10/10/2018 Business Trends

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October 2018 (/magazine/2018/october-2018)

TRENDS & RESOURCES (/MAGAZINE/2018/OCTOBER-2018#TRENDS-RESOURCES)

Business Trends
Across the hydrocarbon processing industry (HPI), executives are buzzing about operational excellence.
Free, A. (/authors/a/argo-consulting/free-a), Renegar, CJ (/authors/a/argo-consulting/renegar-cj), Argo Consulting
Across the hydrocarbon processing industry (HPI), executives are buzzing about operational excellence. However, for many, the operational
excellence reality does not live up to the hype. Why? Because they are doing it wrong.

Operational excellence strategies are often driven by a team with little or no plant experience that thinks getting more employees Six Sigma
Green Belt certi ed can solve their woes. It is time to eliminate that model.

Why are the results not there?

Did you know that there are Fortune 100 companies that have an operations excellence department, a continuous improvement team, a
change management team and a strategic communications team? With all these people focusing some of their time on driving and
supporting operational excellence, organizations should be making headway. However, an industry survey1 showed that more is not always
better. Several interesting results of this study included:

One in four leaders said they strongly agree that their company’s operational excellence program is delivering the annual productivity
improvements and costs saving targets.
Approximately 80% believed they have strong support and buy-in at the CEO level, and 80% indicated that their operational excellence
program and initiatives are linked to the corporate strategy.
Approximately 60% indicated they have increased spending on operational excellence programs.
Around 46% of respondents were neutral or disagreed that their company was achieving operational excellence targets.

Why are leaders not seeing more results when they are increasing investments, providing executive support and linking initiatives to
corporate strategy?

Leaders indicated that the biggest obstacles to achieving operational excellence are the complexities of company operations and a limited
understanding of available improvement tools and techniques. These responses hint at the core of the issue. In their rst few years,
operational excellence teams excel at achieving quick wins and xing the easy problems. The toughest problems lie between organizational
silos and require win-win solutions delivered by savvy leaders to progress through the approval process. These solutions require changing
the way things are done.

Many operations excellence results depend on e ective accountability, as well. Do leaders hold process owners accountable if they do not
execute best practices? The authors have reviewed many cases where correct best practices have been implemented, but leaders fail to
hold people accountable when the correct action is not taken.

The authors believe the problem is that:

Companies do not connect strategic company goals to annual performance objectives for their operations excellence teams.
Many operational excellence teams are out shing for work from internal departments.
Operational excellence teams are more pop-in advisors and are not connected enough to departments on a day-to-day basis to truly
understand their issues.

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Many operational excellence teams are sta ed with individuals who have training certi cations but were hired from outside the
organization they are trying to improve.
Operational excellence teams do not have the critical relationships to drive substantial change. This can be because they were hired from
outside the organization and did not take the time to build relationships, or because they were promoted from within and do not yet have
the credibility with the organization.
Signi cant improvements require signi cant change to the status quo. Many internal operational leaders will not take political risks to
communicate what is really happening or escalate above leaders who are blocking improvements.

The authors worked with a large company that had more than 40 employees dedicated to operations excellence. They were divided into
teams aligned by business units. More than 60% of the team was hired from outside the company and their continuous improvement skills
varied from poor to high. It was the operational excellence employees’ responsibility to go to the business units and solicit projects. The
strategy worked. They obtained many administrative projects, such as managing monthly sta meetings for the leaders. However, 40% of
these projects were considered non-value-added work that the team should not be doing. Another 40% of the projects were non-value-
added but could potentially open the door for future value-added projects, such as facilitating annual goal sessions for the department. In
total, only 20% of their projects were considered to add value (e.g., reducing the maintenance time for expensive assets).

At a di erent company, a team spent 18 mos hiring and training a sta of ve operational excellence employees who then trained 40 part-
time plant employees in the basics of Lean and Six Sigma. When the authors reviewed the status of their projects, 30 of the 40 had been in
the de ne stage for the last 9 mos, seven in the measure phase for last 5 mos, and three in the analyze phase for the last 2 mos.

As these two examples show, having an operational excellence team does not mean that operational excellence is being achieved. So, how
does a company achieve operational excellence?

Stop!
If a company is doing any of the following, it needs to stop immediately:

Using operational excellence teams for sta support, communication and/or project management.
Having operational excellence teams train internal resources who have full-time responsibility in tools that they will not use in the next
30 d. Only train others when you have an immediate assignment, such as eliminating motion waste in your plant through 5S techniques.
Train those who will be responsible for implementing and sustaining 5S techniques.
Having full-time resources working on projects that are not highly linked to an annual improvement goal that is then linked to an
executive’s annual bonus.

