An Introduction to Operational Excellence

An Integrated Business Execution System

by Operational Excellence Consulting LLC

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 Top 10 CEO Challenges & Priorities

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 Operational Excellence – A Definition

A Business Strategy: In "The Discipline of Market Leaders“ (1995), Michael Treacy and
Fred Wiersema describe three distinct value propositions or disciplines: Product
Leadership, Customer Intimacy and Operational Excellence.
Market leaders choose to excel in delivering extraordinary levels of one of these three
value propositions, while maintaining reasonable standards in the other disciplines.

Market leaders will not 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 that they want to provide to
their Customers better than anyone else.
Organizations pursuing an Operational Excellence strategy, strive to
deliver a combination of quality, price, and ease of purchase and
service that no other organization in their market or industry can
match.

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 What is Operational Excellence?

Achieving Operational Excellence requires the successful implementation of a integrated

Business Execution System that effectively and seamlessly integrates the following four
building blocks: Strategy Deployment, Performance Management, Process
Excellence, and High Performance Work Teams.

Performance Management is
Strategy or Policy Deployment
the process that translates
is the process that aligns and
strategic initiatives into
links business strategy and
measurable objectives and
execution. Strategy Performance
Management goals.
Deployment
Operational Excellence
Business Execution
System
High Performance Process Well designed, efficient, and
Operational Excellence can Work Teams Excellence effective Management, Value
be achieved and sustained Chain, and Support Processes
with the right attitude, the are necessary to deliver world-
right mindset, and the right class results.
competencies.

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 What is Operational Excellence?

Achieving Operational Excellence requires the successful implementation of a integrated

Business Execution System that effectively and seamlessly integrates the following four
building blocks: Strategy Deployment, Performance Management, Process
Excellence, and High Performance Work Teams.

Strategy or Policy Deployment

is the process that aligns and
links business strategy and
execution. Strategy Performance
Deployment Management
Operational Excellence
Business Execution
System
High Performance Process
Work Teams Excellence

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 Operational Excellence – Strategy Deployment

Strategy is an expression of what an organization intents to do to get from a current

state to a future state. Strategy is often expressed in terms of a vision statement,
objectives, goals, and initiatives.

 Only 5% of the workforce understands their company

strategy.
 Only 25% of managers have incentives linked to
strategy.
 60% of organizations don’t link budgets to strategy.
 86% of executive teams spend less than one hour per
month discussing strategy.
Source: Balanced Scorecard Collaborative

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 Operational Excellence – Strategy Deployment Process

Phase I – Organize the Process

Phase II – Current State Analysis (CSA)

Phase III – Strategic Vision Elements

Phase IV – Strategic Breakthrough Objectives

Phase V – Strategic Initiatives & Tactics

Phase VI – Strategy Implementation & Review

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 Operational Excellence – Strategy Deployment Process

Strategy Maps or Strategic Grids:

Strategic Focus Area: Increase Shareholder Value

Financials Revenue Growth of 20% by 2014

Dimensions or Perspectives

Acquire More Customers

Customers
Become the Price Leader
Improve Operational Efficiency
Internal
Processes Cost Reduction Knowledge Based Reduce
Program System Non-Core Activities

Database Network on Re-Align

Learning & Training – Lean
Operational Organization with
Growth Six Sigma Program
Performance Core Competencies

Once you have completed the strategic grid, go back and make sure everything fits with your overall strategy. A set
of strategic grids should provide the strategic model for running the business, outlining the specifics of the
strategy. All stakeholders should be able to look at the grids and follow the flow of the organization’s strategy.

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 Operational Excellence – Strategy Deployment Process

The Hoshin X-Matrix is a tool that visualizes an organization’s

 strategic objectives,
 strategic initiatives,
 key performance indicators,
 key projects & action items, and
 human resources requirements
in one simple matrix.

The Hoshin X-Matrix enables an organization to easily review the alignment of its
strategic objectives, strategic initiatives, key performance indicators, key action items
and human resources.
The Hoshin X-Matrix, if used properly, improves the likelihood of a successful
execution of the strategic plan.

