The Four Critical Elements to Achieving Operational Excellence
This post on How to achieve Operational Excellence is my very first foray into the world of blogging since becoming a business consultant. You will see from the blurb at the bottom that I have spent more than thirty years in business, and have now ventured into the arena of business consulting. This has come about mostly because my most recent assignment has been in a small (now not-so-small) scale-up in the renewables industry. Scale-ups are generally defined as small businesses where the repeatable and scalable business model has already been established and the challenge is exponential growth and market development. I have come to understand that scale-ups often need experienced help navigating the chaos brought on by the complexity of scaling up, but they cannot afford it. A very real dilemma and a problem I would like to try and help solve in some small way.
I thought I would tackle the topic of Operational Excellence in my first blog, laying out the elements and then tackling them in some detail in later blogs, sharing my personal journey along the way. Why did I choose Operational Excellence as my first blog topic? Most CEO polls tell us that this is where their organisations battle the most. This is no surprise as execution is hard work. In all of those businesses, success came down to executing with excellence. The successful businesses executed well, those that failed did not. I saw both.
Operational Excellence is really an outcome. It is the reward you get for successfully devising a strategy, turning it into a set of initiatives, and then implementing those initiatives efficiently. The end result is systemic, an integrated collection of business processes executed in an effective organisation, again and again. The last words are key…Operational Excellence isn’t an event, it is a process. Just about every organisation that I was a part of, did the strategy bit reasonably well. After that, things often went haywire. Let’s walk our way through the four elements of a system for delivering Operational Excellence as I see it.
Achieving the business Vision requires Operational Excellence with all four critical elements of the business working in harmony.
No Operational Excellence without Strategy
The business goes nowhere without a strategic roadmap. Most businesses have a Vision, Mission and Purpose – why they exist and where they are headed. Often, the Vision is articulated via a BHAG, a Big, Hairy, Audacious Goal. The really key part comes next. How do you get to that BHAG? You need a practical and achievable collection of initiatives, the sum of which is your strategy to get to your destination. Too often, the strategic initiatives aren’t relevant or complete, or are vaguely defined without specific goals, owners and timelines. Landing on the right strategy for your business should be the result of a structured process. Large organisations often have the capability in-house to run a strategy development process, smaller ones often do not. In those cases, it is well worth the effort of bringing in an independent facilitator skilled in doing just this.
No Operational Excellence without Performance Management
You will no doubt have heard the term ‘what gets measured gets managed’. It is true. An organisation without an integrated set of performance indicators (KPIs) cascaded through the organisation often goes nowhere. In its worst manifestation, the owners of the organisation are oblivious to what is happening to the organisation and bad things happen. I have personally had to shut down businesses that could have been saved if the real story had been understood earlier. This is why one of the first areas I probe when testing the health of a business is the robustness of its indicator and performance management system.
The best businesses have balanced scorecards that cover more than just the financial results of the organisation. They automate the data collection of as many indicators as possible and build them into their performance systems ensuring that team and individual efforts are focused on the right outcomes.
No Operational Excellence without Process Excellence
To operate with excellence, you have to be able to consistently deliver the outcomes your business needs…unharmed stakeholders, happy customers, payments happening accurately, inventory properly managed, etc. The keyword is consistently. This requires a degree of order and structure, in short, a collection of business processes that the organisation is very good at executing the same way, every day. Yes, there are times when innovation is required but once your organisation gets to the scale-up stage, it is impossible to manage the chaos that ensues if everybody does things their own way. The business just gets too complex for any other outcome but chaos.
Most people are aware of Standard Operating Procedures (SOPs) but they are usually assumed to apply only to the critical business processes of the business. Wrong! They apply to how you execute your strategy via those strategic initiatives too. A cadence-based system is required to ensure you execute both today’s business and the building of tomorrow’s business. The key element here is focus. Choose the critical few and be relentless about how you implement them. When the organisation understands what the critical activities are and also understands that the required outcomes are owned and well understood, the results flow.
More effective organisations have a strong business process focus and work at systematically improving over time, measuring the effectiveness of their key processes in particular and applying methodologies like Lean Six Sigma. They usually have formal Management of Change processes. The weaker ones have no process focus at all. They may have a few procedures but that is about all. It shows in their results…they are inconsistent at best.
No Operational Excellence without Effective Organisations and People
I am sure you have heard management say that ‘our most valuable asset is our people’. In my experience, those using that term often do not live up to the responsibility that comes with making the statement in the first place. The best organisations have a collection of interventions that bring out the best in their teams. Yes, they put a lot of effort into recruiting and then developing people so they can truly say that they have ‘the right people on the right job’ but the real difference is more fundamental than that. The most effective organisations are populated by people who are doing stuff they love doing…they are in Flow, to use the technical term for it. In my view, it starts with a Value system that provides the glue for the organisation and gets its momentum through strong leadership. Without the base these two elements provide, the technical elements that follow have their foundations in the sand and the organisation is never able to reach its potential.
So there you have it. There is no easy way to Operational Excellence. Without a clear methodology and a good dose of resilience and discipline, your organisation will join the very large group of organisations that are ineffective and produce mediocre or poor results. All four of the elements above are needed. No shortcuts.
In future blogs, I will explore each of these elements in more detail. Given my focus on small business consulting and scale-ups in particular, which elements do you believe I should focus on ahead of others? Where do you experience the most trouble? What problems do you wrestle with most often?