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What is operational excellence and sustainability reporting, and why should business leaders be orienting themselves to delivering non-financial performance data?
Until recently, long-term investors judged the efficacy of asset-intensive companies, such as energy and mining enterprises, on the basis of strategy and financial factors. Today, however, operational risks, safety, environmental concerns and measurements of sustainable improvements to operational performance merit equal attention to a company’s share price, earnings per share and P/E ratio. Downtime, accidents and regulatory violations all threaten business productivity while also impacting revenue, earnings and shareholder value.
A company that experiences multiple occurrences of unplanned downtime due to equipment failure or safety-related incidents could indicate a fundamental problem with the organization’s ability to identify, prioritize and mitigate critical operational risks. This type of organization would present significant financial exposure for existing and potential investors.
Consequently, these non-financial business requirements beg larger questions related to the need for managing operational performance information with the same rigor as financial accounting. As companies realize the opportunities that exist from mining the information in operational performance data, they need to focus on developing leadership and integrated management systems as a disciplined way to optimize performance.
Operational excellence management systems (OEMS) are frameworks developed to support the policies and procedures outlined in the operational excellence strategy of the company. Management systems provide a way to systematically implement corporate policies and procedures.
While this statement appears to be reasonably straightforward, reading, comprehending, and executing on its meaning are very different things as a practical matter. Such systems cannot be implemented quickly or without a degree of significant effort at the enterprise level.

Developing a global operational excellence information system to underpin your OEMS is a long-term commitment. Like the enterprise-wide financial information systems that most large companies have installed during the past few decades, it is the work of years, not months, and is dauntingly complex.
Nevertheless, the effort can pay off if one is patient and disciplined. Companies that take advantage of such systems, and implement them with the greatest discipline, stand to capitalize on strategic opportunities, increased share price, improved competitiveness and accelerated growth. Getting there may be a challenge, but the payoff is significant.
J. Scott Lockhart Is senior vice president, operational excellence and risk management for IHS
Posted Decmeber 5, 2014

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