Achieving operational excellence

August 2017  |  FEATURE  |  BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

August 2017 Issue

Operational excellence (OpEx) lies at the intersection of strategy, technology and operations. A successful OpEx programme can reward companies in many industries. With organisations turning to new digital tools to achieve better standards of work and improve efficiency across their entire enterprise, the challenges of transformation are extensive.

Companies can save millions in operating costs while enhancing business agility, driving innovation, improving regulator and public confidence, and fostering talent. OpEx enables leaders to improve all areas of company performance, including decision making, as well as helping them to attract ongoing investment, increase profitability and improve human resources capabilities. Having the ability to pinpoint critical competencies to leverage OpEx is paramount to achieving long-term success.

Though OpEx can be difficult to define, let alone attain, there are myriad benefits to be derived. Chief among these is growth, according to Richard Lyle, director at Turner & Townsend Suiko. “If OpEx is achieved, growth will be accelerated due to a greater focus on changing customer value, increased efficiency in operations and back office administration. All parts of the business will be pulling in the same direction, minimising the friction of doing business. OpEx on its own will not necessarily ensure a business grows – since strategy and market conditions are also a factor – however a business that is truly operationally excellent will maximise growth faster and further than competitors and will derive greater margins.”

Peter Sirman, an OpEx expert at PA Consulting Group, believes that substantial gains can be made by focusing on OpEx. “There is a strong correlation between companies that deliver using OpEx methods and having above average overall returns to shareholders. It is hard to establish true cause and effect, but there is a clear logic that companies that deliver better services and products, more quickly and cheaply than their competitors, will be more successful. Since OpEx companies are focused on delivering improvements in the areas of service, cost, quality and speed of delivery, they outperform their competitors. OpEx is a legitimate business strategy; a company can compete by being more efficient than anyone else and as a consequence is able to invest the savings into better services and products.”

Typically, OpEx is a mindset through which companies are able to focus on meeting customer needs and expectations using strong leadership processes and teamwork. It allows companies to continue to improve, regardless of their circumstances. For Frank G. Adler, the principal and managing partner at Operational Excellence Consulting, LLC, operational excellence helps an organisation to execute its strategic or operational plan, and day-to-day business, more efficiently and effectively. “That is mainly accomplished through ‘process excellence’ methodologies – such as lean management, six sigma and problem solving, among others – and through developing new capabilities. Therefore, operational excellence leads to growth in revenue and profitability, if the organisation’s strategy is correct and its ‘process excellence’ activities are aligned to its plan,” he says.

Leading from the front

To truly achieve OpEx, business leaders must understand the process and accelerate the journey. One of the most important steps is to develop a strong and consistent vision of how they want the company to evolve. This vision must cascade throughout the organisation, with staff at all levels understanding how they can positively impact the business. Positioning and leveraging the experience and knowledge of staff is another key aspect, requiring leaders to play a central part. They must assign roles and responsibilities to the relevant individuals and work with them to ensure that they, and the company, progress.

Reporting is integral to OpEx. Staff should be reporting a range of metrics up the management chain to supervisors. Leaders should receive monthly summaries of key accomplishments and challenges, as well as regular performance summary spreadsheets that show daily progress. These report should, in turn, be fed up to senior executives. Behaviour needs to be monitored to ensure effectiveness.

A key component is risk management. To manage business operations, companies must cultivate a culture of risk management that is both vigilant and disciplined. Those with a clear vision of risk are better placed to benefit from OpEx. Identifying risks, establishing control systems and testing them is essential. This will enable companies to improve their control systems, making them more effective and efficient. For companies in the oil & gas space industry, for example, safety and risk management is an area of considerable focus. Companies such as ConocoPhillips, BP and Chevron have all launched extensive OpEx schemes over the last decade aimed at improving personal health & safety, process safety, efficiency and reliability.

Rather than being the culmination of a process, OpEx is a continual journey. Differing levels of resources and effort are dedicated to achieving goals that constantly change. Operational improvements are harnessed along the way. This process of renewal can be augmented in a variety of ways.

