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September 27, 2011

Thoughts on World Class Organisation – Operational Excellence

As one of my key research areas, I would like to start a discussion on world class excellence, what it is, and how to achieve it. My thoughts are predominantly constructed around the "World Class Diamond Model" that I created during a major consulting project in 2006. Since then there are many valuable contributions made from my colleagues. In short I believe that all truly world class organisations demonstrate their excellence in four dimensions: operational excellence, strategic fit, capability to adapt, and unique voice. Today I start sharing some of my thoughts on the "operational excellence" and will follow it up with more discussions soon after. Comments, suggestions or questions are always delightfully received.

Operational Excellence

There is a strong body of evidence in the literature to support that world class organizations embrace operational practices that focus on right first time, high efficiency (productive) and effectiveness (customer/market oriented) of processes. These traits are captured in the dimension of Operational Excellence. As operations fulfil the customer requests, they become directly visible to the external environment. Thus in almost all excellence frameworks, measuring operational excellence is included. Because operations execute and deliver the strategic planning, they become the most immediately concerned and measured part of business.

What constitute the detailed measures in the Operational Excellence may vary significantly, and is better to be left open in the model, but for the managers to determine in their specific situations. There are many factors that will determine and change the concept of what is an excellent operation, such as, product categories, market competitive conditions, customer categorizations, and so on. Therefore in the assessment of world class excellence in operations dimension, it is vital that one adopts a situation-sensitive and firm-specific means of evaluation, and the World Class Diamond Model accommodates that.

Operational excellence has been discussed extensively in the classical school of business excellence. The mass-production systems herald by the Taylorism and Fordism in 1920s and 1930s were examples of classical business excellence, in which operational efficiency is the centre piece. Its objectives were to define the “scientific” organization by measuring cost, productivity, throughput time, volume, speed and etc. most of which are still used in today’s measurement system. Such excellence was achieved through specialization and “division of labours” and was driven by Adam Smith’s idea of value-maximization, which pervades economic and management theory. It is very much a “result-driven” excellence, which still has resonance in today’s excellence theories. Amongst the many great thinkers who theorized the concepts of operational excellence, were Adam Smith, Frederick W. Taylor, Henry Ford, Taiichi Ohno and Genichi Taguchi, to name just a few.

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