Operational excellence is a worthy goal for any business that wants to improve in multiple ways. . Let's explore what is involved with operational excellence and the necessary steps you have to take if you want to achieve it.
What is Operational Excellence?
Operational excellence encompasses all relevant aspects of your business. Rather than focusing on a single issue such as production, marketing, or risk planning, you work towards a more comprehensive and holistic type of improvement. Operational excellence involves the following areas of your business.
- Lowering expenses.
- Improving the quality of products and services.
- Increasing revenue.
- Watching the competition and planning a strategy to outperform them.
Operational Excellence is a Mindset
It's important to understand that operational excellence isn't about making a few improvements here and there. It's more about a way of thinking that includes several key principles.
- Seek ongoing improvements. Conditions are always changing. As Aristotle said, "Excellence is not an act but a habit."
- Encourage feedback and criticism. If employees don't feel comfortable pointing out potential problems, it will be harder for them to suggest areas that need improving.
- Focus on systems and processes. While the efforts of individuals and teams are certainly important, you need to shift your main focus to the process. Look for ways to accomplish tasks more efficiently, using better tools, and facilitating better communication.
- Pay attention to communication between departments. Operational excellence has a lot to do with the way teams and departments work together. Be on the lookout for organisational silos, where people in a department have a limited, insular view. For example, if your IT and customer service teams aren't on the same page, it can create problems such as IT not passing along important updates to customer service.
What Does It Take to Achieve Operational Excellence?
Here are some ways to improve operations in every area of your business.
- Stay current with training. In this fast-paced world, you need to make sure your employees are up to date with the latest skills.
- Keep an eye on the competition. You can learn by watching what your competitors do well as by noting their mistakes.
- Listen to your customers. Customers are often the best source of information when it comes to identifying areas that need improving. If there are issues with product quality, speed, customer service, or other issues, they are likely to mention it in online reviews. You should also solicit feedback with customer surveys.
- Seek ways to automate. Automating processes saves time and can help you deliver goods and services to your customers faster.
- Track and measure all processes. The more metrics you analyse, the more you'll be able to identify problems and potential improvements. We'll discuss ways to do this in the next section.
How Do You Measure Operational Excellence?
In order to meet any goal, you have to know how to measure it. Here are some ways to track and quantify operational excellence. The following are some important metrics that are worth tracking.
Financials
This includes:
- Total revenue.
- Gross profit margin.
- Net profits.
- Debt asset ratio. The amount of debt relative to your total assets.
Identify metrics where you would like to see improvements.
Employee Performance Metrics
Ways to measure employee performance depend on your business and the responsibilities of employees in different departments. You can track:
- Productivity, such as tracking projects completed by individuals and teams.
- Mistakes made by employees.
- Employee success at meeting deadlines.
- Customer satisfaction for customer service agents.
- Revenue generated by sales reps.
Marketing Metrics
This may include:
- Customer acquisition cost (CAC)
- ROI on advertising and promotional campaigns.
- Conversion rates for different types of marketing and individual campaigns.
Other Metrics
Depending on your business model, you may want to track metrics regarding:
- Email marketing.
- Social media marketing.
- Leads generated from trade shows.
- Online reviews. These can be measured by the number of stars given by reviewers or by dividing them into positive vs negative.
As you track metrics, you need to test techniques and strategies to improve your metrics. For example, if you want to boost productivity for a certain task, you can test different techniques or assign the job to different employees. If you want to increase the average customer rating from 3 to 4.5 stars, you can test possible solutions such as adding or upgrading a feature or making improvements to customer support.
Leading Approaches to Attain Operational Excellence
There are some useful approaches and methodologies that can help you get results faster.
Kaizen
Kaizen is a Japanese term that means continuous improvement. The principle emphasizes the need to make small, targeted, and consistent improvements rather than trying to accomplish everything at once. It encourages all employees to work together and not expect a certain leader to do the bulk of the work.
Six Sigma
Six Sigma is a certification program that offers both live and online training. It was developed by the Motorola company in the 1980s. Six Sigma teaches businesses to quantify metrics such as cycles of production and errors. For example, they propose a very specific goal of reducing errors or defects to fewer than 3.4x per million products or events.
Lean Management
Lean management and lean manufacturing are principles that overlap to some extent with Kaizen and Six Sigma (which includes lean management courses in its program). There are five principles of lean management.
- Identify the value.
- Map your business workflow.
- Develop a continuous workflow, rather than a series of workflows that start and stop.
- Create a pull system based on demand rather than speculative forecasts.
- Aim for perfection by making continuous improvements.
Companies That Embody Operational Excellence
Several companies exemplify the principles of operational excellence, lean management, and continuous improvement.
Toyota — Toyota is one of the companies that developed the principle of lean management.
Apple — Apple has consistently focused on making consistent improvements to the design and features of its products.
Kimberly-Clark Corporation — This company, which owns popular consumer goods brands such as Kleenex and Huggies, has been practicing lean management principles for over a decade and has been especially innovative in its approach to shipping.
Getting the Team to Buy-In
When pursuing improvements, it's essential to get all employees and team members on board. If certain people or departments are sceptical about the changes, it can limit your results. Here are some guidelines to increase buy-in for your improvement strategy.
- Communicate clearly and consistently. Don't spring changes on employees at the last minute. Keep everyone updated on your plans and the reasoning behind them. Communication is a two-way process. Interview employees and ask for their suggestions. You may not always be able to accommodate everyone's wishes, but you can make them realize that you take their concerns seriously.
- Encourage participation. People are more likely to get on board with a plan if they have an active role to play.
- Emphasize the benefits. Explain how improvements will help everyone, such as by improving working conditions and reducing stress. You may also offer incentives to teams that produce the best results.
Operational Excellence is an Ongoing Process
When pursuing operational excellence, the main point to keep in mind is that it's not a one-time goal to accomplish but a continuous process and mindset. No matter how many improvements you make, there will always be more to achieve. Similarly, there will always be new threats and challenges to overcome. You need a persistent and flexible approach, constantly track your results, and identify what you can do today to maximize your results.