What is OPEX?
The place to start any discussion on OPEX is with the question – “What is it? What is OPEX?” To start with, I translate OPEX as Operational Excellence, not Operating Expense. That is the only easy part of any potential definition. I asked quite a few contacts of mine what it means to them and I got a lot of different answers. So, I went to the source of all knowledge – that’s right, the internet. If it is from the internet, it must be true. But on OPEX, there is no single source of truth on the internet or anywhere else. There are some flowery academic definitions that really don’t mean much and there are opinions that are more examples than definitions. So, what it is? One definition is:
Operational Excellence is an element of organizational leadership that stresses the application of a variety of principles, systems, and tools toward the sustainable improvement of key performance metrics. Wikipedia
Well that tells me nothing! But I am certain someone thought it made them sound like they knew what they were talking about. The problem is that many of the definitions take a different perspective and once again we have a term that can mean almost anything. The result is that we end up with so many different interpretations that everyone is free to take their own approach to defining it.
I also recently talked to a manager who told me that OPEX was the application of Six Sigma.
This seems to be backed up by the second part of the Wikipedia discussion:
“Much of this management philosophy is based on earlier continuous improvement methodologies, such as Lean Manufacturing, Six Sigma, and Scientific Management. The focus of Operational Excellence goes beyond the traditional event-based model of improvement toward a long-term change in organizational culture.”
Ok, that is a nice perspective, I agree with the part about a long-term change to culture.
Continuing my research, I found the “Business Dictionary”. It defines OPEX as:
“A philosophy of the workplace where problem-solving, teamwork, and leadership results in the ongoing improvement in an organization. The process involves focusing on the customer’s needs, keeping the employees positive and empowered, and continually improving the current activities in the workplace.”
Still a bit nebulous but closer to how I define the term. Unfortunately, I think this still misses the most critical points.
Looking still further, “Industry Week” defines OPEX as:
“When each and every employee can see the flow of value to the customer, and fix that flow when it breaks down. It's that simple.”
Again, I think it misses the point and is down in the weeds of the operation.
I personally believe that anything that has a lot of different definitions, really has no definition – it can be almost anything. Also, frankly, the way I apply OPEX doesn’t fit with these definitions very well.
So, my quest for a common definition has brought me to the point where I felt that my definition was as valid as any of the myriad of others I found on the net or in contacts with organizations.
So here is my definition! You may agree with it or not. In either case, you will be right since I cannot find a really good definition and yours will be as valid as any.
I have been working in what I believe is the OPEX space and I have come to believe that OPEX is really a theory without a solid methodology. As a concept, it is by nature nebulous. As a popular title, it is unfortunately often misused – at least in my opinion.
To me, “OPEX is the highest level strategic operating approach for a company. It is focused on companywide excellence as defined by the company’s Executive Committee and enacted through a specific set of goals and operational characteristics defined by executive management. The objective is to excel at competing in your markets. To achieve this level of excellence, a company must be able to operate effectively and efficiently in translating strategy into operational change – quickly, at low risk, and with low cost. It must also be able to do this consistently as it leverages new and emerging technologies to deliver value based customer journey experiences. To guide improvement and transformation, the company must also be adept at measuring business operation and IT performance and using advanced analytics to determine strategic execution and evolution.”
If you succeed in building this operating environment, to me, you will have risen to the OPEX operating level. That makes OPEX a strategic journey and a long-term commitment.
Achieving this level of performance is not easy and it is even more difficult to maintain. While Lean and Six Sigma are tools that help, they are not capable of building an OPEX operation alone – I do not believe you can reach an OPEX level of performance by streamlining or by chipping away at processes to improve them.
One of the things that makes achieving this level of performance so hard is that different executive committees will have different ideas on what needs to be done and how excellence should be defined in their company. I believe that building this new operating environment requires executive consensus and true business reengineering – transforming the business from culture to product construction or service delivery.
This move will initially require a level of collaboration that puts the company’s good before individual business unit goals. This will often be a problem because it probably mandates a change in the company’s compensation program. As the operation changes, goals change and incentive programs need to change to remain relevant. At a minimum, incentives will need to be aligned, at least partially, to the OPEX goals as well as individual manager’s department goals. This will not be easy.
But this OPEX definition will have common components that are needed to compete successfully and profitably. These include the following components and characteristics:
- A formal, agreed to, definition of what OPEX means to the company and its inclusion in the company business and IT strategies
- A long-term commitment to transformation to an OPEX environment
- Operational flexibility – the ability to change the operation fast, including the IT support, policy and procedure guidance, rules that govern work, and workflow with bottleneck elimination
- The ability to modify strategy as needed and define and implement changes quickly
- An ability for IT to support new business capabilities in a timely manner
- Control over operational complexity, workplace efficiency, product and service change
- Creation of a change culture
- Creation of a learning culture
- Performance measurement to prove excellence – agreement on what to measure, how to measure it, when to measure it, and how to interpret the data to prove targets are met
Is this a definitive list? No, it is just a start and it will vary by company and by industry. However, it is a list that any OPEX movement will need to include as they define their company’s program.
OPEX – Driving Corporate Transformation
Can OPEX be performed at a department, division, or business unit level? Yes, of course – if there is an overall master plan to transform the company. I have found that this type of comprehensive, integrated plan should include all areas of the business. This is key in providing the needed scope, and an understanding of flow and other relationships between and within processes and between the business and IT. It is also the foundation for creating an integrated new business model.
