What is Operational Excellence? The Strategy Behind Consistent, High-Performance Results
Operational Excellence is a strategic goal that all leading organisations set for themselves in some way, shape or form. OE is also a proven set of tools and principles that, once adopted by teams, will translate into delivering value to customers and improved business performance more broadly.
In competitive “me too” markets, Operational Excellence has helped many companies to differentiate themselves, but how can it be effectively embedded into an organisation?
In this article, we answer what is Operational Excellence, including its principles, benefits, and how your business can implement this framework successfully into your organisation.
What is Operational Excellence?
Operational Excellence (OE), as the name suggests, refers to a structured approach to operating in an excellent manner.
The goals of Operational Excellence are to:
- consistently deliver an outstanding customer experience
- empower employees to continually improve processes,
- and enhance overall business performance.
Operationally Excellent organisations do the following:
- They deliver reliable and high-quality products and services
- They actively listen and engage with their customers
- Teams and individuals proactively solve problems at the root cause
- They continuously improve processes
- They achieve industry-leading cost performance and use of capital
- They prioritise speed and agility
- They employ right-sized technology to achieve sustainable, profitable growth
- Their supply chain is a competitive advantage
What is NOT Operational Excellence
To help further clarify, let's also define what is NOT Operational Excellence.
Operational Excellence can often be confused with:
- Business Strategy:
Operational Excellence is about how effectively you execute your strategy, not deciding what markets or customers to pursue. So, a good business strategy comes first, and Operational Excellence comes second. Now, businesses that are genuinely Operationally Excellent (think Toyota, Skanska, McDonald's, Amazon, Sekisui House etc.) will create a competitive advantage, and that can influence the overall business strategy. So “being operationally excellent” can be a component of a business strategy. However, Operational Excellence isn’t a stand-alone business strategy in itself. - Technology Implementation:
It isn’t simply adopting the latest technology. It's about using technology at the right points in your business processes, with the right level of investment. There are plenty of examples of businesses that “over-automate” and unnecessarily try to apply technology to streamline processes that are, in fact, best done by humans.
Overinvestment in the wrong technology ties up cash, burdens the business with debt, and destroys process flexibility (think General Electric and the numerous SAP implementations that went awry). - Cost-Cutting Initiatives:
Operational Excellence is broader than just reducing costs. It focuses on improving quality, speed, and customer satisfaction, while also promoting efficient resource use, aiming for sustainable, long-term performance. Cost-cutting can be essential for some companies at certain points in time. However, using cash in the most effective way possible is only one part of being Operationally Excellent.
So, companies that achieve Operational Excellence focus on consistently delivering customer value, improving processes, and empowering employees to ensure consistency, quality, and efficiency within a company.
Operational Excellence isn’t Continuous Improvement
Unlike the concept of continuous improvement, which focuses on incremental steps taken to improve processes, Operational Excellence is about creating a broader change in a company. Continuous improvement efforts can be done as part of OE, but OE is fundamentally about a broader framework to achieve excellence at scale.
Because of its immense benefits, Operational Excellence is set as one of the strategic goals for many companies. We also find numerous overlaps between the terms "Lean," "Six Sigma," "continuous improvement," and "operational excellence." While Lean and Six Sigma typically involve more complex certifications, methods, and tools, Operational Excellence is a more straightforward description of what businesses aim for: excellence in how they operate, lead, and deliver.
Some organisations prefer to use the term "operational excellence" over Lean or Six Sigma because of its negative perception of cost-cutting or downsizing.
Key Elements and Pillars of Operational Excellence
So, what is the foundation of Operational Excellence? OE is guided by several core principles.
Leadership & Vision
Leaders and the management team are a critical piece of Operational Excellence. An effective OE strategy must be led by leaders with clear direction, aligned management teams, and a compelling vision.
Customer Focus
Customer value is another core function of Operational Excellence. A driver of OE is aligning products and services based on customer needs and using customer satisfaction to measure success.
Continuous Improvement
As mentioned previously, continuous improvement is part of Operational Excellence. Employees are encouraged to identify process inefficiencies and make incremental changes within their departments.
Process Optimisation
As the name suggests, operations are a big part of OE. Many OE efforts are designed with the goal of improving efficiency and process consistency, as well as reducing errors.
Employee Engagement and Empowerment
Operational Excellence methods believe that employees closest to the work often have the best insights on how to improve processes. As such, staff must be empowered to solve problems through training and capability building.
Data-Driven Decision Making
Operational excellence makes decisions based on real data. Organisations that adopt OE consistently monitor performance based on financial, operational, and customer metrics. They also implement systems to collect and analyse data effectively.
Process Transformation (Kaikaku)
OE also believes in the concept of Kaikaku, where sometimes making bold, disruptive changes or process transformations is necessary to see results. This is also sometimes referred to as Business Process Reengineering.
Benefits of Implementing Operational Excellence
Operational Excellence can be adopted in all industry types, bringing about many benefits such as:
- Increased Efficiency: Achieving faster turnaround times, reduced work duplication, and better use of resources with streamlined processes.
- Reduce Costs: Removing waste and process inefficiencies reduces company costs.
- Satisfied Customers: Delivering better service and consistent quality to clients
- Product and Service Quality: Fewer defects and better quality measures are implemented.
- Agile and Adaptable: Teams are accustomed to changes and improvements, allowing them to capture market opportunities and stay nimble.
How to Achieve Operational Excellence
Achieving Operational Excellence in your organisation is a long-term commitment. However, it can be achieved with strong leadership and a commitment to cultural change and process discipline. Here’s how you can implement OE in your organisation.
