A.0 Intro Presentation

Operational Excellence and
transition to Business Excellence

Intro presentation
MBA IX edition 2017/2018
Gdańsk 24, 25, 261 Nov. 2017
A. Mark Galanter
1 copyright A. M. Galanter
BUSINESS EXCELLENCE
PROCESS EXCELLENCE pertains to efficiency

and effectiveness of processes. They need to be
designed, run and improved if needed in order to
deliver expected product or service with minimum
waste and variations to the process itself.
BUSINESS EXCELLENCE
OPERATIONAL EXCELLENCE in turn, is broader
than Process Excellence. Its idea is focused on the
concept of value to customer, or to be more precise,
about flow of value stream across operation and ability
of employees to ascertain its smooth and uninterrupted
flow. It requires strong involvement of HR and very
often a serious modification to organization’s culture.
BUSINESS EXCELLENCE
OPERATIONAL EXCELLENCE cont.
All businesses have their own sets of KPIs (Key
Performance Indicators). Unfortunately, these
indicators deal with the past situation only (even if it is
a very recent past). It is the “fait accompli” situation.
BUSINESS EXCELLENCE
OPERATIONAL EXCELLENCE cont.

Savvy businesses go one step further. They show
forward thinking and act proactively. Besides KPIs
they introduce and follow suitable sets of KBIs (Key
Behaviour Indicators).
BUSINESS EXCELLENCE
BUSINESS EXCELLENCE is even broader. It

embraces the entire organization, requires adequate
strategy and communication with all stakeholders. It is
not uncommon for an organization to have excellent
processes giving excellent products and and still being
a long way to Business Excellence status.
Operations Management - Strategies
Corporate Strategy
Business Strategy
Operations Strategy
Marketing Financial
Strategy Strategy
HR Strategy
Functional Strategies of Operations Management
7 copyright A. Mark Galanter

Simplified Profit and Loss Statement (P&L)
 Sales Income (Revenue)

 ― COGS (Cost Of Goods Sold = direct material + direct labor)
 = Gross Profit (Contribution 1)
 ― selling expenses, ― general and administrative exp.,
―depreciation,
 ― R&D exp.
 = Operating Profit (Contribution 2)
 + interest and income on investments
 ― interest expenses
 = Net Profit before Taxes (Contribution 3)
 ― CIT
 = Net Profit (Equity Contribution, Bottom Line)
8 copyright A. Marek Galanter

Options to improve contribution -
example
 Finance/
 Marketing Accounting OM
 Option Option Option
 Increase Reduce Reduce

 Sales Finance Production

 Sales Current
$100,000 Revenue 50% Costs
$150,000 50%
$100,000 Costs 20%
$100,000
 Cost of Goods – 80,000 – 120,000 – 80,000 – 64,000
 Gross Margin 20,000 30,000 20,000 36,000
 Finance Costs – 6,000 – 6,000 – 3,000 – 6,000
 Subtotal 14,000 24,000 17,000 30,000
 Taxes 25% (CIT) – 3,500 – 6,000 – 4,250 – 7,500
 Contribution $ 10,500 $ 18,000 $ 12,750 $ 22,500

BUSINESS EXCELLENCE
There is no single definition describing the

Business Excellence
BUSINESS EXCELLENCE
Looking back, it is safe to say that for years the term

TQM (Total Quality Management) had served as the
synonym for Business Excellence.
Many businesses would claim their excellence status
after having the TQM launched or implemented
BUSINESS EXCELLENCE
Some will strive to get the ISO 9000 certification.
Some other would make a substantial and

commendable efforts to obtain the Malcolm Baldridge
Award
BUSINESS EXCELLENCE
The Pyramide of
Hierarchy of Needs
VALUES
(lifetime)
MISSION
(20+years)
VISION
(5-20 years)
STRATEGY
(1-5 years)
TACTICS
(+/- 1 year)
BUSINESS EXCELLENCE
Hierarchy of Needs – Values
Masterlease: core value examples:

Passion for customer
Honesty
Teamwork
Commitment to excellence and people
Individual respect and responsibility
BUSINESS EXCELLENCE
Hierarchy of Needs – Mission
Google:
To organize the world’s information and make it
universally accessible and useful

