A Business Case for the Transformation to Operational Excellence

By many accounts Operational Excellence (OE) initiatives can add significant immediate and measurable value.  If this is the case, why haven’t more organizations embraced this opportunity to enhance their bottom line and Earnings per Share?

Why Opportunities Often Fail

Seemingly obvious opportunities for value have either failed to be approved or have faulted during the project phase or shortly thereafter.  The most egregious examples include IT initiatives as well as acquisitions.

Proponents of CAPEX and opportunities to enhance a business model often do not do their homework.  Caught up in the moment/hype, optimism overtakes serious risk assessment.

The over used colloquialism, “hope is not a strategy,” unfortunately makes its way into the decision-making process.  Leadership must demand more critical thinking when it comes to transforming the organization and sustaining operational excellence.

When management makes the decision to transform the organization through operational excellence, it is in effect implementing a High Reliability Organizational business model.  As part of this decision, a financial model, risk mitigation strategy, change management and sustainability construct must be developed.  Furthermore, this OE model should be challenged!

Are the suppositions made accurate and appropriate to the firm?  Moreover, care is cautioned when implementing Best Practice models.  They are often not directly transferable between firms and sectors.  Finally, what’s missing, overstated or biased?

Experience has shown that a robust scenario driven economic value proposition model is key to flushing out issues and helping the project team to better understand the dynamics both in the near and long term.  “What If” is the most important question management can raise!

The model must incorporate, expected financial returns, risk management and near/long-term costs.  Intangibles such as safety, productivity, etc. can also be incorporated in today’s robust economic value proposition models.  Finally, this approach assures metrics can be established.

Transformation

Leadership and the organization must understand that an OE initiative is transformative in nature.  It is not the implementation of another re-organization, IT solution or short-term CAPEX project.  It is the fundamental transformation of the organization and by extension its ecosystem to a new way of doing business.

Moreover, this is a dynamic business model that demands organizational rapid response, agility, technological innovation, along with managing changing customer demands.  The new organizational culture must take these subtleties into consideration.

Of course, the organization’s mission and vision must reflect alignment with the operational excellence and high reliability business model.  Having a well understood and organization transformation process with strong leadership is crucial to success.

Assure you have a robust organizational transformation process!

Risk Mitigation

Risk can be divided into systemic and un-systemic categories.  Systemic risk is usually defined as the risk associated with the firm’s ecosystem, including the economy in general.  Un-systemic refers to risks directly associated with the specific firm operations.

By one account, over US$ 4 billion is available to the global oil and gas sector from operation cost reductions and production improvements.  OE Best Practices suggests that each asset in the oil company’s portfolio must be addressed semi-independently.  In other words, since the typical oil company business model is comprised of a number of partnerships, OE initiatives have systemic risk exposure as well as internal concerns that must be mitigated.

Assure your risk mitigation strategy addresses all areas of exposure!

Sustainability

Perhaps the biggest problem organizations have with the transformation process is its sustainability.  Long after the project team is disbanded, leadership must maintain the energy necessary to protract the firm’s new business model.

Particularly, during the first few years there can be a tendency for the ecosystem to fall back to previous behaviors.  Management must look at Operational Excellence as a function of continuous improvement and no longer a simple initiative.

Assure your OE initiative includes sustainability in its business model!

Call to Action

Most organizations can unlock significant value from operations.  However, many do not seem to be able to realize said value.  This suggests that they may not understand how to transform and sustain OE as a new and ongoing business model.

There is a significant Body of Knowledge available on this subject.  Management should assume that their competitors as well as possible new entrants will implement OE business models.

So, the question to be answered, will we obtain competitive advantage or be disadvantaged if we do or do not implement operational excellence?  The answer will determine the next step.

What does the future look like for your organization?

About the Author

Scott S has over 30 years technical and executive management experience primarily in the energy sector. Scott is the Managing Director of The Rapid Response Institute, a firm that focuses on providing its customers with solutions enabling Operational Excellence and regulatory compliance management.

He is the author of six books and has written extensively about the field of operations.  He has studied cultural interactions for more than 30 years—his dissertation; Cross Cultural Negotiations Between Japanese and American Businessmen: A Systems Analysis (Exploratory Study) is an early peer reviewed manuscript addressing the systemic structure of societal relationships.

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