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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, creating value for customers and shareholders. It may more simply be interpreted as "Execution Excellence."
Some interpretations of this management philosophy are based on earlier continuous improvement methodologies, such as Lean Thinking, Six Sigma, OKAPI and Scientific Management. However, the focus of Operational Excellence goes beyond the traditional event-based model of improvement toward a long-term change in organizational culture. Companies in pursuit of Operational Excellence do two things significantly differently than other companies: they manage their business and operational processes systematically and invest in developing the right culture.
Operational Excellence manifests itself through integrated performance across revenue, cost, and risk. It focuses on meeting customer expectation through the continuous improvement of the operational processes and the culture of the organization.
There are two components fundamental to Operational Excellence: an integrated Management system (IMS) and a culture of Operational Discipline.
The first component, the IMS, consists of a framework of processes and standards that define where the company is going, identify the risks to getting there, mitigate them, manage change, and continuously improve. Having one single, integrated management system reduces overlap, redundancy, and conflict. Early adopters of this practice have been companies such as Exxon and Chevron utilizing Operations Integrity Management System (OIMS) and Operations Excellence Management Systems (OEMS), respectively.
The second component, a culture of Operational Discipline, is commonly described as doing the right thing, the right way, every time. This culture is built upon five guiding principles developed from the United States Nuclear Navy, a high reliability organization. Those principles are integrity, questioning attitude, level of knowledge, watch team backup, and formality. These values are used to identify the behaviors expected of each and every employee and how they support the organization's mission and outcomes.
- Respect every individual
- Lead with humility
- Seek perfection
- Assure quality at the source
- Flow and pull value
- Embrace scientific thinking
- Focus on process
- Think systemically
- Create constancy of purpose
- Create value for the customer
- S – Specific: the more precise the KPI, the greater its value, and the more correct the focus it provides us. It is important that the KPI direct us towards what we want to achieve.
- M – Measurable: a KPI is supposed to measure actions, not behavior.
- A – Achievable: challenging but attainable
- R – Relevant: KPIs need to be relevant to the objective we want to achieve, and contribute in a significant way to the organization's success.
- T– Timely: Every assignment must be scheduled with a defined time table for completion
The OKAPI method identifies the main challenges facing companies striving for operational excellence:
- People are not connected enough to the larger business needs; rather, they are motivated by professional considerations, without seeing the prices we pay in the commercial aspects.
- Lack of progress
- The tasks truly important for the growth of the business are not progressing. People here work very hard and are very devoted to their work, however, the assignments we need to perform in order to grow the business are not given priority
- Unable to change to stay competitive
- In a competitive market, you need the ability to adapt your management infrastructure to change. However, this process has to happen quickly and efficiently. Many organizations do not succeed in changing courses in time to keep up with their competition.
- Data is too complicated to understand easily
- To receive a picture of the state of the company, you should not need to dig through intricate Excel reports. Complicated reports and their preparation consumes lots of valuable time. Creating a system to enable the receipt of a timely, readily available picture on a current basis will add a great deal of value.
- No coherent management plan
- There are many people who think that systematic management is not important, or they do not use one because setting it up and following a plan is not one of their strong points and they pay too heavy a price for it. They get too involved in facilitating transactions, leading business development, and creating solutions to immediate problems in the company. Managers need to learn how to delegate responsibility for their own current management, so that others can work towards the shared objectives we have defined.
- Lean manufacturing
- Lean services
- Shingo Prize for Operational Excellence
- Six Sigma
- The Toyota Way
- Toyota Production System
- Soto, Francisco. "A Better Definition of Operational Excellence". Retrieved 2017-12-07.
- "Learn about the Operations integrity Management System at ExxonMobil". ExxonMobil. Retrieved 2017-12-07.
- Affairs, Chevron Policy, Government and Public. "OEMS". chevron.com. Retrieved 2017-12-07.
- "Shingo Prize - Model and Guidelines".