What Happens When Operational Excellence Leads an Organization – In All Departments

If you read my column about giants, then you understand my viewpoint on having the right people to back the right product.

But, it doesn’t stop there.

Product + People + Operational Excellence = Greatness.

I think a lot about creating operational excellence. Some of the categories I look at are:

• A clearly defined North Star: Does the company understand what the goal is?
• KPIs: What are the indicators of how well people are doing and what is the effort to win at those?
• Communication: How are you communicating the expectations of the organization and have you communicated the North Star and the KPIs clearly?
• Playbook: Have you documented the process well enough so that there is a map to success?
• Giants: Are the giants leading the organization to excellence through the above points?

I was recently thinking about ways to challenge the norm of operational excellence to push an organization to even better results. To this point, I thought about a hypothetical brand that has had some challenges with the buildout cost of their restaurants. My thought process was the following:

• Who leads the buildout? Marketing. Why? Because they control the brand.
• Why doesn’t operations lead the buildout? If you challenged an operations team to figure out how to, for argument’s sake, hit $600,000 in buildout costs, could they do it? Probably. How would they do that? They would start with all of the necessary tools to run the restaurant and then worry about aesthetics, versus the other way around.
• What if in this scenario, buildout was going from $1m to $600,000, causing AUVs to drop. Could marketing then engineer concepts to bring them back up?

When thinking about that scenario, I then landed back on my categories. Could those categories be applied back to the challenge of lowing the cost of restaurant buildout?

• A clearly defined North Star: Lower the cost of buildout from $1m to $600,000 so that the brand has the possibility of better growth with a wider spread of investors ($600,000 is easier than $1m+).
• KPIs: Get buildout costs down, understand the change in volume and then scale back up. For argument’s sake, let’s say this brand has 10 locations with a total investment of $10m. Let’s also say AUVs are $1.2m, or system-wide sales of $12m, and royalty is five percent, so the company brings in $600,000 in royalty a year. Now, let’s say through the KPI, the next level of investment remains the same at $10m and let’s say AUV drops to $800,000 because of the decline in space size and buildout. $10m will buy you about 16 stores, and at $800,000, system-wide sales would be $12.8m with an added royalty of $40,000. So, not a huge difference. But, let’s say those 16 are easier to find investors for because of the drop in costs and the fact that real estate is easier to find because of the size of the unit and the speed to open. Now, you could rewrite the KPIs against those. It should be a whole team effort where operations takes the lead and marketing supports.
• Communications: We have engineered the buildout to be more cost-effective so that the single unit operators of yesterday (at $1m) can now be multi-unit owners faster.
• Playbook: Lower cost; new marketing strategy.
• Giants: Operations to marketing to development.

What I learned from thinking about this is that once you have an operational playbook for how you want to communicate and measure your new concepts, you win. Without operational giants, though, this doesn’t work.

So, when looking for giants, I now want to make sure they are supported with operational creators who challenge norms and create solutions to problems through proper planning, communication, expectations and results.