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 Operational Excellence – Strategy Deployment Process

Operational Excellence Consulting Strategy Deployment Matrix 2012

Organization’s Tactical Rev: <Rev#> Revised: <Date> Author: <Name> Status: Draft - Not Released
Projects & Action Items
7. … Organization’s Human
x 6. Initiate RFQ Process for Customer Service x x
x x 5. Implement reliability program for new products x x Resource
x xAllocation
x x 4. Establish LSS Black Belt project for return drivers x x x x
x 3. Establish & train order-to-cash process team x
x 2. Identify Lean Six Sigma consulting company x x
x 1. Define Lean Six Sigma Program x x x
Organization’s Resource Planning
2. Reduce DSO from 90 days to less than 45

4. Improve product verification and validation

Action Items

2. Map & streamline order-to-cash process

Strategic

1. Implement a Lean Six Sigma Program

3. Improve Net Promoter Score to +50%

5. Outsource Customer Service function

3. Resolve TOP 3 product return drivers
Strategic Initiatives
Objectives &
Strategic Objectives
1. Reduce Operating Costs by 15%

Systems Engineering Manager

Goals

Customer Support Manager

System Test Manager
Quality Manager
Measures & Targets
days

6. …
4. …

…
x $15M in annualized cost savings in 2012 x x x x x
x Order-to-Cash cycle time reduction of 25% x x
x DSO reduction from 90 days to 45 days x x
x x Return Rate reduction from 15% to less than 8% x x x
…
Organization’s Strategic
Initiatives & Tactics
Organization’s Key
Performance Indicator
(Balanced Scorecard)
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 Operational Excellence – Strategy Deployment

“I sure wish I’d done a better job of

communicating with GM people. I’d do that
differently a second time around and make
sure they understand and shared my vision for
the company. Then they would know why I was
tearing the place up, taking out whole divisions, changing our whole
production structure . . . I never got this across.”

Roger Smith, CEO of General Motors (1981 - 1990)

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 Strategy Planning & Deployment – Resources

Ackoff, R.L. – A Concept of Corporate Planning (New York, New York: Wiley, 1970)
Colletti, Joseph F. – A Field Guide to Focused Planning: Hoshin Kanri - American Style
(The Woodledge Group, 1995)
Cowley, Michael and Domb, Ellen – Beyond Strategic Vision: Effective Corporate Action
with Hoshin Planning (Burlington, Massachusetts: Butterworth-Heinemann, 1997)
Kaplan, R.S. and Norton, D.P. – Strategy Maps: Converting intangible Assets into
tangible Outcomes (Cambridge, Massachusetts: Harvard Business School
Publishing Corporation, 2004)
Mintzberg, Henry; Lampel, Joseph B.; Ghoshal, Sumantra and Quinn, James B.
– The Strategy Process: Concept, Context, Cases (London, UK: Prentice-Hall
Inc., 2002)
Treacy, Michael and Wiersema, Fred - The Discipline of Market Leaders: Choose Your
Customers, Narrow Your Focus, Dominate Your Market (New York, New York:
HarperCollins Publishers, 1995)

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 What is Operational Excellence?

Achieving Operational Excellence requires the successful implementation of a integrated

Business Execution System that effectively and seamlessly integrates the following four
building blocks: Strategy Deployment, Performance Management, Process
Excellence, and High Performance Work Teams.

Performance Management is
Strategy or Policy Deployment
the process that translates
is the process that aligns and
strategic initiatives into
links business strategy and
measurable objectives and
execution. Strategy Performance
Management goals.
Deployment
Operational Excellence
Business Execution
System
High Performance Process
Work Teams Excellence

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 Operational Excellence – Performance Management

“Balanced Scorecards tell you the knowledge, skills and systems that
your employees will need (learning and growth) to innovate and build
the right strategic capabilities and efficiencies (internal processes) that
deliver specific value to the market (customer) which will eventually lead
to higher shareholder value (financial).”

