Operational Excellence—Essential for Success in the 21st Century
By: John S Mitchell
The term Operational Excellence is increasingly being used to describe the broad objective of an operating enterprise. It has great cachet at the highest executive levels and is being incorporated into the working culture by organizations committed to being the very best. Operational Excellence is an ideal descriptive term; in two words it clearly defines applicability and objective. Operational Excellence can be simply defined as:
Safely produce greatest sustainable value.
Operational Excellence embraces everyone in an enterprise. Beginning with ambitious, clearly stated organizational objectives, its importance, necessity and benefits as well as organizational and individual responsibilities must be totally understood by all. Operational Excellence requires committed operating leadership, robust, reliable control, management and administrative systems, ownership at all levels in the organization, complete and accurate practices and procedures, continuing learning and a total commitment to continuous, sustainable improvement. It broadens horizons, builds on, consolidates and enhances most existing programs while providing linkages and a laser focus on business value. It requires thinking well beyond increasing efficiency to improving effectiveness; achieving results that contribute real value to the enterprise.
Safety is a clear parallel to Operational Excellence; totally understood by everyone in an operating enterprise. Safety demands total organizational and individual commitment, intolerance for deviations. Safety requires thoroughly defined practices and procedures complemented with continuing training and reinforcement to assure everyone clearly understands their role and responsibilities. Finally, since no system is ever perfect, there are constant reminders, learning from activities and mistakes, follow up and continuous improvement.
The same must be true for Operational Excellence; it is not a project with a beginning and end; it is the way for the working life and culture that influences off work activities as well. Operational Excellence is based on value and effectiveness; performing tasks that safely and effectively create greatest value.
Operational Excellence is a master program with a value improvement objective. Rather than replacing successful practices and programs, Operational Excellence knits them into a larger, fully integrated tapestry woven to increase value produced within the overall business/mission strategy. The Operational Excellence program is built around the necessity and benefits of working cooperatively across functional barriers. It includes complementary, mutually reinforcing, internal processes, a time horizon and response mechanisms that are short enough to assure continuing success within a changing operating environment.
Will people at the working levels understand and embrace Operational Excellence and recognize its potential to gain the latent effectiveness so many know is available and on which their job security and compensation may depend? A large part of the answer revolves around leadership. Senior executives and operating leaders must be committed and paint a vivid picture of why Operational Excellence is essential. They must lead; drive the process with visible, active, personal interest and involvement making it clear that Operational Excellence is a business imperative, not a passing “fancy of the month.”
Value prioritization is the element of Operational Excellence that must be uppermost in mind; which activities and tasks contribute most to value and business success. There are always more opportunities for improvement than time and resources. How are available time and resources used most effectively? What is the sightline between a given task and business results? If it isn’t there, can’t be defined, a task has low value-add or probability of success it probably should be modified or perhaps eliminated.
A working level employee may have difficulty with the preceding question: how activities and tasks translate into safe, sustainable business value. The same is true in reverse; a financial executive viewing profitability probably can’t see contribution to corporate value from meeting performance objectives in specialized practices. Operational Excellence provides the bi directional linkages and awareness to translate practices, activities and tasks into value; assure good decisions at one level, made with the best of intentions add value and are not contrary to requirements or devalue decisions in another area or level.
Operational Excellence is centered on multi-function teams directed to identify and implement opportunities to safely increase value, reduce risk. Optimally led by a production manager, Operational Excellence action teams assemble the experience and skills necessary to identify and value prioritize potential improvements; develop, implement and monitor results. Multi function teams with a common purpose quickly breaks down barriers. Team members identify varying perspectives and learn to devise mutually beneficial value improvement initiatives.
Of all the elements of Operational Excellence, working cooperatively across functional boundaries to identify and develop improvements is one of the most important.
“Employee led leadership teams do unbelievably good strategic and tactical planning — if you give them the opportunity. Most important, they gain total buy-in for the plan, its implementation and results.” Fortune 250 company CEO
With the necessity and benefits established, where is Operational Excellence on the road to general acceptance? Some well-known enterprises are leading the charge with commitment and relatively well defined processes. However, on the whole Operational Excellence is in its early stages with great promise. Solid, universal definitions and an implementable program are yet to be fully defined. Many corporate executives have concluded Operational Excellence is a good idea, are seeking more detail and looking for implementing methodology. Many more at the middle level of organizations have been charged with implementing Operational Excellence without a solid idea of how to translate an executive concept into an implementable program that will attain results demanded.
With this broad outline it will be restated for emphasis that Operational Excellence is an overall, holistic, master initiative. Therefore, all elements must be managed for consistency, cooperation, mutual reinforcement and contribution to the value objective. This task is the responsibility of a single Steering Team.
The Operational Excellence program is opportunity driven; that is the operation is viewed from an overall perspective to identify opportunities for improvement. Opportunities for improvement can be identified with processes such as Pareto analysis and production Weibull. Benchmarks are another readily available source to utilize as targets for excellence. Deviations, gaps, are opportunities for improvement.
To cite a specific example, one operation found that around 80 percent of their pump problems and cost were caused by only 10 percent of the population. By simply increasing the reliability of this relatively small portion to the average performance the company could eliminate several million dollars of unnecessary spending. Next step was to determine and correct the specific causes. Since the focus could now be on a small portion of the whole population, ranked by potential value, the task immediately became manageable.
To begin the Operational Excellence program the enterprise identifies current conditions (with a comprehensive assessment), future state (objectives), site-specific strengths, weaknesses and barriers to success. Specific opportunities for improvement are identified and implemented in areas that offer greatest value and highest probability of success. Improvement action plans are developed and implemented. Results are measured, corrections implemented as necessary to achieve objective results; success is institutionalized and sustained.
The Operational Excellence process outlined above is divided into six specific phases and executed in a progression that is identical in concept and familiar to adherents of well-known and proven Six Sigma (DMAIC), Deming Shewart (PDCA) and Boyd (OODA) processes as summarized below:
Define—the program including business and program objectives, organizational and administrative requirements, methodology for vital procedures such as risk analysis
Identify—current conditions, strengths to build on, challenges and barriers to overcome, desired end state (to be) and opportunities for improvement.
Analyze—improvement opportunities by comparison to best performance, performance benchmarks
Prioritize—potential improvements based on value opportunity, cost, time to implement and probability of success
Plan—improvement initiatives to create maximum value; develop detailed action plans including resources and time required, responsibility and expected results; gain approval
Implement—improvement action plans, train for success, deploy resources and technology
Check—measure and manage results; review and adjust actions as required to meet objectives
Institutionalize—sustain gains and success; initiate continuous improvement
The advantages and benefits of an opportunity driven Operational Excellence program to safely and sustainably increase business value, reduce risk and lost opportunity are many:
- Gains highest safety and environmental performance
- Leads to all the processes and improvements necessary to establish and maintain industry best performance in a most effective, risk/value prioritized sequence
- Most effectively increases business value and operating effectiveness by identifying and exploiting improvement opportunities in order of return
- Reduces risk through identification, management and containment
- Results in optimum asset operating effectiveness and reliabilityminimal surprises and lost opportunity
- Gains optimal resource effectiveness—people, material and financial
- Builds an effective organization and institutional culture—creates engagement, energy, ownership, commitment and responsibility
- Leads to improved practices—in an effective value return sequence
- Results demonstrated in credible business and financial terms
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