Operational Excellence
Operational Excellence
Operational Excellence
and applied across the organization, however, a new way of doing business
emerges — one that produces higher yields, reduces waste, improves quality
Traditionally associated with the industrial sector — GE and Toyota often spring
the realm of the manufacturing industry. Today, it not only encompasses every-
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the “opx ” edge
Companies that are committed to gaining cost efficiency, delivery, service and quality advantages through opera-
tional excellence are poised to “out-excel” the competition — be it through lean, Six Sigma or other various tools.
Whirlpool Corporation, long recognized for its quality programs, migrated to OpX after introducing total cost
productivity in an effort to continue to improve the cost structure of the business’ products and infrastructure.
Referred to as the Whirlpool Production System, operational excellence there focuses on quality, infrastructure
cost, product and operations cost, supply chain and lean efforts. “Our approach to reducing costs was so suc-
cessful that investors and analysts kept inquiring about our OpX programs,” said Roy Armes, the former senior
vice president of project management for Whirlpool who recently was named chief executive officer of Cooper
Tire & Rubber Company. “However, as I learned through my 30-plus years with Whirlpool, you can’t rely on just
reducing costs to save the business. OpX also has to focus on helping to grow revenues.”
Eaton Corporation also had experienced its own success with operational excellence prior to hiring Tom Gross,
formerly with Danaher Corporation and Rockwell Automation, to lead its efforts. “When I joined, the organiza-
tion was in the middle of making Eaton a premier, diversified industrial company. Our CEO understood that
customers judge us by our weakest link, so we needed to even out the performance,” said Gross, now president
of power quality solutions for the Eaton Electrical Group. “Today, the Eaton Business System has become a very
successful internal initiative across the company.”
“It was critical that we convince people that this was not just the ‘program
of the day’ and then relate it to the bottom line.”
— Wayne Hewett, President and CEO of Momentive Performance Materials
At Constellation Energy, operational excellence put the focus back on helping its business leaders achieve their
strategic plans, goals and objectives more evenly and with more focus and rigor. “We’ve recently trained our
1,200th person in our version of Six Sigma. We built something called SIRIUS that incorporated Six Sigma and
other lean approaches and married them with project and change management skills. It’s like Six Sigma on
steroids. SIRIUS is our six-step approach and stands for scope, investigate, reason, innovate, undertake and
sustain,” said Roger Cockroft, vice president of business improvement for Constellation Energy Group and for-
merly with IBM, KPMG and Toyota in a variety of management consultant roles. Responsible for managing
Constellation Energy’s Business Transformation, Cockroft’s goal for the organization is to create a sustainable
improvement culture in its utility, generating and retail businesses.
Sustainability of operational excellence also was a focus at Tyco. Before Naren Gursahaney was promoted to
president of Tyco Engineered Products & Services, he was the vice president of operational excellence for Tyco
International. “When I was recruited to Tyco, after having spent 10 years at GE, it was to lead Six Sigma with the
understanding that the program would evolve — which it soon did to include other tools like lean, as well as
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other responsibilities for strategic sourcing and real estate. And while it ultimately was my responsibility to drive
these important initiatives and deliver the results, we also wanted to help transform the culture and make it a
much more operationally focused business,” said Gursahaney.
Culture
Any time you try to drive change in an organization, there will be an inherent amount of internal resistance. And
because operational excellence is truly a transformation of culture, that can be doubly challenging. “There was
some resistance from people who felt that this was ‘structured common sense’ and they were already doing it
— but many of the improvements they had made were not sustainable because they did not use the Six Sigma
rigor. There were others at Tyco who didn’t feel that the changes were sustainable over the long term. We had to
work to overcome that skepticism,” said Gursahaney.
At GE, operational excellence started primarily in manufacturing. “However, we knew we wanted to roll it out to
all functions within three years,” said Wayne Hewett, president and chief executive officer of Momentive
Performance Materials (formerly GE Advanced Materials). “It was critical that we convince people that this was
not just the ‘program of the day’ and then relate it to the bottom line.”
A decentralized culture oftentimes provides an even greater challenge. “In the early days at Eaton, it was difficult
to convince a decentralized organization, where the plant manager had full control, to accept a corporate initia-
tive,” said Gross. “It was imperative for headquarters to define certain aspects of how the company would run.
It was a big change for Eaton in its highly decentralized, highly autonomous business unit history.”
Dealing with a decentralized culture also was a challenge at Whirlpool. “When we first began, it was hit or miss
as it spread throughout the organization,” said Armes. “Once we put in a small, centralized group, and started
to roll it out region by region, we were able to drive the process more consistently.”
Talent
Recruiting and retaining the right talent to lead operational excellence efforts also poses a challenge. “Today,
finding good OpX talent is still difficult. And regardless of how advanced your organization is, I imagine that
everybody is struggling with it,” said Gross.
