Operations Practice

When technology meets

operational excellence
A new way to operate is revolutionizing heavy industries.
by Julio Gregorio, Ferran Pujol, Richard Sellschop, and Diego Zuniga

April 2023
 By the end of the 20th century, lean-management
techniques had migrated from their birthplace in
Japan to remake the operations of manufacturing
and process industries across the world. In heavy
industries, such as mining, pulp and paper, and oil
and gas, today’s leaders can point to decades of
operational improvement thanks to lean practices
and principles. But a lot has changed since lean
was conceived. The next phase of operational
excellence has arrived: Industry 4.0 technologies
such as advanced analytics, AI, and connected
equipment help heavy-industry leaders to
increase the productivity, flexibility, resilience, and
sustainability of their operations.
The trouble for many organizations, however, is that
so far results from these technologies have been
mixed. While many companies have run successful
pilots or local deployments, only a few managed to
scale up their initiatives to take full advantage of
the new technologies across the enterprise. The
experiences of those few point the way to a new
kind of technology-informed operational excellence.
The next step
A handful of heavy-industry companies have found
a new way to operate that is revolutionizing the way
they create value in operations. The combination of
lean and technology is allowing these companies
to create new augmented production systems
that capture the full value of digital at scale in a
sustainable manner. The benefits include year-on-
year improvements in productivity, environmental
protection, safety, employee engagement, and
customer satisfaction (Exhibit 1).

Web <2023>
<technologyExcellence>
Exhibit
Exhibit <1>1 of <2>

The five core elements of operational excellence form an augmented

production system.

Purpose and strategy

Purpose that defines why the organization exists,
creating a common cause, with a strategy to achieve it

Principles and behaviors

Principles and behaviors to achieve the strategic vision and
establish a culture of trust, respect, and constant innovation

Management systems
Management systems in place that develop leaders, build
competency, and drive desired behaviors

Technical systems
Technical systems that eliminate waste
and deliver value to stakeholders

Technology
Technology that accelerates human
capabilities to continuously improve

McKinsey & Company

2 When technology meets operational excellence

Because technology can bring together
data from across the value chain,
companies can take a holistic, end-to-
end approach to optimizing processes.
Such companies have adapted some of the core
principles underlying lean production to suit
an environment where advanced technologies
are applied in everyday operations. Those
principles have guided the redesign of processes,
management systems, and organizations to make
truly effective use of technology.
Technology is generating real operational value
Scientific thinking is the principle that inspires
lean companies to use hard evidence and
experimentation to continually improve their
operations. Lean has always relied on rigorous,
fact-based decision making. But the analytical
tools available to most lean practitioners force them
to focus their attention on just a few variables at a
time. For that reason, processes in traditional lean
companies tend to improve incrementally.
Digitization helps companies take scientific thinking
to a new level of sophistication. Connected, digitized
value chains give teams access to much richer
data on the performance of processes. Advanced
analytical models allow those teams to gain
deeper insights from the data by revealing subtle
cause-and-effect relationships hidden among
thousands of data points. With these tools and the
right capabilities, companies can apply scientific,
data-driven problem solving to a wider range of
challenges—and get better answers faster than
previously possible.
Digitization also transforms systemic thinking—
another core lean principle. Because technology
can bring together data from across the value
chain, companies can take a holistic, end-to-end
approach to optimizing processes. In many heavy-
industry sectors, for example, processes encounter
high levels of variability caused by differences in
input materials, process conditions, and demand.
Operators in traditional production systems can only
react to that variability, by altering parameters on
the fly to keep processes under control. Digital and
advanced-analytics technologies help companies
move to a proactive approach. By using upstream
data and detailed process models to adjust
parameters before variability hits, these companies
can dramatically improve the stability of their
production systems.
At one copper mine, for instance, operators now use
an end-to-end model to change their processes as
the characteristics of ore change over time. Data
on the quality of ore is collected at the mine and
transmitted to the processing plant several hours
before the ore arrives. The processing plant’s AI
model identifies changes in the characteristics
of the ore and makes recommendations—timed
to coincide with the precise moment it enters the
mill—for adjustments to water pressures, grinder
settings, and other variables. If the characteristics
of the ore require it, similar recommendations are
passed on to the teams operating downstream
process steps (Exhibit 2).
Changing people’s work, not just their tech
When this new approach was introduced, the
copper mine’s organization also changed: a
When technology meets operational excellence 3
 Web <2023>
<technologyExcellence>
Exhibit 2
Exhibit <2> of <2>

Systemic thinking drives organizations to seek enhanced performance by

value streams, while technology enables end-to-end optimization.
Mining company before and after AI

Before: Traditional approach with local process optimization

Dispatch of loading/hauling equipment Concentrator plant

Example key Total mine $ per ton of Ore to waste Processed Copper
performance material moved mineral movement volume (tons recovery (%)
indicators moved (tons) volume ratio per day)

After: Systemic approach with end-to-end optimization of copper production value stream

Global value stream optimizer

Mineral tracer

Dispatch of loading/
Fragmentation hauling equipment Mineral blending Concentrator plant

Key performance Copper production (tons per day) Copper price ($ per pound)
indicators

Blending recipe Optimal ore

New Extraction and ore characteristics and
information loading prioritization long-term mine-plan-
flows Blast grid design ning requirements

McKinsey & Company

permanent continuous-improvement squad is now
responsible for copper production from the mine
to the plant. The KPIs that operators monitor now
reflect this end-to-end thinking. All operators have
visibility into the ways their actions affect upstream
and downstream variables, for example. Since
the introduction of the new approach, the mine’s
output has increased by 3 to 7 percent.
uses a set of models beginning at the forest floor
and ending at the point of dispatch to the customer.
These models, used to adjust parameters several
times per shift, change the mix of wood chips, the
chemicals used, and the process settings to ensure
that customer requirements are met in the most
efficient way.

