The road to achieving operational excellence

November 2023  |  COVER STORY | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

November 2023 Issue

Operational excellence (OpEx) is an approach to business management which emphasises continuous improvement across all aspects of a business, within all its processes, by creating a culture where management and employees are invested in business outcomes and empowered to implement change. It allows organisations to reach higher levels of service and product delivery through better processes and standards – ultimately leading to competitive advantage and greater market share in any given industry.

For some, OpEx can be a nebulous term, but for John Palfreyman, an associate professor at Leeds University Business School, it encapsulates a “never-ending journey of business operations improvement to deliver the organisation’s strategic intent”.

According to Pauline Found, a lecturer in operations management at Cardiff Business School, while operational management is relatively well understood as managing an existing system efficiently, OpEx, in contrast, focuses on continuously improving those processes, systems and workflows to achieve the highest levels of efficiency, quality and, importantly, effectiveness within an organisation.

“It aims to optimise operations, eliminate waste, and deliver consistent value to customers and stakeholders, and involves a combination of strategies, methodologies and cultural aspects that contribute to sustained performance improvement,” she explains. “All of the improvement methodologies fall under the umbrella of OpEx, and it is about selecting the right improvement methodologies to solve the problem they are addressing.

“Ultimately, OpEx is about creating a culture of continuous improvement that becomes ingrained in an organisation’s DNA. It is a holistic approach that requires alignment across all levels of the organisation and a shared dedication to delivering the best possible outcomes for customers, employees and stakeholders,” she adds.

In the opinion of Joseph F. Paris Jr., founder of the Operational Excellence Society, OpEx is a state of readiness attained when the efforts throughout an organisation align on achieving its strategies. It is where the corporate culture is committed to the continuous and deliberate improvement of company performance and the circumstances of those who work there. Ultimately, OpEx is a precursor to becoming a high-performance organisation. “It is a company that is operating as a company – as a single operational entity that is executing in accordance with its plan and knows that its people are its most important assets,” he adds.

OpEx encapsulates business improvement practices that systematically identify and eliminate inefficiencies, waste and defects, notes Maneesh Kumar, a professor at Cardiff Business School. At the same time, it enhances overall productivity, quality and customer satisfaction. “Employees are the central pillar to making processes and systems operationally excellent,” he says. “When implemented well, OpEx creates an environment where leadership and employees collaborate to improve operations, ensuring efficiency, effectiveness and agility throughout the organisation. A collaborative approach drives value for customers and anticipates and resolves issues pre-emptively.”

People and processes

Though organisations are increasingly aware of the benefits OpEx can bring, achieving it at the enterprise level can be complex. Process optimisation is central to OpEx, but, as Professor Palfreyman notes, alone it is not sufficient. “Information, leadership and cultural considerations are equally as important,” he says. “Companies must understand current business operations, comprised of people, information, process elements and so on. They should use Industry 4.0 as an aspirational model.

“This means balancing what humans can do best with what machines and digital technology are good at,” he continues. “To be successful, they must apply industry best practice techniques, such as automation and design thinking, to move from where the organisation is right now toward strategic intent.”

It is also important that senior management lead the OpEx process and that employees embrace it, in order to continuously enhance processes. This way, synergies are leveraged between people, processes and technologies.

“OpEx strategies begin with understanding customer needs and creating value from their viewpoint,” says Professor Kumar. “Thereafter, mapping end-to-end processes in the customer order value chain and applying Lean Six Sigma tools allows the company to achieve flow and improve its operations. This ensures efficiency, effectiveness and agility throughout the organisation.

“OpEx principles emphasise a ‘built-in quality’ mindset, where every employee takes ownership of quality and works toward achieving product or service quality that is right the first time. If ‘quality’ is the base of the performance pyramid, getting it right first time will help improve the speed of delivery and dependability of processes. In this way, the organisation should have the flexibility to manage variation in demands and reduce the cost of its operations.”

When it comes to setting goals for an OpEx programme, Mr Paris believes it is the stakeholders who should establish them, and ensure those who are charged with its delivery understand the success criteria and remain aligned to it. “In turn, those who are charged with its delivery then need to share progress and challenges faced while the stakeholders need to communicate any changes to the goals and support them accordingly,” he says.

To grow or not to grow?

For companies seeking growth, OpEx can accelerate the process through greater focus on customer demands, increased operational efficiencies and streamlined back office administration. All parts of the business should be pulling in the same direction, minimising the friction of doing business. At the same time, OpEx maximises an organisation’s potential to capitalise on opportunities, adapt to challenges and create value for stakeholders.

“While OpEx itself does not guarantee growth, it significantly enhances an organisation’s ability to achieve sustainable and scalable growth in a competitive business environment,” says Professor Found. “The relationship between OpEx and growth is interconnected, as OpEx lays the foundation for sustainable growth.”

But growth is not always the primary aim of OpEx. “Growth implications related to OpEx depend on the strategic intent,” opines Professor Palfreyman. “If that involves delivery of growth, then the OpEx journey must underpin that delivery. Alternatively, if the strategy prioritises margin improvement or sustainability over growth, then growth may not be a key driver for OpEx. However, it is important to note that OpEx is often an important concept for public and third sector organisations that will usually not be focusing on growth.”

The competitive advantage of 20th century companies was derived from process excellence, according to Mr Paris – increasing the velocity of throughput and making near-perfect the quality of processes. But things have changed. “Time is the enemy of today’s companies, and competitive advantage will be found in their operational capacities, capabilities and readiness to engage, such that success is as preordained as possible,” he says. “Therefore, the 21st century companies that gain competitive advantage will be those that can see further beyond the horizon than their competitors, recognise opportunities and threats sooner, are able to devise and deploy a decisive response faster, can set the pace and maintain control of the execution phase and narrative, know and can rely on the capacity and capabilities of their leadership, resources, processes, technology and value chain, and can better press the prosecution of their strategies.