“Having Trouble with Your Strategy? Then Map It.”

by Robert S. Kaplan and David P. Norton - Harvard Business Review

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 “Tell me how you will measure me, and then I will tell you
how I will behave. If you measure me in an illogical way, don’t
complain about illogical behavior.”
Eli Goldratt – “The Goal”

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 Operational Excellence – Performance Management

Benefits of developing & deploying Balanced Scorecards in an organization

include:
 Help the management team focus on the execution of their business strategy
 Focus and align an organization towards common goals and objectives
 Enable an organization to understand the relationship between measures and
performance
 Improve communication of organizational priorities across an organization
 Help employees to understand and focus on organizational priorities and realize
relevant results
 Reduce the number of metrics to the few vital key performance indicators
 Strengthen and formalizing the project selection process to focus on key
capabilities and enablers

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 Operational Excellence – Performance Management Process

Phase I - Strategic Foundation

Step 1: Strategic Alignment
Step 2: Key Strategic Focus Areas & Objectives
Step 3: Strategic Grid & Model

Phase II - Three Critical Components

Step 4: Key Performance Indicators
Step 5: Goals & Targets
Step 6: Initiatives & Programs

Phase III – Deployment Process

Step 7: Integrate
Step 8: Cascade
Step 9: Manage

Balanced Scorecard Development & Deployment Process

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 Operational Excellence – Performance Management
FINANCIALS
How do you want to look to your shareholders? -
Indicators focus on whether your strategic and
operational plan contributes to your top-line,
bottom-line and/or market share.
Objectives Indicators Targets Projects

CUSTOMERS INTERNAL BUSINESS PROCESSES

How do you want to look to your Customers? - At which internal processes and capabilities do
Indicators focus on the specific measures that Vision
Vision you want to excel? - Indicators focus on internal
matter the most to your Customers. operations that enable Customer satisfaction,
Objectives Indicators Targets Projects
&& growth and profitability.
Strategy
Strategy Objectives Indicators Targets Projects

LEARNING AND GROWTH

What skills and competencies do you need to
implement your strategic and operational plan? -
Indicators focus on your organization’s ability to
innovate, improve and execute.
Objectives Indicators Targets Projects

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 Operational Excellence – Performance Management

Strategic Focus Area: Increase Shareholder Value

Financials Revenue Growth of 20% by 2014

Dimensions or Perspectives

Acquire More Customers

Customers
Become the Price Leader
Improve Operational Efficiency
“Internal”
Processes Cost Reduction Knowledge Based Reduce
Program System Non-Core Activities

Database Network on Re-Align

Learning & Training – Lean
Operational Organization with
Growth Six Sigma Program
Performance Core Competencies

For each objective on your strategic grids, you need at least one performance indicator.
Can you have an objective without a performance indicator? Yes, it is possible, but not
having a measurement makes it difficult to manage the objective. It’s best to revisit this
objective and ask the question: Why is this an objective?

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 Operational Excellence – Performance Management
OPERATIONAL EXCELLENCE BALANCED S CORECARD

From: January 2010

1 ORGANIZATION: TBD Until: December 2010 2
Current Month:
3
TBD 2010
FINANCIALS CUS TOMERS PROCES S ES ORGANIZATION

KPI 4 KP I
Na me
(Unit)
KPI Firs t Name
5 Champio n
10
Las t Name
S TRETCH 7
9
8
7 GOAL
6
5
8
4
3 BAS E
2
1
0 ZERO

6 WEIGHT
2010 RESULTS
0
TOTAL S CORE
JANUARY
FEBRUARY
MARCH
APRIL
12
MAY
JUNE For9each strategic objective on your strategic grid, you need at
JULY
AUGUS T least one performance indicator. Can you have an objective
S EPTEMBER
OCTOBER without a performance indicator? Yes, it is possible, but not
NOVEMBER
DECEMBER
having a measurement makes it difficult to manage the
CURRENT S CORE objective.
3 7 10this2 objective 3 and ask 5the
It’s4 best to revisit 6
TOTAL
9

question: Why is this an objective? S tre tc h 2010 1000

Go al 2010
Bas e 2009
700
300
11
Ac tual 0

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 Performance Management – Resources

