Operational Excellence and Competitive Advantage Welcome to the course. Please introduce yourself to your classmates and professor. What are the top 2 operational challenges in your in

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JWI 550 (1208) Page 1 of 13

JWI 550: Operational Excellence

Week One Lecture Notes

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INTRODUCTION TO OPERATIONAL EXCELLENCE What It Means For many years, the term operations management, or OM, was applied almost exclusively to manufacturing. More recently, the tools of OM have also been recognized for their potential to improve operations in the service sector. Still, some view the discipline too narrowly, identifying it as the purview of those who hold the title of “operations manager.” Operational excellence is a broader concept that applies to all job functions and all pursuits that keep the organization running in top form. It is the ongoing search for better ways of achieving results. However, it’s not about just ‘fine tuning’ the flow of work as it currently exists, but about stepping back, asking good questions, and finding ways to improve how the entire organization operates. The ultimate objective is to leverage those improvements to strengthen the organization’s competitive advantage. Why It Matters

• Operational excellence is a competitive advantage. If your organization can run faster and leaner and can deliver products or services to your customers that are less expensive or better quality than your competitors can, you will have an edge in the marketplace.

• Seeking a better way every day encourages team members to challenge themselves, get their brains in the game, find ways to reduce tasks that waste resources, and redirect their time and energy to tasks that add real value.

• Adopting a broader view of operations opens the door to using the tools of operational analysis to examine what you do, ask better questions, and make changes that can be evaluated against meaningful metrics.

“Every task performed by every employee in

every organization is, by definition, an operation. How well these are performed will result in more or less time taken to complete the task, more or less money spent to get it done, and greater or fewer mistakes being

made. And all this, by extension, contributes to making the company more (or less)

competitive.”

Jack Welch

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JWI 550 (1208) Page 3 of 13

INTRODUCTION Welcome to the Course If you’ve never worked in or studied operations management, the subject may be a bit of a mystery to you. You may have images of factory managers with clipboards and stopwatches standing beside assembly lines, measuring output and doing obscure math to calculate “something” that you’re not sure you understand. This can be especially true if you work in a service industry where production metrics are not front and center every day. You may think that OM is something other people do, and while you certainly want them to do well and contribute to your organization, the impact of OM on your daily life is a passing interest. If any of the above is true, you may also see this course as a “necessary evil” – a required hurdle to overcome on your path to earning an MBA. We are going to make sure this is not the case. Throughout the course, we will focus on solving real- world problems and on the practical application of the tools we study. In each topic we address, you will find a consistent pattern in the approach we take:

1. Understand the current state of operational performance 2. Identify opportunities for improvement

3. Ask the right questions, focusing on what really matters

4. Gather the right data and apply the right tools to answer those questions

5. Develop, present, and implement viable solutions to improve performance and outcomes This approach is designed to help you become a better manager and a more effective leader. You will hone the skills that will help you take your organization forward and increase its competitive strength. The Pursuit of Excellence Impacts Every Part of the Organization Management of operations is not the domain of any single function or department. It is not limited to the factory floor or to supply chains or to production quality. It isn’t just part of administration or a company’s back-office functions. The pursuit of operational excellence is multifaceted, and seeks to realize multiple goals and implement process improvements that are:

• Effective – actually addressing the company’s needs • Efficient – cost-effective and not wasteful • Global – taking into context the greater economic environment • Sustainable – not creating long-term liabilities in the pursuit of short-term gains • Responsible – fulfilling the business’s fiduciary and community obligations, such as maintaining

long-term solvency

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Operations management involves everyone in the company and can affect all of the company’s physical assets, resources, and organizations. It requires constant focus and deliberate, decisive action for business leaders to manage operations properly and beneficially. The decisions made in pursuit of operational excellence can drive critical business activities such as:

• The development of new products • Quality planning, control, and improvement • Production and capacity planning • Supply chain and inventory management

A business entity must constantly customize products and services, shorten product and service life cycles, satisfy more informed and quality-savvy consumers, and leverage innovation and renewal – or creative destruction – in the industry or business sector. It must also take advantage of the promise and potential of new technology, new products, and new processes. None of this happens unless business leaders make informed decisions about managing the company’s operations.

Achieving Competitive Advantage Through Operations All organizations, be they individual companies or countries whose governments and citizens trade with one another, constantly vie for competitive advantage. They implement different business strategies, and, therefore, different operations management practices, in order to achieve this competitive advantage. For example, retail giant Walmart maintains low inventories and low costs, thus remaining more responsive to consumer demands. The low inventory makes it possible for Walmart to offer perceived value that outpaces many of its competitors, granting it a competitive advantage. Customers come to Walmart rather than other retailers hoping to get the best deal, increasing Walmart’s sales and thus increasing its profits.

