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The Operational Excellence Difference

The organization repeats this cycle over and over again to create a culture of continuous improvement. But even if we apply the best tools correctly, make an improvement and sustain it, then make another improvement and sustain it, the best we can achieve over time is a slow, steady climb up the staircase of continuous improvement.

However, we can break the myth that a continuous improvement journey should go on forever by instead believing that improving operations is about reaching a destination. Our destination should describe what we are really trying to do with all of our continuous improvement efforts. That is, we are trying to create an operation where “each and every employee can see the flow of value to the customer and fix that flow before it breaks down.” In other words, our destination is to create operational excellence.


In operational excellence, we do not create flow to increase productivity or efficiency. Rather, we create flow so that everyone understands how their activities flow the necessary material or information through several processes to the customer, regardless of whether an employee works on the factory floor building products, in engineering designing products, in sales taking orders, or in any other area.

When we set our destination as operational excellence, all employees know:

  • What they work on next.
  • Where they get their work from.
  • How long it will take them to do their work.
  • Where they send it.
  • When they send it.

Not only do the value streams flow at the rate of customer demand, they are made visual in such a way and to such a degree that every employee in the organization can physically see that flow. Each can see whether the flow is working normally or abnormally. Once everyone can see normal and abnormal flow, the next step is to create what’s known as standard work for abnormal flow. This means that people working in the flow have a standard methodology for correcting things when they go wrong.

The end result is something called self-healing value streams, which means when flow breaks down somewhere in the operation, the employees working in the flow are able to fix it without a schedule, without a dispatch or expedite list, without a supervisor telling them and without management needed to deliver the product to the customer. When this happens, we have reached the destination of operational excellence.


Operational excellence is not about eliminating waste, improving efficiency, or reducing cost, although it will have a significant, positive impact on them. What we are really after by achieving operational excellence is a positive impact on the business or, more specifically, sustained business growth.

How will achieving operational excellence in the operational side of the organization affect business growth? Consider this: If employees who build the product can also adjust and fix the flow before it breaks down, and do all this with little or no management, then what will managers be doing when they are not chasing parts, people and suppliers, managing resources, and so on? In a world of operational excellence, managers will be busy growing the business.

The concept is simple. We cannot grow the business unless we have time to grow the business. When we achieve operational excellence, we won’t need management involvement in the day-to-day happenings of the operation. Instead, operations can become a strategic part of the business by spending its time on activities that generate top-line growth. It can have an impact on market share, break into new markets, adapt to changing markets, keep the business ahead of the competition and return sustained shareholder value.

The bottom line is continuous improvement is not about eliminating waste. It’s about setting up an operation that will enable perpetual business growth.


Parker Hannifin is a publicly traded corporation that employs 55,000 people across 390 sites around the world, 304 of which are manufacturing locations. Since 2001, Parker Hannifin has had a strong continuous improvement program in all its divisions. The focus has been on lean and value stream flow, with a heavy emphasis on using processes and guidelines to drive results.

While Parker Hannifin’s companywide continuous improvement initiative has served it well, one group – part of the Instrumentation Products Division - Europe (IPDE) – has taken this initiative to another level.

Like all businesses, Parker IPDE wanted growth. “We knew then that every improvement we made would be worthless unless it led to increased sales or business growth,” said the innovation and technology manager for the division. “It’s one thing to use continuous improvement tools to create an efficient factory, but it’s quite another to have the new products that customers want when they want them.” They soon discovered the linkage between improving operations and increasing sales through innovation.

While Parker’s companywide continuous improvement program evolved to include flow and value streams, Parker IPDE did not stop with implementing flow; it knew that each operator had to know the status of flow or the state of delivery to the customer in a way that didn’t involve the resource-consuming management meetings that were usually needed to get the product to the customer.

Given this requirement, Parker IPDE adopted visuals on the shop floor that let every employee know whether the flow was normal or abnormal and began teaching employees what to do in each case. After refining the process on the shop floor, the managers moved on to other areas of the operation where few companies today have ventured to implement flow, including warehousing operations, the office and the supply chain.

The result of Parker IPDE’s transformation as an early adopter of the guidelines and principles of operational excellence has been profound.

  • In five years of internal quarterly business reviews, the company has never talked about manufacturing or production issues. It always leads with quarterly growth and potential growth opportunities for the future.
  • The factory used to be a problem for the sales manager, who lacked confidence in it when he was providing delivery dates to his customers. It isn’t a problem anymore. Now, quick, consistent, on time deliverability is part of what enables Parker IPDE to charge a premium price. It also enables Parker IPDE’s customers to place orders in a way that better suits the needs of their business because the factory is flexible enough to deliver what the customers want, when they want it and in the mix they want it.
  • By implementing flow and being able to fix it before it breaks down, Parker IPDE essentially made the operational side of its business neutral; it was no longer in a position where it was slowing down or even had the potential to slow down the rest of the business.
  • Because of the improvements made by pursuing operational excellence, Parker IPDE had the ability to hire five employees for the technology manager’s area to help him develop a new line of manifolds with an eye toward their manufacturability. By integrating this skill set into the innovation process, Parker IPDE was able to drastically reduce the time it took to begin manufacturing new manifolds. Within one week of beginning production, on time delivery was already at 90 percent.

Looking forward to the future, Parker IPDE sees operational excellence as a driving force in its growth and a strategic weapon that gives it an advantage over the competition.


  1. Duggan, Kevin. Design for Operational Excellence: A Breakthrough Strategy for Business Growth. New York City: McGraw-Hill, 2011.
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