Another company, this time in the pulp and
paper sector, has adopted a similar augmented
approach to maximize yields and optimize resource
consumption in its pulp production process. To
trace the characteristics of pulp fiber, the company
How to add tech to lean for
operational excellence
Why isn’t every company working in this way? Our
observations of digital initiatives in a wide range of
organizations, along with our conversations with

4 When technology meets operational excellence

their senior leaders, reveal a handful of reasons.
New technologies don’t always deliver what they
promise. Companies may focus their efforts on
the technical aspects of new digital use cases, for
example, without considering the wider principles
and practices of operational excellence. Or they
may lack the internal capabilities to develop,
deploy, and operate sophisticated digital tools.
Finally, executives at many organizations fail to
take their teams along on the digital journey.
Operational experts, such as team leaders,
process control engineers, and metallurgists,
tend to ignore tools and processes they don’t
understand or trust.
Digitization can dramatically enhance the power of
traditional approaches to operational excellence but
doesn’t replace the need for strong organizational
foundations. Today’s leading players overcome
these barriers by adopting a holistic approach to
operational excellence and ongoing improvement.
That approach addresses all the technological,
organizational, and human dimensions required for
sustained success.
As with earlier approaches to organizational
excellence, leading companies recognize that
digitally enabled operational excellence is a
journey. The benefits increase as the organization
develops the ability to use more sophisticated
tools and to apply them across more of its
operations. The most successful initiatives tend to
share a handful of characteristics.
1. Ownership through robust
understanding and conviction
Across all levels of the organization, leaders and
frontline operators ought to understand and fully
support the use of technology in their day-to-day
decision-making processes. This goal can be
achieved in different ways. The leaders of one large
mining company, for example, built understanding
and conviction through a bottom-up process.
They organized technical workshops to define a
shared vision for the future functioning of their
operation, so that the entire organization could
see how the effort would improve its work. Another
mining company generated excitement by having
employees visit operations at similar companies,
where the successful deployment of technology
built on a previous commitment to operational
excellence—and made improvement cycles faster,
more agile, and more effective.
2. Updated organization and management
systems for optimal decision making
High-performing organizations structure teams
in working cells linked to value streams (such as
end-to-end operations, reliability, or planning)
rather than the value chain’s individual process
components (mine operations, plant operations,
technical services, and the like). This structure
empowers managers to make decisions across the
entire value chain and therefore aligns objectives
and performance metrics with bottom-line
business results. At another mining company, a
value-stream product owner with full visibility
over the whole process makes final operational
decisions at an integrated operations center.
That manager directs a multidisciplinary team of
processing and technology experts who assist in
decision making.
3. Evolved roles and capabilities to
empower and engage the front line
At companies that have succeeded in using
technology to achieve operational excellence, roles
and capabilities are adapted to suit the new way
of working required to sustain and continuously
improve technology solutions. Product owners
are empowered and accountable to ensure that
their teams meet the objectives and key results
defined for each value stream. Data scientists
and engineers use data collected throughout
the process to build optimization models that
assist in decision making. “Translators” serve as
a communication bridge between processing
experts and the digital team. Finally, frontline
leaders with access to more data are supported
by everyday insights from AI tools. They also have
more scope to improve operations, pilot new ideas,
and collaborate with their colleagues upstream
and downstream.
In another copper-mining operation, for example,
the product owner of the multidisciplinary
When technology meets operational excellence 5
 operations cell now runs day-to-day operations.
Find more content like this on the
That manager, who understands insights from
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prescriptive analytical models, has a profile
rather different from those of traditional mine or
plant managers. Their roles too have evolved, to
focus on ensuring the optimal condition of assets,
so that the production cell can operate at its
maximum potential.
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Combining new digital approaches with the proven
principles and practices of operational excellence
opens a world of possibilities for heavy industries.
Early adopters have already reaped substantial
benefits: a step change in performance and
employee engagement.
Yet the journey to digitally enabled operations isn’t
trivial. It requires energy, vision, and persistence
by senior leaders, who can ensure that their
organizations stay on the right path by continually
revisiting three fundamental questions. First, are
we applying the core principles of operational
excellence in everything we do? Second, are we
using the best available technologies to support our
operations? Finally, are we using those technologies
in the most effective, sustainable way?

Julio Gregorio and Diego Zuniga are associate partners in McKinsey’s Santiago office, where Ferran Pujol is a partner;
Richard Sellschop is a senior partner in the Stamford office.

The authors wish to thank Xavier Costantini, William Fookes, David Hamilton, Ted Iverson, Sohil Kalra, Erik Shaeffer, and Joris
Wijkpema for their contributions to this article.

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6 When technology meets operational excellence