A path for defining a Transformational Structure

You can approach the design of a new organization through the definition of roles and profiles for every position, in other words, a bottom-up approach. However, this approach is far from being transformational. If the company wants to make a transformation, we suggest following these simple steps (see diagram at the end as a reference):


1) Understand the Business Strategy. The strategic definition must be clear enough to obtain strategic guidelines for the design. Use workshops with the C-Level to assure that you capture the intent of the business for the transformation. Have clear in your mind how the company should look like in the future.


2) Map the Business Model. You can use a technique like “Business Model Canvas” to map the to-be Business Model (see http://bauzanotebook.blogspot.mx/2013/05/map-business-model-then-business_13.html). With the Business Model, you shall identify what will be the differentiating capabilities of the company, in order to provide value to its customers. The differentiating capabilities must support your competitive essence in the market (or your future competitive essence...).


3) Map the Capability/Process Model. At this point, you have identified what capabilities are important for the company and they should appear clearly and bold in the Capability Model (see http://bauzanotebook.blogspot.mx/2013/05/a-proposed-structure-for-business_2.html). If not, your design will not support the Business Model and hence, your Strategy. Make sure that the model support the Business Model and provide the value intended to the market.


4) Design the Operating Model. Having your inventory of capabilities and processes, you have to:



a. Classify the capabilities and processes. You can use tags like: Core, Non-Core, and Support. You may use a different classification, depending on the organization strategy. The classification will help you to understand what capabilities and processes can be outsourced or placed in a shared services center, for example (if a given capability is non-core, is a great candidate for outsourcing).



b. Localize the capabilities and processes. Define which capabilities and processes are Local, Regional, Global or Hybrid. This step will help you to understand where to locate these capabilities.



c. Prioritize. Define what should be attacked first, second, etc. It will help you to define a roadmap of implementation of the different capabilities.



In the Operating Model you define “where” is executed and “who” is responsible of executing specific processes. For example, you may define that the accounting processes will be executed in a Shared Services Center and the Demand Planning processes will be executed in a Centralized Center of Excellence. Also, you define the interrelations between the different elements of the Operating Model.



5) Based on your design of Operating Model, then define your different interrelated architectures. At this point you have already defined the capabilities and process inventory aligned to your strategy, so you can start to define you Process, Technological, Information and Organizational Architectures (or additional architectures you may need). Going back to the initial point of this blog, it is difficult to define an Organizational Architecture if you have not decided if you are going to implement a Shared Services Center, a Center of Excellence or a capability will be centralized in the Headquarters of the company. The Organizational Architecture must reflect that. If your Operating Model has a SSC, then you will need a box in your Org Chart to cover that need.

 

Are you selecting the right strategic indicators? I

One of the key decisions of the CEOs and boards is to select the right key financial indicators to manage the company. Tipically, companies select EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), EVA (Economic Value Added), Enterprise Value, among others. Although companies do not select just one indicator, they tend to use one as the cornerstone for the management focus (and their respective bonuses!).

As always, making a selection has its consequences (and of course, also its advantages...). Most of the companies I have worked for use EBITDA and they have a strong focus in this indicator.

Let´s start understanding how EBITDA is calculated:

EBITDA = Revenue – Expenses (excluding interest, taxes, depreciation and amortization)

As represented in the formula, it is a measure of the current profitability of the company, not taking in account the effects of interest (from loans for example), taxes, depreciation (the decrease of value in assets) and amortization (the payment of debts, for example). In the following table, you can see the main pros and cons of using EBITDA as the main financial indicator:

So, what can happen if we choose this indicator as the reason for living? There are several things that may happen:

- Reduction of the Return on Assets (ROA) or Return on Invested Capital (ROIC) -or getting inflated in assets and working capital. Due that the fact you are focused on profitability, you may decide to use more assets (for example, buy plants) to produce more revenues, or to have more inventory (in order to have more things to sell). However, at the end, a shareholder can complain that the money he invested is not having the right margin, compared with other financial instruments.

