Operational Excellence – Journey to Creating Sustainable Value

<p>Biography of John S. Mitchell xv</p>
<p>Preface Journey to Operational Excellence xvii</p>
<p>Acknowledgments xxi</p>
<p>Introduction 1</p>
<p>1 Operational Excellence The Imperative 7</p>
<p>Definition of Operational Excellence 7</p>
<p>Definitions from Leading Global Enterprises 8</p>
<p>A Simpler Definition for Operational Excellence 9</p>
<p>Operational Excellence Embraces Everyone in an Enterprise 9</p>
<p>Operational Excellence Improves Efficiency 10</p>
<p>Efficiency and Effectiveness 10</p>
<p>A Familiar Program 11</p>
<p>Description 12</p>
<p>The Journey 13</p>
<p>Roadmap to Operational Excellence 14</p>
<p>Reliability 14</p>
<p>Risk 15</p>
<p>Changes in the Business/Mission Environment 15</p>
<p>Conventional Operations Management 16</p>
<p>Maintenance Within an Operating Enterprise 17</p>
<p>Managing Improvement Initiatives 17</p>
<p>The Solution 19</p>
<p>Leadership 20</p>
<p>Working Level Improvement Action Teams 20</p>
<p>Operational Excellence Improvement Initiatives 21</p>
<p>Sustainability 22</p>
<p>Effectiveness and Value Throughout the Enterprise 22</p>
<p>The Operational Excellence Initiative 23</p>
<p>Operating Performance Excellence 24</p>
<p>Asset Performance Excellence 24</p>
<p>Success Greater Than the Sum of the Parts 25</p>
<p>Essentials for Success 25</p>
<p>Application 26</p>
<p>What You Should Take Away 26</p>
<p>2 Application of Operational Excellence 29</p>
<p>Process Characteristics 29</p>
<p>Operating/Market Environment 31</p>
<p>Enterprise Strategy 32</p>
<p>Strategic and Tactical Endeavors 33</p>
<p>Growth Strategy 34</p>
<p>Effectiveness 34</p>
<p>Changes in the Operating Environment 34</p>
<p>Value 35</p>
<p>Journey into the Future 36</p>
<p>What You Should Take Away 39</p>
<p>3 Foundation Principles 41</p>
<p>Operational Excellence A Program Equivalent to Safety 41</p>
<p>Use of Proven Practices 42</p>
<p>Scope of Operational Excellence 43</p>
<p>Financial Considerations 44</p>
<p>Driven by Business/Mission Results 45</p>
<p>Foundation Principles 47</p>
<p>Principles of Operational Excellence 47</p>
<p>Six D s of Operational Excellence 47</p>
<p>Eight Elements of the Operational Excellence Program 48</p>
<p>Results 49</p>
<p>Leadership 49</p>
<p>Requirements 50</p>
<p>Program Definition 50</p>
<p>Supporting Practices and Procedures 50</p>
<p>Working Culture 51</p>
<p>Information Management 51</p>
<p>Follow–Up 52</p>
<p>Implementing the Operational Excellence Program 52</p>
<p>Benefits of Operational Excellence 52</p>
<p>Improved SHE/EHS Performance 52</p>
<p>Reduced Risk 53</p>
<p>Improved Production/Mission Operational Effectiveness 53</p>
<p>Improved Reliability 54</p>
<p>Greater Predictability Reduced Variation 54</p>
<p>Improved Capital Effectiveness 54</p>
<p>What You Should Take Away 54</p>
<p>4 The Operational Excellence Program Overview 57</p>
<p>Initiation 57</p>
<p>The Value Principle 59</p>
<p>Use of Proven Practices Processes and Technology 61</p>
<p>Operational Excellence Program 63</p>
<p>Improvement Processes 64</p>
<p>The Operational Excellence DIPICI Process 65</p>
<p>Implementing Sequence 66</p>
<p>Program Elements 67</p>
<p>Essentials for Success 67</p>
<p>Results 67</p>
<p>Leadership 68</p>
<p>Requirements 68</p>
<p>Program Definition 68</p>
<p>Practices and Procedures 69</p>
<p>Working Culture 72</p>
<p>Information Management 74</p>
<p>Follow–Up 74</p>
<p>Implementation 75</p>
<p>Where and How to Begin? 77</p>
<p>Considerations for Commencing with a Pilot 79</p>
<p>Third Party Facilitation Assistance 79</p>
<p>What You Should Take Away 80</p>
<p>5 Business and Financial Elements 81</p>
<p>Connection to Business Results 81</p>
<p>Performance Measures 82</p>
<p>The Opportunity 83</p>
