In a recent webinar on Reimagining Operational Excellence in a VUCA world, there were panelists across different industries. Everybody agreed that the business leaders are losing interest in OE initiatives. Despite so much time & effort being spent on lean, six sigma and many blackbelt projects, they don’t see a real impact on the business outcome. It was felt that OE needs a new Avtar in the world that is changing at a very fast pace.
Many companies bet upon their continuous improvement program and often brand it as operational excellence. However, there is a vast difference between the two in many aspects. The goal of continuous improvement is to eliminate wastes, cut cost, reduce lead times etc. The most common techniques used for the continuous improvement are Kaizen, Lean, Six Sigma. Continuous improvements are based on small changes rather than paradigm shift or breakthroughs. Operational Excellence, on the other hand, is focused on delivering the performance to make an organization or business better than the competition. Operational excellence starts with leadership setting the strategic direction, which percolates through every process and decision making.
Standalone, Continuous Improvement initiatives do not Sustain
The continuous improvement follows a continuous cycle of Improve, Sustain, Measure & Monitor. The gains realized at the beginning of implementing a continuous improvement program are significant. But over a period of time, the law of diminishing return sets in and the spiral of improvement become smaller and smaller.
After a few years, the continuous improvement program becomes a ritual, focus shifts to the quantity of projects than the quality, and little impact on the company’s top line and bottom line. It has also been found that the continuous improvement projects keep running in isolation, essentially being driven by a group of employees in their specific area and mostly focused on manufacturing operations.
The idea is not to belittle the importance of continuous improvement but without an umbrella of operational excellence, it may lose direction & significance.
Operational Excellence is an Organizational Compass
Operational Excellence is much more than the improvement program. The term Excellence means superiority or better than others. When applied in the business sense, excellence means delivering value to your customers superior to your competitors. It involves setting the organization up for growth by understanding what the market wants and creating an uninterrupted value stream aligned to the customer needs.
Considering the fact that we live in an increasingly dynamic world, the customers, markets and business models change frequently. Operational excellence acts like a compass, always pointing and aligning to the customers’ needs, provides a new strategic direction to the entire organization.
When ingrained into the organization culture, it works in auto mode and continuously aligns the internal journeys to the customer journeys. It provides the agility in decision making, execution as well as resilience by minimizing the time to recover in case of any shocks.
How does the Operational Excellence Compass work?
It begins with understanding what the company would want to excel at to gain competitive advantage or the customer value proposition. Is the value proposition the low price, high speed of response, flexibility or variety offered, superior customer service or anything else?
It is also a fact, that you cannot excel in every performance parameter. Therefore, all energies should be focused delivering a superior performance than your competitors on the parameters that are critical for the value proposition.
For example, for McDonald the value proposition is quick delivery. Therefore, for them the operational excellence means standardising the processes, making the operations agile to minimize customer waiting time. But if you are looking for variety of options or flexibility, then MacDonald is not the place to go.
Another example is Starbucks whose value proposition is superior quality products and comfortable ambience. For them the operational excellence means sourcing finest beans, retail outlet design, making the customers feel at home. If you are looking for a cheap coffee, then Starbucks is not the right place to go to.
Using Operational Excellence Compass
1. Find True North:
Finding true north means identifying the Customer Value Proposition or what do you offer to the customers that will put your business in the leadership position. It could be superior quality, large variety, fastest delivery, or lowest prices etc.
The challenge is that the true north is not stationary in a dynamic environment. For example, restaurants that offered dine-in had to shift to home delivery during Covid. Similarly, online grocery delivery companies are offering 10 minutes delivery. As the competition heats up, the true north may need to shift.
It is the responsibility of the leadership to continuously watch, question, redefine & communicate the customer value proposition to stay ahead of competitors.
2. Plan Customer Wow Experiences:
Customer wow experience or customer delight means exceeding (not just meeting) customers’ expectations. For example, if the value proposition of a grocery delivery company is the speed, then delivery within 10 min is a customer wow experience. Similarly providing a salon experience with all safety measures at home is a wow experience provided by Urban Company.
3. Align Customer Journeys:
Customer journeys are the processes that create customer experiences which include how a customer enquires about the company’s products, how they place the orders, what communication they receive, and how the products are delivered etc.
Amazon is one of the best examples of the excellence in the customer journey. Not only customer is able to search variety of products, but they can find technical details, reviews of buyers, alternative products, find many options for making payments, get rewards but also return the products if they are not satisfied.
The customer journeys must be aligned to create the customer wow experiences. Many companies set-up customer experience centres so that they can experience the products before making a decision to buy.
4. Align Internal Journeys:
The internal journeys are the internal operations and processes e.g., customer order to cash, supply chain, manufacturing and procure to pay processes. Getting an alignment and coordination between these processes is one of the most challenging tasks.
This is because how different functions are incentivized and may end up having conflicting true north. For example, while supply chain department may be incentivised on the service, manufacturing may be incentivized on lowest cost. That is why using the right true north (value proposition) for the cross-functional alignment is very important.
The role of the operational excellence is to facilitate the internal alignment of the objectives, targets to the customer journey. For example, to create the experience of 10-minute delivery the logistics must ensure the network that can cater to this requirement.
5. Implement Cultural Enablers
Unless the excellence is embedded into the DNA of the organization, the operational excellence initiatives are not sustainable. Every employee needs to understand how their role fits in, see its impact and feel empowered to contribute towards creating customer wow experiences.
Sensitizing the employees to customers’ needs, communicating the customer value proposition, training & skilling them, equipping with right tools, encouraging the cross-functional collaboration, creating transparent and visual systems for every employee to see the impact, are some to the measures for the cultural enablement.
6. Continuously Improve:
Once there is an understanding on the quantitative and qualitative aspects of the internal journeys, the continuous improvement programs should focus on those areas where there are significant gaps from the targets or expected outcomes.
Sometimes, automation or complete transformation may be required before implementing the continuous improvement. Periodically conducting operational audits, checking if the improvements are sustained, ensuring corrective actions where gaps are found is an important piece of continuous program, which mostly is neglected. The reason is use of spreadsheets based systems and manual workload involved in managing the entire workflow. Using technology e.g. SIMSA, for automation of workflow and use of advanced analytics to predict risks helps to ensure that the improvements stay on the right course.
7. Re-assess True North & Realign
As mentioned earlier, in an increasingly dynamic environment, the true north keeps shifting. Therefore, periodically re-assessing the true north and realigning the customer & internal journeys ensures that you continue to win in the game of competition.
Operational Excellence has been reinvented to overcome the challenges posed by the dynamic world. Its role has evolved from providing the tactical advantage to providing strategic competitive advantage.
The operational excellence compass automatically points to the shifting true north or the customer value proposition and realigns the customer & internal journeys. It ensures that the organization never lose the sight of the right direction and continuously win in the marketplace.