Before we take a deep dive into this topic, let’s get two questions out of the way. The first one is: What is Operational Excellence (OE)?

The birth of operational excellence took place in a manufacturing environment.  During the evolutionary period, its objective was to meet regulatory requirements and to mitigate risks from catastrophic failures. In a short span of time, user realized its broader application as a tool to improve manufacturing processes and practices. Today, best-in-class manufacturing companies are using it as a management system to achieve sweeping and breakthrough improvements in innovation, profitability, technology, efficiency, revenue growth, customer satisfaction and other focus areas of the business. There is no universal definition of operational excellence; this is due to the fact that organizations differ in vision, mission, strategic goals and focus areas. But despite the diversity in definitions, there is one common theme among most of them: to strive for dramatic improvements to sustain competitive advantage.

The other and more important question is: How can Operational Excellence improve the manufacturing processes? 

Numerous studies have demonstrated the benefits of Operational Excellence.  In short, Operational Excellence results in:

1. Synchronization of multiple management systems into one unified system
2. Efficient, consistent and stable processes (reduction in cycle time and defects rate)
3. Efficient use of resources (people, material, equipment, energy, etc.; elimination of waste)
4. Standardization of quality requirements across all products   
5. One platform to launch corporate-level improvement initiatives, preventing redundant improvement efforts
6. Shareholders value creation (stock performance, increased revenue, profitability, etc.)
7. Improved employee engagement and motivation, due to clear goals setting and fair performance measurement system
8. Customers value creation (managing business as a one seamless chain of processes)
9. Partnering with suppliers (to leverage their resources, knowledge and networks)

Business wisdom calls for periods of transformation and renewal to fully capitalize on visible opportunities, as well as expose hidden opportunities, to unleash the full potential of the organization and achieve operational excellence. Of course, anytime is a good time to transform; however, those with wide-ranging experience in operational excellence say that the best time to transform and achieve business excellence is the time when there are “no burning” platforms.

Almost everyone would agree that the excellence journey is hinged on envisioning a future that can transform a business into a world-leading organization, but an inspiring vision alone is not sufficient: a sound and comprehensive strategy focused on achieving goals of vision is required to achieve and sustain excellence. This necessitates a robust strategy formulation process, and the outcome of this process should be strategic goals and action plans that will lay the foundation for the transformation process.  Excellence models such as Baldrige and EFQM also emphasize the need for a focused strategy and effective implementation of action plans to achieve excellence.

This article examines the key role of strategy in the operational excellence journey. We'll begin with the general definition of strategy, types of strategic planning models and the importance of strategic planning. We'll also share deployment techniques, obstacles in strategy deployment, best practices, lessons learned and, finally, a case study in design, implementation and performance measurement of an operational excellence strategy for a large enterprise.   

Let us start with some definitions.

1. What is strategy?

Definitions[i]:

Strategy

A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem.

In our case, the desired future is to achieve operational excellence.

Tactics

Tactics means by which a strategy is carried out; planned and ad hoc activities meant to deal with the demands of the moment, and to move from one milestone to another in pursuit of the overall goal(s).

In an organization, strategy is decided by the board of directors, and tactics by the department heads for implementation by the junior officers and employees.

Strategic Planning

A systematic process of envisioning a desired future and translating this vision into broadly defined goals or objectives with a sequence of steps to achieve them. In contrast to long-term planning, which begins with the current status and lays down a path to meet estimated future need), strategic planning begins with the desired-end and works backward to the current status.

• At every stage of long-range planning, the planner asks, "What must be done here to reach the next (higher) stage?”
• At every stage of strategic-planning the planner asks, "What must be done at the previous (lower) stage to reach here?"

Next, let’s look at some of the strategic planning models.

2. Types of strategic planning models            

There are two types of strategic planning models:

1. Traditional strategic planning
2. Hoshin planning or Hoshin Kanri  

It can be said that, fundamentally, there are no major differences between the two methods. The two main components of both methods are formulation of policy and its deployment.

As far as similarities, the evolution of both methods happened in business environment. The Hoshin Kanri concept was introduced by the Japanese company the Bridgestone Tire in 1964[ii], while strategic planning was made known by Western businesses in the same era.

Both methods are important insofar as they are both part of excellence frameworks. In 1951, Hoshin Kanri was introduced as one of the criteria for the Deming Prize, while Strategic Planning (or simply called “planning”) was listed as one of the criteria of the Malcolm Baldrige National Quality Award (MBNQA) in 1987[iii].

