What Is Operational Excellence? Here’s How to Reach It

Business leaders instill operational practices with the goal of achieving success, especially when it comes to the quality of their products and the customer experience with those products. But success doesn’t happen overnight, and even rapid success can rapidly decline. For long-term, sustainable growth, your organization must first achieve operational excellence.

What Is Operational Excellence?

Operational excellence is a mindset embracing key principles and tools to develop a culture of excellence within your organization, paving the path for every team member to always see, deliver, and improve the flow of value to your customers. At its core, operational excellence leads to elevated organizational performance, as your business operations are always in order and always being improved upon.

Key Takeaways

• Operational excellence can lead to key business results such as higher revenue, lower operational risk, and lower operating expenses.
• If you create a culture of excellence, you won’t have to hold or force your team members’ hands when it comes to executing your operational excellence plan.
• As long as the end result meets your goals, the simpler the process the better.

Operational Excellence Explained

Practically speaking, operational excellence is the ability to execute a business strategy with greater consistency and efficiency than your competition. The business results? Higher revenue, lower operational risk, and lower operating expenses.

First introduced in the 1970s before being formalized as a business practice in the United States in the 1980s, the operational excellence approach uses tools of continuous improvement methodologies such as lean thinking, Six Sigma, and scientific management. Today, there are numerous operational excellence models. Each model has the same goal: cultural excellence that leads to improved business results.

Steps to Achieve Operational Excellence

Operational excellence is achieved when every team member can see the flow of value to the customer and is empowered to fix that flow before it dissolves. Processes can make that flow happen, but those steps and processes stem from a unifying philosophy of why you’re striving to reach an optimum state. Beginning with that philosophy — a core statement that defines your drive to achieve operational excellence, your organizational mindset, and the value your principles and purpose bring to the endeavor — will help ensure that any steps you take are rooted in the soil that will let operational excellence thrive.

Of course, philosophy alone isn’t enough. Here are three key steps to help your organization achieve operational excellence:

1. Define your business goals. Just as every business is unique, you and your team’s business goals should be unique to your organization, not a vague goal such as simply lowering operating costs. Your goals should be SMART — specific, measurable, achievable, relevant, and timely — and each one should be operationally oriented, financially oriented, or people-oriented. Encourage your team to always operate with these goals in mind.
2. Create a multidimensional plan and communicate it clearly. Operational excellence extends to manufacturing, maintenance procedures, supporting systems, and every other aspect of your business operations. Your plan should too. It should also incorporate a human component, such as prioritizing leading with humility and respecting every team member. Pro tip: Seek perfection in every facet of your plan — if you create a culture of excellence, you won’t have to hold or force your team members’ hands in the next step.
3. Focus on the execution. When you and your team can focus on executing the multidimensional plan you’ve set in place, it can be easier to diagnose and resolve mistakes. If something goes wrong, the problem is more likely to be with the process than the person, so there’s no need to point fingers. Instead, you can assess where in the process the error occurred and attend to it, capitalizing on the opportunity for improvement.

Why Is Operational Excellence Important?

Operational excellence isn’t just a nice-to-have when it comes to your company culture and business results. It’s a must when it comes to the quality of your products and their attributes, the experiences of your team throughout product development, and ultimately the amazing experiences you want your customers to have.

Organizations that embrace operational excellence unlock their greatest growth asset: the brainpower of their full team. When people at all levels of an organization are empowered to take ownership of their work and collaborate with each other to elevate the efficiency and effectiveness of the tasks at hand, managers and other leaders can spend less time on troubleshooting operations and more time embracing creative thinking, fueling companywide innovation.

Status quo isn’t good enough. Operational excellence is imperative to the sustainable improvement of your operations teams, the products they develop, and the achievement of the business objectives you set in place.

How to Improve Operational Excellence

Just as operational excellence will improve your business operations, your operational excellence can itself be improved. Here’s how:

1. Assess where you are. It’s tough to know what you should do differently if you don’t know what’s working and what isn’t. Take the time to thoroughly evaluate your operational excellence plan — from production processes to maintenance requirements to team training — and its execution, then determine what, if anything, you need to change.
2. Choose simplicity over complexity. Overcomplication can be a waste of valuable time, energy, and resources. As long as the end result meets your goals, the simpler the process the better.
3. Use the right tools. Having a full toolbox is less important than using the right tools for you and your team. Whether it’s workflow apps or another acceleration solution, the right tools can help provide long-term solutions for every aspect of your team and operational dynamics.
4. Let every voice be heard. The best ideas won’t always come from product managers or the chief operating officer. Sometimes the best ideas will come from those on the ground floor, so give them a voice — create open lines of communication so that your entire team feels empowered to share their ideas in meetings, emails, and calls. The more you do, the more invested they’ll be in the process, bolstering your organization’s burgeoning culture of excellence.

