From Operational Excellence to Performance Excellence

2 January 2014

A Systems Approach

A manufacturing business is a system that accepts inputs, such as raw materials, energy and human talents. Then, through some number and arrangement of operating processes, that system generates commercially viable products. For present purposes, the key terms here are “system”, “operating processes” and “commercially viable products”.

>> “System” — The Business Dictionary [1] defines a system as “(a)n organized, purposeful structure that consists of interrelated and interdependent elements (components, entities, factors, members, parts, etc.). These elements continually influence one another (directly or indirectly) to maintain their activity and the existence of the system, in order to achieve the goal of the system.”

>> “Operating processes” — Operating processes include factory floor processes, such as mixing, machining, painting and packaging. Along with these, processes such as purchasing, maintenance, training, inspection, customer service, sales, waste disposal, product design and many more contribute. Operating processes are the “interrelated and interdependent elements” that comprise the system.

>> “Commercially viable products” — Commercially viable products are those which customers buy in sufficient volume at high enough prices to produce a profit. Keep in mind that the term “product” refers to that which customers buy in preference to whatever alternatives are available. Hence, “products” include many intangible elements, including perceptions, reasonable or otherwise.

Operational Excellence

“Operational Excellence” refers to the results expected from a systematic program of improvements to operating processes, sustained over time. Since “excellence” is a relative term, “operational excellence” refers to the relative performance of a manufacturing firm’s operating processes. The relative performance of an operating process may be determined by comparison to — perhaps by “benchmarking” — recognized leaders.

There is an implicit assumption that superior operating process performance leads to superior organizational performance. The rub here is that the many operating processes that comprise a manufacturing business are interrelated and interdependent. As such, the fact that a given operating process is realistically deemed excellent may, or may not positively affect the performance of the firm (a system) relative to the objectives of the firm. [2] To use an extreme to illustrate this point, consider the importance of superior operating processes in a typewriter manufacturing plant today.

Performance Excellence

From my perspective, “performance excellence” refers to the performance of a manufacturing business (a system), relative to the objective(s) of that business. The manifold operating processes should each be measured by their contribution to the attainment of the objective(s) of the business.

The Baldrige Performance Excellence award program provides a number of ready case studies in performance excellence. [3] Awards are made annually, based on the examination of applications. Applications consist of responses to queries on the program’s Criteria for Performance Excellence. The Criteria include three primary components:Baldrige Program Image

  • A brief Organizational Profile, which provides context for the responses which follows
  • A set of questions on operating processes, organized into six categories. Responses are evaluated as to the extent that the approach to each query is systematic, that the approach is consistently deployed within the entire organization, that the approach shows evidence of learning and improvement over time, and the extent to which the approach is integrated with the organization as a whole.
  • Requests for demonstration of results attained over time pertaining to each of the several categories. Results are evaluated as to magnitude of the results, trends over time, relevant comparisons with others, and integration — especially with the overall objective(s) of the organization.

The real point here is in the structure of the Baldrige program. The Organizational Overview provides information on the organization’s vision and objective(s). The information on operational processes provides the means by which the vision and objective(s) are to be attained. The results indicate how well the organization is doing toward achieving those ends. As a practical matter, it is not possible to win a Baldrige award absent a showing of outstanding results relevant to the objective(s) of the organization, sustained over time.

For Smaller Manufacturing Firms

It is important to think of your organization as a system. As a system, it has a primary objective: perhaps something like Werbach’s “to thrive in perpetuity” [4] or Goldratt’s “to become an ever-flourishing organization” [5]. Including that primary objective in (or as) your mission statement is a good idea. Local objectives, for operating processes or other subunits of the organization, need be closely aligned to the primary objective. Of course, an organization pursues its objective(s) within certain constraints, such as relevant law, ethics and other considerations. It is usually wise to spell out these constraints.

There is a lot more to the Baldrige program than winning an award. The Baldrige program materials provide a fertile, low cost source for practical information on the systems approach to business. Experience as a Baldrige examiner provides hands-on experience in organizational analysis and clear insight into how organizations actually work.

Chuck - Pacific
Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website ( 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.

[2] This observation — that optimizing an element of a system may not result in the optimization of the system as a whole — is the major point of Eliyahu Goldratt’s business classic The Goal.


[3] The Baldrige Performance Excellence program was established by Congress and is administered through the National Institute for Standards and Technology, part of the U.S. Department of Commerce. Information and educational materials on the Baldrige program are available at

Adam Werbach, Strategy for Sustainability, Harvard Business Press (2009), page 9.


[5] What is TOC?, by Eliyahu Goldratt, chapter 1 in Theory of Constraints Handbook, J. Cox and J. Schleier, McGraw Hill (2010)


[6] I have served as an examiner in State – level Baldrige based award programs in Mississippi and in Arizona — C.H.