Effective operational execution is often given a lower priority at scaling companies and offers a major value creation opportunity. Commitment from senior executives and closing a few pervasive gaps will allow small- and mid-sized companies to drive towards operational excellence.
A lack of commitment to operational excellence is analogous to arriving late to an interview after spending days preparing for it. No other strengths possessed by a business-to-business company will make up for gaps in operations.
Stellar execution of operational processes by Frontline ‘Variable’ Resources, who focus on ongoing day-to-day efforts, to meet and exceed targets set during strategic planning is not about striking new ideas. Companies that face execution challenges shouldn’t look for silver bullets and quick wins. Operational excellence is about getting the basics right and avoiding mistakes around seemingly unimportant and trivial concepts. Truly internalizing and operating according to the concepts that drive Objective & Analytical Culture maturity is a foundational prerequisite.
Operational Excellence: Baseline Needs
A strong operations culture demands that three fundamental themes are in place prior to attacking specific concepts.
1: Leadership commitment
Years ago, a senior executive at Samsung’s corporate office asked for my insight on the reason for the company’s failed attempt at leveraging Six Sigma, an operations management methodology. I responded with a question – “did your CEO get on a stage and tell the whole company that ‘we are a Six Sigma company’, and continue to repeat that message for years, irrespective of challenges along the way?”.
Operational exceptionalism requires commitment from all senior executives starting with the CEO. It is not a concept that will take root if senior executives waver on their commitment to it, especially when individuals who do not internalize its importance and necessity challenge it along the way. Companies attempting to make operational excellence a grass-roots movement, usually see it die on the vine.
2: Centralized operational expertise
A secondary aspect of the company’s commitment to this cause is to demonstrate it by investing in it. Irrespective of the growth stage and trajectory, small- and mid-sized companies must ensure that at least one senior executive has a strong handle on operational concepts and is delegated the authority to drive the discipline across all functions. Scaling companies that try to drive operational excellence through team silos are creating more work across the organization, with poorer eventual outcomes – disjointed processes, targets, reporting, and execution ethos.
3: Banishment of individual-mindset
Operational excellence has absolutely nothing to do with top performing Frontline ‘Variable’ Resources. Small- and mid-sized companies often fall prey to bending operational structures to appease their best sales reps, engineers, or customer enablement roles. Understandably, every human being prefers to do things their own way. But working for a company is a team sport. Top performers may have their personal style and they should have the ability to maintain it as long as their style doesn’t conflict with necessary aspects of the collective approach.
Operational processes and improvement efforts are all about the rest of the pack and helping them optimize their performance. The company has to ensure that top and mid-tier performers adopt and execute operational processes consistently. Strong process design do not hinder top performers and often help top performers improve. The level of the leadership commitment to operational excellence becomes evident when top performers challenge collectively-important concepts that demand some adjustment from them.
Operational Gaps To Avoid At Scaling Companies
In addition to the three fundamental themes above, small- and mid-sized companies can achieve a strong operational culture by closing the gap on six very common mistakes around operational processes and their management.
1: Operational targets are misunderstood and poor, leading to mismanagement
If your goal is to stay within the boundaries of a dart board, would you aim for the outer rim or the bullseye? Naturally, the bullseye. Although this is an obvious answer, the mathematical facts behind this simple concept is often unused when defining processes and operational targets, especially at scaling companies. As this is the most common and ill-conceived portion of operational planning, it is worth a deeper dive.
Operational processes perform randomly around a center point – this is a law of nature. Well-executed processes stay very close to the center and do so consistently; poor ones spread far and wide. The key part to remember is the center point. This should be the target that business operations are measured around.
Unfortunately, companies with immature analytical cultures make a very fundamental mistake – they dedicate operational focus on not breaching the extreme breaking points and put the onus on employees to figure out how to stay within those limits. Inevitably, this results in poor process designs and missed goals.
There are three components to a leading indicator, which is the quantitative measure of a process.
i) The target: This is the average measurement of the leading indicator over time. Critically, this is the quantification of the operational process that should be expected over time across all resources performing the same process. i.e. an achievable level for several strong performers, not just the top performer. The targets identified for key leading indicators during the strategic planning processhave to equate this average measurement. It is the realistic anticipated output of the company.