<p>Profit Center Mentality 83</p>
<p>Justifying Improvements 84</p>
<p>Value Prioritization 85</p>
<p>Value Imperative for Operational Excellence 85</p>
<p>Definition 85</p>
<p>Financial Orientation 86</p>
<p>The Financial Statement 86</p>
<p>Selecting Financial Measures of Performance 87</p>
<p>Accurate Lifetime Cost Tracking 88</p>
<p>The Business Value Model 89</p>
<p>Value Within an Operating Environment 92</p>
<p>Value Within Operations and Maintenance 93</p>
<p>Operating Effectiveness 93</p>
<p>Overall Operational Effectiveness 93</p>
<p>Real Compared to Normalized Values 95</p>
<p>Leveraging Mission/Conversion Effectiveness 95</p>
<p>What You Should Take Away 97</p>
<p>6 The Essential Evolution to Real–Time Business Operational Excellence 99</p>
<p>Background 100</p>
<p>Necessity for Real–Time Operational Excellence 101</p>
<p>Integrated Business and Operations System 102</p>
<p>Real–Time Business Focus 102</p>
<p>Developing Real–Time Business–Driven Operational Excellence 105</p>
<p>Segmenting a Complex Concept 107</p>
<p>What You Should Take Away 111</p>
<p>7 Leadership Vision Strategy 113</p>
<p>Executive Champion 113</p>
<p>Visibly Engaged 114</p>
<p>Communicate Compelling Vision 115</p>
<p>Define Overall Enterprise Business Strategy 116</p>
<p>Translate Business/Mission Objectives into Program Requirements 116</p>
<p>Select Appoint and Empower Operational Leaders 116</p>
<p>Continuing Tasks 116</p>
<p>Steering Team 117</p>
<p>General Guidelines 118</p>
<p>Appoint Operational Excellence Program Leader/Champion 119</p>
<p>Define Program Charter 119</p>
<p>Facilitate Teamwork 121</p>
<p>Empowered Decisions 121</p>
<p>Leadership Succession 122</p>
<p>Program Leader/Champion 123</p>
<p>Summarized Duties and Responsibilities 123</p>
<p>Program Leadership Team 124</p>
<p>What You Should Take Away 125</p>
<p>8 Safety and Human Performance Excellence 127</p>
<p>Safety Performance Excellence 127</p>
<p>Risk Management 127</p>
<p>Human Performance Excellence 130</p>
<p>Automation Technologies 131</p>
<p>Improvement Culture 132</p>
<p>What You Should Take Away 133</p>
<p>9 Define the Program and Program Objectives 135</p>
<p>Executive Leadership 136</p>
<p>Operating Organization 136</p>
<p>Steering Team 136</p>
<p>Program Leader/Champion 139</p>
<p>Program Plan 139</p>
<p>Program Objectives 140</p>
<p>Mission Statement 140</p>
<p>Charter 141</p>
<p>Principles 142</p>
<p>Values 142</p>
<p>Program Strategy 143</p>
<p>Organization: Management Control and Administrative Systems 144</p>
<p>Organizational Objectives 146</p>
<p>Business and Risk Models 147</p>
<p>Formulate Program Operating Plan 147</p>
<p>Appoint Working–Level Leaders Champions 150</p>
<p>Program Leadership Team 151</p>
<p>Add/Optimize Supporting Processes 153</p>
<p>Information Structure and System 153</p>
<p>Activity–Based Management/Accounting 154</p>
<p>Roll Out Operational Excellence Program 155</p>
<p>Maintain Motivation and Enthusiasm 155</p>
<p>Clear Acknowledgement that Sustainable Progress Requires Time 155</p>
<p>What You Should Take Away 156</p>
<p>10 Optimize the Organization 157</p>
<p>Organizational Requirements for Successful Operational Excellence 158</p>
<p>Inspiring People 158</p>
<p>Consistency of Message and Action 159</p>
<p>Necessity for Improvement Requirements and Overall Objectives 159</p>
<p>Empowerment 160</p>
<p>Establish the Basis for Organizational Improvement 161</p>
<p>Initiating Organizational Improvement 163</p>
<p>Improvement Management Process 163</p>
<p>Identify Potential Structural and Organizational Improvements 164</p>
<p>Move the Organization from Management Control to Team Partnership 164</p>
<p>Work Culture 165</p>
<p>Achieving Individual and Organizational Success 165</p>
<p>Improving Behaviors 166</p>