1. Establish a Clear Vision and Goals
Company leaders must first understand and define what Operational Excellence looks like in their organisation and communicate this vision. Implement clear, measurable goals that teams can achieve over time.
A vague goal, such as "We will be operationally excellent by an XYZ date," is challenging to measure and doesn't provide clarity or direction to employees. Instead, think about what "becoming an Operational Excellence organisation" actually means, and then support it with specific, measurable goals that move the organisation toward that vision.
Here are some alternative examples:
- Improving customer delivery times by a certain percentage
- Reducing operational costs by a targeted amount
- Releasing four new products over the next six months
- Increasing customer retention rates or satisfaction scores
Clear, tangible objectives help employees understand how they can achieve Operational Excellence, enabling leaders and teams to track progress and adjust course when needed.
2. Map and Analyse Key Processes
Use tools like process mapping and value stream analysis to visualise workflows, identify inefficiencies, and standardise best practices.
If your company is setting ambitious goals (i.e. reducing costs, improving delivery, or launching new offerings), the right solution isn’t immediately obvious. That’s why it's important to start the problem with facts and data rather than assumptions.
Tools like value stream mapping help clarify your current state, identify specific bottlenecks or constraints, and define what your future state could and should look like. This starting point helps ensure all improvement efforts are targeted and more likely to succeed.
Develop Your Own Operational Excellence Framework, Tools and Principles
Companies that excel in Operational Excellence have a common language and toolkit for business improvement that’s tailored to their unique culture. In building your OE language, you can draw from well-established frameworks such as:
- Lean
- Six Sigma
- Total Quality Management (TQM)
- Agile
The most successful organisations develop and formalise their own internal systems for improvement. For example:
- Toyota has The Toyota Way
- Procter & Gamble uses the Integrated Work System
- Boeing developed Integrated Enterprise Excellence
- Danaher Group companies operate using The Danaher Way
You don’t have to reinvent your own OE methods. Instead, borrow existing successful OE frameworks and adapt them to align with your organisation’s goals, structure, and capabilities.
4. Foster a Culture of Excellence Through Action
For OE to be truly successful, cultural transformation must be done. Build habits of accountability, problem-solving, and learning into your daily operations. Encourage open feedback, recognise achievements, and ensure leaders model the behaviours they want to see.
We find that the best way to shift and strengthen a positive culture is by taking action. When teams come together to solve a problem or make an improvement, that shared experience is what shapes and reinforces a culture of Operational Excellence.
5. Leverage Technology
Being Operational Excellence means using technology as a partner in your process. These days, there are plenty of tools that support OE with real-time data capture, automation, and more precise decision-making. Here are some examples of technology you can leverage in your OE journey:
- Workflow management software
- IoT sensors for real-time tracking
- Dashboards for visual performance tracking
6. Measure and Monitor Performance
Once the OE efforts are underway, track their progress by establishing regular reviews, reporting rhythms, and visual management tools. Operationally Excellent companies are led by individuals who closely monitor the business's performance. They are guided by data to make timely and informed decisions.
However, use your judgment and experience wisely when interpreting data. While measurement is critical, getting too bogged down in justifying every action with data can create unnecessary delays.
7. Reflect and Learn
After executing a plan or initiative, reflect and ask the following questions: "How did we go versus the plan?" "What went well? What didn’t go to plan?" and "Why was that the case?"
This disciplined approach to learning helps teams identify improvement opportunities and apply them to any future efforts. Reflection helps you transform activity into insight, which is key to adopting OE in the long run.
Examples of Operational Excellence in Action
OE isn’t just talk. Here are real-world examples of our previous clients who have achieved significant results with Operational Excellence:
- A manufacturing company reduces setup times by 40% using 5S and standardised work.
- A logistics provider improves delivery accuracy by 20% through the use of real-time tracking dashboards.
- A health service organisation reduces patient wait times by applying value stream mapping and Lean techniques.
- A SaaS company halves customer churn by applying continuous feedback loops and NPS analysis.
Operational Excellence vs. Other Improvement Methodologies
Operational Excellence is highly similar to other business improvement methodologies. It combines practices from Lean, Six Sigma, Total Quality Management (TQM), and Agile, but its key difference is that it focuses on a broader, holistic improvement system
Here are some of the key differences between Operational Excellence approaches, including Lean, Six Sigma, Agile, and Total Quality Management (TQM).
| Methodology | Focus | Operational Excellence Perspective |
| Lean | Eliminate waste | A tool for improving flow and value |
| Six Sigma | Reduce variation | Supports quality and problem-solving |
| Agile | Adaptability and speed | Enhances responsiveness in teams |
| TQM | Organisation-wide quality | Builds quality into every process |
| Operational Excellence | Integration and culture | Combining methods with leadership and vision |
The Future of Operational Excellence
So, what does the future of operational excellence look like? Here are some emerging trends in OE:
- AI and machine learning for predictive decision-making
- Robotic Process Automation (RPA) for repetitive task efficiency
- Digital twins for real-time process simulation and analysis
- Remote collaboration tools for distributed teams
Operational Excellence frameworks are gaining popularity, and organisations that combine them with digital transformation will have a strong potential for performance improvement.
Conclusion: Key Takeaways on Operational Excellence
Operational Excellence is more than just process improvement; it’s a way of thinking, leading, and operating. By having clear leadership and goals, using data to guide decisions, empowering teams, and sustaining OE efforts with accountability, your business can reduce waste and build long-term financial sustainability.
OE Partners helps Aussie businesses incorporate Operational Excellence frameworks into their processes. We’ll work with you to tailor a solution that helps you improve efficiency, scale operations, and make lasting change.
Contact OE Partners to learn more.
