Operational Excellence - the mantra that came into fashion in the early nineties of the previous century and one that is still fanatically preached across the globe. It beholds the complete mastery of one's primary business processes. It allows for surgical accuracy in delivering output to spec. It lives in Centers of Excellence clustered on every continent. The business breathes, eats and drinks Lean, Six Sigma, 5s, TQM.

Who would have thought there could ever be a downside to delivering a job to perfection? Well, it turns out there is. Many of the process superstars that grew to dominate their markets through Operational Excellence have fallen prey to its stillborn twin: Systemic Inertia. Think Dell, Circuit City and even the superheroes at Toyota.

In a quest to raise profitability and short term reward, companies everywhere have been over-optimizing their business processes and ignoring an ancient process truth: plan 80-20. Whatever your project or process is supposed to deliver, plan 80% with rigor and cunning, then leave 20% open for the unknown. Now, the Great Unknown is of course an unpleasant place from an operational standpoint. It requires reserving expensive resources that may end up not being used at all. Even worse, it may be abused in the most anti-operational no-no known to process designers: improvisation.

Of course there will be systems that allow for planning 90-10 and even higher. But on a business management level, leadership teams that consistently chipped away the Unknown from their primary processes have grown blind to the fact the world around them does change and is by nature unpredictable. However pleasant for shareholders on the short term, they created a monster that leaves their business inflexible, unresponsive and in deep trouble. And the trouble accelerates, for two reasons.

1) Blinkered systems. Masters of efficiency will be unaware they are in trouble until the systems jam and it's too late to correct course. The most perfect version of Operational Excellence implies every day is ‘business as usual’. When 99,9% of resources are dedicated to continuing the current stream of outputs, only 0,1% will be open to smaller and larger opportunities that lie beyond what the system is churning out. And the churning is relentless, driving you into deeper trouble very quickly when things go wrong. Dell was the unrivalled master of assembling and delivering desktop computers to customized customer spec. But when the market interest abruptly shifted to laptops, Dell did not notice until stock started piling up in places it never had before. Had Dell been a little less 'perfect' on desktops and spent more resources on chasing (and failing) less profitable non-desktop market opportunities, it may have caught the laptop wave in time. Similarly, the planet's most efficient manufacturing machine, Toyota, drove itself into unimaginable losses like a run-away train before it could tame the beast and adapt to the changed market dynamics.

2) Operator attitude. The expertise required for Operational Excellence and the attitude required to successfully navigate the Great Unknown are mutually exclusive. Businesses that accumulate pools of great process operators will naturally evolve into horrendous improvisers. And the more skewed resource pool, the more likely the one type will drive the other out as they tend to disagree on almost everything. So the better a business is equipped to accelerate business profitability by Operational Excellence, the worse it will be at innovating and keeping an eye open for the next big opportunity. Just imagine what meetings are like in a room full of process operators once the systems have jammed as described in the previous point. An operational mindset tends to look for even further rigor in planning and heavier controls, rather than questioning the output and the process itself.

Is there then no hope for Operational Excellence? Of course there is, and it’s not even that difficult. You can even dress up the solutions as old-school Operational Excellence so none of the accountants running your business will notice. Here’s what you do:

1) Fail faster. It may sound scary, insane even, but accelerating failure and dealing with regular small losses saves you from the life-threatening systemic bleeders. What’s more, it can be applied on many different levels and can be baked into your primary processes. Applications can vary from smart tollgating to cull pointless developments early (so you can try out more stuff with smaller risk to the business) to ensuring your production lines derail, jam or raise flags much faster when demand changes (even when it goes up). Operational Excellence systematically pushes business life into sameness, whilst it’s the ability to notice differences that help tap new opportunities.

2) Plan to predict and understand. When developing processes, logistical systems and timelines, there is a danger of confusing the created map with reality. The model you create to structure your process is never more than a simplified representation of the real world, which is easily forgotten once it gains momentum. For the process operators and the operational champions, this confusion is not even that harmful, as it keeps them focused, removes systemic noise and allows them to extrapolate outputs. But for the resources that have to navigate the Unknowns within the primary process, it is dangerous. Not only because they are naturally uncomfortable in rigid systems but their innate creative mindset leads them interpolate the workings of the model which may lead them further away from reality with costly mistakes as a consequence. This may sound a little fuzzy, but imagine it as looking at models from a standpoint of ‘timeline’ and ‘cause-effect’. The prior is often the key in operational use of a process, being all about ‘next steps’ and ‘if > then’ decisions, unfolding linearly over time. The second is about understanding how processes and sub-processes interplay, how the countless attributes affect each other and most importantly, why the processes are designed the way they are. That meta-level of understanding does wonders for the people who navigate the unpredictable parts of the business, as they will improvise much more effectively, be more motivated and not get into fights with the operators all the time.

3) Entrepreneurial attitude and incentives. In the micro cosmos of Operational Excellence in a business, the processes often became more important than the output. Across the globe, this is worsened by teams being incentivized for improving the system, not the output. This happens on all levels and across disciplines. Marketing Managers are rewarded for concepts’ performance in market research rather than on shelf, which leads to endless wordsmithing of concepts instead of improving the concepts themselves. Manufacturing Managers receive applause for improving asset efficiency, but not for smart use of the resulting idle time when they push capacity beyond market demand. Customer Service teams are increasingly good at providing their customers help in ways prescribed in the helpdesk operation manuals, but hopeless when confronted with a non-scripted problem (KLM lost a yearly 50,000 Euros from me personally that way, but that's a separate story). Returning the focus and incentives to the attributes that make the output successful is key to steer clear of over-optimizing a business to supertanker intertia. But equally important is understanding that changes for the better will initially lead to a dip in process efficiency. For both a Michelin star chef and a fast food joint, both the speed of delivery and flavor experience will be important to success. Yet neither should endlessly optimize to excel on both in order to squeeze the extra penny of working capital out of their kitchens. Keeping one eye on the ball for what makes a business succeed and the other eye open for new attributes that will set it apart from the competition is all it takes. Some call it the entrepreneurial attitude.

Google has the famous playtime, where employees spend about a day a week on their own pet projects. It has been great for their innovative potential, great for revenue and equity, great for the creative employees but an absolute nightmare for those who just want to sit at their desk and debug code all day long. Striking the right balance between the two is probably the hardest part. Whether within the primary business processes, or by using separate innovation teams, or even setting up skunkworks that are completely independent of the primary processes – the balance will be different everywhere and changes over time. But finding that balance is the only way to protect oneself from the Systemic Inertia that Operational Excellence naturally leads to. The only way to go from ‘perfect’ is down.