Business Excellence


Business Excellence: Customers, Employees & Business

A Definition

Business excellence is a foundation for competitive advantage, continuous improvement and sustainable change. As it is a broad collection of loosely-related concepts, writing a definition is an exercise in finding the right words to join those concepts together. If nothing else, the following can serve as a starting point for discussion:

“Business Excellence is a holistic paradigm of knowledge and practices, aimed at the sustainable improvement of business outcomes by integrating rather than compromising between the interdependent interests of customers, employees and the business.”

 
Ok, so I have squished a bunch of words into one ugly sentence but what does it actually mean? Lets take a closer look at all the key words in turn:

“holistic”
Business excellence entails understanding and improving the performance of a whole business, not parts of it. Optimising the parts of a business separately usually results in suboptimal outcomes for the whole[1]. Similarly, business excellence is the synthesis of many concepts; a well-intended pursuit of an impoverished subset of the concepts will give mediocre results.

“paradigm”
Business excellence is about what people do and how they think. Rather than being a “plugin” programme or project, it embodies a different paradigm of thinking. Some elements are just an evolution of classical business thinking but others are incompatible[2]. A change to thinking is essential and this is possibly the most challenging aspect of business excellence[3][4].

“knowledge”
You cannot sustain better practices without the right thinking and this thinking requires some knowledge. Systems thinking which we’ll look at next, is the knowledge and skill of deliberate and methodical holistic thinking. Additionally, Dr Deming’s System of Profound Knowledge provides a great basis for thinking[5] about businesses holistically; most other business excellence concepts can be related to one of its four areas.

“practices”
Thinking differently invariably leads to doing things differently. Business excellence encompasses various approaches, methods and tools which translate the ideas into actions. However, it is important not to “jump the gun”; blindly using the tools without understanding why will give minimal benefits[6]. It is also important to customise[7] the relevant business excellence practices to suit your unique circumstances.

“sustainable”
Business excellence is concerned with achieving better business outcomes in the present and future. The challenge is working around our natural short-term focus and its many by-products in classical business thinking.

For the business excellence definition of “sustainable” I would make explicit the criterion: minimal ongoing effort in maintaining. Good practices are sustained because they are in harmony with how an organisation operates and how people think, not because of a formalised regime of audits to keep them in place.

“improvement of business outcomes”
A business is an organisation established with the goal of delivering financial returns for investors. Improvement in that context boils down to better financial returns, however that would be an insufficient definition. Business excellence is about achieving better financial returns over the life of the business[8]. This means one needs to consider a broader set of “outcomes” that includes precursors for future financial performance. Some of these outcomes might not be directly translatable into cash flows; focusing on only that which has a known dollar figure attached is just another type of short-term thinking.

Understandably, business leaders want financial returns to keep getting better over time. To achieve this one needs to keep making improvements[9], so it is not surprising that creating the right conditions for continuous improvement is a major area of business excellence (Tip: There is much more to it than just “culture”).

Finally, it would be wrong to say that financial returns are the only goal of businesses. For example, in many privately owned companies there are competing goals, such as leaving a legacy. In many ways “business excellence” is just a specific case of “organisational excellence” and the bulk of the thinking can be applied to other organisational forms.

“integrating rather than compromising between”
Anyone who has attended even a brief talk about negotiation has probably heard something like this: understand each other’s needs and find ways to grow the metaphorical pie so that everyone can have a bigger piece (win-win), rather than fighting for a bigger share of a smaller pie (win-lose or lose-lose). Just as a primitive approach to negotiation leaves the parties worse off overall, similar compromises invariably harm businesses and their stakeholders in the long run.

“the interdependent interests of customers, employees and the business”

Business Excellence: Customers, Employees & Business

Figure 1: A model of Business Excellence interdependencies

The holistic thinking in business excellence can be illustrated with this simple[10] system model. The “business” in this model refers to the business entity, its assets, the interests of the owners and the representation thereof by management. Employees are an independent entity rather than a “resource”[11] within the business.

I have chosen these three groups because the relationships and interactions between them are generally the most complex and important in business excellence. In dealing with specific situations one would consider a more detailed list of internal and external stakeholders; for example, in many situations the relationships with suppliers are of significant interest.

Trade-offs or compromises reduce the total “value” available within the system, just as poor negotiation technique results in fighting over a smaller pie. One of the central ideas in business excellence is the pursuit of win-win-win outcomes; what is good/bad for one entity, generally has good/bad (often delayed) effects on the other two. The following page on systems thinking includes a more detailed discussion of such effects.

 
Bringing it all together arrives at the definition:
“Business Excellence is a holistic paradigm of knowledge and practices, aimed at the sustainable improvement of business outcomes by integrating rather than compromising between the interdependent interests of customers, employees and the business.”

