New research reveals why some companies outperform others—even when adopting the same practices.
Why do some companies outperform others even when they adopt the same operational improvement practices? For instance, in banking, HSBC, Bank of America, American Express, Citi, NatWest, and Westpac have all implemented Lean, Six Sigma, and similar Operational Excellence practices.
Yet their outcomes vary widely. Some, such as Bank of America and HSBC, have gained market share and boosted customer satisfaction, while others, such as Royal Bank of Scotland and Westpac, have plateaued or fallen behind. Operational Excellence has long been a managerial staple. But in today’s hyper-dynamic, digitized economy, focusing on traditional, standalone improvement practices is no longer enough. Our research reveals that the difference lies not in the operational improvement practices themselves, but in how the organizations develop what we call cumulative capabilities: a sequence of interlinked capabilities that, when deliberately built one on top of the other, enables the organization to anticipate, adapt, and evolve continuously and strategically. To uncover the capabilities underlying sustained Operational Excellence, we conducted a multi-year field study across four global banks and three healthcare firms that were similar in size, services, and Operational Excellence investments, but markedly differed in competitive outcomes. The banks were large , multi-business financial institutions with global operations and customer bases ranging from 5.8 million to 22 million, while the healthcare firms were major hospital-based service providers included in Newsweek’s World’s Best Hospitals 2023 list. This allowed us to compare organizations that looked similar in scale and operational investments but differed sharply in their ability to translate Operational Excellence into competitive advantage. Using customer satisfaction and financial performance metrics , we selected firms that ranged from industry laggards to leaders. Our research unfolded in two phases based on data from 108 executive interviews, onsite observations, and reviewed internal documents such as process maps and standard operating procedures, operational dashboards and KPI reports, audit records, customer feedback reports, quality project documentation, and archival performance metrics. In Phase 1, we identified 49 specific indicators related to how Operational Excellence was pursued, such as: periodic internal process reviews; audits and risk controls; monitoring process-level performance metrics; capturing customer complaints and satisfaction feedback; and scanning competitors and technology trends. Through affinity mapping and structured comparison, we grouped these into seven themes, which ultimately clustered into four core capabilities: Discover, Improve, Align, and Transform. In Phase 2, we assessed how strongly each organization demonstrated these capabilities and compared those patterns to their competitive performance. A clear insight emerged: Firms that developed all four capabilities—and did so in sequence—consistently outperformed others. Let’s take a look at what these capabilities mean and how this sequence can be a source of long-term competitive advantage. 1. Discover: See What Others Miss The Discover capability is an organization’s ability to systematically sense, scan, and interpret internal operations and external environmental signals. It enables firms to identify inefficiencies, blind spots, and emerging trends early, before they escalate into performance gaps. In one of the high-performing banks we studied, managers did not rely solely on internal dashboards to spot problems. They combined internal process monitoring with external sensing by actively tracking customer feedback after every transaction. When customers rated the bank poorly , branch managers personally called them to understand what went wrong, even after the issue was technically resolved. This helped the bank identify hidden service failures early and detect emerging customer expectations before competitors reacted. They also maintained a dedicated market research team that tracked emerging technologies and market developments, ensuring that operational priorities were shaped not just by internal defects but by what was changing in the broader banking environment. Amazon exemplifies this capability. The company continuously monitors customer feedback and browsing behavior to detect pain points early. For instance, when it noticed that repeat Prime customers were abandoning their shopping carts before checkout due to delivery delays in certain cities, it piloted localized same-day delivery hubs. This intervention improved customer satisfaction and led to a measurable increase in repeat purchases. Practical discovery steps To ensure your organization is prioritizing discoverability, start by identifying friction points or inefficiencies within your core operations. In customer-facing settings, tools like customer journey mapping and service blueprints, as well as encouraging feedback from your frontline workers, can help surface hidden pain areas. In internal-facing or B2B contexts, use tools like process mining—which analyzes system log data to map how work actually flows—as well as audit trail reviews, service-level adherence checks, and direct feedback from employees who work closely with customers or internal systems. Pair these internal insights with active scanning of external signals, such as competitor moves, changing customer expectations, regulatory shifts, and emerging technologies. Equip frontline teams and mid-level managers to not just gather these signals, but to act on them quickly, turning early insights into proactive responses while staying aligned with broader company goals. The aim is to enable fast, localized decisions without losing sight of the bigger picture. 