Properly defining Operational Excellence (OE) is the important, but often overlooked, first step in an organization’s journey to industry-leading performance. Without an actionable and measurable definition of OE, it is impossible to align an organization around a new way of doing business and focus them on achieving results.
It is also important to remember that OE alone does not guarantee industry-leading results. OE is focused on consistent and reliable execution; it does not involve making the strategic decisions surrounding which markets to compete in, what products to produce, where to manufacture, how to distribute, etc. These decisions define a company’s strategy. It is the combination of a Sound Strategy AND Operational Excellence that yields industry-leading performance.
Notice how our equation shows Leading Performance as the product, not the sum, of Sound Strategy and Operational Excellence – a great strategy without OE, or OE with a weak strategy, will result in poor performance. Aligning your firm’s strategy with your operational capabilities is essential for success; and a topic that we’ll revisit in future posts.
Our definition of Operational Excellence removes ambiguity and provides an actionable and measurable guide:
Operational Excellence is the execution of the business strategy more consistently and reliably than the competition. Operational Excellence is evidenced by results. Given two companies with the same strategy, the Operationally Excellent company will have lower operational risk, lower operating costs, and increased revenues relative to its competitors, which creates value for customers and shareholders.
"Consistently and reliably” means that your company implements its strategy as intended on an ongoing basis. It is not one great quarter or implementing the latest management fad. It is sustained, disciplined delivery that leads to excellence.
Besides specifying measurable attributes of OE, our definition reveals 2 other important characteristics. First, excellence is relative and can shift over time. What looks like excellence today, may not be tomorrow. Best-in-class competitors, technology, and management paradigms all evolve. Second, true Operational Excellence manifests itself through integrated performance across revenue, cost, and risk. Success in just one or two of these areas is insufficient. The path to OE is less about balancing a perceived trade-off between cost and risk, and more about a disciplined approach that leads to gains across all three.
1) What do you think of our equation showing the relationship between strategy and OE?
2) Do you know where your business stands relative to the competition?
3) Is our definition of Operational Excellence sufficient? Would it provide direction for your company?