The elusiveness of operational excellence
The undisputed king of business buzzwords?
Doubtless you have heard the term “operational excellence” used before, perhaps even in your own organization. It seems that many businesses want to be operationally excellent – after all, who would not want that? I cannot say I have ever met an organization who wanted to be operationally average. But often those desires go unfulfilled as organizations fail to make the necessary changes to transition from average to excellent.
Last week I was presenting to a group on this very topic of operational excellence. I started by attempting to define the term which is harder than it may appear. As with so many business buzzwords, nailing down a precise definition proved a bit challenging. However, despite the existence of more definitions for “operational excellence” than Baskin-Robbins flavors (by my count they are up to 46), we can minimally agree that it involves maximizing the value your organization produces, while at the same time limiting waste and inefficiencies within the business.
This naturally led to a discussion around value. Since operational excellence involves increasing the value created by an organization, it stands to reason that we must clearly define what value is and how that value is created if we want to become operationally excellent.
What is value?
Every organization provides value to their customers, of course at differing levels. This is the basic makeup of our economic system. Someone, a customer, desires goods and/or services and is willing to pay someone else, let us say, your organization, to provide those goods and/or services to them. In theory, this is a transaction where both customer and provider are satisfied. The customer swaps money (or another medium of trade) for value in the form of goods and/or services, and the provider produces that value in exchange for said money.
Using this model, we can identify value as being the goods and/or services your customers are willing to pay for. Now that we know what value is, we must ask the question: How do you create value within your organization?
How is value created?
This is a key question because we have already established that operational excellence is maximizing the value provided to your customers while, at the same time, limiting waste and inefficiencies. So, how do you provide value? The answer is quite simple: Through business processes. In other words, the work organizational employees do day in and day out to transform inputs into goods and/or services that customers are willing to pay for. As you can see, processes are the means and value, in the form of goods and/or services, is the end.
Who knew processes were so central to a functional business?
With value clearly defined, we can now draw a straight line between operational excellence and process optimization. To increase value a business must optimize the processes that produce said value. Achieving operational excellence is impossible apart from process optimization.
Do you know your processes?
At this point, another key question emerges that we need to answer: Is it possible to optimize something that you do not understand?
Of course logic would tell us the answer to that question is a resounding “no”. However, to risk beating a dead horse, I would like to introduce a couple of quotes from business optimization experts to really seal the deal for you:
W. Edwards Deming, the famous industrial engineer who helped architect the turnaround of Japan’s post-World War II economy stated:
If you can’t describe what you are doing as a process, you don’t know what you’re doing.
Deming is saying that simply describing what you provide in the form of goods or services to your customers does not mean that you understand how those goods or services are created. And understanding is exactly what is needed if we hope to optimize our processes and work towards operational excellence.
The second statement I would like to share with you is from the book Lean Thinking [1]. In the book the authors posit the following idea:
If the activities required to deliver value cannot be precisely identified analyzed and linked together, then they cannot be challenged improved and eventually perfected.
Just look at the first part of this statement: “the activities required to deliver value” – that sentence right there is the definition of a process. Processes are activities performed in sequence that result in the creation of an output. The authors are telling us that if processes cannot be identified and linked together, then there is no way to optimize them.
We can carry this forward to a conclusion: Operational excellence is not only an impossibility apart from knowing the processes you perform, but it is also impossible apart from a clear understanding of those processes. In summary, if we are going to achieve operational excellence, then we must optimize our processes. If we are going to optimize our processes, then we must know what those processes are and understand how they function.
How can you understand and optimize your processes?
I would like to submit to you that by building process management as a discipline into your business, you can create a foundation for achieving operational excellence.
As I have stated before, process management is the practice of improving company performance through managing and optimizing business processes. Here we see that word again – “optimizing”. However, there is also another action verb coupled with that – “managing”. So, we see that process management involves not only optimizing business processes but also managing them – in other words governing them and keeping them up-to-date.
Now, I would like to point out to you a hidden assumption in this definition. The assumption is that process documentation already exists. Again, logic would tell us that it is impossible to manage or optimize something that does not exist – something that is not documented in a clear and concise way. Therefore, the logical order if a business is going to pursue process management is to first establish clear process documentation, then manage those processes through accountability and governance, and finally begin to optimize those processes using all available tactics.
Should I present this closing section in the form of a question?
In summary, process management can be defined as the practice of improving company performance through documenting, managing, and optimizing business processes. This definition of process management clarifies for us the path to operational excellence.
Businesses that desire to provide better value while limiting waste and inefficiencies must begin to optimize the way they produce value – through their business processes.
In order to optimize these business processes, organizations must first document and manage them consistently.
Documentation and management then open the door for process optimization which is the path to operational excellence – a state of perpetual process improvement.
So, there you have it – operational excellence in three easy steps. Now all you have to do is get started.
[1] James Womack and Daniel Jones, Lean Thinking (Free Press, 2003 ed.), 37.