BUSINESS EXCELLENCE
Hierarchy of Needs – Vision
Starbucks:
To inspire and nurture the human spirit – one person,
one cup, and one neighborhood at a time
Nike:
To bring inspiration and innovation to every athlete in
the world. If you have a body, you are an athlete

BUSINESS EXCELLENCE
Hierarchy of Needs – Strategy
Strategy is the adoption of courses of action and the

allocation of resources necessary for carrying out
long-term goals and objectives of an organization

BUSINESS EXCELLENCE
Hierarchy of Needs – Tacticts
Tactics are all actions and maneuvers directed and

undertaken towards accomplishment of a short
term goals

BUSINESS EXCELLENCE
A very general description trying to capture the

essence of Business Excellence might look like this:
Business Excellence is about developing and
streghtening the management systems and processes
of an organization to improve performance and
create value for stakeholders. [1]
[1] APO Asian Productivity Organization
BUSINESS EXCELLENCE
Business Excellence is much more than having a quality

system in place [1]
BUSINESS EXCELLENCE
Business Excellence is about achieving excellence in

everything that an organization does i.e. leadership,
strategy, customer focus, information management,
people and processes and most importantly achieving
superior business results [1]
BUSINESS EXCELLENCE
DEFINITION OF A STAKEHOLDER
“Person, group or organization that has a direct or
indirect stake or interest in the organization because it
can either affect the organization or be affected by it.
Examples of external stakeholders are owners
(shareholders), customers, suppliers, partners,
government agencies and representatives of the
community or society.” [2]
[2] European Foundation for Quality Management (EFQM)(2010). EFQM user

guide: Understanding an organization's stakeholders
BUSINESS EXCELLENCE
Types of business organizations

Business organization stakeholders

BUSINESS EXCELLENCE
KEY CATEGORIES OF BUSINESS
1. Commercial
2. Public sector
3. Not-for-profit
4. Charities
5. Trade unions
6. Local authorities
7. Co-operatives
8. Non-governmental organizations (NGO)

BUSINESS EXCELLENCE
STAKEHOLDER - GOALS AND OBJECTIVES
Definition
Stakeholder is a person or group of persons who have

a vested interest (stake) in the organization.

BUSINESS EXCELLENCE
PRIMARY STAKEHOLDERS
STAKEHOLDER What’s at stake ? What do they expect?
Shareholders (or partners Money invested Return on invested money

or proprietor) in order to increase their
wealth:
•Steady, growing profits
paid by their business
(dividends)
•Growth in capital value
of their share of the
business

BUSINESS EXCELLENCE
SECONDARY STAKEHOLDERS
Stakeholder What’s at stake ? What do they expect?
•Fair and growing

Livelihoods, careers and remuneration
reputations •Career progression
Directors/managers, •Safe working
employees and environment
trade unions •Training, Pension
Their custom (habits) •Products/services that are of

Customers
good quality and value
•Fair terms of trade,
continuity of supply
Suppliers and other The items they supply
•Fair terms of trade, prompt
27 business partners payment
copyright A. Mark Galanter
•Continuity of custom
BUSINESS EXCELLENCE
SECONDARY STAKEHOLDERS cont.
Stakeholder What’s at stake ? What do they expect?
Lenders (banks, financial •Money lent A return on their

institutions) investment:
•Interest
•repayment of capital
Government and its •National infrastructure •Reasonable employment
agencies used by business and other business
•The welfare of employees practices
•Tax revenue •Steady or rising stream of
tax revenue
The local community and •National infrastructure •Reasonable employment
the public at large used by business and other business
•The welfare of employees practices
•The environment shared •Reasonable enviromental

The natural by all and other business
28 practices
environment
BUSINESS EXCELLENCE
Johnson and Scholes stakeholders categorization
(ICE)
Internal: corporate management, employees

Connected: shareholders, debt holders (eg bank),
intermediate (business) and final (consumer)
customers, suppliers
External: immediate community / society at large,
special interest groups, government, competitors

BUSINESS EXCELLENCE
Mendelow’s Matrix –
stakeholders interest categorization

BUSINESS EXCELLENCE
KPIs – Financial Ratios
 There are different groups of financial ratios. They

serve different information needs.
 For example equity investors and creditors will look
for information that are not as important to operations
management personnel.
BUSINESS EXCELLENCE
Selected Performance Financial Ratios
1. Liquidity Ratios
2. Activity Ratios
3. Profitability Ratios
4. Debt Ratios
BUSINESS EXCELLENCE
1/ Liquidity Ratios
this group of ratios tells about the business’ actual
ability to meet its obligations as they come due (or
creditors will soon loose patience and force business
into receivership). (The next step is bankruptcy). Ability
to meet short-term obligations depends on liquidity,
or access to ready cash (Cash Is King)
 Net Working Capital