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LECTURE NOTES FOR THIS COURSE

The purpose of the lecture notes in this course is not to reteach topics that are covered in the core texts, readings, and videos. The purpose of these notes is to:

1. Help you assess your starting point by providing a realistic picture of the challenges you may face, but also the payoff that comes from mastering the necessary skills.

2. Focus your work on the most important themes and takeaways from each week’s materials.

3. Provide tips on applying what you are learning in your own workplace to help you become a more effective business leader.

You are encouraged to read the lecture notes first each week, and then to reread them after you have completed your other coursework in order to reinforce what you have learned. The core text for this course, Value Stream Mapping by Karen Martin and Mike Osterling, is introduced in Week 1. It identifies a key objective of pursuing operational excellence – adding value. The book offers not only a rationale for value stream mapping, but also practical steps that leaders can use in assembling mapping teams, analyzing value streams, and improving how work gets done. Other core resources in our course include OM modules from Harvard Business School, as well as LinkedIn Learning videos. These are used primarily to introduce the more “technical” elements of the tools of OM. Throughout the course, we strive to maintain a balance between big-picture ideas and specific tools. While OM tools are critical to success, they are not sufficient. Placing tools before people is not the right approach. The most successful operations leaders always keep the big-picture objectives in focus, apply the appropriate tools to help them ask the right questions, and leverage methodologies that guide the organization on a path to excellence.

THE CHALLENGE AND OPPORTUNITY FOR MANAGERS

In each set of lecture notes, we will include a section: “The Challenge and Opportunity for Managers.” This will introduce the topics addressed that week, present some of the barriers that managers may face, and explain how the tools and practices we cover can help you become a better leader. Learning about the tools of OM can seem intimidating. You will encounter jargon and unfamiliar terminology. It’s easy to let those technical terms become a barrier to your education. However, if you take the time to engage the course materials, you’ll find that what you learn is a lot easier to apply than you might have believed. In fact, with a little effort, that barrier may just crumble completely. As Jack said, one of the most important actions that effective leaders take to drive positive results is to ask probing questions that uncover assumptions. These questions can be starting points to help you assess your own challenges and opportunities.

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YOUR STARTING POINT

1. When was the last time you stepped back from your regular work and thought about how you might be able to do that work more effectively and efficiently?

2. Are you and/or your colleagues frustrated by some of the work processes or tasks that you

have to perform? Do some of these seem overly cumbersome or weighed down by bureaucracy or sub-par communication with other workers or departments?

3. How do quality issues impact your deliverables? For example, even if the final output performs

at a high standard, have there been multiple inspection and repair steps required before the product was released? How might those steps be reduced without compromising quality?

4. How do your production metrics compare to those of your competitors? Are they able to deliver

similar products/services to customers faster, cheaper, or that perform better?

5. Is senior management eager to engage frontline workers in finding better ways of working? Is

your organization one that values “getting every brain in the game”? If not, how might you start to change the culture to support a team-based approach to operational excellence?

6. How could operational improvements strengthen your organization’s competitive advantage?

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THE PURSUIT OF OPERATIONAL EXCELLENCE

There is a saying that the longest journey begins with a single step. While the pursuit of operational excellence is a never-ending journey, don’t despair. Operational “wins” are tangible and come in all sizes. It’s not always about retooling the entire workflow for a huge factory or reinventing a global supply chain. Once you think about operational excellence as a way to increase competitive strength, you will start to see opportunities everywhere. So, whether you work in a manufacturing company or a service company, for-profit or not-for-profit, large business or small business, there is one element that every organization has in common – work. The core issue, then, is how that work adds value – whether measured by customer/revenue growth, shareholder value, or employee satisfaction about the work they exchange for the paycheck they earn. When you and your colleagues come to work each day, do the systems, tasks, tools, and processes enable you to deliver your product or service effectively and efficiently? If you are not sure about the answer to that question, you’re not alone. Martin and Osterling summarize the challenge as follows:

“The lack of understanding about how work flows – or more commonly, doesn’t flow – across a work system that’s sole purpose is to deliver value to a customer is a fundamental problem that results in poor performance, poor business decisions, and poor work environments. Conflicting priorities, interdepartmental tension, and – in the worst cases – infighting within leadership teams are common outcomes when a company attempts to operate without a clear understanding about how an organization’s various parts fit together and how value is delivered to its customers. And significant time and money is wasted when organizations attempt to make improvement without a clearly defined, externally focused improvement strategy that places the customer in the center. Enter the concepts of value streams and value stream mapping.”