Stages of Operational Excellence

From just starting out to excelling with ease, here are the four stages of operational excellence:

1. Essentials: This is level one: the basics. During this stage, you and your team are establishing repeatable processes for consistent development and delivery of your business’s products and services. At this point, it’s crucial to document all processes — product design, inventory forecasting, quality control — to ensure the customer experience is the same high quality for every customer, every time they interact with your business.
2. Effectiveness: Once you’ve mastered the internal essentials, it’s about effectively delivering on the promises made to customers. You need to ensure that products and services are provided at an acceptable quality within the given timetable. Any customers who purchase the same products or services should receive exactly that — the same, identical quality products or services, delivered when your team said they would be delivered.
3. Efficiency: Speed and efficiency aren’t the same. More than completing tasks as fast as possible, operational efficiency is about achieving maximum productivity with minimum waste. By the time you reach this stage, the process enacted in the first two stages should be maturing as your organization invests in technology to help enhance quality and overall lean operational management, bolstering your ability to expediently deliver any promised products or services without wasting any resources.
4. Excellence: You can’t achieve this final stage until you master the prior three foundational stages. Once you do, however, scorecards — a visual representation of performance progress over time — and business alignment model reinforce each other and the initiative and projects integral to your organization’s sustained performance to help bring all of these dimensions together.

Then, it’s up to the most important ingredient of operational excellence: your people. Having the right people with the right skills at the right place — the best problem solvers working on supply chain management, the best data interpreters working on product design — will push your organization to provide and standardize top-tier service.

Characteristics of Operational Excellence

You’ll know you’re working with operational excellence when you start seeing the fruit it bears. Here are some characteristics to watch for:

• Team involvement: There’s a reason highly engaged workforces have 17% higher productivity than disengaged workforces. Operational excellence requires the collaboration of your entire team — there should be no weak links. When your full team is actively engaged, you’ll know you’re on the right track. One caveat: This engagement has to be genuine and organic. Forced enthusiasm can backfire and actually decrease morale.
• Exceeding customer expectations: Your customers expect you to provide quality products or services, and they expect you to do so in a timely manner. To exceed these expectations is to go above and beyond in every aspect of your service, a sign that you’re achieving operational excellence. And as with team involvement, it needs to be genuine — saying you’re pleasing your customers without actually doing so can lead to distrust.
• Innovative products: Products can and should evolve over time in order to address the evolving needs they combat in an increasingly succinct manner. When your products are continually on the cutting edge, you’re doing something right. When operations have a foundation of excellence, people have more freedom to explore creative pursuits and deep work.
• Process excellence: A key characteristic of operational excellence, process excellence is made possible by the designing and testing of various flows to establish which consistently produce the results most desirable for your organization. Once your processes are consistently performed with optimal efficiency and minimal waste, the resulting effectiveness is a sure sign you’re going in the right direction.
• Superior safety: It’s easy to think of safety as being siloed; it’s an expert’s job. In truth, safety is a sign of operational excellence. If your team is going so fast that their safety is at risk, you’re not operating efficiently. Conversely, proper safety measures ensure your team members can focus on executing their respective tasks without worrying about personal injury.
• Commitment to quality: When functioning with operational excellence, delivering a product or service of subpar quality is never an option. Your full team’s commitment to delivering quality products or services is a key characteristic of operational excellence.
• Strategic direction and focus: Every operational process should have a clear purpose. And every process should propel your business in the same direction. When a strategic direction is established and draws the full focus of all team members, there’s a good chance you’re experiencing operational excellence. But without operational excellence, strategy can stay in a touch-and-go limbo instead of taking root.
• Supreme communication: To execute processes, innovate products, and ultimately exceed customer expectations, team members need to share information among themselves and with other teams. The better an organization’s operational excellence, the better this communication probably is.

Operational Excellence Examples

Operational excellence isn’t a new idea just now making the rounds among companies. It’s something that businesses across industries have been implementing for years.

Take Marathon Petroleum. All levels of leadership are accountable for the effectiveness of its Operational Excellence Management System (OEMS), which includes seven focus areas that align with its health, environmental, safety, security, product quality, and sustainability standards. To date, the company is 100% in scope of its OEMS.

Similarly, McDonald’s and Walmart make operational excellence a strategic priority — it’s why all of their systems are built around the core aim of providing highly efficient ordering and fulfillment systems. With the belief that there’s no such thing as standing still, only moving forward or backward, McDonald’s fosters full team involvement and accountability to high standards in the process of updating operational approaches at both the franchise and corporate levels to remain a “green and growing” company. Implementing ERP software, Walmart Canada has been able to consolidate, view, and accelerate workflows to the point that project approval times have been reduced to near zero, allowing teams to spend more time executing their operational roles with supreme efficiency.

Take Your Business From Surviving to Excellence With NetSuite

NetSuite ERP is a technology solution that can serve as your organization’s center of operational excellence. Providing seamless creator and customer workflows alike, NetSuite ERP can be a one-stop shop for your organizational needs, unifying business intelligence and operational analytics while also keeping you lean. Learn how NetSuite ERP can help take your business from surviving to thriving with operational excellence.

At the end of the day, operational excellence isn’t an easy thing to achieve, but it’s well worth the effort. When done correctly, operational excellence will improve more than your bottom line — it will elevate your reputation with customers and improve your team members’ experience.

Operational Excellence FAQs

What is an operational excellence strategy?

It’s a management strategy designed to maximize the efficiency of the operational processes within an organization.

What are operational excellence tools?

These are tools such as the workflow apps within NetSuite ERP that can help provide sustainable long-term solutions for an organization’s operations.

How do lean and Six Sigma methodologies contribute to operational excellence?

The lean methodology places a significant emphasis on efficiency, minimizing overproduction and all-around wasted time and resources. The Six Sigma methodology accounts for the continual improvement of production quality by minimizing variations and removing the defects in manufacturing and other operational processes.