Operational Excellence is not easy to define. Some descriptions are too broad. Others are so narrow that the ultimate definition seems too focused in scope. Often, we end up with definitions that seem plausible in an academic sense, such as “Being world class,” “Being the best globally,” or, “Excellence in everything we do,” but these are difficult to translate into specific practices.
To properly define Operational Excellence, there is value in looking at the evolution of the term.
In "The Discipline of Market Leaders - Choose your Customers, Narrow your Focus, Dominate your Market", Michael Treacy and Fred Wiersema described three distinct value propositions or disciplines an organization could choose to compete in their market or industry - Operational Excellence, Product Leadership, and Customer Intimacy.
They maintained that market leaders needed to excel in delivering extraordinary levels of performance in one of these three value propositions, while maintaining competitive standards in the other disciplines.
Based on Treacy's and Wiersema's findings, market leaders will try not to pursue a diffused business strategy across two or even all three disciplines, but will continually focus on their organizational design, processes, technology and competencies to improve the one particular value discipline where they wish to excel.
Organizations pursuing an Operational Excellence differentiation strategy are able to deliver a combination of price, quality, and ease of purchase and service that no other organization in their market or industry can match.
Additional insight into the elements of the operational excellence management philosophy can be found in:
Achieving Operational Excellence requires the successful implementation of a Business Execution System that effectively and seamlessly integrates the following four building blocks:
Operational Excellence is an element of organizational leadership that stresses the application of a variety of principles, systems, and tools toward the sustainable improvement of key performance metrics.
This can be boiled down to seven areas that organizations must excel at:
It is also essential to understand that these areas are all interconnected. In order for an organization to claim it operates in the Operational Excellence space it must excel at all seven of these areas.
The model below shows the interconnection of all of these areas of expertise.
These seven areas of focus when combined effectively create the model for Operational Excellence. If we expand on the seven elements we see the application of many management tools and techniques:
Process Improvement tools:
The focus of Operational Excellence is to help the organization by:
In summary, Operational Excellence will help an organization to:
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