Successful Operational Excellence programs are critical to the ongoing success at many of the world’s best companies. Whether it is driving year-over-year cost reductions, setting new standards for world-class quality, satisfying ever more demanding customers or being at the forefront of product design and innovation, companies look to their ongoing improvement programs to continually deliver the goods. So why do so many companies struggle with such a crucial, well known and seemingly simple concept?
We recently met with a senior executive who was responsible for corporate operational excellence at a major and very sophisticated industrial manufacturing company. They have many plants, some that have adopted operational excellence and are achieving amazing results. Other plants continue to struggle with only marginal results. What did this executive think was the difference? His answer surprised us. In his opinion, most senior leadership from vice presidents to plant managers simply do not know what to do on a day-to-day basis to drive their Operational Excellence programs. They understand the concepts, support them and even cheerlead. They hire Six Sigma trainers, engage consultants to facilitate kaizens, hand out books and more. His question to us, “What more should they do?”
To find out, we initiated a study to see if there are consistent, executive-level actions that definitively separate companies with successful operational excellence programs from those that are not successful. Our first challenge was to develop clear and simple definition of success. We chose “meaningful contribution to the company’s competitive position and bottom line improvement” as our definition. Using this definition, a company could be comprised of 100 percent Six Sigma black belts, value stream map every element of the business and conduct kaizens on everything, but they are only successful in our definition if these actions positively impact competitiveness and the bottom line.
Our Definition of a Successful Operational Excellence Program
For the study, operational Excellence programs were deemed successful if they:
- Regularly produce tangible results
- Are sustained over time
- Contribute to a company’s overall competitiveness.
Our second challenge was to determine how to conduct the study. Since we wanted to learn what works across a broad sample of companies, we spoke with executives at our clients and at other companies in a wide range of industries including:
- Industrial Equipment & Heavy Machinery
- Automotive
- Aerospace & Defense
- High-Tech & Electronics
- Food & Beverage
- Consumer Goods
Using a combination of discussions and questionnaires to gather the information, we asked multiple choice and open ended questions, with over 40 companies participating at some level in the study.
Does an Operational Excellence program really matter?
We found that it does. Fully 55 percent of the companies in our study reported that their operational improvement program drove significant benefits either all or some of the time.
It also validated our executive’s comments and what we have observed in our experiences — companies that can regularly and reliably count on meaningful success from their Operational Excellence programs are comparatively rare, only 11 percent.
Is there something that these relatively few consistently successful companies do that distinguishes them from their less successful counterparts?
Overwhelmingly, yes. One hundred percent of the companies that met our success criteria shared certain common elements. Maybe more significantly, no other companies possessed all of these traits.
Operational Excellence Common Success Elements
- The business strategy is clearly defined and communicated
- A formal and rigorously followed planning process is used for identifying and prioritizing key objectives and specific initiatives for operation improvements
- The operational improvement planning process is driven by the business strategy
- Business cases are used to prioritize and downselect projects
- The planning process uses business cases to ensure that project goals and improvement tie back to the business strategy
- The planning process includes detailed individual project planning and goal setting
- The planning process occurs at least semi-annually
- Both lean manufacturing and six sigma tools/approaches are used as appropriate
- The operational improvement program includes:
— Development and execution of a detailed communication plan
— Tracking and reporting of results and progress against original goals
— A structured process for reviewing, approving and closing out projects
— Inclusion of performance improvement objectives in employee annual goals
— Partial linkage of incentive compensation for project team members to completion of performance improvement projects
— Training for all employees in basic performance improvement concepts - Projects are typically targeted at the sub-plant/department level
- Sustainability/control planning is included as part of every improvement initiative
- Operational improvement is included in formal goal setting for executives, management and supervisors
- Operational improvement results are included in formal performance/compensation reviews for executives
- Operation improvement results are included in bonus setting for executives
- Public recognition is given to management, supervisors and team members for operational improvement results
Formula for Successful Continuous Improvement Programs
The results of the study indicated the characteristics of successful companies naturally aligned with four critical themes. Moreover, there were clear distinctions between activities that the studied company did, which we call “table stakes,” and those that only the continually successful companies did, which we label “differentiators.” Collectively, these four themes and the underlying table stakes and differentiators define the formula for continuous improvement success. They are:
Link Operational Excellence efforts to the overall Business Strategy —It is well understood that the best continuous improvement efforts boil up from those closest to the actual work. They know best what the problems are and come up with novel ways to fix them. The logic flaw in applying this approach is that it presumes that many disconnected improvement efforts will add up to meaningful, measurable and significant results in the right areas, which they often do not. In the less successful companies, their operational excellence programs simply add up to a series of disconnected but occasionally “successful” individual efforts, which do not take the overall business where it needs to go. Imagine that a company’s strategy focuses on product and service innovation. It is unlikely that a series of independent grass-roots initiatives focused on process efficiency, however well meaning and executed, will drive the company to its strategic goal. What is required is an overall objective, set and communicated by top management, to focus the efforts throughout the company, along with an ongoing process to align efforts behind that objective.