 Current Ratio
 Quick Ratio (Acid Test)
BUSINESS EXCELLENCE
Net Working Capital = Current Assets – Current

Liabilities
BUSINESS EXCELLENCE
Current Assets
Current Ratio =
Current Liabilities
BUSINESS EXCELLENCE
Current Assets - Inventory

Quick Ratio (Acid Test) =
Current Liabilities
BUSINESS EXCELLENCE
2/ Activity Ratios
this group of ratios tells about the business’ actual ability to
convert its inventories and accounts receivable into cash,
how readily it pays its bills, and how efficiently it uses its
assets to generate sales.
- Inventory Turnover
- Average Collection Period
-Average Payment Period
- Fixed Asset Turnover
-Total Asset Turnover
BUSINESS EXCELLENCE
Inventory Turnover
COGS
Inventory Turnover =
Inventory (avg)
BUSINESS EXCELLENCE
Average Collection Period =
Account receivable
= =
Average sales per day
Account receivable
=
Annual sales/360
BUSINESS EXCELLENCE
Average Payment Period =
Accounts payable =
Average purchases per day
Accounts payable
=
Annual purchases/360
BUSINESS EXCELLENCE
sales
Fixed Asset Turnover =
Net fixed assets
BUSINESS EXCELLENCE
sales
Total Asset Turnover =
Total assets
BUSINESS EXCELLENCE
3/ Profitability Ratios
this group of ratios tells about the business’ actual ability
to make profit. A firm’s profitability is measured by
relating the sales value to sales volume, to asset value, to
equity or trading value of the shares.
- Gross profit margin
- operating profit margin
-net profit margin
- return on equity
-return on investment
-earnings per share
BUSINESS EXCELLENCE
Sales - COGS
Gross Profit Margin = =
sales
gross profit
=
sales
BUSINESS EXCELLENCE
Operating profit
Operating profit margin =
sales
BUSINESS EXCELLENCE
Net profit after taxes

Net profit margin = sales
BUSINESS EXCELLENCE
Return on Investment

ROI=
Total assets
BUSINESS EXCELLENCE
Return on Equity

ROE = Stockholders’ equity
BUSINESS EXCELLENCE
Earnings per Share =

Earnings available for common stockholders
=
Shares of common stock outstanding
BUSINESS EXCELLENCE
4/ Debt Ratios:
this group of ratios tells about the ability of a business to service its
debt. A firm indebtedness is measured by relating the debt to total
assets, or to equity.
Debt Ratio
Debt – Equity Ratio
Times-interest-earned Ratio
BUSINESS EXCELLENCE
Total Liabilities
Debt Ratio =
Total Assets
BUSINESS EXCELLENCE
Long-term Debt
Debt – Equity Ratio =
Stockholder’s Equity
BUSINESS EXCELLENCE
Times –interest-earned Ratio =
Earnings before interest and taxes

=
interest
BUSINESS EXCELLENCE
Process Excellence
3
Processes: i.e. production,
communication,
decision making, etc
and related
procedures/technologies
BUSINESS EXCELLENCE
Operational Excellence
2
Concepts and tools e.g.:
VSM, 6Sigma, Kaizen, Kanban,
Heijunka, Autonomation, 5 S,
Muda, Mura, TQM, TPM, QFD,
FMEA, RCA, Poka-Yoke, Jidoka,
Gemba, 5 Why?, SMED, Andon, …
etc.
BUSINESS EXCELLENCE
1
Business Excellence
CSR -
(focus on interest of
all stakeholders
with special attention
given to weak ones)
BUSINESS EXCELLENCE
Business Excellence
Operational Excellence
1 Process Excellence
2
3
silver gold bronze
BUSINESS EXCELLENCE
BUSINESS EXCELLENCE
OPERATIONAL EXCELLENCE
PROCESS
EXCELLENCE
BUSINESS EXCELLENCE
BUSINESS SELFASSESMENT
(rating 0 – 3)
 1/ My company states clearly its vision; managers make sure all

