7 Step Guide to Operational Excellence

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7 Step Guide to Operational Excellence

© 2022 SAP SE or an SAP affiliate company. All rights reserved.

Manage organizational complexity, and continuously identify and act on improvement opportunities

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Table of Contents 3

Introducing the 7 Steps

4

Step 1 - Discover and Ideate

5

Step 2- Benchmark and Validate

6

Step 3 - Evaluate and Quantify

7

Step 4 - Simplify and Standardize

8

Step 5 - Generate and Automate

9

Step 6 - Share and Govern

10 Step 7 - Monitor and Measure 11

Conclusion

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Introducing the 7 Steps If you were to ask a hundred different people what operational excellence is, you’d probably get a hundred different answers. That’s because it can mean many different things depending on the business and the sector. But no matter those differences, operational excellence in general means leveraging operations to achieve business growth.

That’s a pretty broad definition. And it can be put into practice in a lot of different ways, depending

on the specific business and sector. That’s because true operational excellence requires constant monitoring and reevaluation of an enterprise’s business operations.

In this guide, we’ll provide seven practical steps that you can use to kickstart your operational excellence initiative, no matter your industry.

New companies are disrupting established markets by changing the focus from the business’s bottom line to the customer experience, and it’s paying off. Making the customer the focal point of every process can drastically change your organization’s way of doing business, for the better.

Dr. Gero Decker Co-Founder, Signavio Co-General Manager, SAP Signavio, SAP

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Step 1 Discover and Ideate Whether you are taking your first pass at operational excellence, or you have been through the cycle many times, your starting point should always be “what is” – a reality check.

Therefore, this first step starts with discovery.

In collecting this knowledge you should also be listening to and soliciting ideas for change.

It can be amazing how many great ideas already exist in an organization but have not been given voice.

Discovery can be undertaken in a number of ways using varying techniques. For example, if information is buried in systems, automated discovery using process mining may be appropriate.

These ideas will be especially interesting if your operational excellence program is working in harmony with a business transformation initiative. The goals, objectives, and customer perspectives on transformation serve as great inputs to shape discovery and ideation.

In other situations, the information may only exist in someone’s head, in which case tools can be used to quickly capture and document the process. Remember, in many cases you may eliminate processes or steps, so there’s no need to worry too much about complete accuracy – as long as people are all using the same terms in the same way.

Success at this step involves understanding how things are currently working, finding out what the people using the process or system think is not working well and why, and listening to how they might improve it. In other words, you are starting to get a better grasp of why things need to be done differently.

Uncover and share current state processes (automatically if system related); solicit improvement suggestions.

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Step 2 Benchmark and Validate The organizational knowledge collected in step 1 is valuable because it represents reality. But it is also gathered from a relatively narrow point of view. All too often, people undertaking tasks or activities don’t have the full view of how what they do affects what others do or impacts the overall value to the business. It could also be true that numerous people who are performing the same tasks, either in different offices or geographies, have evolved their own ways of working, causing divergence in processes and inconsistent outcomes.

Given that you’re seeking to improve the way you work, it’s crucial to test and validate that what you’re seeing is in fact what’s really happening.

For example, benchmarking is an important method of systematizing and assessing the findings from step 1. Benchmarking can be addressed in several ways. Where the process or activity is not one that differentiates you, you can benchmark around others in your industry in what is sometimes misleadingly called a “best practice” – which in reality might just mean that you are doing as poorly as everybody else!

Another way you might benchmark would be to compare the way top performers work with those who perform at a lower level, ensuring that you don’t just standardize on the easiest or expert versions of the process but leverage what your best people do, even if it seems illogical. The third way you should consider benchmarking is with those who are outside your industry but are known to be excellent in the area you are focusing on. It can be a useful exercise to seek out examples from organizations that may have little in common with your day-to-day work. For example, benchmarking against the hotel industry for customer service, or against the aviation sector for quality and engineering safety, could provide a useful framework for any organization to identify potential areas for improvement.

As you identify and generate risks, opportunities, and issues, you can validate your findings and suggestions with the appropriate stakeholders, getting advance buy-in for change and ensuring that what you are about to undertake is going to be appreciated and valued. This is also a great point to set baseline measures and understand and validate the metrics by which success will be gauged.

Benchmark, identify, and validate risks, opportunities, and issues or problematic cases. Run intelligence if necessary.

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Step 3 Evaluate and Quantify Benchmarking and reviewing are necessary and valuable; however, they can still generate lots of interesting ideas and opportunities that may not be appropriate to focus on at this time. Fixing issues with monthly financial reporting may look like low -hanging fruit and get people excited, but if the overall driver of your project or program is customer service or revenue generation, then these are the areas you need to work on. Therefore, you need to take time to evaluate potential ideas and prioritize them. In reality, you will rarely have enough time to act upon as many ideas you’d like, so making sure the best ones receive the most effort is vitally important.

Of course, prioritization also means that you need to quantify the time, cost, and effort to implement the revised practices or processes.

Quantification, combined with an understanding of the metrics from step 2, enables you to understand how compelling your business case is. It is amazing the number of times management agrees with the importance of your project in step 2, but when presented with a business case, they start walking backward from their original thoughts. In these situations it is often useful to quantify not just the costs and benefits of change but also the cost of doing nothing. Sometimes when they view that pain extrapolated over time, people see the need for change differently.