 

Other Definitions

The boundaries of business excellence are fluid, as the ideas and practices should differentiate excellent businesses from the mediocre ones. What I have described goes by several other names such as “operational excellence”[12] but I prefer to use the word “business” as many essential elements are outside of what some might consider the “operations” boundary within an organisation.

There are some substantially different uses of the term “business excellence”. Rather than focusing on what aspects of them I disagree with, I have written a definition that I think captures the spirit of the business excellence field that I work in and hope that it is useful to you too.

 

Quick Exercise

If that seemed a bit overwhelming then I have some good news for you. We all have an innate understanding of holistic thinking, we just don’t use it very often in business. Try it out with the following:

  1. Identify what is considered “the most important part” of your organisation.
  2. Make a list of some (perhaps 5) other components.
  3. Imagine how well your organisation would run if any one of those disappeared? What would happen?

You should now have a general feel for the interdependencies that exist within your business; the question addressed on the following pages is how to harness that intuition with a more rigorous approach to holistic thinking. (if you would like a more detailed independent diagnostic of where your organisation is on the business excellence journey then let us know)

 
Next: Systems Thinking

 
 

Optional Footnotes

1. ^ A business is a complex system: a set of interacting or interdependent components forming an integrated whole, working towards a common purpose. The interdependence of components means that a localised improvement of one can have a negative effect on its interactions with the others; the overall situation might get worse not better. Developing an understanding of and effectively addressing problems like this requires the skill of systems thinking, an essential part of business excellence. See also the next footnote.

2. ^ Many if not most of the incompatibilities between classical business thinking and business excellence stem from their reductionist and holistic natures respectively. As an example, from a reductionist perspective it would be desirable to maximise the utilisation of a machine, as this will be efficient and economical, however, from a holistic perspective in the same situation it would be desirable to know the level of demand and match production to it, thereby avoiding tying up capital in excess stock that needs to be warehoused and potentially discounted or scrapped later (a subset of business challenges similar to this is addressed well by lean thinking). In practice, a healthy combination of reductionist and holistic thinking is needed within businesses to deal with the detail and big picture respectively; in the example above, the problem is not the desire for efficiency but the lack of consideration for the wider consequences of achieving it.

3. ^ “Why should I change how I think?”. We have a natural resistance to new ideas, all the more so when our existing world view seems to work. A lot of the old ways of thinking about business are perpetuated because we confuse correlation with causation: Our business is doing ok; we are currently practicing X, Y and Z; therefore we must be doing ok because of X, Y and Z. Now lets say Z is actually harmful and Z-NEW is preferable; people will cling to Z until they understand both why it is harmful and why Z-NEW works better. For example, Z could be some form of tampering: repeated interventions intended to make a process more precise that actually make it less precise. Tampering persists because in their own mind people believe they are doing the right thing and don’t give it another thought. This kind of resistance to new thinking can take time to work through but once people “see” things it is hard for them to “unsee”.

4. ^ Another reason for resistance to changing business thinking is when the old thinking seems present in every other business we see. Naturally we will suspect that what is common is good but remember: The popularity of an idea tells us almost nothing about its value or correctness. We live in a strange world; while some businesses have succeeded with the most outrageous departures from the norm (e.g. Semco), the majority seem to suffer from an incurable herd mentality. The propensity of businesses to copy the practices of others has been extensively researched; a good introduction to the institutional theory concept of isomorphism can be found in this paper:

DiMaggio, P.J. & Powell, W.W. 1983, ‘The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields’, American sociological review, pp. 147-60.

5. ^ The system of profound knowledge itself is not a prescription; it synthesises a number of concepts to give a more holistic understanding of business phenomena and can be expanded upon to suit a given situation. It also provides a means to check whether an idea is helpful (in a holistic sense) to businesses or stuck in the old paradigm of thinking.

6. ^ Using a tool without understanding the reason why is a recipe for trouble; at best we just waste time, at worst, we are gambling with company resources. If you can’t articulate why you’re doing something, then you probably aren’t ready to do it yet.

Sometimes it is blindingly obvious when practices and tools are applied for the wrong reasons; we might see what John Seddon calls “tool heads” spreading their favourite improvement tools around a business. This can result in a lot of activity but where are the benefits?

