MOR 559 – Strategic Renewal
University of Southern California
Operational Excellence
& Organizational Agility
Sustaining High-Performance
Lecture 9
©2000, Michael A. Mische
MOR 559 – Strategic Renewal
University of Southern California
Lecture 9:
DESCRIPTION & OVERVIEW
The need for operational excellence and organizational agility in high-performance and as a source of strategic renewal are well
documented. In this session we explore the various aspects of operational excellence and the need for agile and adaptable
organizational designs and cultures. This class is designed to provide you with increased perspective and an operating knowledge of:
•
The definition of operational excellence and agility
•
The differences between agility, flexibility and speed
•
The various tools and techniques for creating operational excellence and organizational agility
•
The impact of the human performance and culture on the ability of an organization to create operational excellence and
organizational agility
•
The role of outsourcing in the achieving operational excellence
In addition, we will explore the use of benchmarks and discuss the limitations inherent with relying on “best practices”.
KEY LEARNING CONCEPTS
There are several important learning concepts and objectives for this class session. First, we discuss the trademarks and
characteristics of operational excellence and agility. Second, we review the impact of excellence on organizational and financial
performance and develop a basic understanding of principles and concepts of operational excellence and agility. Third, we discuss the
organization competencies required to develop and sustain excellence. Fourth, we explore how companies develop operational
excellence. Fifth, we discuss the need for the integration of technology, process design and organizational structures as a requisite for
operational excellence and organizational agility.
Inherent in our discussions will be a review of the concept of value and what it means to “design for value”. Finally, the concepts of
designing for adaptability and sustainability are discussed.
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Lecture 9:
CLASS SCHEDULE & AGENDA
READINGS
Mische: Strategic Renewal, Chapter 9
I.
II.
6:00 – 6:15
6:15 – 6:30
Course Related Q&A
Student Concerns
General Discussions
Review of previous
material
Preview of current
week’s material
III.
6:30 – 7:30
Lecture
IV.
7:30 – 7:45
Break
V.
7:45 – 9:00
Lecture & Material/
Topic Discussion
VI.
8:45 – 9:30
Case Examples &
Discussions
VII.
9:30 – 10:00
Professor Available for
Q&A, Discussion, etc.
©2000, Michael A. Mische
Garvin: “Leveraging Processes for Strategic Advantage,”
HBR, 95502
The Adams Corporation (HBS) – 9-372-263
Corcoran: “Reinventing Intel,” Forbes, May 3, 1999
Einstein: “Intel: Elephant in a Tutu,” Forbes, April 13, 2000
Einstein: “AMD Shows It’s Ready for Prime Time,” Forbes,
April 13, 2000
CASES
The Microprocessor Industry:
Intel Corporation and AMD (article-built cases)
Adams Corporation (HBS case)
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Lecture 9:
CONCEPT DISCUSSION & QUESTIONS
1.
Discuss the importance of process design in achieving operational excellence. What types of
designs are possible and what types of the benefits and weaknesses do they represent?
2.
To what extent can operational excellence and organizational agility be facilitated or inhibited
by information technology (IT)? Under what conditions could IT be a catalyst for operational
excellence and organizational agility?
3.
How can an organization use supplier relationships and outsourcers to help it achieve both
operational excellence and organizational agility? Consider the implications and also critical
success factors of outsourcing and long-term vendor relations.
4.
What programs and initiatives can an organization design that will indicate operational
excellence in the following areas (discuss some real life cases):
•
Customer satisfaction and loyalty
•
Cycle times for problem resolution, order fulfillment, and manufacturing/service delivery
•
Service and or product quality
•
•
Service and or product quality
Employee relations and morale
CASE DISCUSSION & QUESTIONS
Not specified
Interactive class discussion
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Lecture 9:
LECTURE SUMMARY
Operational excellence is central to creating strategic advantage and can be a catalyst for strategic
renewal. High-performance organizations exhibit operational excellence and organizational agility in a
number of ways:
•
Operational excellence is a state in which the organization exists – constantly.
•
Extend operational excellence to all relevant functions, processes and interactions including those
that are external to their organization and especially to those that involve customer interactions,
key suppliers, and product/service design and delivery or manufacturing.
•
Use operational excellence as a catalyst for strategic renewal and change.
•
Make it a strategic imperative to selectively integrate portions of business designs, technologies
and outsourcing partners for leverage and economies of scale.
Organizations that successfully establish operational excellence and its compliment, organizational
agility, as a strategic pillar will generate significant advantages and better financial results compared to
those who fail at such efforts.
CLASS & INDIVIDUAL ASSIGNMENTS
©2000, Michael A. Mische
SUPPLEMENTAL MATERIAL
N/A
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
“To grow, our companies have to become much
more flexible, much lighter on their feet. You can’t
be light on your feet if you’re carrying a lot of
baggage.”
Christian Koffman, Worldwide Chairman of the Consumer &
Personal Care Group, Johnson & Johnson
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Operational Excellence & Organizational Agility: The
Fourth Pillar of Strategic High Performance…
Leadership
Operational
Excellence &
Agility
Knowledge
Innovation
Information
Technology
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
OE As a High-Value Competency: Five Critical Issues
1. What is the definition of operational excellence
relative to high-performance organization?
2. Why is operational excellence important as a strategic
pillar?
3. What are the characteristics and qualities of
operational excellence?
4. How does an organization create operational
excellence?
5. What is the role of organizational agility in operational
excellence?
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Operational Excellence Is Defined As…
“The design and performance of integrated systems and
processes that create superior strategic, competitive and
operational value through speed, flexibility and crosspurpose adaptability.”
Mische: Strategic Renewal
Key Terms
SYSTEM
©2000, Michael A. Mische
PROCESS
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
System & Process – Definitions
SYSTEM…
PROCESS…
“…is a set of integrated
activities supported by related
organizations and
technologies that are designed
to achieve desired outcomes
based on predetermined
measures. “
“set of interrelated work
activities characterized by
specific inputs and valueadded tasks that produce
specific customer-focused
outputs.”
V. Sethi & W. King
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Many Factors Influence Operational Excellence…
Knowledge
Technologies
Organizationa
l Structure
Process
Execution
Humans
PROCESS PERFORMANCE
PROCESS OUTCOMES
VALUE GENERATED
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
OE: Cases in Point…