Chang, Richard Y., and Morgan, Mark W. – Performance Scorecards: Measuring the Right
Things in the Real World (New York, New York: John Wiley Sons Inc., 2000)
Kaplan, R.S. and Norton, D.P. – Putting the Balanced Scorecard to Work (Harvard
Business Review, September/October 1993)
Kaplan, R.S. and Norton, D.P. – The Balanced Scorecard (Cambridge, Massachusetts:
Harvard Business School Press, 1996)
Kaplan, R.S. and Norton, D.P. – Balanced Scorecard: Translating Strategy into Action
(Cambridge, Massachusetts: Harvard Business School Press, 1996)
Kaplan, R.S. and Norton, D.P. – Using the Balanced Scorecard as a Strategic
Management System (Harvard Business Review, January/February 1996)
Keebler, James S. et.al. – Keeping Score: Measuring the Business Value of
Logistics in the Supply Chain (Oak Brook, Illinois: Council of Logistics
Management, 1999)

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 What is Operational Excellence?

Achieving Operational Excellence requires the successful implementation of a integrated

Business Execution System that effectively and seamlessly integrates the following four
building blocks: Strategy Deployment, Performance Management, Process
Excellence, and High Performance Work Teams.

Performance Management is
Strategy or Policy Deployment
the process that translates
is the process that aligns and
strategic initiatives into
links business strategy and
measurable objectives and
execution. Strategy Performance
Management goals.
Deployment
Operational Excellence
Business Execution
System
High Performance Process Well designed, efficient, and
Work Teams Excellence effective Management, Value
Chain, and Support Processes
are necessary to deliver world-
class results.

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 Operational Excellence – Process Excellence

BPI 7 8D

Process Development, Systematic & Team-Based

Improvement & Management Problem Solving

5. Pursuit
Perfection
1. Define
4. Establish
Pull
Lean Value
Principles

3. Create 2. Map Value

Flow Stream

Lean Management Six Sigma Methodology

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 Operational Excellence – Process Excellence

Project Management

D M A I C

Lean = Efficiency Six Sigma = Effectiveness

is about reducing the lead time of a is about reducing the variation in a
process or value stream. process or value stream.

Process
Excellence

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 Operational Excellence – Process Excellence

Process
ProcessInput:
Input: Process
ProcessOutput:
Output:
Strategic
Strategicand
andAnnual
AnnualOperating
Operating Exceeding
Exceedingthe
thePlan
Plan
Plan
Plan(Objectives,
(Objectives,Goals,
Goals,Initiatives)
Initiatives)

Develop and
Select the Select and Manage for
Implement Sustain the
Right Train the Excellence in
Improvement Execution
Gains
Projects Right People Plans

•• Clarify
Clarify big
big picture
picture •• Ensure
Ensure the
the right
right •• Utilize
Utilize the
the right
right •• Stay
Stay focused
focused •• Implement
Implement effective
effective
using
using strategic &&
strategic leadership
leadership andand improvement
improvement •• Frequently
Frequently review
review control plans
control plans
operating
operating plan
plan ownership
ownership methodology
methodology for for progress
progress and remove
and remove •• Conduct
Conduct regular
regular
•• Prioritize
Prioritize projects
projects •• Select
Select the
the right
right team
team the right project
the right project barriers
barriers training
training focused on
focused on the
the
based
based on on impact,
impact, leader
leader && team
team •• Check
Check real
real business
business process
process
value, resources,
value, resources, •• Develop
Develop aa training
training impact
impact •• Review
Review thethe system
system
timing
timing plan
plan •• Continuously effectiveness
effectiveness at at least
least
Continuously
•• Select
Select key
key projects
projects •• Dedicate
Dedicate time
time for
for communicate
communicate quarterly
quarterly
with
with leadership
leadership buy-in
buy-in training &
training & progress
progress •• Continually
Continually identify
identify and
and
•• Check
Check accountability
accountability -- application
application •• Link launch
launch new
new projects
projects
Link to
to performance
performance
business
business andand personal
personal •• Ensure
Ensure the
the right
right management
management and and based
based onon strategic
strategic &&
support
support resources
resources R&R
R&R operating
operating plan
plan
are
are available
available

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 Operational Excellence – Process Excellence