(/media/7917/business-trends- g-01.jpg)
FIG. 1. An operational excellence framework.
The most successful operational excellence initiatives resemble missions more than projects. A program must be driven from the top with
resources and management cadence. For example, a company’s continuous improvement leader implemented improvements in the same
way she managed her contract resources for the company’s wastewater ponds. The savings were greater than $1 MM/yr. She also realized
a larger opportunity existed across the entire company to reduce contractor spending by standardizing contracts, contract terms and
sharing resources. After several meetings, the leader gained executive support to create a site-wide mission involving all departments with
more than 10 di erent operational excellence resources. The team piloted a Kaizen approach, creating a one-day boot camp where all
parties to certain contracts were brought together in the same room to share best practices, and, more importantly, to implement changes
in the contracts that same day. After 9 mos and 27 boot camps, the company realized savings greater than $80 MM.

In another example, the plant manager laid out clear objectives at the beginning of the year. He wanted 30% of waste removed from
preventive maintenance work orders and wanted to implement visual pull in the maintenance work ow. Resources were dedicated to
achieving these goals, along with weekly updates to ensure progress. The teams encountered signi cant obstacles, from, “We have never
done this before,” to “How do we nd waste in our preventive maintenance work orders?” After 3 mos without results, the plant manager
was not discouraged. In fact, he was encouraged by the progress. The teams had conducted pilot programs and were learning what worked
and what did not work, which set the stage to achieve great success in the following months and eventually exceed their goals.

How does a company start an operational excellence program?

Once old habits are broken, a company must create good habits:
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Re-task teams to a speci c challenge mission, such as reducing production losses by a speci c percentage, improving reliability for a
speci c area, and reducing routine maintenance costs and operating costs for speci c equipment or units (e.g., heat exchangers or
crude units).
Challenge the team to learn from failure. The goal is to discover innovations and improvements—even if they have to destroy
methodologies.
Ensure the mission has three critical leaders:

1. A mission champion (e.g., executive team sponsor)

2. A mission owner—The person who will own the solution afterwards
3. A mission leader—The operational excellence leader in charge of the team.

Adjust the team members. Operational excellence team members may need to be replaced with others better suited for the challenge. It
is imperative that leaders that are unhappy with the status quo are selected, along with personnel from supporting areas (e.g., nance or
HR departments). People with no knowledge of the processes ask great questions like, “Why do we do it that way?”
Embed team members into the organization they are trying to improve. If they are tasked with reducing production losses, they should
be monitoring
production daily with resources such as overall equipment e ectiveness metrics. They should use previous shift or day performance to
drive their observations every day for 30 d.
Meet with team members regularly (weekly, monthly, etc.) to learn from them and provide coaching. Convey to team members the
linkage between the goal and activities, how the team is doing vs. the goal, and provide progress updates and overviews on issues the
team is experiencing. An issues list should be provided prior to the meeting.
Support the initiatives with leadership team communications. Any signi cant change requires constant and repetitive reinforcement of
why the team is conducting activities. Personnel must be repeatedly reminded of the initiatives, especially if the operation will radically
change. These initiatives are great for monthly or quarterly town hall meetings with employees. Communicate these initiatives, introduce
the leaders and ask the organization to support them.
Link the challenges with annual goals from the company’s business plan. By the beginning of February each year, the team should be
able to see a one-page list of speci c goals that are linked to the strategic goals of the company. The left side of the page can list key
challenges to running the business, while the right side of the page can detail challenges to improving the business (e.g., reducing
operating expense by 5% through lean waste elimination in maintenance).
Enable experiments and innovation. Break the challenge down into experiments or pilot areas and create internal competition. Amazing
things can happen when a leader gives a team a challenge.
Evaluate the status of the challenge every 45 d and remain patient.

A company can get started with improvements by assessing its program. A framework that a company’s operational excellence team can
reference is shown in FIG. 1.

Discover. Team leaders should nd out what is happening in their operations excellence area. This should not be conducted by an email or
meeting. Team leaders need to go and see the operations excellence employee in practice. For example, complete a “day in the life” of an
employee. Ask open-ended questions to maximize the learning experience. After this is completed, meet with the operational excellence
leaders and assess how you can help in terms of accomplishing speci c missions. HP

LITERATURE CITED

1. J. Chen and Westervelt, R., “Operational Excellence,” Chemical Week, October 2017.

The Authors
Free, A. (/authors/a/argo-consulting/free-a) - Argo Consulting, Chicago, Illinois
Alan Free is Senior Vice President and Partner at Argo Consulting. He regularly explores operational excellence
challenges and re nements with CEOs and COOs. Mr. Free has helped several large companies restructure and
revitalize their operational excellence programs and front-line cultures, realizing sustained double-digit results in
higher productivity, asset e ectiveness, operating margins and cash ow.

(/authors/a/argo-
consulting/free-a)

Renegar, CJ (/authors/a/argo-consulting/renegar-cj) - Argo Consulting, Fort Worth, Texas

CJ Renegar is Vice President of Argo Consulting. He has been leading or coaching operational excellence teams in
the upstream, re ning, chemicals, manufacturing, information technology, distribution and transportation industries
for more than 20 yr. He has created four successful operations excellence programs and has helped multiple clients
improve or start their own programs.
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(/authors/a/argo-
consulting/renegar-
cj)

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