Operation excellence initiatives often fail; some studies estimate failure rates as high as 60%. Due to heavy investments in deployment, their failures can be expensive affairs and it is important to analyse and explain the “how” and “why” of these failures.

Operational excellence 

Operational excellence is a value discipline that aims to provide customers with reliable products or services at competitive prices and delivered with minimal difficulty or inconvenience. It describes a strategic strategy approach to the service and delivery of products and services that enables organisations to achieve competitive advantages through better manufacturing and/or selling processes to improve efficiency, reduce waste, and/or enhance the quality of products/services. It includes practices such as total quality management (TQM), Lean, Agile, Kaizen, and Six Sigma. 

The significance of operational excellence in the contemporary business landscape cannot be overstated, given that it enables continuous improvement in an increasingly complex and volatile environment when done right, thus enabling sustainable competitive advantage through better decisions and continuous improvement around speed, convenience, prices, cost, etc. For example, cost improvement initiatives implemented by Tata Steel at its locations in India, the Netherlands and the UK have led to a positive financial impact of around Rs 8,500 crores in 2022-23 alone. To be of value, the chosen operational excellence practice required concerted effort and resources, besides organisational-wide commitment. 

However, operational excellence-related failures are more common than successes. Some studies estimate failure rates as high as 60%. Failure can be expensive since TQM involves a variety of appraisal, preventive, training, process reengineering, downtime, and scrapping costs. Given the substantial investment in these initiatives, it is vital to understand the reasons for these copious failure rates, which can be divided into behavioural critical failure factors (human-oriented, intangible, and relationship-driven) and technical critical failure factors (data-oriented, tangible, and technology-related), and are outlined below.

Behavioural factors

Research supports evidence that behavioural factors impact operational performance through their significant role in creating an operational excellence culture in firms. Behavioural failure factors that contribute to operational excellence deployment failures can be classified into four broad categories, which have various contributory factors within them:

Technical factors

Technical failure factors are tool-based or technically centred and are characterised by dominant structured approaches and less by human judgment, in contrast to behavioural factors. Technical failure factors that contribute to operational excellence deployment failures can also be classified into four broad categories, with various contributory factors within each:

However, neither of these factors act in isolation, and it would be useful to understand their mutual influences in shaping the outcomes of operational excellence initiatives. This is where mediation effects, or situations where variables of interest are associated via other variables, come in. These are more interesting and include the intermediate explanatory factors between behavioural and technical critical failure factors.

Mediation effects

Research by Vijaya Sunder M, Assistant Professor (Practice), Operations Management, ISB and Anupama Prashar, Associate Professor, Operations Management, MDI on ‘Characterisation and Examination of Operational Excellence Deployment Failures: Mediation Effect of Technical and Behavioural Failure Factors’ contributes to the operational excellence body of knowledge by examining the significant direct and mediating effects of behavioural and technical critical failure factors on operational excellence failures. The research’s findings reveal that the technical critical failure factors mediate the impact of behavioural critical failure factors and examine the cause-effect relationships between the two. The research is important to further our understanding of the implementation of operational excellence initiatives since success stories that highlight critical success factors get publicised widely, while failure stories analysing critical failure factors often do not come into focus easily even though both are precious for research and practice.

How these factors compound and confound

The behavioural and technical factors listed above do not operate in isolation in the real world. Practically speaking, both types of factors are likely to influence each other, and thus the interactions between the two and their indirect effects can provide a vital understanding of the practical causal relationships between them, which has clear implications for both theory and practice of operational excellence. The research’s findings convey that failure to manage strong cooperative supplier relations, customer expectations, and associated alignment will most likely lead to a higher risk of failure of operational excellence on the behavioural side. The research provides an integrated model that views both categories of factors in combination for managerial implications in implementing operational excellence initiatives and suggests that behavioural factors indirectly influence operational excellence failures through technical factors. 

Mitigation strategies

Managers also need to focus on safeguarding the technical factors of operational excellence as they act as strategic resources toward competitive advantage. 

Human infrastructure has the highest explanatory power for failure on technical factors, followed by project management, performance management, and strategic planning. Then, behavioural factors need to be taken care of to facilitate a successful operational excellence journey toward ensuring the creation and sustenance of competitive advantage. Employee involvement in operational excellence initiatives is a vital cog for success, and this can be furthered through several essential practices that include suggestion systems, self-directed work teams, quality circles, process improvement teams, etc. Alongside employees, other stakeholders such as customers and suppliers are also part of the human-centric factors. Firms with customer-centricity have constantly thought better, and quicker, and found it easier to do things that customers expected. In this process, the products and services of these firms became indispensable. Similarly, integrating supplier relationships has also become an effective way of managing operational value chains. For this openness to suppliers, supplier involvement, and cooperative supplier relationships are vital.  

Change management (initiating, implementing, and sustaining change) is another critical behavioural factor of operational excellence. Firms that failed to convey the urgency of the need to change to their major internal and external stakeholders eventually failed in their operational excellence efforts. In this, overcoming the structural inertia to continuous improvement initiatives in firms is the most critical human-centric factor toward the success of these operational excellence initiatives. Accordingly, several change management practices that included persuasive communications, information provision, newsletters, face-to-face meetings, and observational modelling become essential.

Starbucks is a good example of a firm that has focused on mitigating both behavioural and technical factors in implementing operational excellence. Given the nature of its business, a high degree of customer interfacing and employee dependency is an integral part of its operations, which leads to several behavioural factors coming into play. At the same time, the complexity and spread of its operations make technical factors around procurement, supply chain, food safety, etc., just as important. Extensive employee training and sensitisation in quality and customer service, besides the use of technology to optimise procurement and processes, has helped Starbucks to improve both its manufacturing and serving processes to achieve the desired level of product quality and customer experience. Besides internal Quality Assurance Standards Audit (QASA) self-assessment checklists, Starbucks also has EcoSure, a food-safety and public-health company, conducting surprise audits at its locations globally.

Another example is Southwest Airlines, a low-cost airline with a stated purpose to “connect people to what's important in their lives through friendly, reliable, and low-cost air travel”. It has aligned all its business processes and people policies to a unique business strategy that is focused on process optimisation to provide the highest possible quality of service at the most reasonable price. Southwest’s level of operational excellence starts with a clear definition of the firm’s strategic objectives, its communication across the organisation, and design of processes and the alignment of its operational excellence objectives for bookings, flight scheduling, and in-flight service with it. In pursuit of great customer service, responsiveness, and communication, the airline focuses on the source−happy employees. For this Southwest’s generous benefits policy includes a profit-sharing plan, employee stock purchase plan, retirement savings plan, health and wellbeing rewards, and quality medical coverage for all employees. As a result, Southwest Airlines regularly tops independent client satisfaction surveys, which translates into loyal customers and, in turn, more revenue and profit. 

Featured Faculty

Vijaya Sunder M