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4. Why Every Organization should have an Operational Excellence Program

Why Every Organization should have an Operational Excellence Program

Operational Excellence (OE) is a general term used to define an organization’s commitment to reinvest in itself. Organizations with an OE Program (OEP) recognize the value of growing their operating capability by means of cost savings, new services, new technology, and process improvement. By creating an OEP, you are ensuring that these types of investments are consistent and integrated into your organization’s strategic plans.

Does your organization have an OEP? Large, established organizations have invariably been exposed to OE concepts, and programs have been pushed by business experts and thought leaders since the 1970’s.

There are two major factors that drive the need for an OEP. If either apply to your organization and you don't have an OEP then you are at risk. The two major factors that drive the need for an OEP are organizational size and operating landscape.

Organizational Size - How Organizations Grow

Every organization has things that it exists to accomplish. Goals and objectives define the desired end state, and people, processes, and systems are used to operate on a daily basis. The formality and complexity of these components is driven by necessity. Small organizations can remain informal. You can shout down the hall when you need someone, and survival may require flexibility at the expense of structure. That's not a bad thing, and it's the nature of how organizations form. Successful organizations, however, all do one thing. This applies whether the organization is a for-profit company or a government agency or a non-profit. Successful organizations grow.

Organizational growth brings a common set of challenges. How do you maintain performance? How do you communicate to a larger and potentially geographically disparate audience? Are the policies, procedures, and systems that the organization uses still relevant? Most importantly, can the organization continue to function successfully as its operating landscape changes?

The necessity to scale for large organizations brings structure and rigidity. You can’t maintain performance without it. The problem is that the same structure that allows you to function potentially institutionalizes wasteful practices and bad behaviors. It’s not done intentionally, but over time business environments change. For example, we are in the midst of a technological revolution equivalent to the Industrial Revolution of the late 1800’s. Game changing technologies are continually being introduced. To keep up, organizations need to constantly analyze themselves and make sure they are operating at an optimal level. Even the best designed organizations will eventually become outdated if they do not embrace change and transform over time.

How do organizations trigger change? They analyze themeselves and recognize a gap or opportunity. Organizational analysis and reinvestment tends to fall into 3 different patterns:

1. Do nothing and wait until a crisis exists. React to the crisis.
2. Rely on the heroics of the people in their organization to make improvements and keep things running.
3. Implement a program to make sure operations remain capable, leveraging new technologies and best practices as appropriate.

Large, mature and successful organizations recognize the benefits of pattern 3.

Operating Landscape - Organizations in a Competitive Environment

Competition drives change. Businesses are trying to grow profits and capture market share. They do this through increased sales and successful marketing, but also through the introduction of new products and services. New products and services change industries. They bring new capabilities that allow their customers do to more with less. Over time, entire industries grow their offering. “Company A” implements a new capability, and then all the other competing companies implement the same or go out of business. A simplified model looks like this:

Over time the overall capability of an industry grows. Admittedly, it’s not in a straight line, as our simplified model proposes. What is important is that industry capability it constantly increasing (i.e. positive slope). For example, one airline introduces check-in kiosks and then within a few years every airline does, or one express carrier offers real-time package tracking and then eventually all the major carriers do. One innovation can change the competitive landscape. Industry capability also exists in mature markets without innovation. When this happens, companies compete on cost. Packaging costs are decreased, supply chain innovations drive down shipping costs, and those savings as passed on to the customer. It doesn’t matter the industry. As long as competition exists and the industry is thriving then innovation happens and costs need to be managed. In the public sector the competition is not the same, but departments are still competing for increasingly limited tax dollars.

What happens when an organization doesn’t focus on improving its operating capabilities?

Over time, competitive advantage erodes. Unexpected events will inevitably happen, and organizations that cannot adapt eventually fail. Markets are cyclical. Even in public sectors, budgets fluctuate and organizations must change how they operate to maintain their basic services.

Capability improvement can and does happen without formal operational excellence programs. Good people working hard can create a lot of capacity within an organization. Using the same simplified capability model, their improvements look something like this:

Eventually, without a formal OEP, an organization will fall behind. It’s inevitable for a number of reasons:

1. Improvements become harder to find. The “low-hanging fruit” opportunities eventually dry up, and without a program that trains people and implements advanced tools you won’t see the potentially bigger opportunities.
2. Improvements become harder to implement. Often, new employees will focus on their desk, the work they do every day. They will try and make their job easier. Eventually, they reach out to their peers. Their managers promote information sharing, and they start to improve the process for everyone. The challenge is that, to go beyond this level of improvement, they need to get multiple groups involved and they need a budget. Without a program to provide an integration platform, and without a budget, they simply run out of changes they can implement.
3. Employee skills turnover. Talented employees don’t stay in one place for very long. Knowledge gets lost as new employees don’t have historical context to leverage or the training on how make effective capability improvements.
4. Conflicting priorities direct resources to other places. Organizations don’t have unlimited budgets. Over time, without a formal program to create accountability, resources get moved away from capability development.

The goal of an OEP is to maintain and improve on the competitive advantage that an organization provides. A well-constructed program will blend the benefits of engaging employees in a continuous improvement model with timely large scale improvement projects.

If done right, and OEP will allow organizations to maintain and potentially improve their competitive advantage.

Why doesn’t every organization have an OEP?

There are challenges with implementing an OEP. You need forward thinking leadership that is focusing on the long term success of the organization. Organizations in “crisis mode” need to focus resources on fixing their immediate issues. OEPs can also be seen as a burden on the organization. This comes from leaders setting expectations for improvement without providing proper time and resources to do the work. Finally, organizations can actually over-invest in OEPs. Organizations sometimes put so much effort and management focus on their OEP that it comes at the expense of the organization’s overall performance. You don’t want performance decreasing while you are creating capacity to improve it. This leads to a poor or negative return on investment (ROI).

Not every leader understands the benefits of an OEP. Leaders with bad OEP experiences, maybe at previous organizations, will be reticent to go through the experience again. Leaders that have never worked in a large organization may not recognize the benefits that an OEP creates. It may feel like unnecessary overhead. Unfortunately, while these leaders exist, it doesn’t absolve the responsibility to undertake this type of initiative. For businesses and non-profits, long-term survival is at stake. In business, the lifespan of companies is lower than ever. According to a popular study by Professor Richard Foster of Yale University, the average lifespan of an S&P 500 member in the 1920s was 67 years. Today that has fallen to 15 years. Even public sector organizations must realize that they will be replaced if they cannot maintain adequate public services. Responsible leaders must be focused on both short term and long term survival of the organizations they lead.

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Learn more about the components and structure of OEPs.

The Poet-Net Solution

Poet-Net is designed to support any size Operational Excellence Program. It is methodology agnostic, focusing on proven best practices and allowing organizations to set their level of engagement. We provide tools to support large improvement projects and a knowledge management solution that allows cost effective training and continuous improvement efforts.

One of the challenges with starting any OEP is the upfront costs and resource commitment. Training, full-time staff, and consulting costs can add up quickly. The Poet-Net solution allows a program leader to engage his or her organization at a fraction of the cost of a single FTE, and then grow the OEP as employees gain experience with the content and tools provided.

Learn more about the poet-net solution and how it can help your organization jump start its Organizational Excellence Program.