Re:think: Operational excellence takes the spotlight. Here’s why

FRESH TAKES ON BIG IDEAS

ON OPERATIONS

The immediate need for operational excellence

David Hamilton

If your business has survived—or even thrived—during three years of historic challenges, you might think that you’re set for whatever comes next. But how can you be sure? Consistently high-performing organizations know that skill matters, in the form of operational excellence. And there are three reasons that this concept, rooted in the foundational principles of lean management, is more important than ever. First, despite recent headlines, attrition remains high, as a new generation seeks more purposeful work. Second, labor productivity has stagnated worldwide even as labor costs rise in many markets. And third, depending on data source, two-thirds of executives are dissatisfied with the return on their investments in technology. So there’s never been a better time to get really good at what your enterprise does—all across your operations.

Operational excellence, as we define it, includes a demonstrated commitment to strategy and purpose, to behaviors aligned to drive that purpose, and to support from tech-enabled operating, management, and organizational systems. Those who truly understand operational excellence think about it as a commitment to action. It’s not a function—it’s a way of working. A way of investing in people. A way of delivering more value to customers. It’s important enough to be among the top priorities of CEOs.

Over the past ten years, we have been developing the Operational Excellence Index, an assessment of operational maturity. It provides benchmarks for organizations to establish baselines and measure improvements over time. We assess performance against four measures: How well is an individual’s work connected to the organization’s overall purpose, strategy, and vision? How well are teams set up to deliver on those aspirations? How well is the institution set up to build the skills of its individuals? And last, are employees continuously improving in their jobs?

“Those who truly understand operational excellence think about it as a commitment to action. It’s not a function—it’s a way of working. A way of investing in people. A way of delivering more value to customers.”

Operational excellence is only as good as your ability to apply it. So it will look slightly different in a mine than in a call center. But the behaviors you would expect from great leaders and their ability to connect with their teams don’t change all that much.

In our work with many organizations over the past decade, we see four paths they have taken:

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Accelerators are top performers in their industry; they use operational excellence as a foundation to reach their potential.

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Sustainers focus on preserving their strong operational excellence foundation, with incremental improvement.

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The Distracted began implementing the principles of operational excellence but have since become sidetracked by competing priorities.

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The Reluctant have yet to embark on an operational excellence journey and therefore have never established a meaningful level of maturity.

If I were a CEO, I’d begin by assessing where my organization’s starting point is on the operational excellence journey. Second, I wouldn’t take anything for granted—there’s a chance that the ways of working in the organization are different now from how they were years ago, so maybe the second invitation for CEOs is to really understand how things have evolved from the starting point. The third opportunity is to think about this whole set of actions as an overarching mindset that outlasts the tenure of any CEO. It’s one of the very few things that a departing CEO can give to an organization—to be able to say, “I’m going to leave my successor in a better place in terms of how the place is run, the maturity of the processes within it, and the development of our colleagues and our people.” And that’s a pretty cool legacy.

ABOUT THIS AUTHOR

David Hamilton is a partner in McKinsey’s Detroit office.

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