establish constant predictability. Two notable examples in the manufacturing sector are Toyota and Jabil.

Toyota:

In 1950, Toyota Motor Company faced financial challenges, producing only 2,685 cars per year compared to Ford's daily production of 7,000 cars. To address this, engineers Shigeo Shingo and Taiichi Ohno devised a lean manufacturing system. This system focused on manufacturing more cars with fewer resources, including machines, people, space, time, and energy. The implementation of lean principles propelled Toyota to become one of the largest and most profitable automobile manufacturers globally.

Jabil:

Founded in Michigan in 1966, Jabil is the world's third-largest electronic manufacturing services provider, boasting a fiscal 2016 revenue of $18.4 billion and 180,000 dedicated employees. Jeff Porada, the Global Director of Lean Six Sigma at Jabil, emphasized the significance of engaging leadership with operational excellence through strategic alignment and visual management. In a case study, Porada highlighted that Jabil's success over 50 years in the industry is attributed to a system of continuous transformation. He stressed that principles, rather than tools, guide high-performance organizations. Tools, in this context, are utilized to reinforce adaptability and resilience.

Both Toyota and Jabil showcase how operational excellence, grounded in lean principles and continuous improvement, has been instrumental in their success and longevity in the manufacturing sector. Their approaches not only optimize processes but also foster adaptability, resilience, and sustained relevance in highly competitive industries.

In conclusion, the principles of operational excellence outlined in this discussion form a comprehensive framework that, when embraced, can lead organizations to heightened efficiency, innovation, and sustained success. The emphasis on respecting every individual, leading with humility, and seeking perfection underscores the importance of fostering a culture that values both employees and continuous improvement. By promoting scientific thinking and a focus on processes, organizations can create an environment that encourages experimentation, learning, and a systemic approach to problem-solving.

The core principles also stress the significance of quality assurance at the source and the continuous improvement of flow and pull. This not only enhances the overall operational efficiency but also ensures that value is maximized for the customer. Thinking systemically and creating constancy of purpose further contribute to strategic decision-making and a unified organizational direction. In light of these principles, it is recommended that organizations prioritize the development of a culture rooted in respect, humility, and a commitment to perfection. Continuous learning, experimentation, and a focus on processes should be integral to daily operations. Furthermore, leaders should instill constancy of purpose, ensuring every employee understands the organization's overarching goals. By consistently delivering value to the customer and embracing a mindset of continuous improvement, organizations can position themselves for long-term success. In practical terms, organizations may consider implementing methodologies such as Lean manufacturing, Six Sigma, and Kaizen to systematically embed these principles into their operations. This holistic approach, combining cultural values and systematic methodologies, can pave the way for sustained excellence, adaptability, and innovation in today's dynamic business landscape.