Let’s look at the differences between the two approaches of strategic planning.

Hoshin Kanri is unique in the sense that its aim is to integrate “daily activities” of an organization within the long-term plans to achieve goals, while the traditional Strategic Planning focus is usually to transform the organization from its current mediocre performance state to an operationally excellent state. The PDCA cycle and Statistical Quality Control form the root of Hoshin Kanri, while long-term planning, budgeting and operational planning are the building blocks of Strategic Planning. This is the reason why, in Hoshin Kanri, Total Quality Management is an essential element of overall planning and the control system to achieve long-term goals. This approach results in structured integration of quality within the daily activities of the organization, thus minimizing the risk of alienating the quality from the business planning cycle. The initial approach of strategic planning came from company-wide financial planning to achieve financial goals. This is one of the reasons why some organizations struggle to integrate quality into the mainstream business.

The Hoshin Kanri process that was introduced by the Bridgestone tire company consisted of five functional control items, and one of them was Quality Assurance. “Continual improvement” is the main theme in Hoshin Kanri. For Strategic Planning, however, the continual improvement program needs to be incorporated into both the business plan and the operating plan in order to be successful. 

The “check” part of the Deming cycle is an essential element of the Hoshin Kanri process, due to its foundation on the PDCA management style. This “check” part is accomplished through audits of the policy deployment’s status in all areas of the organization. Problems often arise in many organizations as a result of Strategic Planning lacking regular and planned reviews of implementation status all the way to the shop-floor level, as well as a lack of a methodical performance measurement system to periodically review performance.

Another major difference between these two approaches of strategic planning is the allocation of daily control activities versus hoshin activities.  In Hoshin Kanri, the hoshin activities typically form five to 25 percent of all daily control activities. In traditional Strategic Planning, this may or may not be the case.                                                                  

In addition to these two strategic planning models, there are many tools available to develop and improve a strategy.  Some of these are mentioned below:

1. SWOT-analysis
2. PEST
3. BCG matrix
4. TRIZ
5. Stakeholder map

Leaders must choose at least a few of these. And of course, one also needs to look at the lessons learned and, most importantly, establish a comprehensive strategic plan that can be put into practice.

3. Importance of strategic planning

The models discussed above share a common focus: to formulate and deploy strategies that bring about a desired future. If the desired future is Operational Excellence, then sound strategy and effective implementation are the prerequisites to achieve Operational Excellence. Moreover, studies have shown that “fewer than 10 percent of well-formulated strategies make it to a successful implementation,” and about “90 percent of strategies fail to deliver what they promise..”

It is a misconception that effectiveness of strategy is directly proportional to working harder. Rather, a strategy’s effectiveness depends largely on setting the course correctly in order to achieve the desired future. Rowing harder doesn't help if the boat is headed in the wrong direction[iv].  In setting the course, it also is important to ask the right questions. Years ago, Peter Drucker taught us that the “most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong questions.”

Another fact that underscores the importance of strategic planning in achieving Operational Excellence is that two of the most commonly applied excellence models, Baldrige and EFQM, include strategic planning as one of their criterions of excellence. 

4. Deployment techniques

It is not enough to define and develop a strategic plan; you also need to deploy the strategic plan to the lower hierarchical levels. Therefore, you need a method for the alignment of strategic goals, transformation of these goals into KPI’s and a method for a follow-up in daily life in all departments and teams. Only through a systematic monitoring system can planned results be achieved.

Excellence models such as the American model MBNQA and European model EFQM offer an approach for how to choose and develop methods for strategic planning and to measure the degree of maturity of the organization. These models are briefly discussed below.

The Baldrige Criteria[v]

The seven categories that make up the Baldrige criteria are:

• Leadership
• STRATEGY
• Customer
• Measurement, analysis and knowledge management
• Workforce
• Operations
• Results 

Each of these seven categories are given a specific weight, with strategy being 8.5 percent of the total of award points. The Baldrige strategy category, based on the 2017-2018 award points, consists of two main criterions:

• Strategy development
• Strategy implementation

The strategy development item requires excellent organizations to identify challenges faced by the organization and to strategize, thereby transforming them into opportunities. In addition, it requires organizations to identify key strategic objectives and related goals for the strategy. The focus of the strategy implementation item is to ensure that strategic plans are effectively deployed to achieve objectives. It requires organizations to describe how strategic objectives are converted into action plans and how the progress is measured against these action plans.     

