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A Middle Market Guide to Building and Sustaining Operations Excellence

Sept. 30, 2014
New report proposes a four-part, systematic approach by which firms can stop their backsliding and maintain their operational gains.

When it comes to solving business problems, middle market companies are more likely than their larger brethren to report the problems rather than cover them up.  

Then they're more likely to focus on finding root causes than settle for the quick fix.

Those are just two findings from a new report issued by The National Center for the Middle Market, a collaboration between The Ohio State University Fisher College of Business and GE Capital, and Peter Ward, a management sciences professor at the Fisher College.

Middle market firms, described as companies with annual revenues between $10 million and $1 billion, may be quicker to surface problems "because top management is right outside the door, and that leader says 'let's fix it,'" surmises Thomas A. Stewart, executive director of the National Center for the Middle Market.

On the flip side, larger firms are much more likely to implement formal continuous improvement methods, such as Six Sigma or lean, than their smaller counterparts, to make those fixes.

Where companies of all sizes fall short, however, is in sustaining the gains they make in pursuit of operations excellence.  That's the focus of "The Operations Playbook: A Systematic Approach for Achieving and Maintaining Operations Excellence."

The report is aimed at middle market firms, which rate themselves high on operational effectiveness but "say it is difficult to make and sustain improvements in operations."

Among the recommendations cited by the study's authors is that middle market executives manage their operations as a four-part system.

What are those four parts? They are problem solving, daily management, strategic alignment and people development. These comprise a framework to help companies drive sustained excellence, the report says.

"What really got me started on this [research] is that there is so much talk about leadership but less about governance," says Ohio State's Ward.

Sustainable operational excellence, he says, "is not only about charismatic leadership, but about structure."

The four parts, or subsystems, of the governance structure are meant to work in concert. "Each is like a gear, working together," Stewart says.

The report delivers a "to do" at the end of its discussion on each of the four subsystems.

The good news is that middle market companies have plenty of strengths to make up for the things they aren't doing.

— The Operations Playbook

It also shares findings in each of the four subsystems of the governance structure. For example, in addressing daily management, 40% of leaders at middle market firms "strongly agree" that they are expected to visit their operations frequently, compared with 32% of large firms saying the same.

Additionally, middle market firms are more inclined to hold frequent, short meetings at all organizational levels to discuss work status.

As mentioned earlier, large firms are more likely to have implemented formal continuous improvement structures. For example, 46% of larger firms reported having implemented Six Sigma, compared with 17% of middle market firms, and 41% of larger firms have implemented lean, compared with 17% of middle market firms.

That said, middle a greater percentage of middle market firms report that these methods are effective.

Given these findings, Ward suggested that middle market companies may find success by investing more in lean and Six Sigma, coupling it with their simpler organizational structures.

"The good news is that middle market companies have plenty of strengths to make up for the things they aren't doing," the report notes in conclusion.

Moreover, their weaknesses frequently are "easier to fix than having a top management team that is disengaged or not first and foremost focused on customers."

The Operations Playbook provides several key takeaways, which include: stay close to the work; find an operations philosophy/method that works for you; and make sure all operations personnel know the larger strategy.

In the end, leaders must "get their arms around the governance challenge."

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