In recent years, the term Operational Excellence has been increasingly used by various firms to signal their ability to help clients make their processes or organisations more efficient (read: cheaper). Sometimes buzzwords like Lean and Six Sigma are thrown in, and if you believe the claims, half the country seems to have earned a Black Belt. And here lies the core issue.
Operational Excellence has become a catch-all term. Traditionally, it represents one of three strategic choices outlined in the model by Treacy and Wiersema: Operational Excellence, Customer Intimacy, and Product Leadership. The idea is that organisations must decide where to excel. Under this classic definition, Operational Excellence is about delivering products or services to customers or end-users as cheaply as possible. End of story. This has often been conflated with the term Lean (and mean), which is wrongly interpreted as a philosophy solely focused on eliminating non-value-adding activities to create a lean organisation. Cutting costs to pursue Operational Excellence as a strategy. However, this misrepresents the essence of both Lean and Operational Excellence. I’ll delve deeper into Lean in a future blog.
Striving for the Best
In the book Operational Excellence Nieuwe Stijl (Operational Excellence, New Style), co-authored by Marcel van Assen, Roel Notermans, and myself, we distance ourselves from both the Treacy and Wiersema model and its definition. We believe that in today’s world, you can no longer choose just one strategy. Instead, organisations must deliver excellent service and customer interaction (Customer Intimacy), continuously innovate (Product Leadership), and maintain an operationally excellent production process, regardless of their market positioning.
In other words, companies operating at the lower end of a market aren’t necessarily operationally excellent, and those in higher market segments can absolutely excel operationally. In our view, Operational Excellence isn’t about being as cheap as possible but about being as good as possible.
Coherence
Operational Excellence means understanding what a customer or end-user wants and meeting that need as effectively (or even slightly better) as possible. But how is this achieved? This requires the mindset of an engineer aiming to design an optimal process: delivering the right product or service, at the right time, with minimal effort from the organisation. To accomplish this, six interconnected elements must be optimized: (1) Organisational goals, (2) products or services delivered, (3) the production process, (4) logistics and workforce management, (5) organisational structure (tasks, responsibilities, and authority), (6) necessary resources.
Costs before benefits
A well-optimized production process progresses through several stages before yielding directly measurable financial benefits. Initially, the focus is on product and process quality—understanding what the customer/end-user needs and ensuring everyone contributes to meeting those needs. The next phase emphasizes delivering consistent output in a standardized, reliable, and scalable way. Further along, organisations must become flexible, adapting to the pace and composition of demand. Finally, organisations should challenge themselves to continuously improve: doing things smarter while maintaining quality, reliability, and flexibility. Only at this stage do the financial rewards fully materialize.
The human element of change
Beyond the technical design aspects, Operational Excellence involves significant cultural and emotional challenges that must be addressed. This requires a shift in managerial roles—from overseeing processes to being both facilitators and specialists. Mistakes need to be surfaced and discussed rather than hidden, and agreed standards must be adhered to and refined, rather than replaced by individual preferences. Employees must take ownership instead of simply completing tasks, and everyone must remain curious about how things can improve, instead of assuming they can’t. This human aspect of Operational Excellence is often underestimated in both scope and impact. It affects everyone in the organisation, including management and senior leadership. Therefore, an approach to Operational Excellence is never purely top-down but a blend of both bottom-up and top-down processes. And it doesn’t happen overnight.
Improving processes, not just cutting costs
So, back to the question: What is Operational Excellence? In our terminology, it’s about improving processes so that customers or users receive the right product or service at the right time with minimal effort. Our mission is to help our clients serve their customers as effectively as possible. However, not everyone uses the term in this way. Many others still equate Operational Excellence with being cheaper and more efficient, but not necessarily better. And whether the ultimate customer or end-user truly benefits from that is debatable.