As more and more non-industrial companies venture into operational excellence, the demand for experienced
OpX talent is beginning to outweigh the overall supply. As a result, retaining top talent also can be problematic.
This is especially true for industrial companies — as many of the most experienced operational excellence
people hail from those industrial sectors that were pioneers in continuous improvement.
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“Great talent gets approached all the time,” said Armes. “But an organization’s odds of retaining these execu-
tives are increased by doing three things: identifying a viable career progression within the organization; pre-
senting an attractive compensation package; and creating an environment for people to do meaningful work,
which includes coaching, development and job satisfaction.”
“Ed Breen, Tyco’s CEO, was the most critical element and he played a very active role. In any presentation —
internal or external — he talked about operational excellence and how this was important to the company. He
also would drop in on the training classes. It was like running with the wind at your back,” said Gursahaney.
“If leadership is not walking it, breathing it and living it, then no one will take OpX seriously,” said Hewett.
“Fortunately for us, we had Jack [Welch], but we also didn’t have a massive amount of initiatives, which helped
the senior leadership team when it came to acting on them. It wasn’t overwhelming.”
Leadership support also can be nurtured through the creation of senior-level councils or committees.
Constellation Energy had Cockroft sit on the strategic planning board, while Eaton created an operational excel-
lence council that included company-wide thought leaders. As Gross commented, “It’s harder to argue against
nine people than just one.”
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At Whirlpool, this began with identifying where the company wanted to go and then creating a set of operational
excellence strategies in support of that direction. “I think there was a revelation six or seven years ago when we
built OpX into our strategic architecture and then held people accountable via our performance management
process. It was identified as one of the company’s core competencies. Once people saw that it was integrated
into the strategy, they realized it wasn’t going away,” Armes said.
When this way of looking at the business is entrenched in the organization, it fosters a mentality of constant
improvement. “Toyota is the master of never being satisfied with the status quo. That means, every so often you
look up and say ‘Wow, look at what we’ve achieved,’ and then you get back to the things you still have to fix,”
said Cockroft. “At Constellation, we achieved this by streamlining the business planning cycle. Each year, we
focus in on what needs to get done to stay ahead of the competition and then we turn those things into our top
priority initiatives.”
At GE, every business unit had the freedom to define how it would use Six Sigma. Some would focus on pro-
ductivity, others on capacity. “We took the strategic elements of our vision and worked with the businesses to
convert them into dollars and cents, and this drove the connection for the business leaders,” said Hewett.
According to Daniel Sebillaut, director of operations for Europe for the Delphi Energy and Chassis Systems
Division, there is no one-size-fits-all approach to working with business units. “Operational excellence leaders
need to adopt a different approach for different business situations. We cannot take a standard approach and
apply it to all cases. Not only is it not the right thing to do, but the programs will lose credibility throughout the
organization,” he said.
Helping the business units create their strategic plans — and spending ample time with them to learn their
business — is critical for success, according to Cockroft. “The business already has a language — learn it and
use it to prove you’re adding real value,” he added. “The payoff is simple — once you prove you add value then
you turn business leaders into OpX champions.”
Having dedicated resources embedded within the business units is a best practice among the majority of opera-
tional excellence pioneers. Both Honeywell and Eaton committed full-time resources at every plant. It was no small
decision to have dedicated people assigned to organizational effective activities at each of Eaton’s 150 plants; in
total, the company had approximately 1 to 2 percent of its salaried workforce assigned to full-time Six Sigma roles.
The quickest way to lose business unit support is to overwhelm the business leaders with myriad issues. “You
cannot start off with 300 projects,” said Gursahaney. “Rather, work with the business units to focus on a few criti-
cal projects. While it’s important to have stretch goals, business leaders still need to feel like they’re achievable.”
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A common language
By creating a common language when referring to operational excellence — one that is applicable across every
business unit — organizations have a better chance of increasing understanding and acceptance. This shared
lexicon should be communicated consistently and regularly with the entire enterprise.
Whirlpool created a virtual university for online training and basic education of the core competencies as a way
to create this common language and understanding. “This allowed us to promote a widespread understanding,
at different levels, of how these tools can be used in people’s everyday jobs,” said Armes.
Once everyone is speaking the same language, organizations then need to focus on how to keep the operational
excellence programs top of mind. Constellation tapped into numerous channels — including videos, Internet sites,
dinners and award ceremonies — to promote and explain OpX initiatives. The utility also produced a regular com-
pany-wide newsletter that featured success stories, lessons learned, top OpX performers and related job openings.
According to Delphi Energy’s Sebillaut, success in operational excellence is a matter of regular, consistent mes-
saging. “This requires regular follow-up, especially given the pace of progress,” he said.
