ABSTRACT
This research work focuses on the improvement of organizational performance through the implementation of Operational Excellence. It presents various models that are applicable to different industries, and which can be adapted to fit organizational needs. Operational Excellence has been given different definitions by different people and organizations. However, it is a disciplined integrated management system that improves organizational performance through the application of best practices and continuous improvement efforts. When successfully implemented, it ensures waste reduction or elimination, lower operational costs, quality improvements and customer satisfaction, all of which translate to improved and sustained business profitability and growth. Even in hostile business environments like in Nigeria, Operational Excellence has been shown to improve performance. A study of an organization implementing an Operational Excellence model revealed the following: Improved environment, health and safety (EH&S) performance where targets of zero fatalities and reduced incident numbers and rates were achieved, surpassed and sustained. Improved reliability and efficiency performance through a robust asset integrity, reliability and optimization process. Successful cost reduction efforts in security, marine and aviation services. A flourishing relationship with host communities. The assessment of an organization to determine how well it is doing can be achieved using The Oliver Wight ABCD Checklist for Operational Excellence. This was used in this work and found to be a very important tool. High points and challenges to achieving anticipated results were discovered and included in this work.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND
The business environment changes rapidly and continuously. This is attributed to varying customer needs, changing demographics, giant leaps in technological advancement in areas such as transportation, computing, automation and mechanization, information and telecommunications, and the general effects of globalization (Davis et al. 2003).
The changing tastes of customers, and their desire to get products and services cheaper, faster, and in better quality, cause organizations to search for means of delivering customers‘ needs in economical ways in order to stay in business. Again, with focus on people and environmental safety growing each day, organizations work toward conforming to the laws of government and other regulatory bodies and thus, strive to meet global standards in required areas.
Every day, there are more products and services for consumers to choose from, with an ever increasing number of providers for such products and services in the global market place, leading to very high levels of competition. To stay relevant in business, organizations in all spheres such as manufacturing, banking, Information Technology (IT), and healthcare have had to adopt different measures. For instance, according to Haddock et al (2006), some organizations in manufacturing for example, adopted a low-cost model which involved producing their goods in regions associated with low labor and material costs. However, they noted that the gains achieved by the low production costs of these regions may eventually be eroded by logistics costs, lack of scale and quality gaps.
To remain competitive in such a dynamic environment, organizations must seek continual improvement in the objects which define their areas of operation. A variety of improvement methodologies have been developed and applied over the years, each from a slightly different perspective, with a different focus, for different specific industries, and as solutions for different requirements, all to enhance and sustain performance. Articles on www.gpworldwide.com and www.operationalexcellence.ca list these methodologies to include Lean initiatives, Six Sigma, Total Quality Management (TQM), New Product Development, Quality Function Deployment, Reliability Excellence, Process Re-engineering, to mention but a few. While some have been applied as designed, others have been applied in a mix as an integrated approach, such as Lean Six Sigma. Generally, the purpose of these all is to minimize financial and material waste, enhance product and service quality, protect people and the environment, and maximize profit and customer value.
These methodologies have been tested and proven, and their successes to yielding results abound in literature. However, there are views that a different approach must be adopted to ensure that the achieved successes are sustainable in the current competitive business environment. For example, Russell & Koch (2009) state that there is the tendency for organizations to pursue efficiencies in such discrete areas as manufacturing, sales and procurement and other functional areas, by implementing appropriate improvement tools. While desired results may be achieved in the confines of such functional areas in an organization, this siloed approach may not necessarily translate to overall organizational performance improvement. On the other hand, greater business efficiency can be achieved by the adoption of an end-to-end approach that links business processes.
1.1.1 Operational Excellence
In line with the above, an end-to-end improvement approach whose implementation is said to help organizations achieve and sustain world-class performance, and much faster, is currently gaining ground. This is Operational Excellence. Though dating back to the 1970s, Operational Excellence is still relatively new as an adopted approach to organizational improvement. This is because it previously was restricted to the manufacturing industry, but is currently finding application in all other sectors, and even in office businesses. According to The Office that Grows Your Business (2009), it is a concept ―embraced by corporate leaders for competitive edge in today‘s challenging global market; an antidote to slipping revenues; it allows for the achievement of improved performance much faster than other improvement programs‖. Russell & Koch (2009) go further to state that Operational Excellence offers a disciplined approach and the application of best practices that lead to world class performance and the foundation for sustainable growth.
