Limits of Operational Excellence

Operational Excellence

Earlier posts to this blog make much of Operational Excellence [1] — OpEx — and its relevance to Sustainability. OpEx techniques such as Lean Manufacturing, Six Sigma and Total Quality Management serve to reduce wastes, to improve product quality and to expedite workflow. Accordingly, OpEx reduces the cost of converting raw materials into finished products, while promoting customer satisfaction. The continuous improvements aspect of OpEx fosters an on-going progression of reduced costs and enhanced relationships. OpEx and its effects on conversion costs and operating efficiencies is, without question, a foundation of competitiveness.

However, OpEx, with its emphasis on conversion, is a “zooming in” [2] point of view. “Zooming in” — focusing — sufficiently defines a zone of attention such that action to improve becomes feasible. Continuous improvement of one’s conversion processes, in fact, involves a multitude of small, very specific improvements, compounded over time.

Focus, however, is both a primary strength and a primary limitation for OpEx. The strength should be clear enough. The limitation is that a “zoomed out” perspective is also needed, in order to know how to identify and prioritize that which is to be focused on. The “zoomed out” perspective comes from an iterative planning process that surveys the global economic environment as it relates to your organization, taking into account the viewpoints of your stakeholders, as well as impacts on the natural world. The planning process results in Objectives. Action Plans provide the maps by which Objectives are to be achieved. OpEx provides the tools to actually make it all happen.

The Primacy of the Market

The planning process “zooms out” from your production facility across your entire value chain (upstream and down), across the diverse viewpoints of your stakeholders, to the rapidly changing global economy and its drivers. Changing external factors such as regulation, finance and technology all need consideration.

Micheal Porter - Five ForcesHowever, market forces are usually primary. Michael Porter’s [3] familiar five forces (threat of new competition, threat of substitute products, bargaining power of customers, bargaining power of suppliers and intensity of competitive rivalry) play out today in a global economy with an increasing diversity of competitors and a growing pace of innovation on the part of all market participants.

It is important to recognize that OpEx enables, but does not guarantee, financial success. Financial success comes from identifying and filling customers’ needs better than ones’ competitors do. When products do not fill customers’ needs, manufacturing performance becomes moot. Consider manufacturers of such products as steam locomotives, typewriters, phonograph records, or, perhaps now, photographic films. Not even a truly excellent manufacturer can survive when markets change and demand for yesterday’s products ceases to exist.

On the other hand, certain market circumstances allow mediocre or even poor manufacturers to succeed financially. These manufacturers succeed due to restrained (or non-existent) competition. Examples include captive producers, proprietary positions, manufacturers in the former Soviet bloc, and the beneficiaries of protectionist trade policies.

The purpose of OpEx is not to insure financial success. The purpose of OpEx is to provide a significant advantage at addressing customers’ needs better than ones’ competitors do. In a market where both demand and competition exist, OpEx serves as a means for enabling financial success. E. Goldratt’s business novel It’s Not Luck [4] provides insight as to how operational excellence makes it possible to seize, or even invent, market opportunities.

Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)


P.S
. — When it is time for your firm to seriously pursue Sustainability, contact me — C.H.

Note: This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.

Image: Five Forces – Wikipedia Commons

[1] For more on Operational Excellence, see Operational Excellence – The Performance Curve, this blog: http://blog.jerasustainabledevelopment.com/2012/05/23/operational-excellence—the-performance-curve/

[2] For more on Zooming in and out, see Green and the Zoom Lens Mind, this blog: http://blog.jerasustainabledevelopment.com/2012/02/22/green-and-the-zoom-lens-mind/

[3] For more on Michael Porter, see Magretta, Joan, Understanding Michael Porter, Harvard Business Review Press, Boston (2011)  or go to the source:  Porter, M.E. The Five Competitive Forces That Shape Strategy, Harvard Business Review, January 2008 

[4] Goldratt, Eliyahu. It’s Not Luck, North River Press, Great Barrington MA (1994)