Additionally, all frontline resources should be measured against the target level for the operational processes they are responsible for. 100% bonuses and commissions should be based on this target level. Top performers will likely achieve significantly higher output beyond the target and, thus, compensation beyond the 100% mark.
ii) The breaking point: This is the absolute limit where it becomes evident that the process isn’t working, and that operational and financial goals will be missed. When the trend of operational performance crosses this point, the company has waited too long for normal course corrections to work. So, companies should never manage operations using the breaking point.
When a key operational process has breached this point, the company’s overall goals are at risk. Goals will need to be revisited and the operational team will likely require an overhaul, including an objective review of supervisors and senior executives. Day-to-day operational oversight should be based on a more acceptable limit where corrective actions can be taken, which is the management limit.
iii) The management limit: This is a threshold that is proactively devised and monitored by senior executives and operational supervisors to ensure that Frontline ‘Variable’ Resources are performing to expectations. Processes follow a normal distribution and it will naturally deviate from the center point. It is the senior executives’ and operational supervisors’ job to figure out an acceptable range around the target that frontline resources must stay within under normal operations. Effective use of the management limit has far reaching implications:
- It demonstrates senior executives’ and operational supervisors’ handle on effectiveness of company operations; focus on targets and breaking points imply a lack of analytical maturity within the leadership ranks.
- All operational reporting activities revolve around these acceptable management limits of leading indicators, without which reports are ineffective.
- Performance management goals for Frontline ‘Variable’ Resources should bake in this acceptable range for each resource. Individual training, coaching, or performance improvement plans for employees (which can eventually lead them out of the company) are triggered when performance drops below the management limits for extended periods of time.
In summary, companies must develop and use the concept of management limits to monitor and manage operational processes to ensure corrective actions can be taken when performance drops below the management limit.
2: Processes are misaligned with targets
Targets and management limits should not be defined in a vacuum or be based on desired outcomes. Processes and people performing them are capable of certain realistic outcomes. The strategic planning team has to identify realistic figures for leading indicators based on objective historical data analyses and appropriate evaluation productivity improvements that strategic initiatives can drive. Using aspirational figures that are decoupled from the real capabilities of operational processes is a common mistake.
3: Process design does not permit issue resolution
Day-to-day process oversight should be based on management limits, which drive specific, predefined remedies, when they are breached. Often, companies do not dedicate forethought to articulate the specific recourse that need to be applied when management limits are crossed; this leads to gradual deterioration of the process to reach breaking point. The escalation and actions associated with management limits are not simple supervisory asks from frontline resources to improve performance. It is a supervisory failure to manage operational processes without predictive definition of corrective actions.
4: Processes are not current and do not align with strategic initiatives
Whether they are planned effectively or not, small- and mid-sized companies invest significant resources into initiatives that are intended to drive improvements in operational productivity. However, an often-sidelined aspect is the transition of such improvements into steady state operational processes, which include clear documentation and communication of changes and training of employees to adopt the new processes. Failure to bake process improvements effectively into employee behaviors create a gap between expected performance levels and actual performance levels.
5: Reporting is not effective
The purpose of reporting is to monitor the adherence of process execution to process design. Processes are measured using leading indicators, and escalations and remediations should kick-in when processes cross the management limit. Driving operational effectiveness demands:
- Development of appropriate reports with clear indication of targets and management limits for all key leading indicators.
- Definition of ownership and cadence for report creation and dissemination, and alignment with the company’s executive meeting cadence.
- Definition of escalation paths and remediation steps when management limits are crossed.
The most common operational gaps at scaling companies around reporting stems from lack of clarity around management limits, associated corrective actions, and predefined ownership of such tasks.
6: Poor Documentation & Training
Where human beings are involved, sharing complex and specific concepts require details, visuals, and a personal touch. Company-wide efforts are necessary to teach new and tenured employees how to perform critical processes and set the associated measurable expectations. However, scaling companies have poor documentation and training – processes don’t exist if they aren’t documented; training cannot happen without reference material.
Small- and mid-sized companies often consider memorializing information in writing as unnecessary. As a result, these environments spend significantly more time on reworking or reevaluating why operational performance is ineffective. Scaling companies must avoid the tendency to circumvent documenting processes and deploying training, which are not as resource intensive as resolving issues that stem from their absence.
Internalization and implementation of six key principles around process management will enable scaling companies to manage operations flawlessly. However, implementation of these principles are predicated on senior executives’ commitment to the cause.