High-performers achieve operational excellence through an effective
design and implementation of their overall business architecture.

How did the following companies develop their business architecture
and integrated their processes to achieve operational excellence:
Chrysler
$240 development costs
(Sebring)
vs.
Ford
$700 mill
(Mustang)
Dell
24-hour order shipment
Compaq
35 days
Gateway
12 days
(1999 data)
GE
26 days mfg. time
(locomotives); considerably better than GM
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Business Architecture for OE
OPERATIONAL EXCELLENCE
MINIMIZE TOTAL
TRANSACTION
COSTS
MAXIMIZE
CREATED VALUE
OPERATIONS & DECISIONS
GREATER SPEED
HIGHEST
QUALITY
MIN. HUMAN
INTERVENTION
OVERALL BUSINESS ARCHITECTURE
KNOWLEDGE
©2000, Michael A. Mische
INFORMATION
TECHNOLOGY
HUMAN
PERFORMANCE
TECHNOLOGY
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Benchmarking in OE: A Critical Element

Benchmarking is defined as:
“The process of using consistent tools and practices to identify,
analyze, measure and contrast the behavior and performance of
comparable processes and activities within an organization, a
specific industry or across various industries.”
Mische: Strategic Renewal

Benchmarking communicates 3 important messages:
1. What is possible
2. What others have accomplished
3. What other are doing

Three approaches to benchmarking:
– Intra-company benchmarks
– Intra-industry benchmarks
– Cross-industry benchmarks
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Intra-Company Benchmarks


Performed within a company on its processes, operations,
organizational performance and other functions
Compare costs and performance among similar as well as different
functions
BENEFITS:
 Easiest to perform
 Least costly
DRAWBACKS:
 Often biased by internal politics
 Restricted in design and scope
 Sometimes incomplete in rationalization of processes
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Intra-Industry Benchmarks

Derived from several different companies in the same industry
BENEFITS:
 More diversified
 More representative that intra-company benchmarks
DRAWBACKS:
 More expensive to perform
 Require greater effort to rationalize data
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Cross-Industry Benchmarks