<p>Skills Management and Training 166</p>
<p>Information as a Basis for Training 167</p>
<p>Personnel Reductions 168</p>
<p>Necessity for Effective Communications 169</p>
<p>Communications Requirements 170</p>
<p>Communication Groups 171</p>
<p>Messaging 174</p>
<p>Communications Program 175</p>
<p>Communications Team 175</p>
<p>Methods of Communication 176</p>
<p>Address all Anticipated Concerns 177</p>
<p>What You Should Take Away 177</p>
<p>11 Conduct Initial Training Workshops 179</p>
<p>Establish Team Training Facilitation and Review Process 180</p>
<p>Technical Training 180</p>
<p>Workshop Description 181</p>
<p>Workshop Process 181</p>
<p>Review and Refine Program Basis 184</p>
<p>What You Should Take Away 184</p>
<p>12 Identify and Value Prioritize Opportunities for Improvement 185</p>
<p>Validate Scope of Improvements 185</p>
<p>Opportunity Identification Process 187</p>
<p>Primary Detractors from Business/Mission Effectiveness 188</p>
<p>Performance Objectives 188</p>
<p>Improvement Methods 190</p>
<p>Step–Change Improvement 190</p>
<p>Continuous Improvement 191</p>
<p>Identifying Specific Potential Improvements 191</p>
<p>Quantify and Prioritize Opportunities In Business Terms 193</p>
<p>Value Prioritization 194</p>
<p>Necessity for Complete Accurate Data 194</p>
<p>Identify Below–Average Performance and Performers 195</p>
<p>History 195</p>
<p>Categories of Performance 196</p>
<p>Safety Health Environment 196</p>
<p>Conformance to Business/Mission Objectives 196</p>
<p>Multiple Objectives 197</p>
<p>Methods for Identifying Opportunities 197</p>
<p>Pareto Analysis 197</p>
<p>Risk 201</p>
<p>Risk Analysis 203</p>
<p>Failure Modes and Effects Analysis 205</p>
<p>Financial Normalization 207</p>
<p>Analyze to Determine Highest Potential Value Opportunities 207</p>
<p>Identify Value Potential Probability of Success 208</p>
<p>Valuation Challenges 209</p>
<p>Final Stage 209</p>
<p>Construct Priority List for Improvement 210</p>
<p>Expand Leadership Team 210</p>
<p>What You Should Take Away 211</p>
<p>13 Process Reliability Techniques Help Make More Money 213</p>
<p>Introduction 213</p>
<p>Pareto Distribution 214</p>
<p>Cause of Deficiencies 215</p>
<p>Traditional Weibull Plots 216</p>
<p>Process Weibull Plot 216</p>
<p>Waste and the Hidden Factory 218</p>
<p>Production Weibull Analysis 219</p>
<p>World–Class Performance 219</p>
<p>4th Quartile Performance 221</p>
<p>Weibull Probit Analysis 223</p>
<p>First Compared to Fourth Quartile Performance 224</p>
<p>What You Should Take Away 226</p>
<p>References 227</p>
<p>14 Plan Opportunities for Improvement 229</p>
<p>Appoint Improvement Action Teams 230</p>
<p>Responsibilities 230</p>
<p>Refine Preliminary Improvement Plans 232</p>
<p>Refine Improvement Opportunities 233</p>
<p>Obtain Required Information 233</p>
<p>Validate Value Delivered: Contribution to Enterprise Business/Mission Objectives 234</p>
<p>Confirm Priority to Assure Greatest Return 235</p>
<p>Select Set of Improvement Opportunities for Detailed Plan Development 235</p>
<p>Prioritize Actions for Quick Results 236</p>
<p>Under Promise Over Perform 236</p>
<p>Compensate for Inadequate or Incomplete Information 236</p>
<p>Develop Detailed Improvement Action Plans for Highest Value</p>
<p>Improvements 237</p>
<p>Define Starting Point 237</p>
<p>Identify Requirements for Success 237</p>
<p>Detail Action Steps 238</p>
<p>Define Investment and Resources 239</p>
<p>Estimate Probability of Success: Potential Risk and Barriers 239</p>
<p>Identify Responsibility 240</p>
<p>Validate Contribution of Planned Results Benefit/Cost to Program and Enterprise Business/Mission Objectives 240</p>
<p>Formulate Transition Plan 240</p>
<p>Develop Continuous Improvement and Sustaining Plans 241</p>
<p>Consider Pilot Implementation 242</p>
