There’s never been more pressure on Directors of Operations to achieve operational excellence.
In a post-pandemic world, there’s a lot to adjust to. Employees are still finding and adapting to new ways of working, profit margins remain in flux, and clients hamper financial forecasting with uncertain prospects themselves. But after over a year of volatility, the need for growth and profitability is more significant than ever.
That’s why many are choosing to prioritize operational excellence. Globally, 84% of operational excellence decision-makers are planning to up their spending in the year ahead. At the same time, Deloitte says that operational resilience and efficiency should be top of the list for COOs tasked with driving growth.
But what is operational excellence? Beyond knowing it’s essential, few Directors of Operations have a firm grasp on what operational excellence means – let alone how to achieve it. In this article, we’ll cover everything Directors of Operations need to know to build their own roadmap to operational excellence and offer ideas, tools, and techniques that might help.
- What is operational excellence?
- The goals of operational excellence
- The fundamental principles of operational excellence
- The challenges of achieving operational excellence
- A roadmap for operational excellence
- Tools and technology for operational excellence
What is operational excellence?
First of all, let’s talk about what operational excellence isn’t.
Operational excellence is not the same as operational efficiency. Efficiency looks at how things are done – how products, services, and support are delivered – and how they can be made better. That might mean implementing new tools or processes to make them faster, cheaper, or less prone to error. Continuous improvement processes (the plan, do check, act cycle) can help create operational efficiency on an ongoing basis.
But operational excellence takes a much wider view. Fundamentally, operational excellence is a business philosophy that leverages problem-solving, teamwork, and leadership to drive ongoing improvements and add value for customers. Going beyond executional efficiency, it’s a strategic approach that doesn’t just deliver profitability but creates scalable and repeatable growth conditions. In other words, it focuses on macro outcomes, not micro inputs. Rather than simply trying to reduce costs or increase productivity, it aims to create a company culture that’s conducive to efficient growth.
Operational excellence strategies typically focus on seven key areas:
- Employee accountability
- Risk identification
- Risk control
- Knowledge sharing
- Management of change
They look at the interactions between all of these focus areas and how to drive continuous improvement within them and between them. By doing so, they help lay the foundations for and drive better outcomes against critical business metrics. For Directors of Operations who are measured against resource utilization, operating margins, cash flow, customer satisfaction, and employee turnover, operational excellence is a strategic imperative.
The goals of operational excellence
The ultimate goal of operational excellence initiatives is to create value; both for the customer and the business itself.
‘Value’ can be defined in many different ways – but what it boils down to here is delivering the best products or services at the best price, and in the leanest, most streamlined way possible for the business. Get it right, and companies will naturally win and retain the competitive advantage, resulting in long-term growth.
Still, ‘value’ is a vague term. So what specific metrics should businesses be looking to benchmark and measure against? Broadly speaking, the success of operational excellence initiatives tracks across three sets of KPIs: financial, operational, and cultural.
- Cash position
- Profit margin
- Safety performance
- Service quality
- Happiness index
- Skills attainment
It’s worth remembering, though, that operational excellence is a philosophy and a mindset, not a checkbox exercise. Changing one individual product or process can’t be expected to have an immediate impact on the business bottom line – nor a long-term one. Therefore, it can be difficult to measure precisely how effectively a business has created a culture of operational excellence and prove the ROI of strategic initiatives.
The fundamental principles of operational excellence
There are many different frameworks and models out there for Directors of Operations looking to implement operational excellence initiatives in their business. Most of them follow the Shingo model – widely regarded as the authoritative set of guiding principles.
Shingo includes ten key principles, split into four groups that build on top of each other. At the base are cultural enablers, then continuous improvement processes, and then enterprise alignment – all of which lead to the ultimate result of value creation.
But it can be difficult for Operations professionals to understand exactly how to put guidelines like “respect every individual” into action. We think there are a handful of core behaviors behind them:
Put simply, operational excellence needs to start from the bottom up. For maximum value creation, every employee needs to understand how their role fits in, see its impact and feel empowered to make improvements.
That’s largely down to strong leadership and coaching plans – but it can be as simple as improving visibility and communication within teams and ensuring employees are equipped with the right tools.
Only once the whole team is onboard can processes be improved. Specific ways of working (like the PDCA cycle) can be applied to internal projects and workstreams to enhance efficiency for the business and outcomes for customers.
But often, removing inefficiencies is as (or more) effective as finding gains. Eliminating silos and surfacing relevant data are important first steps. From there, businesses can start to centralize, standardize and automate resource-draining manual processes.
Because operational excellence revolves around business outcomes, it’s important to take a business-level view of initiatives and their performance.
That means not only reflecting on the wins and learnings from individual projects and workstreams but looking at how they drive value in combination. This necessitates getting a top-down view and implementing robust reporting.
Get the first three right, and they’ll speak for themselves.
The challenges of achieving operational excellence
Knowing what to aim for and where to start is helpful – but it’s only part of the puzzle. Unfortunately, achieving operational excellence is often easier said than done, and there are some common obstacles that Directors of Operations find themselves facing.
