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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."
Operational Excellence is neither a specific management philosophy nor a particular methodology; it integrates all those enabling to reach Excellence. However, most of its drivers are based on earlier continuous improvement methodologies, such as Lean Thinking, Six Sigma and Scientific Management. However, the focus of Operational Excellence goes beyond and integrates Organizational structure and Leadership development.
- 1 Brief History and Key Concepts
- 2 Operational Excellence Framework
- 3 Shingo Prize
- 4 See also
- 5 References
- 6 External links
Brief History and Key Concepts
Operational Excellence is as old as business organizations and since it embeds many different methodologies, we focus here only on the most significant ones.
Adam Smith (1723–1790) may be considered as one of the key founders of Operational Excellence theory with the concept of division of labour in his book “An Inquiry into the Nature and Causes of the Wealth of Nations (1776)”. Henry Ford (1863–1947) and Frederick Winslow Taylor (1856– 1915) developed the Scientific management with the book “The principles of scientific management” (1911).
Toyota Production System and Lean
In the 1930s, Kiichiro Toyoda, Taiichi Ohno, and others invented the Toyota Production System by introducing more flexibility into Ford's original thinking and focusing more on the flow of products through the manufacturing process. They are considered as the fathers of Lean thinking  though the concepts were described much later by James P. Womack, Daniel Roos, and Daniel T. Jone in The Machine That Changed the World (book) (1990).
In the late 1980s, the concept of Six Sigma  was developed by Motorola and popularized by General Electric; this is statistical and data-driven approach for eliminating variations in a process and reduce defects in a product or a service.
There are many more methodologies used which are described below in the context of the Operational Excellence Framework
Operational Excellence Framework
Many frameworks on Operational Excellence have been developed to structure it along consistent Organisation management areas; though there are some minor differences, we often find the following areas:
- Strategy deployment
- Performance management
- Continuous improvement
- Organisation Excellence
- Process Excellence
- Leadership, people and culture
Excellence consists of ensuring the Strategy is implemented throughout the company and put into action. A popular methodology is the Hoshin Kanri 7 step-process. It is often complemented by an interactive process (eg. catch-ball system) to engage the managers and employees and ensure the bidirectional flow of goals, feedback, and other information throughout the organization.
Excellence consists of giving the managers and employees all the information they need to take and execute the most appropriate actions and decisions. Performance management starts from the Strategic Objectives and includes elements such as: KPIs and dashboards with the underlying data collection, management meetings, action plan follow up and visual management. Key methodologies used in this area are KPIs SMART criteria, Balanced scorecard, Gemba or Management By Walking Around.
This area is sometimes embedded in the Performance management or the Process Excellence areas. Excellence, as the name suggests, consists of ensuring the company is continuously improving its operations to seek perfection. This is the core playfields of Lean, in particular with Kaizen events and 5S (methodology), and Six Sigma. Other popular methodologies are Root Cause Analysis (eg Ishikawa diagram or 5 Whys, problem solving and PDCA (plan–do–check–act or plan–do–check–adjust).
Excellence consists of establishing the most effective organisation structure, adapted to the strategy culture and Leadership, with clear roles and responsibilities. Key methodologies used are the McKinsey 7S Framework to define the structure and the RACI matrix.
Excellence consists of having simple, fast, repeatable and error-proof business processes. Key methodologies used are SIPOC diagram or Value stream mapping which focuses on reducing Lean wastes. Processes are a key focus of Lean and continuous improvement methodologies, as described above.
Leadership, people and culture
Excellence consists of attracting the right people, developing leadership and competences, establishing the right culture and enabling the desired behaviours to execute the strategy.
- 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
- Lean manufacturing
- Lean services
- Shingo Prize for Operational Excellence
- Six Sigma
- The Toyota Way
- Toyota Production System