- Because you are not taking in account the effects of depreciation and amortization, you may have a distorted vision of the cash generated by the company. Tax and amortization can erode the cash generated.

- For the shareholders, it is not enough to use EBITDA to make his/her investments decisions. It does not take a vision of the use of the assets or working capital, it does not show the company valuation or show a trend of the future of the company, so it is difficult  for him/her to decide if it is a good place to put the money in.

As a conclusion, even though is a very common indicator and is used widely to compare companies, it should not be used in isolation to manage the destiny of the company.

If you are not segmenting, you are not thinking.

 

Actually,it is a phrase stolen from a conversation with a client, but it is completely true. The problems we try to solve in business are not as simple to attack with a one silver bullet. Let me illustrate with several situations:





- If you are dealing with a inventory rationalization problem, you should segment the products that you would like to attack using a segmentation like this:

 

In this case, you shall define different solution strategy for every segment of this problem. You solution will be different for "Non-Productive Stock" to the "Excesive Coverage".

 

- If you are priotizing initiatives that you want to implement, you can use a matrix with two main variables (complexity and benefits) to help you clasify them and establish a different strategy for each quadrant, as shown:

 

 

 

There are innumerable methodologies to this "divide and conquer" approach. Some of them are well known, others not so much:

 

- The Boston Matrix (for deciding in which business units to invest)

- The Ansoff Matrix (to understand the risk of different options)

- The Kepner-Tregoe Matrix (a decision making aide based in the classification and prioritization of information)

... and so forth.

 

You can take a look to different segmentations tools in "The Decision Book": http://www.amazon.com/The-Decision-Book-Strategic-Thinking/dp/0393079619/ref=sr_1_1?ie=UTF8&qid=1376097474&sr=8-1&keywords=The+Decision+Book

 

However, you can create your own "matrix", "segmentation" or even "hiper-cube" to solve your complex problem. I would recommend the following steps to create them:

 

- Frame the problem. To achieve this, formulate a powerful and specific question that you want to solve. Work hard in defining the right question.

 

- Select the criteria of segmentation. Be careful in defining them. The criteria should be "orthogonal", it means, a criteria can not dependent one from the another.

 

- Map your problem. Locate the different options in your matrix. Analize and classify them. Do the analytics to locate them.

 

- Define a differentiated strategy for the solution of each quadrant (or cube).

 

Using this approach, you will find that the problem can be separated in pieces, and you will feel confident in defining a better solution for each case.





 

 

 

The Power of the Words in Business.

“Words are, of course, the most powerful drug used by mankind.” 
― Rudyard Kipling

I have seen a common problem in different businesses, and that problem is the lack of a common understanding of the terms used for the business strategy and execution, and in other cases, terms used in a wrong way. Although is not necessary that all employees have a thesaurus in their heads, it is important to select and have a common understanding of the key words for the business.

Key words are those that we have to guarantee that employees understand in the same way. These key words are important in the business strategy definition and in its implementation. Also, I have found that when a business uses properly a term and the variations of such term, tends to have a better framing of the opportunities they have.

I work mostly in Supply Chain and BPM projects, so we guarantee that everybody understand quite well what "inventory" and "process" mean, as an example. If we look for the definition of "inventory" we may find that is:

"The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale."(1)

However, if we look at the APICS dictionary, we may find 137 terms related to the word: safety stock, base stock, make-to-stock, pipeline stock, etc. We can get lost in this amount of terms, so in an initial stage, we need to have a selection of key words for the business.

We can face this problem in different ways. Some of the recommendations are:

- Use clear and unambiguos words in the Vision and Mission declaration statements. Make them short and easy to remember.

- Select the key words for your business. Link them to the business strategy and the key operations outcomes you want to achieve.

- When initiating a project, execute a training on basics and key concepts before starting the core work. Make sure everybody in the project understand the same. Use certification or exams to calibrate the understanding of the concepts.

- Use training as a tool to gain maturity. For example, Accenture has a set of on-line academies used extensively and massively to gain momentum in business concepts and practices.

- Measure maturity growth periodically.