Other claims in various literature generally refer to Operational Excellence as an approach that helps managers focus, align and engage in what is required to become more competitive, and achieve world-class levels of performance by integrating people, processes and tools which lead organizations to outperform their competition sufficiently with respect to cash flow, return on assets and growth.
Various industry experts, vendors and organizations have defined or referred to Operational Excellence in different ways to showcase the high points of the philosophy. Below are reproduced a number:
- Operational Excellence is an integrated management system that drives business productivity by applying proven practices and procedures in three foundation blocks: asset productivity, capital effectiveness and operations risk management. It gives the organization benefits of lower costs, increased efficiencies, fewer injuries, maximum sustainable returns on operating assets, and an enhanced competitive position. (DuPont, 2005)
- Six sigma, lean manufacturing, Total Quality Management; when integrated under the umbrella of Operational Excellence and applied across the organization, a new way of doing business emerges; one that produces higher yields, reduces waste, and improves quality and customer satisfaction. (Stuart, 2007)
- Operational Excellence is when each and every employee can see the flow of value to the customer and fix that flow before it breaks down. (Office That Grows Your Business, 2009)
- Operational Excellence has become the umbrella adopted by organizations across virtually all industries, including life sciences to refer to the thrust for continuous improvement in all areas of business process performance while ensuring that this performance equals or exceeds ‗best-in-class‘ organizations. (Gaulich, 2009)
- Operational Excellence occurs when people, products, processes and information technology are all aligned, and will ultimately result in decreased operational costs, improved productivity and finally, growth. (Schneider, 2003)
- Operational Excellence is a philosophy of leadership, teamwork and problem solving resulting in continuous improvement throughout the organization by focusing on the needs of the customer, empowering employees and optimizing existing activities in the process (www.wikipedia.com).
- Operational Excellence is the systematic management of safety, health, environment, reliability and efficiency to achieve world-class performance. (Chevron Corporation)
From the foregoing, the high points associated with the successful implementation of Operational Excellence are invaluable as well as numerous. These include the basic objectives of venturing into business: profit maximization and sustainability, safe operations and customer satisfaction, decreased operational costs and improved productivity, business growth and the attainment of world-class status.
1.2 PROBLEM STATEMENT AND SUBSTANTIATION
The recent world economic crisis has had a great impact on many, if not all, businesses. While some businesses have gone completely under and some are still struggling to stay afloat, others are on the path to recovery by employing varying measures to reduce or eliminate waste, save costs, sustain or improve profitability, and re -establish competitive advantage over peers. Depending on the approach adopted to achieve said recovery, some organizations will do so much quicker than others, while some will have a long way to go.
A search in literature and the internet revealed that the adoption of Operational Excellence as a continuous improvement philosophy is basically in the West and Asia, with many success stories recounted in different sectors. The same cannot be said in Africa, and Nigeria, in particular. A comparison of the number of businesses in the region with the results of the search indicates that the adoption of Operational Excellence is almost non-existent.
The CIA World Factbook lists Nigeria as an oil-rich state long hobbled with political instability, corruption, inadequate infrastructure and poor macroeconomic management. A 2010 estimate placed the country population at 152 million, 70% of which live below the poverty line, and about 47 million people constituting the labor force. While the most recent unemployment figures are unavailable, it is generally accepted that it is very high and the economic crises would have increased this percentage given the subsequent loss of jobs experienced in different sectors .
A case in point is in banking where job losses were due to banks restructuring their operations to align with reforms being orchestrated by the country apex bank, the Central Bank of Nigeria. In an article on the BBC News website, the CBN Governor was quoted saying these reforms were initiated to address the seeming rot in the system where there was an excessively high level of non-performing loans, a practice attributable to poor corporate governance practice, lax credit administration processes and the absence or non-adherence to credit risk management practices.
Consequent to the reforms, most banking organizations limited their loan services to customers, especially small-scale businesses which caused these businesses to struggle to keep afloat, eventually leading some to downsize their workforce. So, on the one hand, financial organizations embraced reforms necessitated by unwholesome practices, and the accompanying job losses, and the other hand, businesses struggle to survive with some resulting to cutting down on jobs.
