Operational excellence is the long-term outperformance of a business in terms of actual results on the market. This is measured in decades as opposed to quarters and is indicative of an enduring culture that is superior to the competition. Operational excellence is a buzzword that originated within continuous improvement practices in the 1980s. Today, the term feels cliche and dated but it is nonetheless a valuable idea. The following are illustrative examples of operational excellence.
Designing products and services that are better than the competition as measured by actual results such as customer perceptions and brand image. For example, a technology company that produces mobile devices that are widely perceived as more pleasing and productive to use than all alternatives on the market.Producing products and services that are more consistently high quality than the competition. For example, a shoe company that produces a product that doesn't look overly worn after 6 months of use.
Producing more in an hour of work such as a telecom company that produces $1.5 million revenue per employee when the competition are mostly around $0.5 million per employee. Operational excellence implies an apples-to-apples comparison whereby hiding inefficiencies doesn't count as improvement. For example, outsourcing may appear to raise your productivity but not if you count everyone working for you at your outsourcing partner.
More output for each unit of input. For example, a data center that uses less power relative to its computing capacity than all other competitors in the same area.
Unit CostA lower unit cost at the same level of quality. For example, a restaurant that bakes its own bread to reduce cost and increase quality at the same time.
Overhead CostLower overhead cost without reduced capabilities or more risk. For example, a firm with a billion in revenue that spends $17 million on human resources versus a firm with the same revenue that spends $70 million on human resources.
Business RiskA firm with lower business risk than its direct competitors. For example, a manufacturer that reduces supply risk with a deep network of suppliers versus a competitor that heavily relies on a single supplier.
PerformanceCheaper, faster, less risky or higher quality business processes. For example, a fashion retailer that assembles and ships ecommerce orders within an hour where competitors commonly take as long as a day.
Delivering to customer expectations. For example, a hotel that manages to offer a more professional, prompt and pleasant front desk experience than its competitors in the same area.
NotesTraditionally, operational excellence was only applied to core operations processes, particularly manufacturing. This has changed as firms are increasing focused on service operations and may view their entire business as "operations." For example, the view that HR is "people operations."
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