Table Stakes:
- The business strategy is clearly defined and communicated
- The operational improvement planning process is driven by the business strategy
Differentiators:The planning process uses business cases to ensure that project goals and improvements tie back to the business strategy
Link efforts and goals through data and metrics to achieve tangible results —While it is relatively simple to set high-level goals, such as increase productivity by X percent or reduce costs by $Y, it is often difficult to link results of individual improvement initiatives to these metrics. For example: How does a project to reduce setup time by two minutes support the goal of productivity improvement? It depends on many factors, including capacity and utilization of the equipment or line, whether or not it is a bottleneck operation and other factors. Successful companies in our study have rigorous processes to decompose high-level goals and link them to results from individual improvement project targets. At these companies, projects that do not link to the overall strategy are candidates for being dropped.
Table Stakes:
- Tracking and reporting of results and progress against original goals
- Performance improvement objectives are included in employee annual goals
- Incentive compensation for project team members is partially linked to completion of performance improvement projects
- Sustainability/control planning is included as part of every improvement initiative
- Operational improvement results are included in formal performance/compensation reviews for executives
- Operation improvement results are included in bonus setting for executives
Differentiators:
- Business cases are used to prioritize and downselect projects
- Public recognition is given to management, supervisors and team members for operational improvement results
Develop a comprehensive program that can be executed by people throughout the company —It is a well established fact that good ideas are not the sole province of a few highly trained experts. If you look at the source of many of the best ideas within your company they likely come from people whose job it is to perform very specific tasks, such as screw parts together, reconcile invoices, purchase materials or perform other singular focused activities. They are the operational experts that know what is wrong. What they often lack is the toolset to think about the problem in a structured manner, to estimate the benefits or to consider alternate best practice approaches. We found that the best Operational Excellence programs are understood and in regular daily use by people at all levels throughout the company. In fact, the very best programs are so embedded in people’s daily job routine that they are executed naturally, not as an episodic improvement effort.
Table Stakes:
- The planning process includes detailed individual project planning and goal setting
- The program includes development and execution of a detailed communication plan
Differentiators:
- The program includes training for all employees in basic performance improvement concepts
- A formal and rigorously followed planning process is used for identifying and prioritizing key objectives and specific initiatives for operation improvements
- A structured process is used for reviewing, approving and closing out projects
- Do what’s right for your industry, company and unique situation —Many companies, even some great companies, become famous for their devotion to certain operational excellence approaches. Some companies have embraced Six Sigma and require their employees to achieve certain levels of expertise. Others are famous for Lean and are looked upon as experts in that approach. When examining even these apparently singularly focused companies we found that they are more diverse than they appear. We found Lean throughout many of the best Six Sigma companies and vice versa. Successful programs embrace a range of theories, methods and techniques, and the structure of the program selects the right approach for the problem at-hand and simplifies these techniques for use by people throughout the company as stated in No. 3 above.
Table Stakes:
- None of these “focus” attributes were in common between all successful and some unsuccessful companies
Differentiators:
- Both Lean Manufacturing and Six Sigma tools/approaches are used as appropriate
- Projects are typically targeted at the sub-plant/department level
- The planning process occurs at least semi-annually
Some of the detailed results provide further insight as companies work to position their Operational Excellence programs for ongoing success. For example, we found that it is critically important for a company to have a well defined and broadly understood business strategy, which allows people throughout the company to appropriately define and structure improvement efforts. It is no surprise that when the goal is clear and well understood people can line up to support it. On the other hand, when the strategy is missing, vague, not easily translated into actions and/or not disseminated throughout the organization we found that the goals of the Operational Excellence programs were scattered and that the programs themselves tended to lose focus and eventually fail.
Leadership was another major insight from the study. There may be a tendency to believe that programs with strong upper-level project leadership have the most likelihood of sustainable results. Our study found that top-level support was insufficient to consistently drive success. The overall goals may be set by leadership through the strategy, but it is those programs that push project ownership down into the organization that have the best chance of achieving and sustaining benefits. All of the companies that consistently sustain improvements reported that the projects were lead by either Managers or Supervisors, and none were lead by Executives. This finding accentuates the significance of the comment made by the executive earlier in this paper that the biggest problem his company had was getting middle management to know what to do in support of Operational Improvement.
The study also showed that successful companies have broad knowledge and ability to apply the right tool or approach based on the problem being solved. They combine Six Sigma, Lean, Theory of Constraints and other approaches into an overall program for improvement. And they don’t employ a large staff whose sole responsibility is continuous improvement. The best companies in the study had employees throughout their organization that understood both when and how to apply different tools and approaches.
While there is no sure-fire formula, the study indicated there are comparatively few differentiators that seem to consistently characterize the most successful companies. The four major themes to emerge from our study best capture the learnings at a high level:’
- Understand and use the right approach to address your unique goals and challenges.
- Structure the program so that people at all levels have a meaningful role.
- Use metrics to tie efforts to the strategy and track progress.
- Drive efforts from an overall business strategy.
None of these are easy to achieve, but you have to know where you need to go in order to get there, and our study helps light the path.
Written by Gerry Mendelbaum