The EFQM criteria[vi]

The 2013 EFQM Excellence Model (Figure 5) is based on nine criteria.  Five of these are "Enablers" and four are "Results.”  The "Enabler" criteria cover what an organization does and how it does it. The "Results" criteria cover what an organization achieves. The five enabler criteria are:

• Leadership
• STRATEGY
• People
• Partnerships and resources
• Processes, products and services. 

The four results criteria are:

• People results
• Customer results
• Society results
• Business results

The strategy criteria require organizations to develop a stakeholder-focused strategy to achieve their vision, and also require developing executing policies, plans and objectives to deliver the strategy. Perhaps the best way to define all requirements of the strategy criteria is to review questions that an EFQM assessor may ask during an assessment[vii]. 

In Excellent organizations, communication of the plans is recognized as a three-way process: top down, bottom up and sideways. Here, a similarity with cross-functional management in Hoshin Planning can be noted. Another interesting thing to note is that EFQM identifies “Hoshin Planning” as one the most widely-used tools for converting plans into cascaded objectives in a linked and integrated manner.  The other two methods are a balanced score card and dashboard.

5. Obstacles in deployment of strategy

The implementation of a strategic plan and goals may seem obvious, but there are many possible obstacles as well. Table 1 shows some of these factors alongside the origins of the problems encountered.

Table 1: Obstacles in executing and achieving a strategy, with the principal causes:

From the multiple causes of achieving a strategy, it becomes clear that a well-established and well-thought-out strategic plan is fundamental. But too often, the role of leadership and the impact of organizational culture are neglected.

Let’s look at some of the best practices and lessons learned in formulating and implementing a strategy.

6. Best practices

These are broken down by the two main areas of the Strategic Planning process, i.e. strategy formulation and strategy deployment.

Strategy formulation best practices:

• Involving all stakeholders (business owners, employees, communities, partners, suppliers, etc.) and key employees from all areas (sales/marketing, operations, logistics, purchasing, Research and Development, etc.) of the organization
• Gathering input for the strategy through focus groups, assessments and performance measures, etc.
• Examining trends and identifying disruptive changes
• Analyzing and incorporating performance results in the strategy formulation process
• Identifying and prioritizing strategic goals
• Identifying performance measures and a measurement system to monitor effectiveness of strategy in achieving vision
• Developing and executing an operational plan that is driven by the strategic plan
• Representatives participation from all areas of the organization
• Lessons learned from previous years, self-assessments and feedback from third parties.

Strategy deployment best practices:

• Ensuring that the strategic plan and subsequent action plan is aligned with the vision, mission, values and key strategic objectives
• Ensuring that all parts of the organization develop and implement action plans that are aligned with the strategic plan
• A process to “flow-down” action plans all the way to the floor level so that each employee understands their role in achieving strategic objectives
• Execution of action plan meticulously across the organization
• Measuring performance through Key Performance Indicators (KPI's) and modifying the strategic plan to stay on track
• Deployment and alignment of KPI's from top to shop floor level
• Results at all hierarchical levels are transmitted to higher levels, where the strategic goals are, if necessary, revised

7. Lessons learned

Although strategy and strategic planning process are vital for a sustainable development and future of the organization, we see that a lot of management teams struggles with the strategy implementation and achievement of strategic goals. There are many reasons for it—some of which are highlighted below, based on our observations:

1. Self-assessing chronic areas for improvement

A mature organization applies an annual self-assessment according to excellence models like MBNQA or EFQM. From these exercises, you’ll get a list of strengths and areas for improvement. However, if your annual lists look similar to the lists of previous years, then this is an indication that you haven’t learned much. Instead of finding solutions, the organization’s problems are becoming chronic. Thus, the achievement of the strategy will be problematic. 

2. Breakthrough and innovation

A number of people think that it is enough to improve problems in small increments instead of real breakthroughs (Example: An annual increase of productivity by three or five percent.) You can achieve a breakthrough of 10 or even 20 percent if you apply innovation and new technologies.

3. KPI’s alignment with strategy

Ask managers how their KPI’s are aligned with the strategy of their organization. You’ll be astonished the poor answer you’ll get. Leaders are not used to explain spontaneously how the achievement of a certain KPI will lead to the achievement of the strategic goals of the organization.

