Monday, April 11, 2011

In Search of Operational Excellence

This blog post is long overdue. I actually drafted this post already about a year ago, but due to several reasons did not post it before now. Last year was extremely challenging for me, and I reduced my workload by stopping updating this blog. Let's see if I can bring it alive again.

About a year ago I found this article about Five Hallmarks of Operational Excellence by Accenture. Here's my summary of it.

Accenture research on past economic downturns has found that high-performance businesses put a premium on operational excellence and pull ahead of their competition at the end of an economic recession. Here are the five factors that influence the creation of positive, long-term impacts in both good times and in bad.

“Sometimes you need that external threat to make those tougher decisions you knew you had to make anyway, and also to convince others that it is time for change” said one COO

Companies that come out ahead of their competitors share these five essential characteristics
1 Identified competitive essence – the "dominant vector"
2 Establishing the right structure
3 Execution - the path from strategy to action
4 Balancing structure and execution
5 Choosing the right journey

1. Naming the company's dominant vector
The mechanism by which organization best creates economic profit. It is a longterm characteristic—something that should change only when the company’s underlying values change. It can be summarized simply and clearly; it’s a statement that everyone in the organization can hold on to.

Accenture article mentions Kennedy and Nasa here, but let me quote Garr Reaynolds, whose blog, Presentation Zen, has been one of my biggest sources of inspiration for my blog.

(a) “Our mission is to become the international leader in the space industry through maximum team-centered innovation and strategically targeted aerospace initiatives.”
(b) “…put a man on the moon and return him safely by the end of the decade.”

In his post Garr continues "The first message sounds similar to CEO-speak of today and is barely comprehensible, let alone memorable. The second message — which is actually from a 1961 speech by JFK — motivated a nation toward a specific goal that changed the world.")

2. Establishing the right structure
Aligning people, process, technology, and organization structure, the operating model is designed and developed based on external and internal priorities. It relies on strategic decisions about customers, products and routes to market, and serves to deliver the capabilities that match the dominant vector.

Needless to say that my choice of picture of a Leatherman multitool has the right structure.

3. Execution – the path from strategy to action
Excellence in execution revolves around drivers of simplification, standardization and the elimination of waste.
- Clear understanding of what customers are willing to pay for.
- Push for asset productivity.
- Stress process excellence, emphasizing continuous improvement techniques and process discipline.
- Build enduring capabilities and ensure that best practices are proliferated across the enterprise.
- Ensure the close alignment of business strategy, goals, metrics, and initiatives through performance management.

This list by Accenture reminds me of Lean principles and management system such as Really Simple Balanced Scorecard.

4. Balancing structure and execution
Structure and execution must not be considered independent of one another. Execution and robust processes to drive steady gains in product quality and productivity. Structure that supports agility and the resource flexibility to be able to respond easily to new market opportunities. Business leaders have to know how structure affects execution, and how superior execution enables a leaner structure.

This in turn was best summarized in the book and articles by John Spence, another person whose ideas have influenced my blog greatly.

5. Choosing the right journey

Three alternative journeys
- Continuous improvement that focuses on building excellence in execution
- Targeted interventions that span structure and execution in a key functional area
- Transformational initiatives that are top-down and largely structural in emphasis

Accenture concludes the article by saying "The tools, techniques and expertise are available to help make operational excellence an everyday reality—and a long-term differentiator. What’s needed now is the management intent."

They also note the following challenge. "The challenge is that powerful change factors such as these regularly outstrip organization’s abilities to respond; they are not operated and governed with the focus and rigor needed to deal with the current complexities."

Operational excellence is simple as that, but achieving it is not easy.