Operational Excellence, as a strategy, involves supreme efficiency in product or service delivery.
The traditional way this strategic option is taught is called “Low Cost Producer”; however, we find this limits thinking too much and we prefer to talk in the broader context of efficiency.
The diagram to the right represents a trinity of trade-offs. A company may produce a product at the lowest cost among its competitors but it may have to compromise on speed or quality to do so. Similarly, a company may focus on fastest order turnaround, but it may require extra costs or lower quality standards to accomplish this consistently.
Let’s focus in the main axis of efficiency: cost and speed. Along the way, we’ll show how quality is impacted.
This is an especially important strategy to use in commodity markets, where there is little product differentiation. Cost (price) and Turnaround are key differentiators. Similarly, this is a good fit for distributors, who have little control over the products they market (other than the assortment) but much more control over fulfillment and price.
- Low-Cost Producer
We’re starting off with Low-cost producer because it’s the most familiar way Operational Excellence is used in practice.
PRODUCT. You probably have a standardized product with relatively few options so you can source raw materials more cost-effectively.
OPERATIONS. Your plant usually has specialized production equipment or is built to produce high volumes that allow you to realize economies of scale. You probably have a very limited range of raw materials you work with.
INNOVATION. Your focus is on process development more so than product development. You’ll be looking for ways to reduce labor and/or materials.
PROFITABILITY. You may realize higher profit margins than your competitors because your specialized production equipment or plant scale allow you to be the most efficient.
SELLING. You focus on value selling. It may not necessarily be by securing business with the lowest price. It could be that you can demonstrate how your product can be used more cost-effectively overall than your competitors’.
PEOPLE. Your employees are dedicated to identifying improvements to your process to maintain your edge over the competition. Engineers and accountants are your key hires.
QUALITY. The quality of your products is comparable to your competitors’, but rarely lower than your competitors’. You might offer a high quality and a lower quality version to give your customers some degree of choice.
YOUR EDGE. Price. You have the potential to squeeze out competitors with higher cost structures.
In an industry (restaurants) known for low margins, McDonald’s has been extremely successful with this strategy by offering basic fast-food meals at low prices. They offer a relatively limited selection of standardized products (don’t think of asking for no mustard on your Quarter Pounder) for which they can source ingredients efficiently. They are able to keep costs low by hiring and training inexperienced employees rather than trained cooks. They also rely on few managers, who typically earn higher wages. These staff savings allow the company to offer its foods for bargain prices.
2. The Fastest
This sub-strategy focuses on being the company that can fulfill a customer’s needs in the shortest time. It’s premised on time being of greater value to some customers than money.
Without a primary focus on product, this is, in essence, a strategy founded on service. In fact, this is a strategy that lends itself well to services or distributors. For example, the fastest oil change, the quickest insurance quote or the fastest way to get from A to B.
PRODUCT. As with the low cost producer, you may have a standardized product that allows you to fulfill orders from inventory or straight from the line. If you are a service provider, your secret may lie in the technology you use to process information.
INNOVATION. The source of innovation is likely to be technology. It could be more efficient information systems so you respond faster to customer needs than your competitors. It could be your manufacturing process involves fewer steps.
PROFITABILITY. You may be able to charge a premium price to some consumers in return for rapid fulfillment and, though you may not have the lowest product cost, your margins are probably above average for your industry.
SELLING. Case studies can demonstrate to potential customers how you’re your service is, without giving away any secrets to your competitors. Help customers understand how your fast turnaround can be a source of competitive advantage for them in their businesses. Focus on industries and customers where there frequently are deadlines to be met: your fast turnaround could be the difference between winning and losing a piece of business.
PEOPLE. Your employees like winning races. You hire engineers or invest in IT business analysts to simplify processes and eliminate unnecessary steps.
QUALITY. Your primary KPIs are probably OTD (On-Time Delivery %), some form of measurement of fulfillment time, and Perfect Order Rates.
YOUR EDGE: Speed.
FedEx is a company that promises faster delivery of packages than anyone else. The pioneered overnight next-day delivery – something the postal system was never able to do consistently. FedEx charges more for delivery than the postal service, but by appealing to the generation of instant gratification, customers are more than willing to pay those premiums because FedEx also has an enviable record for reliability.
Next week, we’ll cover Customer Intimacy, providing an overview of what Customer Intimacy is and how it looks in practice.
Strategy is really all about making choices and it’s not as complex as people think. In truth, there are only 3 basic strategies to choose from.
Where most people go wrong is not sticking to a single strategy or not aligning the other elements of their business plan around a single strategic principle. Another trap is focusing on tactics rather than strategy. Your tactics may be sending mixed messages to your customers because they are drawn from multiple types of strategy instead of consistently following a single strategic direction.
A concept I learned from some of the sales people who worked for me – the 3-legged stool – shows how simple it can be to apply strategic principles. They offer the customer a choice of three things: Product, Price and Service. The customer can only have two of those three things, and the third they have to concede to the sales person. For example, if a customer wants great products and excellent service, he will have to accept that he will have to pay a premium for these. If it’s price and service, the customer will have to make some concessions product quality or features.