2. Improve: Move from Fixes to Learning Loops The Improve capability refers to a firm’s structured ability to act upon discovered insights through sustained process enhancements. It involves iterative experimentation, employee-driven problem solving, and mechanisms for institutional learning. At one of the top-performing banks we studied, improvement was not left merely to informal ad-hoc fixes. The bank had a dedicated team that trained employees in operational improvement tools and techniques, coached project leaders, and helped teams run improvement projects in a disciplined way. In a typical year, the back office alone executed about 52 structured improvement projects, and the project reports and learnings were stored in a shared knowledge database so other teams could reuse what worked rather than repeat the same mistakes. Toyota offers another compelling example. In the early 2010s, the company faced a global recall crisis involving millions of vehicles, which exposed breakdowns in quality control and supplier coordination. In response, Toyota doubled down on its commitment to Kaizen: the Japanese philosophy of continuous, incremental improvement. It launched daily problem-solving huddles with employees across its global manufacturing plants, where cross-functional teams reviewed recent issues, traced root causes, and agreed on small, testable fixes. These teams were encouraged to experiment, and to fail fast in order to learn fast as they explored solutions. These huddles were part of broader learning cycles, where teams didn’t just fix issues; they also shared what they learned with colleagues in design, quality, and supplier teams, so the same problems wouldn’t repeat elsewhere. As a result, customer concerns about acceleration issues dropped by 80%, a significant milestone in implementing recall remedies. Practical improvement steps Improvement shouldn’t be limited to special projects or a few departments. To build this capability, create simple, repeatable routines where teams regularly reflect on what went wrong, why it happened, and what they can try next. These might take the form of short daily huddles, weekly reviews, or quick debriefs after key tasks. The goal is to make learning part of the everyday rhythm of work. Encourage employees to suggest small fixes, experiment with new ideas, and share what they learn with others doing similar work. Provide timely data and feedback so they can see the results of their efforts. Recognize and reward improvement efforts—not just crisis responses—so people feel safe identifying and addressing problems early. Over time, this helps prevent issues from recurring and builds an organization where continuous improvement becomes a habit. 3. Align: Connect Improvements to The Big Picture The Align capability is about linking everyday operational improvements with the company’s long-term strategy and doing so in a way that allows existing resources to be repurposed or renewed over time. Rather than creating isolated fixes, aligned organizations design their systems so that practices, processes, and knowledge developed in one part of the business can be adapted and applied elsewhere. This makes the entire improvement engine more agile, efficient, and strategically relevant. One bank we studied built this capability by linking operational metrics directly to strategic priorities through a Balanced Scorecard system. The scorecard tracked not just process performance but also business outcomes such as deposit growth, loan portfolio quality, operating efficiency, digital adoption, and risk indicators. Managers used real-time dashboards to ensure that improvement efforts across branches and back offices were coordinated and reinforced the bank’s broader strategic goals, rather than creating disconnected local optimizations. Netflix illustrates this well. The company’s AI-driven operations, which include algorithms that guide everything from content recommendations to subtitle generation, are not just optimized for cost or speed. They are built to reinforce the company’s broader goal of keeping subscribers engaged globally. For instance, rather than building separate workflows for each region, Netflix developed scalable solutions like automated subtitle generation and genre tagging systems that adapt to local languages and viewing preferences. These tools were then reused across markets, supporting rapid global expansion without duplicating effort. The same customer engagement data used to improve recommendations was also repurposed to inform marketing, content licensing, and interface design. This approach allowed Netflix to move quickly in new markets while staying aligned with its core strategic goal: increasing user retention. Practical alignment steps To make sure that you’re connecting operational improvements across the organization, start by asking a simple question before any improvement effort: Will this help us adapt and grow, or is it just a local fix? Make sure operational changes are tied to long-term business priorities like growth, innovation, or customer experience. Build systems that make reuse easy. Develop shared playbooks, data sources, and modular tools that can be applied in different settings. For example, a successful scheduling model from one unit should be documented in a way that others can adapt, rather than having to rebuild it from scratch. Rotate team members across projects and functions to create shared context. Use internal platforms to capture and circulate lessons learned so capabilities can be recombined quickly when priorities shift. Over time, this creates a more flexible, responsive operations system, one that doesn’t just improve processes, but also strengthens the organization’s ability to evolve. 