There are four major sources of risk when it comes to operational excellence initiatives (people, processes, equipment, and change) and a whole host of reasons for why they might fail. Perhaps expectations weren’t aligned sufficiently at the outset, goals weren’t communicated clearly or people weren’t incentivized appropriately. Maybe the wrong tech and tools were in place, or there was a staff shortage to manage processes properly. operational excellence might not have been prioritized at the business level, or the business might have lacked the agility to adapt to transformational change.
A lot of this will sound familiar for Directors of Operations, who already struggle with poor morale, siloed processes, manual work, and ambitious targets on a day-to-day basis.
Thankfully, there are ways around them.
A roadmap for operational excellence
As Directors of Operations start to build towards operational excellence, they should focus their energy and resource on a few key places. As with any strategy, careful planning is required to establish business-level goals, develop core workstreams, construct teams around them, assess progress, and communicate and iterate. But within that, there are four critical points that Operations leaders need to be aware of and prioritize to minimize challenges and accelerate their path to operational excellence.
1. Create visibility over data
One of the most important parts of a Director of Operations’ role is to break down information silos and spread useful data insights throughout the company. Only with the right data can you help cross-functional teams excel and increase their mastery of their areas of responsibility.
Creating visibility over that data should therefore be your number one priority. Taking business-wide operational data out of individual silos and centralizing it in one platform that is easy to use, understand, and act not only makes your job easier – it gives teams the tools to self-improve, too. Understanding the impact that employees’ work has is a strong cultural enabler and a fundamental first step in benchmarking operational performance.
2. Reduce manual burden
Creating visibility over operational data also means streamlining the processes around its collection and management. For most operations teams, getting access to team performance and profitability is an arduous, manual task. It requires digging through a mountain of data reporting requests and is often worsened by poor data health.
These low-value, high-labor activities hurt employee productivity and introduce human error. Looking for ways to automate some of these basic tasks feeds visibility and is low-hanging fruit for starting the flywheel of continuous improvement.
3. Get whole-team buy-in
For continuous improvement efforts to gain traction within the organization, and for those efforts to drive operational excellence, you need buy-in from the whole team. That means getting senior leaders aligned around business goals and making it easy for everyone else to participate and contribute towards them.
On the latter, communication is vital – but so is good UX. To continue gathering the data, you need to move operational excellence programs forward; employees need to be engaged and incentivized to share it. Timesheets, for instance, deliver vital data but are universally hated and therefore often neglected. Finding a lighter-touch alternative kills several birds with one stone: generating data while removing the pain points of manual work and poor morale.
4. Report against relevant metrics
As we’ve seen, operational excellence goes beyond improving outcomes at the individual project, process, or product level. To understand the impact initiatives are having, Directors of Operations need a holistic view of outcomes at the business level, too.
For proper enterprise alignment, data needs not only to be collected but understood and actioned. Directors of Operations should think critically about who needs what data and create quick ways to surface and share it.
Of course, all these activities are easier said but much harder done without the right tools to help. There are many solutions out there, but what are the key functionalities Directors of Operations should be evaluating to drive operational excellence?
Tools and technology for operational excellence
The good news is, there are many project management tools on the market. The bad news is, not many of them provide the full functionality required to drive business-wide operational excellence. When sourcing technology, Directors of Operations need to look for platforms that can:
- Optimize work-intensive processes: Tools that automate manual processes help minimize human error and improve productivity.
- Maximize team efficiency: Tools that map skills and availability against projected work can help better utilize team capacity.
- Improve data visibility: Tools that quickly deliver granular data from across the business can help with more intelligent strategic decision-making.
- Increase profitability: Tools that report against a range of key metrics can help improve bottom-line results.
Broadly, there are two options: point solutions and professional services automation (PSA) solutions.
Point solutions/combinations with spreadsheets are too fragmented, don’t offer enough visibility or agility to deal with changing workflows
- They still require a lot of manual admin to reconcile data, by which time needs may have shifted again
- They also can’t give you insight into valuable business outcomes, only individual/portfolio project success metrics
- A good UX is also critical to ensure whole-team buy-in and gather a complete data set
- Only with a complete, joined-up view of business operations, good data, and strong UX can you create the conditions for operational excellence and drive better business outcomes.
By contrast, PSA software puts data into perspective and provides executives with one real-time truth of the whole business, so they can scale and reach a higher level of sustainability. This is achieved by developing a variety of useful metrics across the entire business to evaluate basic business processes.
PSA software unites project, resource, time, and budget management under one roof and thus facilitates team collaboration by enhancing transparency. Ultimately, keeping everything available and connected in one place, allows for more swift and intelligent operations.
Operational excellence is hard to get right. Most Operations leaders find themselves held back by lack of data, visibility, team engagement, arduous manual work, and siloed processes. It makes hitting even basic project goals a challenge, let alone improving business-wide outcomes. As with any business strategy, operational excellence requires careful planning, tools, and training and has to be embedded from the bottom up to work.