Finance:Operational excellence

Short description: Philosophy of business effectiveness

Operational excellence is a mindset that embraces certain principles and tools to create a culture of excellence within an organization. Operational excellence means every employee can see, deliver, and improve the flow of value to a customer.

This approach employs the tools of earlier continuous improvement methodologies, such as lean thinking, Six Sigma, OKAPI and scientific management.

The concept of operational excellence was first introduced in the early 1970s by Dr. Joseph M. Juran while teaching Japanese business leaders how to improve quality. It was formalized in the United States in the 1980s in response to "the crisis" among large companies whose market share was shrinking due to quality goods imported from Japan.

Key components

There are five key components fundamental to operational excellence, illustrated in Juran's Model, that lead to better business results and cultural excellence.

The first component, an integrated management system (IMS), consists of a framework of processes and standards that define where the organization is going, identify the risks to getting there, mitigate them, manage change, and continuously improve. Having one single, integrated management system reduces overlap, redundancy, and conflict. Early adopters of this practice have been companies such as Exxon and Chevron utilizing Operations Integrity Management System (OIMS) and Operations Excellence Management Systems (OEMS), respectively.

The second component, a culture of operational discipline, is commonly described as doing the right thing, the right way, every time. This culture is built upon five guiding principles developed from the United States Nuclear Navy, a high reliability organization. Those principles are integrity, questioning attitude, level of knowledge, watch team backup, and formality. These values are used to identify the behaviors expected of each and every employee and how they support the organization's mission and outcomes.

The Juran model

The core components principles of Juran’s model for operational excellence are as follows:

1. Grasp Juran's guiding principles that lay the foundation for excellence.

2. Move your culture from thinking about quality as a product attribute (little q) to quality as a great customer experience (Big Q).

3. Understand when and how to engage leadership and the workforce to drive performance.

4. Build an effective and efficient change infrastructure using the appropriate tools and methods.

5. Drive business process effectiveness and agility.

The Shingo model

The Shingo Institute, an organization that awards the Shingo Prize, has identified ten "Guiding Principles in the Shingo Model" as forming the basis for building a sustainable culture of organizational excellence:

1. Respect every individual
2. Lead with humility
3. Seek perfection
4. Assure quality at the source
5. Flow and pull value
6. Embrace scientific thinking
7. Focus on process
8. Think systemically
9. Create constancy of purpose
10. Create value for the customer

Flawless execution (FLEX) methodology

The FLEX methodology, also known as PBED (Plan-Brief-Execute-Debrief), is an iterative IMS originally developed by fighter pilots. Adapted for business practice in 1998, it shares some elements with Agile software development. The methodology emphasizes adapting strategies based on real-world influences, primarily through a process known as debriefing, which is central to its approach. Debriefing in this context promotes a 'nameless and rankless' culture, focusing on objective assessment and solution development regardless of one's position in an organization.

The methodology consists of four main steps:

• Plan: Developing a strategy and aligning team objectives.
• Brief: Communicating the plan to the execution team.
• Execute: Implementing the plan with a focus on objectives.
• Debrief: Comparing execution results with the plan, conducting analysis, and adapting objectives.

See also

• Lean manufacturing
• Lean services
• Shingo Prize for Operational Excellence
• Six Sigma
• The Toyota Way
• Toyota Production System