If we look at this broadly we get that OPEX drives strategic initiatives that must be infused into the transformation design of a company to prepare it for success in the emerging worldwide techno society. This strategic foundation makes certain that any OPEX program starts at the Senior Executive level and carries the backing it needs to make it succeed. As such, it includes all of the aspects of quality and change in a company and is a significant factor (once its characteristics are defined) in determining needed action and the sequence that the actions should be executed.
Unlike other improvement approaches, Operational Excellence requires all of the role groups from Business Strategy to Business Architecture to Process Architecture and Enterprise IT Architecture, and the disciplines that go with each to succeed. In addition, achieving a level of OPEX at a company level, requires a commitment to long term Enterprise Business Transformation, followed by a serious program of Continuous Improvement. This means that true collaboration is critical and no one discipline can try to be dominant – they all have their place.
This program will be volatile and move back and forth between transformation and improvement as new technology is made available, buyer group interaction expectations change, and new product lines are created. The delivery of these changes is the true test of any company-wide OPEX capability. To accomplish this level of flexibility, the OPEX program will need the ability to deliver rapid analysis, evaluation, change, and deployment. If it is not able to do this, little else will really matter in the long run – the OPEX initiative will likely fail.
People and OPEX
A significant part of any operational excellence program is related to people. All need to understand their place in the company, the value their role delivers, and how they can help improve the operation. It is thus important that managers and staff be informed, buy into the new direction, and be willing to help. That means that they will need to be comfortable that their jobs are not on the chopping block as the operation improves. So, this move really cannot be about staff reduction – any reduction in staffing needs should be approached by reassignment of current staff to fill open positions.
To be successful, OPEX must break the still present organizational barriers in the company. Silos still exist and they are still often jealously guarded private domains with clear boundaries. While this has improved in the last five years, silos still represent constraints that are really unnecessary. However, to break these barriers, it is necessary to change the way HR and senior management looks at performance, performance management, and incentive programs. Again, not an easy thing to promote because of the fear it will cause.
Long term success is dependent on open collaboration and cooperation, and the willingness of the people to break through a variety of organization, discipline, approach, and methodology barriers. These people will either make an OPEX initiative succeed or allow it to fail. This not a technology play – it is a manager and staff play. People make the difference in any operation and in any change and cannot be left out.
This involvement relies on a communication capability that allows information to be distributed quickly and ties management and staff together into a common group. A company intranet would be a good start, but it will probably not have the real capabilities that will be needed. While we have worked with tools that deliver unprecedented levels of communication capability and management, I have seldom seen any capability in this area that is more than marginally acceptable. However, with new tools that are available, it is possible to keep in close contact with staff by job, role, organization or technology use. This level of communication is needed to support true collaboration and let management interactively track activity against plan, push out training, assure that the messages are read and that training is taken. This allows all communication to be controlled and collaboration ensured and enforced.
Why is OPEX important?
As I have said in other columns, companies naturally evolve to mediocrity. They build complexity into operations to deal with problems and they become disjointed with a separation of organization units, disciplines, and staff specialization. This all builds slowly until the operation is both ineffective and inefficient. This is natural and it happens because of constant change – even if that change is controlled.
This degradation eventually robs the company of its flexibility and its ability to deal with ongoing change in an effective manner.
For the most part, this need to improve or transform a business operation has been approached, designed, and built in isolated parts. While this improves some areas, it can actually harm others. The resulting improvements also often fail to live up to expectations – contributing to the high failure rate of improvement and transformation projects.
When OPEX is viewed from a broad end to end company perspective, it becomes much more than most existing definitions consider. At this level, it becomes first strategic, then the foundation for the creation of a new modern operating model. Here, it is a framework that helps the company stay up to date on the use of new technology and the way customers will interact with the company.
OPEX is thus an opportunity to rethink how the entire business works – not just parts of it. It is a chance to redesign the operation as a single integrated entity – maximizing the contribution of each business area and each activity as part of an integrated new whole. In many ways, it is the embodiment of the concepts that Michael Hammer proposed in his reengineering concepts in the mid-1990s. It lets managers look at what they would do if they could redesign the whole company to function as a collaborating whole. It also lets them look at IT and their emerging global marketplace and determine how the company will need to function.
Most change today, however, continues to separate the business redesign and IT application development. This approach is actually harmful and is a major reason for the issues with current application support. Removing these barriers is a necessary step in freeing the business operation to innovate and evolve.
The goal of OPEX is thus the creation of a new business model along with the supporting IT capabilities and customer interface capabilities. The underlying framework is a comprehensive model of the current business operation, an IT infrastructure that is designed specifically to support rapid change, and a strategic reporting capability that will provide real time analytics on multiple views of the business operation.
The challenge is to build the culture, staff, and skills needed to drive and support this new operating model. The initial step in this movement is to help create a vision of the future, then justify it, and prove why it will lead to better results than other options. That is the first step on a company-wide move to Operational Excellence.
As always, I hope this discussion gave you new food for thought and has proven to be a good investment of your time. Please feel free to contact me at 630-290-4858 or email@example.com , with any questions, agreements or disagreements, and observations of your own.
If you are fairly new to PEX, please check out my previous columns and papers. You can find them by keying in my name on the PEX main website landing page.
Also, please check out my new book, “The Business Transformation Field Guide”, available on Amazon Books, and join me at the PEXWeek Orlando conference for my BPM Architect training course.