Operational Excellence is Critical for Productivity Growth

Operational Excellence is a helpful strategy for business leaders trying to navigate government regulations and policies that cost them time and effort, and thereby dampen innovation, investment and growth. To maintain margins and financial flexibility, the best response to such pressures is to keep improving productivity growth.

As part of a series on sustaining long-term global prosperity, Essays on Growth, the McKinsey Global Institute has also pointed out the economic dangers of a slowdown in macroeconomic productivity growth. In that article Bart van Ark, chief economist of The Conference Board, writes about government policies, “There is no silver bullet to create productivity. And even drivers that work in some circumstances have the opposite effect in others.” Narrowing his focus, he also points out, in the context of maintaining a higher long-term productivity growth rate, that, “within organizations, management practices can still greatly improve to drive out inefficiencies, which should help to shorten the long tail of inefficient business practices that often remain.” We couldn’t agree more.

There are so many opportunities for businesses of all types in developed and emerging economies to leverage operational excellence to drive productivity growth in their operations. We believe such efforts can be reduced to four major elements:

1. Leadership engagement
2. A disciplined management system
3. Cascading strategic goals throughout the organization to align improvement activity at all levels with the core business objectives
4. Relentless questioning of how your processes work today

All of these don’t have to come together at the same time, and they usually don’t. But they do have to come together eventually to maintain productivity growth over the long haul that are 3X or 4X the industry average.

For example, in this TBM case study about Operational Excellence and Value Creation, one of our clients used operational excellence practices to transform its maintenance services, and then made a deeper commitment that improved their internal productivity as well as the productivity for one of their largest customers, thereby securing significant future business well ahead of schedule.