Service-based companies are becoming vulnerable in the existing current economic downturn. Clients have become price-sensitive and more demanding for fast service delivery. Businesses experience lower overall margins due to client complexity and increasingly intense market competition. The achievement of operational excellence is the only way to retain a competitive advantage in such a competitive market.
Defining Operational Excellence
Operations Excellence is a structure of business focus on growth and executing its strategies greater than the competition. If a competitor has superior operations support and systems, focusing on being the best at service delivery may not hold water. The focus should be on improving operations as a combined effort involving people, technology, and processes. Five things feature in defining operations excellence:
- Customer: This concern supporting customer management, sales, and marketing.
- Delivery: This covers all proprietary intellectual property, physical assets, and technology needed in delivering services efficiently and effectively.
- Resources or Talent: Covers the ability to get, train, and empower employees for performance.
- Systems: Involves CRM, Financial, administration and operations, and HR systems.
- Operations Support: This engulfs decision-making processes, facilities, and other assisting processes for customer support, delivery, and employees.
Principles for Operational Excellence
Among the many principles of operational excellence, there are two always picked out by companies for application. The two are the Duggan principle concept of operational excellence and Shingo guiding principles of operational excellence.
The Duggan principle focuses on eight closely linked precepts of value, work visibility, and flow.
- Design Lean Value Streams: The designing of later value streams established on principles for attaining end-to-end flow. The design does not concentrate on the improvement of kaizen events or brainstorming.
- Make Lean Value Streams Flow: Use customized, formal education and train to implement the design and follow with implementing the target areas to bring the design to life.
- Make the Flow Visual: Set up visuals allowing every employee to see the connection of the flow. The flow of value should reflect from raw materials through to the customer.
- Create Standard Work for the Flow: Initiate conventional workflows for the motion between the processes to specify standard flow for the whole value stream.
- Make the Abnormal Flow Visual: Give each employee the ability to see when the flow turns abnormal, using their eyes or various tools like color-coding.
- Create Abnormal Flow’s Standard Work: Engage employees to, together, create a menu of choices on how to respond to an abnormal flow of value. This menu eliminates the need for management intervention.
- Improve the Flow by Having Employees in the Flow: Involving employees in the flow helps in the continuous performance improvement to meet customer demand. Employees also work aggressively to prevent any abnormal flow of value.
- Perform Offense Activities: Management concentrates on responding to competitor offenses and creates their own for the competition. The onslaughts are for business growth, and they include process management, sustainable improvement, business transformation, process improvements, digital transformation, and future product innovation.
Long-term successful organizations personally and deeply understand the principles driving their success. The Shingo guiding principles of operational excellence hinges on four dimensions of culture enablers, continuous process improvement, enterprise alignment, and results, which are the ultimate goals of every business initiative. The four aspects cover core business systems of customer relations, product/service development, operations, a variety of administrative or management support systems, and supply. The system has the Shingo Prize composed of ten guiding principles of operational excellence.
- Lead with Humanity. A leader must be willing to seek input from others and carefully listen to learn continuously. This principle creates a respectful environment for associates and energizes everyone to engage their creative abilities freely.
- Respect for Individual. The principle champions individuality rather than group respect to allow people to own the processes.
- Focus on Process. The existence of excellent processes leads to the production of the intended output. Problem-solving initiatives go towards the process and not people.
- Embrace Scientific Thinking. The common language is improvement guided by usual understanding and approach. The scientific thinking models are plan, do, check and adjust, and define, measure, analyze, improve and control.
- Flow and Pull Value. Both create positive benefits in all business aspects by making processes faster, cheaper, better, and effortless. The production rate gets matched with the demand level as well in a measurable manner.
- Assure Quality at the Source. Advocates for non-forwarding of defects, stop and problem fixing, and individual respect in the process. The business strategy focuses on fixing problems. The problem-fixing is now rather than later after moving the products or services to the clients.
- Seek Perfection. Look for problems where they don’t appear to address them to maximize the opportunity to improve.
- Create Constancy of Purpose. Seek to answer the reasons for the organization’s existence and offer a sense of direction.
- Think Systemically: Drive synergy in operation instead of focusing on the sum of the parts.
- Create Value for the Customer. Initiate operational excellence consulting to attain continuous improvement. Deliver professional services to the clients that contain a value in terms of cost, quality, safety, delivery, and morale.
What factors are involved in achieving Operational Excellence?
Services-based businesses must strive to achieve operational excellence. Certain things must come together and work in conformity to ensure that the company ran effortlessly. This drive depends on the performance of seven criteria of operational excellence.
- Strategy. Leadership involves the creation of values and vision and filters them into strategic business direction and focus.
- Metrics. There is a need for the creation of balanced scorecards and strategic planning tools. These metrics come down through an organization.
- Culture. The organization sets up a set of values that staff members get to internalize for the observance. The employees understand the set strategies and account for the results.
- Processes. There are set integrated business process blueprint by the company guiding its operations and service delivery.
- Methodology. Discipline and diligence are vital for sustained development. The application of rigor and discipline is critical to attaining continuous improvement. A Lean Six Sigma method becomes relevant in the application of the methodology.
- Project Management. This criterion has a direct link to methodology. The application of discipline and rigor is vital to projects.