- Product Leadership – sometimes known as innovation
- Operational Excellence – sometimes referred to as “low-cost producer”
- Customer Intimacy
If you think, from the title of this post, that you’ve already got this topic covered off because you do annual performance appraisals, then think again.
If you’re only meeting with employees once a year to discuss their career progress, you’re not doing enough to truly engage your employees.
That’s not to say you shouldn’t be doing annual performance reviews, but one problem with doing these once a year is that employees don’t have a lot of faith that the process is intended to help them in their careers and that the annual performance review is just “management’s” way of controlling salary increases.
An annual performance review is also very stressful for both employee and manager. Employee’s hate to get them; Managers hate to do them. Sounds like a process gone wrong.
The Gallup Q12 questionnaire has one question that addresses feedback: “In the last six months, has someone at work talked to me about My progress?” Notice it’s not in the past year; it’s in the past 6 months.
Sometimes, it might be as simple as a quick Post-It or note written on a document that said something like, “Great job!” or “You can do better than this”. Note this isn’t used to only deliver positive feedback.
Something I used to do with my sales team was, when they landed a new account, I’d go see them, shake their hand and say something like, “Nicely done!” or “Way to go!” Usually, I’d also ask them how they managed to win over the account and what they expected to see in sales revenue.
With either of these approaches, there’s no monetary reward or punishment, simply some recognition and honest feedback – and it’s done close to the time the action was taken by the employee. I call it Management in the Moment.
The feedback doesn’t have to always be positive. It’s OK to criticize, but do it constructively. You’ll be helping your employees correct behaviours or processes so they get things right sooner. And you’ll see positive results in company performance.
Something else my best bosses did was periodically take me out to lunch. Sometimes, it was to discuss a project I’d been working on or to talk about an issue at work. Other times, it might just be to have a friendly chat about how things are going. What’s special about this approach is that it’s informal and done in a relaxing environment.. But it’s still Management in the Moment.
When I had a sales team, I promised I would take them out to lunch every month that they collectively exceed quota. The business portion of our lunch was simply saying, “Way to go, everyone. Thanks for exceeding quota.” and an unwritten rule was that we wouldn’t talk business over this team lunch. It was really a team building exercise because everyone got to go to lunch, and nobody wanted to be the one who was below quota. I think we only missed a few lunches in my time, and never two in a row. I think this was part of the reason our Division was the top performer in our company.
One of the best people I know who used lunches effectively was a colleague, Misha Sivan. When we were working on a data warehouse project together, if we had a stretch goal, Misha would say to the development team we’d take them out for lunch if they delivered on that goal. That project was completed inside 16 weeks from concept to live and the lunches were not just ways to rewarding goal achievements, they also served as a way to build team cohesion and spirit.
The underlying principle through all of this is the delivery of feedback on a regular basis, not just once a year. I think most people appreciate acknowledgement of their efforts and achievements and sometimes it’s the little things, such as those notes or lunches, that they appreciate the most. And, when the time comes to do the annual performance review that HR wants on file, there should be no surprises because feedback has been delivered. It’s just a matter of collecting and summarizing in the performance review report.
What You Can Do
- Get out of your office on a daily basis to interact with your staff. It also signals you’re approachable if they need help.
- Catch them doing things right, and let them know you’re pleased with the job they’ve done.
- When an employee has done a nice job on a report, send back a copy with a handwritten note or even just some comments written in the margins.
- Even if the report isn’t great, write in some comments to show where they could have done better and maybe suggest other ways they could have done things.
Giving informal feedback on a regular basis has two very positive effects: you reinforce good behaviours so employees keep doing them and you help them change negative behaviours sooner than if you waited a year for their next performance review. By making your employees feel they are valued, you really help them become engaged in their work.
My daughter works at the headquarters of Roots, an iconic Canadian fashion retailer. She called a few weeks ago about some questions she was asked during her first few months. For the most part, she understood the reasons behind the questions, but there was one that puzzled her: Do you have a best friend at work?
I explained she was probably being given a questionnaire about employee engagement, and that having a best friend at work is one indicator of engagement.
We make friends in so many ways: school, clubs, and being neighbours to mention just a few. One way of thinking is that schools and clubs take you through common experiences that you share with classmates. Friendships formed through clubs and neighbours are probably driven by common interests. In all cases, the shared interest or experience takes place over an extended period of time, through which people can gradually reveal themselves to others and steadily build bonds.
The same is likely true also for work. There is both the shared experience of working for the same company but also, in the case of engaged employees, a shared commitment to the company’s mission.
- First-Name basis
- Indirect friend
- Direct friend
- Close friend
- Best friend
In an organizational setting, new employees first encounter people as strangers. As they’re introduced to the organization, they get to know some people on a first-name basis. They might find that they share something in common with one or two of these people, which leads to a warmer relationship. I think you get the idea of how this can progress.
The more similarities people have and the more positive validation they get from each other, the more they develop mutual trust and they can move up the relationship scale.