IMPACT EFFORT RISK

CUSTOMERS

LEARNING &
PROCESSES
FINANCIALS

GROWTH
Balanced Scorecard Project Selection Matrix

DURATION OF PROJECT
CAPITAL RESOURCES
PEOPLE RESOURCES

PROJECT STATUS
MANAGEMENT RISK
TECHNICAL RISK
TOTAL EFFORT
TOTAL IMPACT

TOTAL RISK
KPI #1

KPI #2

KPI #3

KPI #4

KPI #5

KPI #6

KPI #7

KPI #8
Weights 20 10 15 10 5 20 10 10 100 50 30 20 100 70 30 100
Project Definition CORRELATION MATRIX

1 Project #1 10 0 5 0 0 3 0 0 3.4 5 0 5 3.5 0 5 1.5

2 Project #2 0 3 0 5 0 0 0 0 0.8 0 5 0 1.5 3 0 2.1

3 Project #3 5 5 10 10 3 3 8 8 6.4 3 8 5 4.9 5 8 5.9

4 Project #4 0 0 10 5 0 0 5 0 2.5 0 0 10 2.0 3 3 3.0

5 Project #5 5 10 0 0 1 0 0 3 2.4 10 5 3 7.1 3 5 3.6

Linking Performance
Ranking 0 = none
Management Not Started
& Process Excellence
3 = low through On Track
5 = medium At Risk
focused Project
8= high Selection Behind Schedule
10= very high

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 Operational Excellence – Process Excellence

10

9 Linking Performance Management

& Process Excellence through
8
focused Project Selection
7

6 3
IMPACT

3
1
2
4 5
1
2
0

0 1 2 3 4 5 6 7 8 9 10

EFFORT
Size of the Ball = Size of the Risk

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 Operational Excellence – Process Excellence

State of Michigan Department of Management and Budget (DMB)

Coordinator Kathe Carter:

"Our management team evaluates potential new programs/initiatives by seeing how

they fit in with our strategy. In the past we would continue stacking new projects on
everyone's plates, but now if it doesn't fit with our strategy we don't do it." Just as
important for the DMB is that "whenever a new project or initiative is proposed, our
people ask 'how does this fit in with our strategy map /scorecard?' They feel that this
connection attaches a higher level of importance to the initiative."

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 Process Excellence – Resources

Ballé, Michael and Ballé, Freddy - Lead with Respect - A Novel of Lean Practice
(Cambridge, Massachusetts: The Lean Enterprise Institute, 2014)
George, Mark O. –   The Lean Six Sigma Guide to Doing More with Less
(Hoboken, New Jersey: John Wiley & Sons, Inc., 2010)
Harry, Mikel and Schroeder, Richard – Six Sigma: The Breakthrough
Management Strategy Revolutionizing the World’s Top Corporations (New York ,
New York: Random House, Inc., 2000)George, Mark O. - The Lean Six Sigma Guide
to Doing More with Less (Hoboken, New Jersey: John Wiley & Sons, Inc., 2010)
Martin, Karen and Osterling, Mike - Value Stream Mapping: How to visualize
Work and align Leadership for Organizational Transformation (New York, New
York: McGraw Hill Education, 2014)
Rother, Mike and Shook, John - Learning to See - Value-Stream Mapping to create Value
and eliminate Muda (Cambridge, Massachusetts: Lean Enterprise Institute, 2009)

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 What is Operational Excellence?

Achieving Operational Excellence requires the successful implementation of a integrated

Business Execution System that effectively and seamlessly integrates the following four
building blocks: Strategy Deployment, Performance Management, Process
Excellence, and High Performance Work Teams.

Performance Management is
Strategy or Policy Deployment
the process that translates
Deployment
Deployment
Strategy

is the process that aligns and

Performance
Strategy

Performance
Management
Management

strategic initiatives into

links business strategy and
measurable objectives and
execution.
goals.

Operational
Excellence Business
Execution System

Well designed, efficient, and

Operational Excellence can effective Management, Value
be achieved and sustained Chain, and Support Processes
with the right attitude, the are necessary to deliver world-

Excellence
Process
Excellence
Work Teams

Process
Work Teams
Performance
Performance
High
High

right mindset, and the right class results.

competencies.

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 “The rate at which organizations learn may soon become
the only sustainable source of competitive advantage.”
Peter Senge

“The thing I have learned at IBM is that culture is

everything.”
Louis V. Gerstner, Jr.