Credibility
While the support of top management and business leaders is necessary to the success of operational excel-
lence, the individuals leading the day-to-day operational excellence initiatives also must have credibility with the
entire organization. Not surprising, executives’ credibility often is determined by their backgrounds.
When Gursahaney joined Tyco, he was not referred to as the “initiative guy” or the “Six Sigma expert.” Rather,
he was known for running a business at GE that embraced Six Sigma and leveraged the tools and methodolo-
gies to make the business better. “As a result, I was able to sit down with division presidents and talk to them in
their terms instead of Six Sigma terms. I didn’t speak about statistics, only how this would help them address
the issues important to their businesses,” he said.
Credibility within the organization also is earned through the sharing of success stories and by starting small,
getting some early successes and then expanding. “At Tyco, we already had a best practice in the organization,
as Tyco Healthcare was already involved in Six Sigma, although on a pretty small scale,” said Gursahaney. “We
didn’t have to point to GE, Honeywell or Motorola. I was able to point to improvements in our own organiza-
tion and this helped a great deal.”
Measurement
The final success factor is an organization’s ability to track the value that OpX adds to the company. Once the
organization is able to see a noticeable, proven improvement, the momentum builds for future projects. This was
the case at Whirlpool, where the company tracked its ability to save money by eliminating waste in manufacturing
and redeploying resources. “By having these measurements in place, we proved how we were adding value by
freeing up both financial and human resources to redeploy toward our innovation efforts,” said Armes.
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Measuring the success of operational excellence requires a disciplined project management system. “At
Honeywell, we didn’t want to just measure the number of events or projects. We wanted to make sure we were
focused on the right things, which is why we had a local, web-based project management system that tracked
this progress,” said Ramsey.
Eaton established a handful of goals that were put into a measurement system. “Setting measurable goals —
those that are fair and balanced — makes defending OpX much easier,” said Gross. “It helped everybody to fall
in line and become an evangelist. However, you can’t let scoring and measurement become out of hand. While it
can become a point of pride for many, we have to ensure that we’re ultimately measuring customer satisfaction.”
Leadership
Visibly demonstrating a commitment to operational excellence is a critical component of leadership. “This capa-
bility to demonstrate to the organization that you really believe in OpX is the single most important competen-
cy,” said Sebillaut. “As part of this, you must be passionate about OpX. Basically, you get what you give. You
pass your passion along to others across the organization to ensure that people think first before they act —
be it the right solution or the right strategy. Passion is the backbone of cultural excellence and is a hallmark of
being a leader.”
Gross concurred: “Share your passion for the ‘revolution,’ and always believe there is a quantum leap in front of
you.” In addition, OpX executives must be hands-on and keep the process simple. “When you have a leader on
the floor with his or her sleeves rolled up, it draws people in,” he said.
OpX executives also need to identify and eliminate barriers to implementation. “We review the business units’
priority lists, clarifying the ‘nice’ things to do versus the priorities. This requires us to embrace the art of diplo-
macy,” said Cockroft.
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Another important facet of leadership is providing professional development to the operational excellence team,
which can vary from a centralized team of 30 people or a handful of executives scattered throughout the busi-
ness units. In the first year of implementation, Tyco did not have a large corporate team and focused on getting
the right type of operational excellence leader in each division. “It was my job to make sure the right capabilities
were within the organization,” said Gursahaney.
OpX leaders also must be able to quickly assess and quantify the impact of identified metrics (i.e., cost, service,
etc.) and the impact of operational excellence initiatives on P&L and balance sheet performance, which requires
strong financial acumen with respect to OpX performance metrics and KPIs.
However, technical proficiency must be coupled with an overall strategic understanding. Best-in-class organiza-
tions need OpX talent who understand the customer and are well-respected operating people. “The role of an
operational excellence leader is to spend time figuring out if we have the right strategy to fix the right business
problems. Approximately 80 percent of the business problems are fixed once the right strategy has been selected.
It is imperative that OpX leaders gather enough factual data to support the right path,” said Sebillaut.
Added Cockroft: “If you hire just a ‘quality guy,’ he will just talk about quality. I want an OpX person who can
speak business.”
At its core, this is the ability to develop and support the implementation of a comprehensive OpX strategy.
The required skills include managing resources, interdependencies and expectations across the enterprise,
and identifying and organizing best practices throughout the organization.
And, more often than not, execution of OpX programs must be accomplished with limited central resources.
However, while Gursahaney launched and drove the program through Tyco operating divisions with a team that
included him, one director and one “master black belt” at the corporate level, there were considerable resources
within the business units and divisions. “To execute, you must be hands-on,” added Cockroft. “You can’t talk
about OpX theoretically — you have to act.”