4. KPI’s deployment

You may have formulated a nice strategic plan, but if you don’t deploy it in a systematic and structured way to the lower hierarchical levels, you’ll never reach the planned results.

5. Cause and effect

It is not enough to align the action plans to the strategic goals; you need also to explain to your subordinates the relationship between the planned actions (cause) and the planned results (effect). This process allows the subordinates to have a better understanding of required improvements. From this explanation, they will also accept the change.

6. Leadership: accountability, commitment and involvement

These three words are fully applicable to leaders. From their exemplary behaviour (how they put these concepts into daily practice), the subordinates will trust them. Consequence: What is preached is also what is done.

7. Time devoted to strategy, strategic planning process and follow-up

Strategy execution is an important subject for the management team. What is the average time spent weekly on strategic planning and follow-up? Only when that number is approximately 25 percent or more will you achieve excellent results.

8. Organizational culture[viii]

In a constructive organizational culture, it is much easier to implement and monitor a strategic plan. This is because people are working together in real teams (TEAM in the sense of “Together Each Achieves More”), and there is an open and transparent communication process: every leader feels and behaves in a committed way, leaders dare to take risks, decisions are made quickly and not postponed, systems are well organized without bureaucracy, there is a good balance between long and short-term goals, priorities are set, etc.

The opposite of a constructive culture is a defensive one. Here you can expect resistance against change, silo-thinking (every department and service mainly thinking in their own interests, and not in the interest of the group or the organization) and people lose their energy by not determining the difference between important and less important subjects, etc.

Let’s look at a case study on operational excellence strategy design, deployment and performance measurement to provide a full grasp of our discussion.

8. Case study on Operational Excellence Strategy

The Alpha Food Corporation (AFC) is one of the leading suppliers of food ingredients for the fast food industry worldwide. AFC has a workforce of 65,000 employees, 3,000 customers and revenue of more than $ 20 billion a year.  The company had several success in quality and food safety from 1990 through 2012. To maintain the competitiveness in sustainability, food safety, reliability, customer satisfaction and technology the AFC CEO decided to embark on yet another journey to develop and implement an operational excellence program.      

Step A:  A senior executive level steering committee was established under the leadership of the CEO to develop the operational excellence program

Step B: The steering committee articulated the intent of the operational excellence journey to be:

• Recognized  as a leader in the industry in sensible use of natural resources to sustain excellence
• Acknowledged as a world leader in adoption of new technologies for benefit of all stakeholders
• Respected as a business that is always looking out to serve its customers in the best possible way

The following operational excellence program strategy was built around the above strategic intent:

• Defining what is operational excellence meant to AFC
• Developing the operational excellence framework
• Implementation of operational excellence
• Developing a self-assessment methodology to measure progress in achieving operational excellence goals 

Step C:  Four teams of operational excellence subject matter experts were formed each headed by a manager and championed by four middle level senior executives. The steering committee assigned each team to work on the above four components of the strategy; and strategic intent (refer to step B above) targets and milestones were agreed. Each team developed several options for assigned strategy component.  With the steering committee input and concurrence the best option for each component was selected.  All components were integrated into a seamless and a well-structured operational excellence program for AFC.  

Step D: Each team then asked to develop a detailed action plan along with targets and milestones for each of the strategy component.  Some details of action plan for self-assessment methodology are provided below:

• Prepare a self-assessment guide
• Define the assessment criteria
• Develop scoring criteria
• Provide guidelines for assessor selection, training and certification etc.
• Provide guidelines for assessment planning and execution
• Develop assessment reporting format; report review and distribution process

Step E:  A performance monitoring and measurement system was setup to review progress in achieving short and long term milestones and targets.

Conclusion:

It can be clearly stated that organizations pursuing the Operational Excellence journey can only reach their destination if 1) they have a convincing strategic intent, 2) sound strategy, 3) robust action plan, 4) methodical deployment of plans all the way to the shop-floor level and 5) a method to measure progress. 

Reaching one's destination is certainly a big achievement; though in today’s world of rapid changes that demand faster, better and more cost-competitive products and services, the process to reach that next level of excellence is constant, similar to the plan-do-check-act (PDCA) improvement methodology. And while executing the Operational Excellence strategy may seem straightforward, it's full of challenges. These challenges can be overcome, however, with leaders "walking the talk” and an organizational culture that is ready to embrace excellence.

References