“OpEx is often characterised as a synergy of methods, tools and delivery approaches,” says Steve Wilson, vice president and practice lead of operational excellence at Capgemini UK. “The breadth of options can lead to confusion and competing approaches. OpEx is principally a mindset – a focus exclusively on a culture of continuous improvement. Organisations that do it well embrace this culture in their values and empower employees to make OpEx the focus of their work. Employees must be able to make appropriate selections of tools and techniques relevant to their OpEx journey in the context of their specific organisational role and objectives. Building a culture of sharing successes, associated with OpEx implementations internally within organisations, helps nurture the culture of continuous improvement. This sharing of practical success stories allows organisations to better describe their OpEx characteristics to employees, customers and investors alike.”

Businesses need strong leadership to drive the ‘buy-in’ of staff at all levels. Employees need to accept the urgency of the competitive landscape and understand why they are being asked to alter their behaviour and embrace new ways of working. For this to be truly successful, employees must understand how this will ultimately benefit not only the company, but also the roles they serve within the organisation.

Furthermore, leaders must set realistic and achievable targets for the company. Reaching milestones provides a regular morale boost to staff. Quick and relatively easy ‘wins’ also help keep staff on board. Key performance indicators will enable departments to measure progress and identify areas that need adjustment. “All businesses rely on three critical factors to make them work: people, process and systems,” says Mr Lyle. “OpEx requires everyone in a business to really understand the input measures that drive business performance combined with the desired results. It needs to understand very quickly when performance is improving or dipping, and why and how to maximise or minimise the impact. Technology can provide robust, real time data which can quickly be transformed into insightful data. It can provide trends and detailed analysis to inform problem solving and forward thinking decision making.”

Leveraging technology

Good leadership should be complemented by technological enhancements. IT departments are ideally placed to help organisations achieve OpEx, since they have a comprehensive overview of the entire organisation. Over the last few years, technology and IT professionals have assumed a more central role in day-to-day operations. Their importance will only grow as companies rely on technology to help them achieve their operational goals. IT can be leveraged to quantify certain aspects of processes and standards, making it a potent tool for OpEx. The IT mega-trends of recent years, including the emergence of Big Data, mobile applications, and the Internet of Things, for example, have the potential to boost processes companywide.

As Mr Adler explains, many firms turn to technology to help develop their OpEx policies, however these solutions should only be used when the situation calls for it, not simply because the option is there. “Technology is one of many ways to improve existing or develop new capabilities to create and deliver an organisation’s services and products more efficiently and effectively,” he says. “Implementing technology only because it exists and is available, is often not a wise decision. The question is whether the technology enables an organisation to execute its plan more efficiently and effectively.”

For Mr Wilson, technology must be seen as merely part of the equation. “In essence, technology provides faster, more accurate and more insightful processes. Increasingly, the adoption of agile data mining tools makes OpEx reporting more accurate and responsive, particularly for managing operations across multiple locations. These agile technology tools help to drive down cost, but also enable human creativity to blossom, bolstering collaborative working inside organisations and creating highly personalised experiences to their customers. But technology is an enabler, not a saviour. Without a proper operational excellence mindset instilled in an organisation, no new system or process change will really unlock the true value of what a constant change culture can bring. Customer and employee centricity are imperative to success in the modern market; technology is essential in delivering this, but cannot do it alone,” he adds.

Ultimately, technology must be cost effective and related to driving improved business operations, as Mr Sirman explains. “From robots on the production line to artificial intelligence in back office processes, technology has always been a core part of business operations. Some of the benefits include cost, predictability of performance and consistency of quality. However, technology is sometimes deployed with a short-term and cost-driven focus rather than as part of an end-to-end value stream. For example, technology might be used to automate a process that is not required in the first place. It is important therefore to consider how technology supports the value chain in the most effective way, rather than delivering quick-fix solutions,” he says.

Fostering a symbiotic relationship between senior executives, employees and technology is key, but delivering true OpEx requires optimisation of all company resources. It is important to have the right data available, as well as the right analytical tools. The role of a company’s leaders cannot be underestimated; they must be the driving force on the road to OpEx, and that requires them to lead from the front. From the top down, companies must communicate the importance of OpEx throughout the company.

To achieve OpEx, companies must look at the bigger picture. They must streamline processes, leverage technology and access business intelligence. Decisions at board level need to be robust, meaningful and sustainable. Transparency throughout the organisation’s corporate structure, as well as improved communications and decisionmaking, can also help. With all this in place, companies may improve their service to customers and increase shareholder returns.

© Financier Worldwide

BY

Richard Summerfield