Value Stream Mapping, pp. 1-2

VALUE STREAM MAPPING

So, What Is a Value Stream? As you have likely gathered from the title of our core text, we’re going to be using the term “value stream” quite a bit throughout the course. So, let’s address the definition:

“A value stream is the sequence of activities an organization undertakes to deliver on a customer request. More broadly, a value stream is the sequence of activities required to design, produce, and deliver a good or service to a customer, and it includes the dual flows of information and material.”

Value Stream Mapping, p. 2

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And a Value Stream Map…? The “map” is pretty much what it sounds like. Just like a roadmap, it is a way to visualize a journey. It shows how you get from one place to another place. Most maps don’t show every single detail about the terrain or other specific elements, such as speed limits and altitudes. Which features of the map are most important will vary by user and purpose. If the map is too general, critical information may be missing. But if it is too detailed, the overall journey can get lost in the weeds. The same is true of a value stream map. As we progress through the first several weeks of the course, we will explore several important topics: (1) the purpose of value stream maps, (2) what it takes to create a useful one, and (3) when and why we would need to drill down deeper into individual “processes” – which we will explore more in Weeks 3 and 4 – to identify workflow shortcomings and opportunities for improvement. As Martin and Osterling point out, value stream maps are not the same as process maps. “[They] offer a holistic view of how work flows through entire systems, and they differ from process maps in several significant ways.”

1. Value stream maps provide a powerful means to establish a strategic direction for improvements. 2. Value stream maps provide a visual, full-cycle view of how work progresses from a request to its

fulfillment. 3. Value stream mapping deepens organizational understanding about work systems that deliver

value, leading to better decision making and work design. 4. The quantitative nature of value stream maps lays the foundation for a data-driven, strategic

decision making. 5. Value stream maps reflect work flow as a customer experiences it, as opposed to process-level

maps that are internally focused. Value Stream Mapping, pp. 7-10

CHANGE IS HARD

You Can’t See the Forest for the Trees As the authors note, “[t]ransformation requires fundamental changes in an organization’s DNA; done well, value stream mapping can be instrumental in facilitating the necessary shifts in mindsets and behaviors” (p. 11). The core of the challenge of change is that the people who are involved in doing and overseeing the work often don’t see the big picture of the flow. This sounds ironic, but if you reflect on your own work experiences, chances are your days are pretty busy just keeping everything going. You likely joined an organization that was already up and running, and that means you stepped into a “machine” that has systems, processes, and protocols for how work gets done. Some of these probably work fairly well, and some of them leave you wanting to pull your hair out. But every day, there are dozens of tasks to be completed, leaving very little time to step back and analyze the big picture of how work flows.

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Are You Seeing What I’m Seeing? Martin and Osterling describe the value stream map as a “visual unification tool.” They argue that “[t]he ability to visualize non-visible work is an essential first step in gaining clarity about and consensus around how work gets done” (p. 12), noting that “[t]his degree of clarity helps an organization make the transition from internally focused thinking to customer-focused thinking, which is the foundation for providing greater and greater value” (p. 12). In fact, they go as far as to say, “we’ve found no more powerful way to heal the tension that often exists between functional areas, such as sales and operations, quality and production, and IT and…well, everyone!” (p. 14). That’s a pretty exciting claim! They do, however, offer an interesting caveat, noting, “It’s the process of value stream mapping rather than the maps themselves that carries the greatest power by instilling transformational mindsets and behaviors into the DNA of an organization” (p. 17).

“…improvements that begin with a value stream perspective are more likely to be sustained and lead to both top-line and bottom-line growth. In the case of government agencies and nonprofit organizations, proper value stream design and management can reduce costs, improve organizational effectiveness, reduce the risk of privatization, free up cash to reinvest in the agency, and improve employee morale and constituent satisfaction.”

Value Stream Mapping, p. 18

Like most complex undertakings, there are more ways to get it wrong than there are to get it right. There are multiple potential “failings” of value stream mapping initiatives. These include creating maps without taking any action, and mapping with the wrong team – or even without involving the team at all. But perhaps the biggest failing is mapping without metrics:

“The timeline is, by extension, where value stream mapping shines its brightest light. Using a ‘ticking clock’ to measure throughput and the time it takes for people to actually perform work tasks reveals more about work flow than any analytical tool to date.” “How do you measure whether you’ve made improvements without a baseline from which to measure? How do you know what to focus on if you don’t know how the value stream truly performs? While a picture’s worth a thousand words, value stream maps without metrics have limited use. And one could argue that value stream maps without metrics aren’t value stream maps at all.”