Include many different companies irrespective of industry and/or
processes and operations
BENEFITS:
 Broadest
 More sophisticated
 More meaningful
 Most indicative
DRAWBACKS:
 Most expensive to perform
 Very complex to analyze and rationalize
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Characteristics
Benchmarking: An Overview – Summarized
Internal
Intra-Industry (External)
Benchmark is performed
within the organization.
Benchmark can be interdivisional, intra-divisional or
within a department.
Benchmark is performed among
a select group of competitors
within an industry.
Benchmarking is performed
across industries using
different companies.
 Easy to perform
 More complex process
 Inexpensive
 Higher investment
 Extremely complex, requires
careful design and execution
 Confined area of
interest, limited insights
 Provides broader
perspective and insight
 Can be difficult to perform
Cross Industry (External)
 Significant investment
 Provides more comprehensive
perspectives and greater
insights
 Very difficult and expensive to
perform
Approach to Benchmarking: 7 STEPS
Step 1: Determine what to benchmark
Step 2: Define benchmarking standards
Step 3: Determine benchmarking strategy
Step 4: Develop work and staffing plans
Step 5: Perform the benchmark
Step 6: Analyze results
Step 7: Formulate insights
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
The Limitations of Benchmarking
1. At best, benchmarking can lead to a “successful” imitation of
competition
2. A company cannot gain a competitive advantage by meeting a
benchmark
3. A company cannot achieve a sustainable advantage through
benchmarking, because:
 The external and industry environment is highly dynamic and
rapidly changing
 The “benchmarkee” itself is continuously improving its internal
processes and performance
4. Benchmarking itself often fails, because the concept of “best
practice” is highly elusive and ill-defined:
 Poor identification and assessment criteria
 Poor interpretation
 Time factor and obsolescence
 Potential restriction on creativity and innovation
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Creating Operational Excellence
The high-performing companies embrace 5 objectives in
creating OE at the process level:
1.
Designing for Economic and Strategic Value
2.
Designing for Multiple Domains
3.
Designing for Flawless Execution
4.
Designing for Adaptability
5.
Designing for Sustainability
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Designing for Economic & Strategic Value

In the context of high performance, value is defined as:
The creation of tangible economic and operational benefits through:
1) Improved customer attraction and loyalty
2) Increased revenues and profitability
3) Reduced total transaction costs
4) Increased competitive advantage.
M.Mische: Strategic Renewal

Economic Value Proposition must be developed:
– A representation or statement as to what a certain program,
project, objective, or action is worth to the consumer,
organization and or employee.
M.Mische: Strategic Renewal
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Designing for Value, cont’d

The design of the process must reflect the following characteristics:
1. Clear alignment and congruency with organizational strategic
and operational objectives
2. Distinct cause-and-effect relationship between expected,
needed, and produced outcomes
3. Optimization of competencies, resources and organizational
capabilities, especially IT, human resources and knowledge
4. Creation of synergies of purpose and leveraging of human and
IT performance
5. Appropriate integration of technology
6. Outcome-driven
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Designing for Multiple Domains

Designs must be functional and adaptable to a fluid environment

Created processes must be:
– Adaptable
– Scalable
– Transportable
enterprise-wide as well as to other potential users

Three tenets underlie the concept of design for multiple domains:
1. Design/operation of the process can be singular, modular,
vertically integrated or externally extended
2. Design/operation of the process should allow for the efficient
switching between these multiple forms of process and
organizational designs in a cost-effective manner
3. Design/operation of the process should consider the unique
aspects and requirements of customers, manufacturing
capabilities and collaborative suppliers
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Process Designs and Operations: Overview
Singular
 exist for a highly specialized purpose
 relatively independent of other processes and organizational
competencies
 little end-customer interactions
 relatively low value generating activities
 can be performed by internal resources, external resources, or
outsourcing partners
 examples: product testing for legal or regulatory requirements,
financial auditing, etc
Modular
 represent a major sub-system, sub-assembly or significant
percentage of an overall process architecture or system
 typically integrated into an overall process architecture
 complete sub-systems that are ready to be “plugged into” or readily
adapted to an overall larger product or operation
 the result of internal competencies and collaborative agreements
with outsourcing partners, subject matter or specialty providers
 high customer and competitive value to the organization
 examples: computer industry (Intel chips, MS software), etc.
Vertically
Integrated
 provide essentially for the entire process
 related human and physical and natural resources are owned and
operated by the company executing the process
 Examples: industrial giants such as GM
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Process Design: The Selection Process & Criteria
Three factors affect assessment and selection:
1. Flexibility
2. Cost
3. Longevity
Additional considerations include:








©2000, Michael A. Mische
Number of available partners
Quality requirements
Complexity
Total transaction costs
Cycle times
Proprietary nature of involved intellectual capital
Brand name exclusivity
Switching costs among various alternatives
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
OE & Outsourcing
Outsourcing is defined as:
“Transferring of all or part of a function, resources, personnel and
services to a third-party that provides specialized services that are
contractually defined in scope, character and cost for a specified
period of time.”
Mische: Strategic Renewal
Three main reasons for outsourcing:
1. Cost reduction
2. Improving service delivery capabilities
3. Capitalizing on superior external expertise and talent
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Outsourcing Decision-Making
Companies must address some key questions regarding outsourcing.
Specifically, does it allow to:
1. Support the business direction
2. Represent a good “fit”
3. Reduce costs at sustainable annual target rates
4. Maintain required management controls
5. Retain functional/technical infrastructure flexibility for changing
business needs
6. Improve technical competencies and capabilities
7. Mitigate risk and costs
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Outsourcing Processes and Procedures
1. Develop realistic outsourcing objectives and options, given:
 Existing needs
 Future needs
2. Use specialized legal services for contracting
3. Consider intellectual property laws and copyrights
4. Examine exit options and cost implications
5. Determine performance measures and monitor performance
6. Establish collaborative partnership with outsourcer
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Approaching Outsourcing
PHASE
Strategy
Alternatives
Services
PROCESS
Budgets
PHASE 1
PHASE 2
PHASE 3
PHASE 4
Baselining
Determine
Outsourcing
Strategy
Develop
Outsourcing
RFP
Evaluate
Vendor
Alternatives
Vision
Users
Business
Plan
Requirements
Metrics
Issues
Systemic
Risk
Risk
Assessment
Vendor
List
Final
Evaluation
Criteria
Benefits
Formal
RFP
Evaluation
Process
Legal
Business
Rationale
Vendor
Profiles
Legal
Review
Strategy
Alternatives
Vendor
Evaluation
Criteria
Initial
Vendor
Evaluation
Shareholder
Outsourcing
Strategy
RESULT
©2000, Michael A. Mische
Vendor
Conference
Vendor
Evaluation
Criteria
Organizational
Change
Process
Change
Staff
Training
Performance
Measures
Costs
Vendor
Selection
Implementation
RFP
Initial Decision
to Outsource
Implementation
Strategy
Unsystematic
Risk
Viability
Assessment
PHASE 5
Final
Outsourcing
Decision
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Designing for Flawless Execution
 Achieves maximum efficiency in process execution through:
Effective
Measurements
Meaningful
Performance
Targets
Design
Flexibility
©2000, Michael A. Mische
Simplicity of
Design
Flawless
Execution &
Desired
Outcomes
Accountability
Design of
Organizationa
l Structure
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Designing for Adaptability
The design must:
1. Reflect the organization’s immediate needs as well as longerterm objectives
2. Account for and address the organization’s capabilities and
limitations
3. Provide for transferability
4. Incorporate the use of appropriate knowledge and realistic
technologies and innovations
5. Be capable of changing to meet the demands of the environment
and new technologies
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Designing for Sustainability
Characteristics of sustainable designs:
1. Provide for the transfer of knowledge
• No abundance of documentation and information
• Reflect the unique tacit knowledge
2. Have embedded heuristics
• Interrogate the process
• Measure performance
• Influence the behavioral aspects of the process
• Communicate effectiveness
3. Ensure continuous improvement and innovation
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
OE and Organizational Agility
Organizational agility is defined as:
“The capacity to quickly and efficiently create, redeploy,
reconstitute, and reallocate the resources of the organization in a
manner which optimizes their use in an environment or allows them
to create new environments.”
Mische: Strategic Renewal

©2000, Michael A. Mische
Organizational agility is the essential enabler of operational
excellence.
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Organizational Agility: Observations
 Agility is a state in which the organization exists.
 The degree or level of agility is unique for each
organization.
 The need for agility is different for each organization.
 The ability to be agile is directly related to human
performance and the processes and technologies of the
organization.
 Sustaining agility can be more difficult than creating it.
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Creating Organizational Agility
Involves processes and structures for:
1. Redeployment and reallocation of resources
 Introduction of new technologies and processes
 Addition of new personnel
 Retraining of existing personnel
2. Selective integration of organizations and processes
 Organizing resources and actions around core processes
and competencies
 Selective integration of organizations through internal
consolidation of common infrastructure functions
 Selective use of key suppliers, alliance partners and
outsourcing specialists
 Development of Shared Service Organization (SSO) for
extraordinary leverage of resources and common
services
©2000, Michael A. Mische
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
Five Core Processes of Shared Services
 High-performers excel at the following five core processes:
Creating
Demand
Satisfying
Demand
Leading
the
Enterprise
Creating
Products
&
Services
©2000, Michael A. Mische
Managing
Technolog
y
Operational Excellence & Organizational Agility
MOR 559 – Strategic Renewal
University of Southern California
OE… Summarized

OE is central to creating strategic advantage

OE is a catalyst for strategic renewal

High-performance organizations exhibit operational excellence and
organizational agility in a number of ways:
– OE is a state in which the organization exists, it is a continuous
process
– Extend OE to all relevant functions, processes and interactions
– Use OE as a catalyst for strategic renewal and change
– Make it a strategic imperative to selectively integrate portions of
business designs, technologies and outsourcing partners for
leverage and economies of scale
Operational excellence is central
to creating and sustaining
strategic advantage and change!
©2000, Michael A. Mische
Operational Excellence & Organizational Agility