4. Transform: Build for Agility and Adaptation The Transform capability represents an organization’s ability to institutionalize adaptability, reconfigure business models, and lead disruptive change to develop market acuity. It enables companies to shift how they work, not just by adding new technologies or products, but by reimagining core operations to respond to changing markets. A weaker-performing bank in our study highlighted what happens when the Transform capability is missing. Its quality assurance systems were still largely manual, and the defect log was used mainly to record customer complaints along with employee names, reflecting a blame-oriented culture rather than a change-ready one. Senior leaders admitted that major change was slow because of bureaucracy and rigid structures, and managers openly stated that the bank avoided experimenting with new technologies unless they had already become common in the market. In contrast, other banks with a higher Transform capability disrupted the market, repurposing themselves by introducing new operating models concerning people, processes, and technology. Ping An Insurance offers another compelling example. Originally a traditional insurer, the company invested over several years in strengthening its internal operations, including automation, data integration, and digital service delivery. It developed scalable capabilities such as AI-powered claims processing , remote onboarding , and advanced risk modeling . As consumer demand shifted toward digital-first services and public-sector clients sought technology-enabled solutions, Ping An repurposed and recombined its core strengths to respond. It launched new ventures, including online health platforms to meet rising demand for remote medical access, smart city infrastructure tools to support government digitization, and fintech services targeting mobile-first consumers. The company created dedicated innovation units and linked performance goals to revenue from these new business areas. By 2023, a growing share of Ping An’s profitability came from businesses outside its legacy insurance operations, reflected in nearly 64% of customers engaging in its healthcare and elderly-care services and 25% of customers holding four or more contracts across the group, underlining a major shift beyond legacy insurance—a transformation driven not just by vision, but by an operations model built for adaptation and scale. Practical transformation steps To build this capability, help your organization reconfigure itself—not just realign internally—when the market changes. Start by identifying which parts of your operations could be extended into a new business area. Support this with formal structures, such as venture teams or innovation labs, that are tasked with testing entirely new service models or customer segments. These teams should explore beyond current strategic priorities and be backed by leadership with dedicated resources and performance goals tied to future growth. Monitor how often teams recombine internal know-how to launch something new and use that insight to guide future investments. This isn’t about fine-tuning what you already do; it’s about preparing your operations to support whatever comes next. The Power of Cumulative Capabilities Our research shows that the true strength of Operational Excellence lies not in adopting one or two capabilities, but in developing them cumulatively and in the right sequence. So what happens when you skip steps or focus on one capability in isolation? Our research found: Firms with only Discover had environmental awareness but survived as laggards. Firms with Discover + Improve reached competitive parity. Firms with Discover + Improve + Align established a competitive advantage. Firms with Discover + Improve + Align + Transform capabilities sustained the competitive advantage. A bank we studied excelled at Discover and Improve, identified pain points, and made efficiency gains. But without Align, its initiatives conflicted with shifting strategic priorities and failed to gain lasting traction. In contrast, another firm we studied developed all four capabilities sequentially, redesigned its operating model, and employed digital tools to reach more customers, thereby becoming a long-term market leader. Operational Excellence is no longer about adopting operational improvement practices. It’s about developing the capabilities to evolve. Think of these capabilities like a sand-cone: each one forms the foundation for the next, increasing in strategic leverage as they build up. Discover equips firms with situational awareness; Improve acts on that knowledge; Align ensures that those efforts match with organizational assets; and Transform institutionalizes agility to evolve with the market. Even today, many organizations remain trapped advocating and relying on standalone operational improvement practices in a cycle of fragmented, short-term improvements. The real issue is not a lack of effort, but a lack of integration. To break this cycle, leaders must champion Operational Excellence from a practice they advocate for to a capability-building system.
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