More information:

http://www.accenture.com/us-en/Pages/service-accenture-academy.aspx
http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Supply_Chain_Academy_height.pdf
http://newsroom.accenture.com/article_display.cfm?article_id=4182


Sources:(1) http://www.investopedia.com/terms/i/inventory.asp

So your company is starting a "Transformation Program"?

Transformation: In an organizational context, a process of profound and radical change that orients an organizationn in a new direction and takes it to an entirely different level of effectiveness. 

Source: http://www.businessdictionary.com/definition/transformation.html#ixzz2Yvvu4IG3


Due to the costants changes in the market, in the consumers, in the world in general, once a while companies start a "Transformation Program". It looks the right way to approach major changes, like we do when we have gained too much weight and start a diet, but not necesarilly we achieve (like with the diet...) the outcomes we expect.

Typically, a company starts a Transformation Program when some of this phenomena is taking place:

- Profitability is going south, or revenues are diminishing or cost are increasing (or all of them).
- After the acquisition of a company, to seize the opportunity to make long time postponed changes and achieve the expected sinergies.
- The implementation of a major enterprise system (i.e. an ERP) or a major application.
- A major change in the Operating Model (i.e. a transformation in the Supply Chain, the implementation of Shared Services, outsourcing initiatives, etc.)
- Standardization/armonization/homologation of different operations (i.e. a multicountry operation).
- Innovation and growth initiatives in the company.

In a study of Accenture, we found that most of the Transformation Programs are reactive and created to reduce costs, and not neccesarilly to strength the "Competitive Essence" of the company. Also, the proactive and innovative changes with an idea of a transformation culture are rare. On the other hand, the study shows that only 4% achieved ALLthe benefits expected for the Transformation Program, and 40% achieved the majority of them.

How to avoid these pitfalls?

There is no silver bullet because every Transformation Program has its own peculiarities. However, there are some recommendations that apply to most of them:

1) Start with a goal in mind. It implies taking your time to define clearly the objectives (including targets and time to achieve them), a compelling business case (with the commitment of the key actors) and a clear roadmap (a thought plan) to achieve the objectives.

2) Define "smart" KPIs. Again, with a baseline and target, and clear accountability of who is responsible to achieve it.

3) Align the objectives of the key actors. It means not only defining them, but also linking them to the pockets of the key actors.

4) Monitor the progress and the benefits, and adjust accordingly. Establish a clear Governance Model, and follow the journey till the end. Capture and show benefits, and seize the opportunity to identify new ones.

5) Identify and implement quick improvements. Show that the boat is moving and not stranded in the sea.

6) Sell the benefits, constantly. Like Moses in the dessert, if you don´t show benefits the crowd will desperate.

Collaboration: A New Paradigm.

Typically, we understand collaboration in the value chain as initiatives performed jointly between manufacturers and retailers, like CPFR (Collaborative Planning, Forecasting and Replenishment), EDI, VMI, etc. However, Collaboration goes beyond that. For us, Collaboration are all capabilities developed jointly with your partners in the value network (i.e. providers, manufacturers, retailers, and even clients) in order to conquer and satisfy the needs of the consumer. It means that the Collaboration should not have the old approach of "let´s work together and save some cost to share the money saved between us". This old approach lead us to lack of trust, absence of a win-win mentality and even losing focus on what is important: the consumer.

In a recent study we did for Mexico jointly with GS1 Mexico, ANTAD (Mexico´s retailer association) and CONMEXICO (Mexico´s manufacturers association), we wanted to understand the level of Collaboration´s culture, processes and technologies in order to understand the gap and defined required actions for the industry. For this analysis, we based the study in a very complete framework for Collaboration of Accenture, shown below:

In our study, we had the response to 266 surveys, covering almost every area in the consumer goods sector and almost all retailers formats. The study is quite detailed, but some of the main conclusions are:

. The Collaboration practices adoption in Mexico are in a consolidation stage (it means, most of the practices are in the "mainstream" area of the framework). Manufacturers show a better level of maturity compared with Retailers.
- Collaboration is considered important, however the level of adoption limites the execution.
- There is a partial understanding of Collaboration. For example, the win-win aspect of the Collaboration appears in sixth place.
- The knowledge about the Collaboration practices is correlated with the adoption. It may be obvious, but it implies that the industry should understand better what it is before implementing enabling technologies.
- Collaboration is perceived as a required capability to have a competitive advantage in the near future.