The way I interpret the reason behind this question in the Q12 is that being a best friend means there is considerable mutual trust and information sharing between the two halves of the friendship. Trust is one of the underlying elements in high-performing teams. The trust is gradually built through shared experiences – usually with positive outcomes. However, in an organizational context, being a best friend probably means finding other connections besides work – common interests, such as sports or being a fan of a sports team.
My father was in the armed forces, and we moved around the country. Along the way, my parents formed many friendships with fellow families from the service – enduring relationships that spanned decades. It was a great role model for me to follow.
Playing a sport can be a great equalizer: the organizational hierarchy has nothing to do with skill level in sports. I used to play squash, and found it was a fun way to forge relationships with people in other departments in the organization. For me, it was squash; for others it could be hockey or golf or something else. You (hopefully) have some fun together but also you see others in a way that goes beyond their role in an organization. You’re letting down your guard while you’re doing this outside activity, but it can make it easier to approach a fellow employee when you need a favour or assistance with something. It can also promote cross-functional collaboration.
Personally, I’d like to see this question in the Q12 expressed more like “how many fellow employees fall into the different classifications on the friendship scale above”, or maybe “what is the highest degree of friendship you have with a fellow employee?” I like to see something other than a yes or no answer and something more easily quantified.
For a company like Roots, I think the founders want to be able to attract talented people on the basis of a vibrant corporate culture. Measuring employee engagement is just one way to put some metrics on culture, and engagement has also been demonstrated to have high correlation with customer satisfaction and overall corporate success.
As you can probably imagine, having close friendships at work can build employee loyalty. Working with people you like and respect helps build morale and, when morale is high, employees feel more comfortable taking on new challenges. Those challenges usually also lead a company to greater opportunities.
So far, in this series, we’ve talked about ensuring employees have a clear idea of what is expected of them and helping them realize that by providing them the tools to do the job right. Employees can be inspired by the company’s mission, which can give them a strong sense of purpose.
I’ve seen several organizations where the majority of employees are excited about coming to work every day but a few slackers were enough to bring down the mood in the office. It can be hard to sustain your motivation if your co-workers undermine all the good work you do by not caring.
So the ninth question in Gallup’s Q12 explores this, posing, “Are my co-workers committed to doing quality work?”
Gallup suggests this commitment by fellow workers, along with four other measures is correlated with productivity. When employees, overall, feel their fellow employees share their commitment to the organization, the productivity of the organization increases.
(The other four measures were: “I know what is expected of me”, “My opinions are valued”, “ I believe in the company’s mission” and “Overall satisfaction”.)
Imagine how it must feel for someone who takes pride in their work and who does an excellent job to hand off their work to someone who drops the ball or is careless how they do their part of the task or project. Similarly, you’ll find in many companies employees who have to correct others’ mistakes or sloppiness so they can hand off to the next operation. They must feel constantly frustrated.
From a customer’s point of view, shoddy workmanship usually shows up in defective materials. They have to call in the sales rep to assess the scope of the problem, segregate defective materials and work out some form of compensation as well as paperwork to return the defective goods. In a worst case scenario, the customer may have to shut down their line and lay off people – then ask for even more compensation for lost work and possibly lost business.
What can you do about this?
One of the easiest ways to start addressing this is by going out on the shop floor (or office) and talk to the employees one on one to work your way through the process to identify which employee(s) are contributing to the situation.
Improving the calibre of their work may simply be a matter of training them or providing the proper tools to do their task right. It might mean modifying the process (by automation, for example) to remove the human element from affecting the outcome.
If the root cause of the problem is attitude, that is a much harder issue to deal with. It may mean terminating employees. In some cases, not getting rid of employees who don’t care about their jobs can be seen by employees as weak management or a demonstration that management doesn’t care or lacks commitment to the company’s mission. You can risk losing your best employees in this type of situation. So, sometimes terminating bad employees have a positive overall effect on morale and productivity.
Getting out on the shop floor is one way to demonstrate to employees that management cares about what’s happening in the plant. Speaking with them one on one is one way to show that management cares about employees’ opinions. Correcting problems in the plant shows employees that management can not only act on their input, but also walk the talk. In other words, they have enough commitment to the company’s mission to make things work.
Talk is cheap. Action gets results.
Words can be very powerful. Sometimes they can be beautiful.
So, this week we’re going to give you some words to contemplate and present them in a way we hope you will find beautiful.
I got to thinking about the word, “common” and I thought of the number of words that share roots with the word “common”. According to the Oxford English Dictionary, the English word “common” is derived from the Latin noun “communis”, which means “public, democratic, of or for the community.”
There also is a Latin verb, “communire”, which means “to fortify, entrench, barricade, strengthen, secure, or reinforce.” What I see in this word is the notion that together we are more than the sum of us as individuals.
A community requires commitment from its members to thrive. Communication helps us work together effectively. Commerce is the engine that enables the members of the community to gain wealth. In the church, communion is a ritual to celebrate a shared system of beliefs.
For the most part, words that start with the root, “comm..” have positive associations, so we thought we’d share a few of these with you and hope it helps transform your outlook into a more positive one.
And feel free to share your favorite “comm..” word via comments.