Success in step 3 means identifying opportunities that have been validated, evaluated, and quantified with the appropriate stakeholders to confirm buy-in, ensuring that what you are about to do will meet business needs.

Solicit feedback, evaluate options, quantify benefits and risks. Consider simulating changes.

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Step 4 Simplify and Standardize Having worked out what is going to change and why, many organizations jump straight in and start to create new processes or automate existing ones. However, sometimes this just results in delivering the wrong things faster. Instead, the first implementation stage in improving the way you work is to consider how to simplify the work by asking if there are steps and activities that you don’t actually need to do – classic waste elimination.

Once you have identified your preferred processes and practices and simplified them as appropriate, you can now consider standardization. Certainly, there will be an additional level of effort required

from systems administrators, but having them work in the same environment and share the same process data closes the gap between business and IT and decreases the risk of miscommunication.

It is important to be aware of geographical and cultural differences when standardizing. Often organizations try to impose a standard process across all regions despite potential legal and regulatory differences. If this could be an issue for you, then consider abstracting. Often you can have a global standard process, such as order to cash, but then have local procedures to operate it, thus achieving both standardization and localization.

Use the “wisdom of the crowd” and get feedback to help remove waste; standardize where appropriate.

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Step 5 Generate and Automate Having identified which parts of your organization, processes, and practices to focus your improvement efforts on, you can now think about streamlining the work. Often this will include some sort of workflow or process automation. If the previous steps have been undertaken using appropriate tools, then it is possible that some of the processes can simply be exported and automated.

However, there are caveats to doing this.

For more-complex processes, it is quite common for organizations to consider automating them in a business process management system (BPMS) tool. Typically, however, this automation will only address around 70% of the cases going through the automated system. Many organizations will then look at using a less sophisticated workflow system to assist people in dealing with the other 30%, but around 10% of those cases may wind up being handled manually.

This challenge illustrates the value of decoupling analysis from your implementation tool. Analysis from automation vendors typically only addresses the parts they automate, removing the transparency

across the entire process, or from processes enacted across multiple systems.

In some cases, you will not be able to use simple push-button-type automation. Instead, you may need to have custom systems built or want processes supported by nonautomated systems.

Traditionally, a business analyst would get involved at this point and start working on requirements.

However, often that process takes too long, costs too much, and can miss the target.

Many organizations now find that using process documentation as a requirement is more effective. Indeed, there are organizations that suggest it was only after they switched to processbased thinking that they were able to bring requirements under control.

Lastly, when thinking about automation, don’t assume that everything needs to be heavily specified, planned, and implemented. In some cases, if you provide staff with simple and easy-to-use workflow tools, they will create the systems they need to improve productivity by themselves.

Generate system requirements for IT change; automate using BPMS and workflows

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Step 6 Share and Govern Simplifying, standardizing, and automating are all useful steps to take, but only if people are aware of them. Many times, great new ideas, processes, or systems fail to deliver the expected results because they are not made clear to the people who needed to know about them. It’s not just about information sharing; it’s also about staying in compliance with current regulations. There are processes in place for good reason, usually so that your company remains in compliance to avoid risk of penalties and fines. But employees can’t adhere to regulations if they don’t know how to complete work in a way that supports this.

People are not machines. If you want them to act in a prescribed manner, they need to understand why they are being asked to do an activity a certain way, and ideally they would be involved in the decision -making process. As a part of your overall operational excellence initiative, you should consider how you will deliver accurate

information to people in a way they can easily access and consume.

By ensuring that the right information is available to the right people at the right time, it is possible to deploy practical governance. How often have you heard, “It wasn’t my fault, I didn’t know we did it that way!” or “Nobody told me things changed!” In an increasingly regulated economy, you need to be sure that certain things are known by all, that the risks understood, and that as an organization you have taken all reasonable steps to remain compliant – and documented these procedures for any audits.

From an operational excellence perspective, governance is not just about regulation and compliance, it is also about creating great experiences for your customers. This requires consistency of delivery and performance.

Without an excellent customer experience, operational excellence is just a distant dream.

Centrally publish up-to-date process information; notify everyone about changes; check performance.

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Step 7 Monitor and Measure Improvement and excellence projects are only effective when they deliver the expected results.

To this end, you need to ensure that while you may implement new metrics for measuring results, you retain some of the old measures, too. It is when you compare the results of “now” versus “then” that you can see the differences. (Beware of retaining all of the old metrics, however, because many will no longer be relevant.)

You also need to ensure that you have appropriate monitoring mechanisms in place. Frequently, success occurs only when people see that management is watching. As management’s attention wanders, people go back to the old ways of working.

Adding customer-related metrics in this step is crucial because ultimately, operational excellence in today’s world is all about delivering the goods or services customers want, when they need them, where they need them, and at a price they are willing to pay. In some cases, this may mean your process or operational costs go up and not down, which makes sense if you are suffering from lost deals or customer attrition. In these cases, measure financial success not by reduced costs but instead by increased revenues or profits.

Success in this step can be thought of as “maintaining the gains.”

Track metrics on a regular basis; explore performance deviations and correct where needed.

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Conclusion These seven steps are meant to serve as a practical guide for any operational excellence initiative. Although they’re broad, they’re applicable to every industry and sector because you can adapt the principles to fit the needs specific to your current situation.

Operational excellence is no longer the exception, it’s what consumers expect. To remain competitive in your market, you need to take a considered and intentional look at your business and make changes where appropriate. These seven steps will set you on the right path to achieving operational excellence.

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