Operational Excellence Is Not Your Operating Model

Pathfinder companies in the LNS Research Industrial Productivity Index™ that are outpacing peer companies’ long-term industrial productivity growth have several areas where their practices differ from those of the general index companies. One of those areas is an Operating Model.

We see companies that think about their Operational Excellence approach as their operating model. It is easy to conflate Operational Excellence (OpEx) with an Operating Model. After all, both aim to improve performance, reduce waste, and ensure sustainable results. Understanding the difference is critical for organizations aiming to evolve beyond legacy improvement practices toward integrated, agile, and resilient industrial transformation.

What is an Operating Model?

We define an Operating Model as:

A principles-based approach that defines the way of work at a company that is aligned with:

• • • Values

    • Goals

    • Strengths

    • Strategies

An Operating Model (Figure 1) is not a single function or set of practices. It is a framework that defines how work gets done at a company. It spans five (or more) interdependent elements:

• • 1. Leadership

    2. Culture

    3. Respect for People

    4. Value Generation Principles

    5. Operational Excellence

Figure 1: LNS Research Operating Model Framework

Operating models can and should vary by company, but Operational Excellence plays a crucial role in all of them and is one of several foundational components. While Op Ex typically focuses on performance management, waste reduction, continuous improvement (CI), and sometimes risk, the Operating Model defines everything, including inventory flow, product lifecycle processes, governance structures, talent systems, digital architectures, risk frameworks, and value propositions to the customer. Operating Models define the ethos and guiding principles that a company subscribes to.

Adapt or Adopt?

Many industrial companies have adopted the latest fad in the news in hopes of finding that silver bullet that will align their efforts and produce significant business value. We have seen it in Operational Excellence in the past. GE had a good run with Six Sigma in the late 80s and early 90s, and Toyota made news for its lean efforts, so seemingly everyone hopped on the bandwagon, hoping for similar newsworthy results. Similarly, for Operating Models.

Our research shows that the motion many of these companies have taken is to start with adopting a known model’s core principles and values…but then adapting the tactics and approaches to the company’s own unique situation and value proposition.

We have seen this with the Mercedes-Benz Production System (Figure 2), Danaher Business System, and General Electric Aviation’s Flight Deck, all adapted from the Toyota Production System; Illinois Tool Works 80/20 Operating Model, adapted from the simple Pareto Principle; and Tata’s Business Excellence Model, adapted from the Malcolm Baldrige Quality criteria.

Figure 2: Mercedes-Benz Adapted Operating Model

Some things that we see across these examples and several others are:

• • • Brand it.

    • Use it as the framework for Change Management within the company to drive buy-in.

    • Create senior executive roles to nurture and own the model.

    • Push up and down the value chain.

    • Digitize critical elements of it to make it more sustainable.

The Operating Model Demands a Wider View

Operating Models typically integrate:

• • • Embedded Quality as well as Integrated Operational Excellence

    • Future of Industrial Work, Knowledge Management, and Change Management

    • Embedded EHS and Intelligent Risk Management

    • Intelligent Supply Networks and Resilient Architecture

    • Critical players on the value chain, including suppliers, engineering, planning, delivery, inventory, manufacturing, and service functions

Operational Excellence alone cannot accomplish this convergence; it requires a unified view — architected intentionally — where OpEx is the improvement engine within a broader system of value creation and brand protection.

Operational Excellence: A Powerful Enabler, Not the Whole Structure

Traditional Operational Excellence has been rooted in the CI and waste reduction practices of Lean, Six Sigma, TPM, or world-class manufacturing, which are primarily procedural approaches. While valuable, these methods have relied heavily on expert knowledge, high degrees of operational discipline, manual execution, and long project cycle times. These traditional CI systems face existential headwinds: talent turnover, slowing results, and limited scalability. In our research on Operational Excellence in 2023, 75% of companies reported that their traditional approaches were losing momentum (Figure 3).

Enter Integrated Operational Excellence — a digitally enabled evolution of operational excellence. Integrated OpEx embeds OpEx tools and practices within a digitally enabled operating environment, leveraging tools like Digital Twins, AI/ML, and Advanced Analytics to transform how work is improved. This shifts Operational Excellence from a standalone, siloed initiative to a functionally integrated and dynamic element of a broader Operating Model​.

Implications: Rethink How You Deploy Op Ex

To thrive in this new paradigm, organizations are repositioning Operational Excellence in three key ways:

1. From Paper to Digital. Rather than viewing Op Ex as a static program with Lean toolkits implemented by experts, elevate it to a digital platform capability within the Operating Model — one that connects people, data, and machines in real time.

2. From Siloed to Integrated. The fast pace of modern manufacturing demands that solutions keep up. Traditional, asynchronous approaches to Operational Excellence are severely outdistanced by digital. Use digital tools (Digital Twins, AI/ML, Analytics) to monitor, model, and manage performance in near real-time. According to our research on Operational Excellence, leaders are 7 times more likely to connect analytics, AI, and Op Ex execution with the goal of faster, better decision intelligence.

3. From Procedural to Intelligent and Strategic. Align Operational Excellence with other pillars of the Operating Model. For example, embedding Intelligent Risk Management within Digital Operational Excellence enables organizations to monitor and respond to disruptions impacting operational agility, flexibility, and resiliency, potentially avoiding operational disruptions. Integrating Op Ex into the Operating Model unlocks talent development channels and innovative ways of delivering value to the customer, among other benefits.

Figure 4: Op Ex is a Strategic Pillar

Recommendations: A Structural Shift, Not a Semantic One

Operational Excellence as a part of, but not the entirety of your Operating Model, is not a matter of semantics — it’s a structural shift. OpEx is essential, but it cannot address the full breadth of the complexities of the way of work at industrial companies today. To meet the demands of complexity, speed, and sustainability, organizations are embedding OpEx into a robust, adaptable Operating Model — one that defines how work is done, improved, and transformed across the entire enterprise.

1. Adopt an Operating Model that closely aligns with your core values, strategies, and ways of working. The only company that fits the Toyota Production System (TPS) is Toyota, but it or one of the others might be close to your unique way of working as a starting point.

2. Adapt that Model to your unique way of working. No model is a perfect fit for your company except for the one that your company customizes to your unique strengths, values, and strategies.

3. Integrate Digital Op Ex as a central pillar into the operational architecture to sustain long-term value from your efforts and align Op Ex efforts with business priorities and strategies.

In short, Operational Excellence is the engine, but the Operating Model is the vehicle. To drive true business value, you need both, working together in harmony.