Driving your Profits through Operational Excellence image

Driving your Profits through Operational Excellence

“Operations” are often wrongly viewed as the unglamorous part of a business – not strategic, not lucrative, no real intellect required, and, let’s be honest, a bit….grubby.  This view is not just totally wrong but ignores the fact that companies that successfully build lean processes will be more successful, more valuable and much, much more profitable.

“Operational excellence” is not well understood but generally combines three aspects where the business operations:

  • Are designed, connected and flow
  • Have a planned and outstanding customer experience
  • Underpin the strategic priorities, usually either quality, cost or speed

The most successful companies have mastered the operational processes making it easier for the customer to do business with them.  It’s no accident that Amazon’s “1 click” button is helping the cash flow in – customers are over 20 times more likely to repurchase where it is low effort to do so.  Equally when businesses get it wrong, it can jeopardise performance – consider the brand impact of United Airline’s recent disastrous removal of a passenger from an overbooked airline.

Why do great operations make a business more profitable?

There are numerous reasons why operationally competent companies are much more profitable than competitor companies, for example:

  • Reduced business costs.  When activities that do not add value to the customer experience are stripped out (also known as “waste” by operations nerds like me), the resulting steam-lined process will take less time, absorb less resource, and cost less money.  Poor processes often result in too many staff, too much stock and delays in getting cash in the till…..all tangible costs to the business.  An example of good practice, McDonalds has excelled as a multi-national franchise through its tightly defined operations where food waste is minimised and consistency across restaurants is guaranteed.
  • Increased product or service quality.  Where there are defects in the product or service, the inevitable outcome is unhappy customers who tell numerous other people how unhappy they are.  The cost of addressing what is called “failure demand” can be significant and the brand impact can be enormous – note the prolonged recovery of Volkswagen after its’ emission scandal.
  • A more scalable business.  Where processes are streamlined from the start it is far easier for the business to grow as there are fewer non standard activities that detract from the core delivery.  To be successful, start-ups need to direct all available cash towards revenue generating activities and the leaner the business, the more cash can be made available.  Being lean from the start is now so much easier with the multitude of apps that can help new businesses carry out core activities without inventing their own process – whether its finance, sales, project management, communication, task management, meeting management, there are tools out there to help.

5 Top Tips to Develop an Operationally Excellent business

There are a whole lexicon of improvement approaches that could be deployed to streamline an aspirational business’ operations but fundamentally successful and sustained improvement boils down to only 5 key activities.  These are as follows:

  1. Understand the customer experience.  Whatever the business, it will have inputs, core processes and outputs.  How the customer experiences these activities needs to be clearly understood so that appropriate adjustments can be made.  In most situations, the experience should have minimal variation so it can be replicated time after time.  A whole range of quantitative and qualitative techniques can be used which help the business identify where the priority areas of focus will be.  Even a well worded survey can be highly insightful, helping the business identify where to enhance training, simplify data capture or sharpen up fulfilment processes.
  2. Know what your winning formula is.  Understanding what gives your business the competitive edge is crucial and can be the trigger to improvement activity.  Knowing whether your business is competing on price, quality or speed is critical.  Often I hear from clients that they are trying to be all three but they can rarely achieve this.  Successful small businesses have to understand what customers value and then align their processes accordingly.
  3. Develop replicable processes.  Documenting your processes is easily done (you need a bit of flip chart paper, pens and some sticky notes!) but can be the best way to understand where the key touch points are and whether they are magic or miserable moments for the client.  Ideally, you should then strip out any activity that does not add value to the customer or, indeed, something they are unwilling to pay for.  Once done you can then develop a streamlined process that staff can own, improve and measure.
  4. Measure to improve.  An essential part of all operational processes are metrics that help describe the experience.  The best metrics are visible and descriptive (consider Croll and Yoskovitz’s “lean analytics” or McClure’s “Pirate metrics”).  Above all, avoid averages to describe the process that mask wide variations in the customer experience – on average the waiting time might be fine, but unfortunately your most valuable customer has had to wait too long….
  5. Continuously review.  Operations should be reviewed as regularly as finances and sales and, equally, should have staff members responsible for them.  Senior managers should take a leaf out of Toyota’s books and take time to walk the floor where operations are carried out – looking for backlogs, evidence of complaints and errors, and unnecessary additional activities.  Often the simple question “why do we do that?” can help unlock a whole raft of issues that impact on the customer experience.

Chris Lorimer is a highly experienced operational improvement consultant and a Director of South West Growth Service.  For additional information on how you can improve your own operational processes contact Chris at chris@southwestgrowthservice.co.uk