Value Stream Mapping, p. 22

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JWI 550 (1208) Page 10 of 13

GETTING STARTED RIGHT While there is a lot to get excited about when it comes to value stream mapping, there is some guidance about the road ahead:

“Too many organizations dive into value stream mapping before the organization is properly prepared and the activity has been properly scoped. Effective planning is a significant contributor in elevating value stream mapping from a ‘tool’ to a management practice that produces long- lasting transformation.” “Getting tangled up in the weeds is a common reason why process improvement efforts fail to deliver sustainable results, and why inserting value stream mapping into the improvement process helps an organization make faster and deeper progress.”

Value Stream Mapping, p. 27, 29

Assembling the Team Process mapping, like any change initiative, is not a solo activity. While the size and composition of the team may vary according to circumstances, Martin and Osterling offer the following guidance:

“If the ripple effect of the projected improvements is somewhat contained, you can limit the overview to the team members and those leaders who oversee the areas within the value stream being transformed. If the projected improvement(s) will touch a large percentage of the workforce, it’s best to include the entire leadership team. For your first few value stream mapping activities, it’s also helpful to include leadership from support services, such as human resources, information technology, and finance so that they, too, can begin to see the interconnectedness within the organization and the benefits of viewing work through a value stream lens. Ultimately, every leader needs to understand the organization’s key value streams and how his or her team supports the delivery of value to external customers.”

Value Stream Mapping, p. 30

The remainder of the chapter explains the role and components of a Value Stream Mapping Charter (pp. 31-47). This is an important tool to align the team around a common objective and define the scope of the project. Review this guidance carefully before you embark on this step of your operational excellence initiative. Like many undertakings, success or failure are largely determined in the planning stages. Getting the right team in place means including: (1) affected leadership, (2) mapping team members who will help build and analyze the maps, and (3) workers in areas that will be included in the value stream walk.

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JWI 550 (1208) Page 11 of 13

AND SO, OUR JOURNEY BEGINS… Our readings this week lay the foundation for the core principles upon which our course is built. They also introduce the concept of value streams and the practice of value stream mapping. Specifically, we have learned:

• The pursuit of operational excellence is a never-ending activity. You don’t “get there.” • Finding ways to improve the value stream is a team activity, not a solo undertaking. It truly is, as

Jack so often said, about “getting every brain in the game.” • Metrics matter – a lot! • Value stream mapping, and operational excellence in general, must be customer-centric, not self-

contained or internally focused. • The mission and values of the organization must guide why you are doing what you are doing.

Now that we have considered all these important topics, and before we can even begin to think about making any operational changes, we have to get an accurate picture of how the workflow is functioning in the current state. But that is our topic for next week…

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SUCCEEDING BEYOND THE COURSE As you read the materials and participate in class activities, stay focused on the key learning outcomes for each week and think about how they can be applied to your job. These are presented at the top of the weekly course pages in Blackboard and in the Course Guide and are also summarized in this section of the lecture notes.

• Explore the importance of operations in achieving competitive advantage As you begin to explore operational excellence, start close to home. Don’t try to analyze the competitive strength of your entire organization – there will be opportunities for that later. Think about how you and your team deliver value to the organization through the work you do and the outputs you produce. What would the benefits look like if you could deliver more and/or better products or services with the same inputs and resources, or if you could continue to meet your current output requirements more efficiently? Don’t worry too much about how you could do this just yet – focus on the impact. If output or costs could be improved by, say, 15%, how could that make the organization more competitive?

• Describe key characteristics of operational excellence One of the best ways to appreciate the topics we will cover in this course is to take what you are learning and test it out in your own job. This “testing” doesn’t have to mean making any actual changes just yet; it can be evaluating the concept to see if it holds water when applied to what you and your team do. The characteristics of operational excellence include, but are not limited to, delivering outputs faster, cheaper, and with fewer errors in a way that is safe and sustainable. Make a list of what that would include for your job. Then, rank your list in terms of priority. Which of these improvements would have the greatest impact on other parts of the organization? Why?

• Understand the role of value stream mapping as a tool to manage operations The methodology we explored this week is value stream mapping. Stay focused on that for now. Don’t speculate too much on other tools you may be able to apply to your job. Rather, reflect on th

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