“A properly designed and deployed OpEx programme can act as an accelerant to achieving a company’s ambitions by compressing the time it takes to reach goals, in essence bringing the future closer faster,” he continues. “Understanding the future state of the company and the business factors it faces will influence the OpEx efforts. For instance, when a company is going from expansion to contraction, cost cutting or shedding the distractions of non-core activities might be emphasised. And when a company is going from contraction to expansion, building capacity and capabilities over cost cutting might be the better approach.”

Technological refinement

Technology can be utilised to improve OpEx. Adopting innovative technologies – such as artificial intelligence (AI), machine learning, cloud computing and big data analytics – can increase business agility, efficiency, resilience and sustainability. To properly harness its power, companies must select the right technology solutions that align with their OpEx goals and strategies.

In the current era of digitalisation, and adoption of Industry 4.0 innovations, certain technologies play a pivotal role in optimising processes, enhancing operational transparency, and enabling effective tracking of operations and products throughout the supply chain.

“These technologies significantly contribute to realising the goals of OpEx methodologies by facilitating streamlined operations and improved visibility across operations and the supply chain,” says Professor Kumar. “Despite the synergies between Industry 4.0 technologies and Lean Six Sigma, organisations have separate teams to manage OpEx initiatives and develop digitalisation strategies. Companies can derive advantages from an integrated approach instead, as it helps prevent the need for creating distinct teams to independently handle Industry 4.0 and OpEx initiatives.

“A collaborative approach is imperative for accomplishing seamless integration across a supply chain’s vertical, horizontal and end-to-end dimensions,” he continues. “Notably, scholarly discourse on integration strategies underscores the pivotal role of Lean Six Sigma as the foundational element. By initially refining processes and curbing process variability, Lean Six Sigma serves as the cornerstone, paving the way for subsequent automation or digitalisation of these refined processes through the deployment of Industry 4.0 technologies.”

Though technology is key, it has to be taken on board in the right way. For Mr Paris, all too often, a company will attempt to implement technology in the wrong order. “Leadership will purchase a piece of software, consultants will create processes in support of the software and the business, then it will be introduced to the people to use,” he explains. “The people, having never been involved or only involved at the periphery, will either resist or reject, having not been involved in the front end of the deployment process.

“Leaders need to make many decisions and believe that by deciding on a piece of technology their part of the job is done. But it is only the end of the beginning,” he adds.

Organisations should begin with small pilot projects to test new technologies before implementing them on a larger scale, suggests Professor Found. Also important is ensuring employees are adequately trained and supported as they learn to use new technologies. “As with any significant change management there are challenges to implementing technology within OpEx,” she adds. “To overcome these challenges, it is essential to have a holistic approach that involves leadership commitment, employee engagement, clear communication, and a willingness to adapt and learn from both successes and failures.”

Of course, technology comes with advantages and disadvantages – particularly as it moves fast and shows no signs of slowing. “Riding this wave offers tremendous potential to a properly crafted OpEx journey,” says Professor Palfreyman. “However, there can be difficulties, particularly with respect to hype and awareness. Consider the recent hype around ChatGPT, for example. This detracts from the real value that AI can bring when properly leveraged as part of an OpEx journey. Leaders also need to make themselves aware of the potential and limitation of candidate technologies before embracing them – by driving awareness followed by experimentation.”

“Continued fast moving digital tech is the future of OpEx,” he adds. “The emergence of the metaverse is an important concept for organisations, offering a new virtual dimension for realising OpEx. There is also increased interest in combining sustainability considerations with OpEx.”

Adapt and thrive

Over the next decade, OpEx will likely be driven by greater integration of technology, data driven decision making, agility, sustainability, and a more holistic approach that encompasses people, processes and planet, according to Professor Found. “Organisations that can adapt to these trends and embrace change will likely be better positioned to achieve and sustain OpEx in a rapidly changing environment,” she says. “The most influential factors driving OpEx’s evolution in the future are probably the convergence and advance of technological innovation, changing customer expectations, sustainability imperatives and the need for resilience.”

Enterprises harnessing digital transformation and technology integration will be able to automate workflows, make decisions guided by data, enable live monitoring of operations and develop agile processes. “Enhanced collaboration within supply chains and ecosystems facilitated through Industry 4.0 technologies is vital for OpEx,” states Professor Kumar. “Digital technologies will enable the manufacturer and customer spheres to draw closer, thereby allowing manufacturers to get more real-time feedback of customers’ perception and use of their products or services.”

Over the last decade, the conversation has pivoted away from the specific tools of lean continuous improvement and OpEx, and more toward people, culture and engagement, notes Mr Paris. “We believe this trend will continue,” he says. “The risk I see will be conflicts between people, processes and technology. We need to always keep in mind that technology exists to service the people, and not the people to service technology. The introduction and proliferation of AI needs to be managed pragmatically, not pursued as the next ‘shiny new thing’.

“The most influential factor driving OpEx going forward will be the combatting of time,” he continues. “In a world that is full of volatility, uncertainty, complexity and ambiguity, we will have to learn to synthesise ever bolder decisions based on incomplete and imperfect data. And we will have to learn to increase the trust and capabilities of our technologies to help us make better decisions more quickly. But that trust needs to be earned.”

By adopting a holistic approach to OpEx and adapting to the rapid pace of technological change, companies can improve the customer experience and increase shareholder returns in a meaningful way.

© Financier Worldwide

BY

Richard Summerfield