<p>Finalize and Submit Improvement Action Plans for Approval 243</p>
<p>Following Approval 244</p>
<p>What You Should Take Away 245</p>
<p>15 Measures of Performance Metrics and KPIs 247</p>
<p>Types of Metrics 248</p>
<p>Activity Metrics 249</p>
<p>Results Metrics 249</p>
<p>Leading and Lagging Metrics 250</p>
<p>Establishing Objectives 250</p>
<p>Benchmarks 251</p>
<p>Use of Metrics 252</p>
<p>Requirements 253</p>
<p>Characteristics 255</p>
<p>Definitions 256</p>
<p>Establish Magnitude of Value/Opportunity 257</p>
<p>Hierarchy of Operational Excellence Metrics 259</p>
<p>Operating Effectiveness 259</p>
<p>Lost Opportunity 262</p>
<p>Quality 262</p>
<p>Other Metrics 262</p>
<p>Selection of Metrics 263</p>
<p>Applicability 263</p>
<p>Best Measures 263</p>
<p>Concentrate on Results and Success 265</p>
<p>Key Performance Indicators 265</p>
<p>Graphical Displays 266</p>
<p>Benefits of Metrics 267</p>
<p>What You Should Take Away 268</p>
<p>16 Implement Improvement Action Plans 269</p>
<p>Refine the Organization 270</p>
<p>Deploy Resources 272</p>
<p>Purchase Capital Equipment 272</p>
<p>Conduct Training 272</p>
<p>Deploy Practices and Technology 273</p>
<p>Implement Improvement Action Plans 274</p>
<p>Establish Internal Oversight and Monitoring 275</p>
<p>Drive the Improvement Process 276</p>
<p>Overcome Barriers 276</p>
<p>Communicate Results and Successes 277</p>
<p>What You Should Take Away 277</p>
<p>17 Performance Assessments 279</p>
<p>Overall Description 280</p>
<p>Assessment Methods 280</p>
<p>Assessment Process 281</p>
<p>Assessment Preparation 282</p>
<p>Identify Operating/Functional Unit and Requirements 282</p>
<p>Identify the Specific Program Program Element and Procedure to be Assessed 282</p>
<p>Identify Stakeholders 282</p>
<p>Select a Qualified Assessment Team and Team Leader 282</p>
<p>Site Appoints Host and Establishes Timing Commencement and Completion 282</p>
<p>Strategically Plan the Assessment 283</p>
<p>Perform the Assessment 285</p>
<p>Alignment Meeting 286</p>
<p>Assessment Procedure 286</p>
<p>Assessment Template 288</p>
<p>Background 288</p>
<p>Template Organization 289</p>
<p>Evaluating Results 291</p>
<p>Necessity for Additional Assessment 291</p>
<p>Conclusion Summary Recommendations and Site Wrap Up 292</p>
<p>Prepare Formal Assessment Report 292</p>
<p>Executive Summary: Key Findings and Recommendations 292</p>
<p>Introduction and Objectives 293</p>
<p>Conclusions and Recommendations 293</p>
<p>Narrative 293</p>
<p>Appendices 293</p>
<p>Report Submission 294</p>
<p>Actions Required from Assessed Operating Unit 294</p>
<p>Leadership 294</p>
<p>Formal and Informal Employee Satisfaction Surveys 294</p>
<p>What You Should Take Away 295</p>
<p>18 Check Measure and Manage Results 297</p>
<p>Begin with Metrics 298</p>
<p>Conduct Assessments and Surveys 298</p>
<p>Formal Performance Assessments 299</p>
<p>Confirm Results and Contribution to Enterprise Value and Strategy 300</p>
<p>Continue Checking Until Confident that Improvement is Fully Sustained 301</p>
<p>What You Should Take Away 301</p>
<p>19 Improve Institutionalize and Sustain Gains 303</p>
<p>Improve and Sustain 303</p>
<p>Continuous Improvement 304</p>
<p>Continue Follow–Up: Adjust/Refine Improve and Extend Improvement</p>
<p>Action Plans 304</p>
<p>Expand and Increase Ownership Responsibility Accountability and</p>
<p>Commitment 304</p>
<p>Continue Training 305</p>
<p>Achieving Sustainability 305</p>
<p>Institutionalize Success 306</p>
<p>Communicate and Publicize Progress and Results 306</p>
<p>Overcome Resistance 307</p>
<p>Results–Based Compensation 308</p>
<p>Some Lessons Learned 308</p>
<p>Final Comment 310</p>
<p>What You Should Take Away 310</p>
<p>20 Conclusion Now It Is Up To You! 311</p>
<p>Index 313</p>