Change management
Experience in change management is particularly important for those organizations that are truly embedding
operational excellence throughout the entire enterprise. “One of my responsibilities was to figure out how to get
people to follow change. We had to start with creating the need, then deciding how to mobilize resources and
then identifying the change measurement systems and reward/recognition systems,” said Hewett.
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Skills required for OpX success
> Leadership
> Technical proficiency & strategic understanding
> Project planning & execution
> Change management
> Communication
> Teaming & collaboration
This requires that today’s OpX executives understand the magnitude of change involved, build a comprehensive
program, and develop and deploy the appropriate communications, training, metrics and rewards in order to
drive operational and cultural change.
“To move an organization forward, you have to facilitate and coach everyone through the change process,” said
Ramsey. Despite the work involved, it is an attractive aspect of the job for many OpX experts. “I was intrigued
by the opportunity. It’s not very often you get the chance to be involved with changing a culture of 60,000 peo-
ple,” said Gross.
Communication
In order to lead change management — and work well with the business units — operational excellence leaders
must be exceptional communicators. Not only must they carefully listen to external and internal customer
needs, but they also need to clearly articulate how they can meet those needs. Effective, two-way communica-
tion is especially important when working with the business units.
The creation of a common language of continuous improvement is a means of achieving effective communica-
tion. “We got everyone to talk about improvement in the same way. For instance, everyone knows what should
be in a scope document or what a change plan looks like. That makes it much easier to communicate effective-
ly. It’s just logic and common sense and that never goes out of fashion,” said Cockroft.
According to Gross, personality can make the difference. “Collaboration is most important. It doesn’t work well
to go in and be critical of the plant and say everything has to be fixed. You need a collaborative, nonthreatening
person with a soft-handed approach,” he said.
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recruiting top talent
In addition to overcoming cultural resistance, recruiting and retaining top operational excellence talent is cited
as one of the biggest challenges to achieving a continuous improvement culture.
One problem is that people tend to compartmentalize themselves. It often is difficult to find someone who can
do it all — lean, Six Sigma, supply chain, quality — as a generalist. Gross concurred: “This is why we look for
people who believe that quantum leaps are always in front of them, which is why we look for traits beyond
expertise in the tool sets.”
Organizations committed to implementing operational excellence can take one of two paths: hire externally or
develop the talent internally. It is not surprising that the most successful companies tend to do both.
For organizations unable to quickly develop the level of technical and leadership expertise they require, one
option is to bring in outside experts who are responsible for coaching and mentoring the team. Whirlpool ini-
tially retained an external consulting firm to train a number of hand-picked people and provide benchmarking.
“We then developed our own experts internally,” added Armes. “As part of its centralized group, the company
now has an appropriate number of master black belts who are responsible for the training and development of
its many black belts within the various business and functional units.”
GE initially leaned toward recruiting talent from outside as well; however, for operational excellence to become a
philosophy, the company needed leaders, not just Six Sigma toolkit experts. GE required that business unit lead-
ers develop Six Sigma toolkits and skill-sets and then enhance their leadership style.
“If you hire just a ‘quality guy,’ he will just talk about quality. I want
an OpX person who can speak business.”
— Roger Cockcroft, Vice President of Business Improvement for Constellation Energy Group
Cockroft said: “At Constellation, we rotate people through critical jobs to learn the tools. As part of our black
belt program, we identify high-potential middle management folks and take them out of their operating units to
train and develop their operational excellence skills. They then return to their business units while continuing to
work on OpX projects.”
It is extremely effective for organizations to select internal line people, those with experience running a busi-
ness, and train them as an OpX expert before returning them to the line. “At Honeywell, we developed internally
and only recruit externally in the rarest of situations, usually overseas. OpX was a great way for us to develop
management talent,” said Ramsey.
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opx of the future
No longer limited to purely manufacturing operations, more and more industrial companies are working to
implement an integrated approach to operational excellence. “At Eaton, we are launching a holistic enterprise
initiative. We can’t just make it an initiative for the factories, we need to make it happen in the office, where
there is a lot of waste,” said Gross. While Eaton looks at the back office, Constellation Energy is moving OpX
into the commodities world.
To expand their efforts, operational excellence leaders need to take the tools and make them applicable to the
tasks that people do. For example, Honeywell applies the same set of tools to its 20,000 engineers as it does to
its hardware and software designers.
In addition, OpX standards always are a moving target. Hewett said: “Once the customer is happy, the goal
post gets even higher and further away. All of a sudden, what was considered Six Sigma is no longer. It’s a
never-ending quest. We’re always working on improving our efficiency, especially when you look at our size,
we’re always institutionalizing.”
By understanding the inherent challenges associated with operational excellence and, more important, the suc-
cess factors and skills needed to overcome those challenges, organizations will be better positioned to create a
culture of continuous improvement — one that is never satisfied with the status quo.
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About Spencer Stuart
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