employees are well aware of this vision. Internal communication is at
truly professional level.
 2/ My company tracks and assesses level of satisfaction and expectations

of our current customers. We constantly monitor market and anticipate
what our present and future customers might want from our company.
 3/ Our customer’s complaints are always treated with the utmost

attention and appropriate steps are taken to make sure problems would
not reoccur.
BUSINESS EXCELLENCE
(rating 0 – 3)
 4/ Our company took many initiatives and formed clear procedures to

ascertain that our processes and products are of the highest quality
 5/ Our top management displays true leadership skills and always seeks
new ways to sustain and grow our company
 6/ Our company provides various trainings to employees and encourages

them to use the acquired knowledge in their daily work.
 7/ Our management encourages individual’s initiative, innovation, quick

response and cooperation throughout the company.
BUSINESS EXCELLENCE
(rating 0 – 3)
 8/ Our company developed and practices succession plans for all key
management positions as well as career development plans for its employees.
 9/ Our company recognizes that employee satisfaction and well-being

influences motivation. As the result company takes steps to make sure these
areas are not being overlooked.
 10/ We, the employees at all levels, are always encouraged by top
management to give suggestions on how to minimize the negative impact that
our product, service, processes and/or facilities might have to the
environment and/or community.
BUSINESS EXCELLENCE
(rating 0 – 3)
 11/ Our company monitors our daily operations and overall company’s
performance by collecting and reviewing information in the areas of, e.g.,
customer satisfaction, employee satisfaction, environmental situation and
requirements, etc…
BUSINESS EXCELLENCE
SCORE:
1. 28 -- 33 points - excellent ?
2. 22 – 27 points - outstanding?
3. 16 – 21 points – very good?
4. 10 – 15 points – good?
5. 4 – 9 points – satisfactory?
6. 0 – 3 points – abysmal !!!!

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Operational Excellence and

transition to Business Excellence

MBA IX edition 2017/2018

Gdańsk 24, 25, 261 Nov. 2017

PROCESS EXCELLENCE pertains to efficiency

OPERATIONAL EXCELLENCE cont.

BUSINESS EXCELLENCE is even broader. It

7 copyright A. Mark Galanter

 Sales Income (Revenue)

8 copyright A. Marek Galanter

 Increase Reduce Reduce

9 copyright A. Mark Galanter

There is no single definition describing the

Looking back, it is safe to say that for years the term

Some will strive to get the ISO 9000 certification.

Some other would make a substantial and

Masterlease: core value examples:

15 copyright A. Mark Galanter

16 copyright A. Mark Galanter

Strategy is the adoption of courses of action and the

17 copyright A. Mark Galanter

Tactics are all actions and maneuvers directed and

18 copyright A. Mark Galanter

A very general description trying to capture the

[1] APO Asian Productivity Organization

Business Excellence is much more than having a quality

[1] APO Asian Productivity Organization

Business Excellence is about achieving excellence in

[1] APO Asian Productivity Organization

[2] European Foundation for Quality Management (EFQM)(2010). EFQM user

Types of business organizations

23 copyright A. Mark Galanter

24 copyright A. Mark Galanter

STAKEHOLDER - GOALS AND OBJECTIVES

Stakeholder is a person or group of persons who have

25 copyright A. Mark Galanter

STAKEHOLDER What’s at stake ? What do they expect?

Shareholders (or partners Money invested Return on invested money

26 copyright A. Mark Galanter

•Fair and growing

Their custom (habits) •Products/services that are of

Lenders (banks, financial •Money lent A return on their

•The environment shared •Reasonable enviromental

Internal: corporate management, employees

29 copyright A. Mark Galanter

30 copyright A. Mark Galanter

 There are different groups of financial ratios. They

 Net Working Capital

Net Working Capital = Current Assets – Current

Current Assets - Inventory

Average Collection Period =

Average Payment Period =

Net profit after taxes

Net profit after taxes

Net profit after taxes

Earnings per Share =

Times –interest-earned Ratio =

Earnings before interest and taxes

 1/ My company states clearly its vision; managers make sure all

 2/ My company tracks and assesses level of satisfaction and expectations

 3/ Our customer’s complaints are always treated with the utmost

 4/ Our company took many initiatives and formed clear procedures to

 6/ Our company provides various trainings to employees and encourages

 7/ Our management encourages individual’s initiative, innovation, quick