Another area experiencing challenges is the power and energy sector. Currently, Nigeria contends with very poor levels in power supply as a result of inadequacies in generating, transmitting and distributing capacities and the maintenance of existing facilities. The lack of continuity in leadership developmental programs and the practice of a poor maintenance culture have led to very poor services and a setback to economic growth and national development. Individuals and organizations now resort to providing their own power to do business through the use of petrol and diesel generating sets, leading to increased running costs. Businesses unable to cope have eventually gone under, resulting again to the loss of livelihood for people.
Other sectors facing varying challenges include the manufacturing, service and even education sectors to mention only a few. With the levels of unemployment and poverty as indicated by statistics, Nigeria does not need more business closures and job losses. Rather, business concerns in various industries in the country require an approach to doing business that will ensure their survival during periods of upheavals, decreased operational errors and costs, improved performance, efficiencies, productivity and customer satisfaction and finally, business growth; an approach to business such as Operational Excellence.
An interaction with a selected number of business owners, proprietors and organizations‘ management in Nigeria to ascertain the reason the Operational Excellence philosophy as a reliable continuous improvement approach had very limited penetration in the business environment revealed the following, as summarized below:
- Quite a number of business owners and managers had no knowledge of Operational Excellence as an improvement philosophy.
- While some management-level personnel had some knowledge of Operational Excellence, the concept remained vague. They neither knew its difference from other improvement approaches nor benefits associated with its implementation.
- Some people argued that the business environment here in Nigeria differed greatly from that of the Western world, with varying degrees of peculiarity, and as such a continuous improvement philosophy successful in the West may fail over here.
- Consequent to (3), the perceived success stories from the West were, at best, remote given that none emanates from same business environment as Nigeria, and that the benefits of Operational Excellence as demonstrated from an organization within the same business environment would be convincing.
- Operational Excellence is perceived as just another nomenclature for doing things the same old way. In light of the above, there is thus the need to conduct a research to determine if the successful implementation of Operational Excellence by an organization in Nigeria actually results in improved organizational performance and competitive advantage, quantify the benefits therein, and in so doing, cater to as many concerns as possible as raised by business owners and managers.
1.3 RESEARCH OBJECTIVES
This research is carried out with a view to:
- Quantifying the benefits of implementing the Operational Excellence philosophy for continuous improvement in an oil producing company in Nigeria.
- Determining the degree to which organizational performance is improved by the adoption and successful implementation of Operational Excellence.
1.4 RESEARCH OUTPUT
Added to the research objectives, this work is aimed at introducing Operational Excellence to individuals and corporations with little or no knowledge of it and verifying the benefits claimed to be achieved by its implementation. This will be achieved by presenting various Operational Excellence models as applied in different industries. These provide a framework which can be adapted to fit the purposes of organizations for them to achieve reliable, cost effective and safe operations, improve efficiencies and sustain business profitability. In implementing Operational Excellence successfully, organizations would be better poised to compete favorably with their peers, ensure clear organizational focus on priorities, foster better team work, promote higher levels of staff engagement, excellent commitment to organizational performance improvement and achieve greater customer satisfaction.
1.5 BENEFICIARIES
Verifiable evidence that the successful implementation of the philosophy of Operational Excellence for continuous improvement will lead to improved organizational performance and competitive advantage will promote its adoption and result in the ultimate survival and growth of businesses. Professionals in industries would understand and know more about creating and sustaining flow of value to customers and ensuring that the flow is addressed before it breaks down. They would also know more about waste elimination and improving efficiency which lead to increased productivity that will translate to cost savings. Thus, beneficiaries of this research will include
- CEOs and business leaders in all industries
- Managers in various business capacities and
- All organizational personnel In the chapters that follow, the concept, philosophy, design, findings as well as the recommendations and conclusions of this research work are presented.
Chapter Two deals with the literature review as concerned with Operational Excellence: its principles and pillars, and tools required for its deployment. The work of various researchers, authors and experts in Operational Excellence is presented and an appraisal of their views and conclusions in relation to this research work given. The materials were
chosen to cover the various industries where Operational Excellence has been applied successfully, and their adaptation of the philosophy to suit their purposes.
In Chapter Three, the research design is presented. The modes of empirical investigation into the subject matter as they relate to the research objectives are discussed.
Chapter Four introduces the organization under focus. To achieve the stated objectives, an oil producing organization currently implementing the Operational Excellence philosophy for continuous improvement is investigated. This chapter comprises of the research investigation, analysis of results and discussions on the findings. Chapter Five concludes the research work with recommendations and conclusions.