In the study, we have shown that implementing some practices of Collaboration, we may have a potential of 3.6 Billions USD to unlock, and they will represent an increase of 0.5 to 1 points in the net marging of both retailers and manufactures. As a result of the effort, the main industry associations are starting initiatives to develop Collaboration in Mexico.

You may find more detail (in spanish) in the following publication:

http://www.accenture.com/mx-es/Pages/insight-strategic-pulse-high-performance.aspx

Cross-functional Capabilities: Sales & Operations Planning (II).

The One-Plan objective.

The Sales and Operations Planning (S&OP) more than looking for one-plan, is aiming to have several consistents plans, or, in other words, one plan with different views. The secret is that the same numbers and decisions are managed by all functions involved.

How do you get this result? The answer is not easy. First of all, you have to have clear what is the Business Plan for the year. This Business Plan should have clear the monthly (or any other period) requirements in terms of sales and profitability. The Business Plan, after one year of exercise, should be mainly obtained from the S&OP created before the year ends. The Business Plan will be the "north Star" for the whole S&OP process.

Starting with the left side: the Demand Planning process.

Your S&OP planning must start always with the client (customer, consumer, user, etc.) in mind. So, the first step is to create a Demand Plan. We can summarize the Demand Planning components as shown in the following figure:

This diagram does not pretend to be exhaustive, however we can illustrate several aspects of the demand planning process:

- The outcome IS NOT the forecast. The forecast is an input for the whole process. It is located outside the boxes of Sales and Marketing, because it can be generated by them (or not), even it can be generated in another function or organization.
- Both Sales and Marketing should contribute to the Demand Plan. We have to consider at least the building blocks shown in the figure.
- The sales force should collaborate in the final Demand Plan. They should add any local or regional initiative, their own knowledge of the local market, any localized promotion, market sensibility, etc.

At the end of the process, we should have a Demand Plan agreed by both Sales and Marketing, as an input for the Supply Planning process. We should discuss the elements of this process in the next blog...

Cross-functional Capabilities: Sales & Operations Planning (I).

Sales and Operations Planning (known as "S&OP") is one of the key cross-functional capabilities that really make a difference in the market. However, the S&OP capability is like going to the gym: everybody has the membership but few really do exercises frequently. It means, when you ask if you do S&OP, almost invariable everybody responds: "we have a S&OP in place". The reality is that they may have some meetings, but not really a S&OP capability.

The S&OP is the capability (i.e. the right combination of process, people and technology to create a competitive advantage) that transform the Business Plan to the execution, through the balancing of the demand and supply in a profitable way. It involves several functions of the company. In the demand side: sales, marketing, new product development, key account managers, i.e. the part of the company that plan and execute the "generate demand" part of the business. In the supply side: manufacturing, supply chain, logistics, procurement, i.e. the part of the company that plan and execute the "satisfy demand" part of the company. Another key actor is the financial part of the company: they are the ones who will help to decide, based on the numbers: revenues, costs and profitability expected from a S&OP decision.

Based on an Abeerden Group research ("Sales and Operations Planning. Key Enabler for the Supply Chain Officer" August 2011) the top business pressures that leads the company to design and implement this capability are:

- Reduce supply chain costs - 54%
- Improve top line revenue - 46%
- Managament of increasing volatility - 43%
- Customer mandates for faster, more accurate and more unique fulfillment - 37%
- Need for better tighter integration between planning and execution - 34%


The paradigm of the S&OP is to generate "one plan" in the sense described in my previous blog (see http://bauzanotebook.blogspot.mx/2013/05/blog-post.html). The benefits that this capability will bring to the company are very important and tangible, and are tipically in:

- Improvements in on-time in-full delivery to the customers
- Rationalized inventory levels
- Less manufacturing downtime
- Better plant efficiency
- Lower transportation costs

In the soft side, the benefits are:

- Enhanced teamwork
- Better decisions
- Better financial plans
- Greater control
- Better visibility of what can happen in the future

In the following blog, I will explain in more detail how is the S&OP process and how to get these benefits.