7. ^ Customisation of ideas to the unique circumstances of a business is essential. While the old saying is “don’t reinvent the wheel”, there are actually 3 possibilities when it comes to business excellence:

  • Some businesses try to reinvent the wheels of business excellence, making little or no use of the vast body of knowledge available (i.e. decades of work by some really brilliant people). This almost always results in inferior outcomes, as the reinvented wheel is actually obsolete from the get go (but how would they ever know?).
  • Some businesses look to buy a set of wheels, applying a prepackaged framework. This has some appeal, as those who package such frameworks have typically done the research to pick out a commonly useful set of practices, however, there are several reasons why this is rarely a good option:
    • The decision to buy into prepackaged business excellence is often muddled by the conflation of common with good (see footnote 4).
    • Outcomes will almost certainly be sub-optimal. Businesses all have their individual circumstances rather than conforming to any notion of a “standard business”.
    • A standardised set of practices can introduce overhead in many ways, for example, doing unnecessary things just to satisfy a checklist.
    • There is a significant risk that businesses do not question what they have adopted and apply it indiscriminately, resulting in mediocre results or worse.
    • Some frameworks are just a prescriptive set of practices and tools, without any change to the underlying thinking. These require ongoing investment, as practices will be eroded away by classical “common sense” unless actively enforced.
    • Framework vendors have their own agenda. Some vendors just stick to whatever is easier to “sell”. In some cases there is a degree of “vendor lock-in”. Some vendors rebadge the wheels as a shameless attempt to turn public-domain knowledge into private IP. Some vendors take the approach of selling reinvented wheels, with the issues previously discussed. Caveat emptor.
  • Some (though in my experience too few) businesses take the middle-road and redesign the wheels of business excellence, by adapting the available knowledge to suit their situation. Less effort is required than reinventing something viable and the business will continue to question what is most suitable as their situation changes.

8. ^ Conceptually, improving financial returns over the life of the business is about maximising the net present value (NPV) of all the business’ future transactions by discounting them with appropriate rates for their levels of risk. In practice, future transactions and risks include many unknowns and irreducible uncertainty. The various tools of business excellence can help in eliminating blatant gambling with business resources by exposing and encouraging the debate of these uncertainties.

This also means looking real and not paper profits. There are many (often unintentional) ways that losses are interpreted as gains.

9. ^ A widely held myth is that favourable trends can continue indefinitely on their own; in most situations an equilibrium is reached, until an influencing factor changes.

An explanation of why trends are finite generally falls under the area of systems thinking. Dr Russel Ackoff, perhaps the main contributor in translating systems thinking to the business context, often summed up the need to consider feedback effects with a simple example: In 1960 the Ford Motor Company sought to project future demand through to the year 2000. With conservative (but linear) projections of historical trends in car and road usage this was not difficult, however, there was a catch; according to the projections, by the year 2000 roads would cover 117% of city surface areas!

Another great example of busting the myth and the associated analytical fantasies that confound improvement efforts can be found in this article by Davis Balestracci (Note: As it is written for a quality improvement audience, there is some assumed knowledge):

http://davisdatasanity.com/2011/08/18/trend-the-display-that-wont-die/

10. ^ The point of this seemingly simplistic diagram is to illustrate a set of systemic relationships that extend beyond the boundaries of the business entity. These are quite obvious, yet seem to be ignored at every opportunity in classical business thinking. As George Box pointed out, “essentially, all models are wrong, but some are useful”, and I find this one to be useful for introducing the holistic nature of business excellence. In some ways it is better to keep it this simple, as it is highly unlikely that someone will be confused and start restructuring their business to suit the model; if we were to arbitrarily lump enough labels together and give it an authoritative title, strange things might happen…

One aspect that is obviously rather naïve is the grouping of ownership and management roles with no regard for agency problems, however, representing that dynamic would likely require an extensive causal loop diagram.

11. ^ Does it strike you as odd that even in the 21st century employees are often thought of as assets rather than purposeful entities with their own interests, goals and creativity? Some of the differences in thinking about employees define the boundary of the business excellence paradigm.

12. ^ For a definition of “operational excellence” I recommend Joseph Paris’ well-written one which can be found here:

http://www.xonitek.com/press-room/company-news/the-operational-excellence-manifesto/

You will find that his definition has some similarities to mine and this is where I got the idea for the format. However, I do prefer to use the word “business”, as “operational” can be interpreted as referring to a part of the organisation, which would miss the point. I strongly agree with Joseph’s concern that many claims of “___ Excellence” are merely addressing a small piece of the big picture.

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Marcin Kreglicki

Business Excellence & Improvement Consultant at Effective Perspectives Consulting
Marcin is a business improvement specialist with a passion for helping businesses be more effective. He advocates the application of evidence-based approaches to change and giving leaders an understanding of business excellence concepts relevant to their company. In support of his professional work, he is currently carrying out research on the barriers to holistic thinking in business decision-making.

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About Marcin Kreglicki

Marcin is a business improvement specialist with a passion for helping businesses be more effective. He advocates the application of evidence-based approaches to change and giving leaders an understanding of business excellence concepts relevant to their company. In support of his professional work, he is currently carrying out research on the barriers to holistic thinking in business decision-making.

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