- Tools. Since the business aims to beat the competition, it must embrace definite tools, such as problem-solving, solution delivery, and continuous process improvements.
Benefits of Operational Excellence
Tangible results are fruits of operational excellence. A company stands to have lower costs, less risk, higher revenues, and satisfied clients than the competition. Some commonly linked benefits to operational excellence are as below:
- Streamlines work: Employees become aware of actions to execute and have the authority to decide on some tasks without involving the supervisors.
- Efficiency in processes and resource utilization: The performance of tasks and service delivery relies on instituted efficient operational company processes. Diligent utilization of business resources takes center stage with excellent accountability.
- Cost containment and reduction: Operational excellence drives proper budgeting and elimination of unnecessary expenditures. The business gets to contain or reduce its operational, administration, and other related costs.
- Engaged and steady workforce: Empowered workforce means excellent and informed service delivery, and clear communication leads to magnificent results. The system fosters teamwork through kaizen, where everyone in the company becomes involved in a continuous improvement of service delivery.
- Sturdy shareholder value: Any business entity aims to deliver value to its shareholders in the long run. Operational excellence ensures the delivery of this goal by streamlining business processes and management systems.
- Cohesive management team: The empowered employees frees up time for the management team to focus on company profitability. The management team works together to develop new business opportunities, reinforce product quality and marketing.
- Advantageous partnerships with other stakeholders: Other business stakeholders develop unwavering trust in the company and forge a strong relationship in the process. Some of these partners include suppliers and financiers.
- High-quality standards: The service delivery levels are never compromised, and everyone strives to attain the set standards. It is in the business’s interest to protect its image and serve the clients. The service has to be immensely rewarding than the competition.
Why operational excellence is Important for Growth
The competitive foundations of an organization hinge on three value propositions. The three are customer intimacy, product leadership, and operational excellence. The last value proposition is an enormous competitive advantage due to its effects on vital business behaviors and characteristics. These are reasons why operational excellence is critical for business growth:
- Strategic: The leadership concentrates on developing new products and acquiring new revenue opportunities and markets. Low-level problems and management of daily operations are at the behest of junior officers. Business growth is the management’s objective as they focus on the big picture and fending off potential business threats.
- Agile: Operational excellence is an alignment with the ongoing business adaption, making it dynamic and flexible. The flexibility and dynamism of the system create a self-correcting mechanism that guarantees meeting customer needs. Sufficient meeting of customer needs leads to continuous and sustained business growth.
- Growth: Operational excellence hinges on using standardized processes and continuous improvement of the same. Growth facilitation is possible as the imperative provides a platform for ease of business operation, especially in transferring to new locations or teams.
- Workforce: Operational excellence leads to employee empowerment, creating a stout organizational culture hinged on attracting and retaining staff. The created climate allows new idea generation and absorption by all stakeholders leading to cost cuts, increased demand, and business growth.
- Efficient: Value stream homing leads to the achievement of efficient operations that eliminates wastage of resources. A business delivers high quality and the best possible prices in return, leading to greater profitability and growth.
How to Optimize Services-Based Operations
Service-based operations require proper implementation and running of systems to ensure customers get excellent service delivery. There are actions and ways of optimizing service-based operations in a six steps process as briefly expounded below:
- Centralization and standardization of financial data to help in improving business profitability.
- Centralization of business intelligence systems for ease of coordinating management activities.
- The enhancement of delivery management systems to sufficiently attain high levels of service delivery.
- Build processes, systems, and structures that permit efficient resource channel access and contractor networks.
- Implementation of talent management leadership initiatives.
- Development of a deeper comprehension of the account profitability.
KPIs for Operational Excellence
An organization should let its employees create a dashboard covering its meaningful metrics to keep them in check. This dashboard works as a Key Performance Indicator showing how the operational excellence program is faring. The critical outcome is its impact on employee satisfaction, customer retention, customer satisfaction, net promoter score, and customer satisfaction score. These are some of the KPIs for operational excellence:
- Customer Satisfaction: Covers complaint rate, issue resolution time, call pick up time, renewal and retention rate, and much more.
- Quality: Encompasses abject quality cost, number of change requests, defect rate, error rate, and rework percent.
- Productivity: Covers downtime, operating rates, labor utilization, capacity utilization, supply chain, etc.
- Sales Efficiency: Includes closed deals per month, sales volume, customer lifetime value, etc.
- Culture: Engulfs completed training, employee retention, and much more.
- Manufacturing: Entails Injury and accident rates, energy footprint, equipment alarm rates, outsourcing, procurement, etc.
- Information Technology: Social media engagement, uptime, project cost, project satisfaction, error rates, and much more.
- Financial: Cover cash flow, audit performance, gross margin, etc.
Improve Operational Excellence with COR
Initiating the use of COR avails a well-oiled system that the business requires to maximize some activities like billable hours. Further, COR helps in minimizing other tasks like administrative tasks. The optimization of all these elements by COR leads to the total profitability of the service operation. COR improves operational excellence through the automation of various tasks and events. The running of the company becomes cost-effective in the long ran through the attained operational efficiency. COR outlines the roadmap to the achievement of performance management through the exploitation of vital competencies to deliver an excellent customer experience. In assessing operational excellence improvement and operational performance, COR is ideal in measuring processing time. Such measuring cover start to end time, exceptions, output, error rate, and cases falling outside the standard process.