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 Operational Excellence – High Performance Work Teams

Operational Excellence can and can only be achieved and sustained with the right
attitude, the right mindset, and the right competencies.

Empowerment = f (Authority, Resources, Information, Accountability)

Empowerment = 0,
if Authority or Resources or Information or Accountability = 0

Selected Employee Ongoing Employee High Performance

Input Taskforces Work Teams

The Empowerment
Continuum

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 Operational Excellence – High Performance Work Teams

In their book Gung Ho ! – Turn on the People in any

Organization, Ken Blanchard and Sheldon Bowles describe three
distinctive phase of transforming a traditional organization to an
organization based on high performance work team.

Spirit of the Squirrel Way of the Beaver Gift of the Goose

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 Operational Excellence – High Performance Work Teams

Spirit of the Squirrel

WORTHWHILE WORK
1. Knowing we make the world a better place.
2. Everyone works toward a shared goal.
3. Values guide plans, decisions, and actions.

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 Operational Excellence – High Performance Work Teams

Way of the Beaver

IN CONTROL OF ACHIEVING THE GOAL

1. A playing field with clearly marked territory.
2. Thoughts, feelings, needs, and dreams are
respected, listened to, and acted upon.
3. Able but challenging.

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 Operational Excellence – High Performance Work Teams

Gift of the Goose

CHEERING OTHERS ON
1. Active or passive, congratulations must be TRUE.
2. No score, no game, and cheer the progress.
3. E = m · c2 – Enthusiasm equals mission times cash and
congratulations.

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 Operational Excellence – High Performance Work Teams

While an organization transitions from a more traditional “top-down”

organization to an organization build around high performance work teams, the
role of a supervisor or manager changes to the role of a leader and coach, with
six distinctive capabilities.

Coach
Living Barrier
Example Buster

Leader ≠ Supervisor

Result Business
Catalyst Analyzer
Facilitator

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 High Performance Work Teams – Resources

Arussy, Lior - Excellence Every Day: Make the Daily Choice - Inspire Your
Employees and Amaze Your Customers (Medford, New Jersey: Information
Today Inc., 2008)
Blanchard, Ken and Bowles, Sheldon – Gung Ho ! – Turn on the People in any
Organization (New York, New York: William Morrow and Company, Inc. 1998)
Canfield, Jack, Hansen Mark V. and Hewitt, Les - The Power of Focus
(Deerfield Beach, Florida: Health Communications Inc., 2000)
Cobb, Charles G - From Quality to Business Excellence: A Systems Approach
to Management (Milwaukee, Wisconsin: ASQ Quality Press, 2003)
Fisher, Kimball – Leading Self-Directed Work Teams (New York, New York: McGraw-
Hill, 2000)
Spong, David E. and Collard, Debbie J. - The Making of a World-Class
Organization (Milwaukee, Wisconsin: ASQ Quality Press, 2009)

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 What is Operational Excellence?

Achieving Operational Excellence requires the successful implementation of a integrated

Business Execution System that effectively and seamlessly integrates the following four
building blocks: Strategy Deployment, Performance Management, Process
Excellence, and High Performance Work Teams.

Performance Management is
Strategy or Policy Deployment
the process that translates
is the process that aligns and
strategic initiatives into
links business strategy and
measurable objectives and
execution. Strategy Performance
Management goals.
Deployment
Operational Excellence
Business Execution
System
High Performance Process Well designed, efficient, and
Operational Excellence can Work Teams Excellence effective Management, Value
be achieved and sustained Chain, and Support Processes
with the right attitude, the are necessary to deliver world-
right mindset, and the right class results.
competencies.

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 Operational Excellence Consulting (OEC), LLC

“In the global and competitive environment of today and tomorrow,

organizations must rethink and reshape their approach to execution
in order to stay competitive. Operational Excellence is the strategic
initiative under which this process can take shape.”

We work with our clients, primarily smaller and medium-sized manufac-

turing and supply chain organizations, hands-on and side-by-side to
achieve their strategic and operational goals and objectives through the
innovative application of Operational Excellence principles, methods, and
tools.

Email: [email protected]
Phone: +1 (888) 372 – 8705
Website: www.oec-us.com

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