Cross-functional capabilities are key to be successful.

There are several cross-functional capabilities that a company must execute to be successful. Companies normally excel in some functional capabilities (i.e. procurement, manufacturing, sales, marketing) but they have challenge difficulties when trying to execute cross-functional capabilities.

What are such cross-functional capabilities? As the name describes, it refers to the combination of processes, organization and technology that add value to the client of the company, but additional, involves several functions in a coordinated and effective way. Some of such capabilities are:

- Strategic Planning
- Product Lifecycle Management (PLM)
- Sales and Operations Planning (S&OP)
- Enterprise Performance Management (EPM)

Why are so difficult to execute properly? These capabilities are difficult to implement in companies where "functional silos" are very strong. It means, the functions are so oriented to their own objectives that forget that its main objective is to satisfy the client needs. For example, a "manufacturing silo" can be devoted to its cost-per-unit KPI that forgets that it can affect the inventories of finished goods or the distribution costs.

* Source: http://behindbricks.wordpress.com/2011/01/11/a-new-silo-a-new-obstacle/

Working for generating results in the cross-functional capabilities implies to accept that, in some cases, its functional KPI will be lower than expected but the end-to-end KPI will be better, and that the company as a whole will win.

One way to make these key cross-functional capabilities to work in the proper way is to take in account the following aspects during the implementation:

- Transparency. Make the data available to all participants. Have a single version of the data, and avoid that each participant comes with his own version of the truth.

- Common goals. Define KPIs that will be shared by all participants. Define lagging and leading KPIs. For example, in S&OP all participants should be responsible of the OTIF (On Time-In Full compliance of customer orders). Define a rule of "degree of responsability" over the KPI.

- Clear governance. Define who makes decision and when. Define decision rights using a RACI.

- Scope. It must be clear where the capability begins and where it ends. I have heard complaints about the S&OP capability, when it is really clear that is a PLM problem.

- Do not improvise. Prepare throughly commitee and meetings. Make the neccesary analytics beforehand. Create a real-time "what-if" capability, to test any new solution that arises during the meetings.


Any thoughts?

When an EPMO is required? (I)

In the companies, typically there is a "universe of initiatives" which aim, directly or indirectly, to transform the company. However, there is a huge amount of energy and resources employed in such initiatives than then become projects. However, only a small part (the Pareto principle) of such universe generates most of the impacts to the organization.

 

 

Such projects should be the focus of the organization. These initiatives, seldom called "Strategic Projects" or "Strategic Portfolio" can be selected based in a criteria like: provides the biggest benefits, change the way the company operates, they have the relative bigger investments, realize synergies with other organizations among others. In any case, these initiatives must be managed using a Portfolio Management capability in order to select which of them will become projects (i.e. we will asign resources, a leader, and a start and end date). Then, the project will be executed.

However, how can we guarantee that the project will be executed as planed and will bring the benefits commited to the company? We recommend to have an EPMO.

The EPMO (Enterprise Programme Management Office) is the logical evolution of traditional PMO attacks the traditional model following disadvantages: *

• It is positioned at the top of the company and covers all program and project activities that occur in the company
• It becomes a permanent organizational structure, responsible for developing the program management capability at the company
• It is led by a Program Director (or equivalent) which is part of the top leadership of the organization and responsible to the CEO for the implementation of the strategy of the company through programs and projects
• Supports the development of business strategy and the strategic portfolio of programs and projects
• Coordinates the development of key organizational functions for program and project activity
• Establishes systems and project management programs, policies, methodologies and standards for the company as a whole
• Develop a "pool of talent" with deep expertise in the delivery of programs and projects

The problem is that you should not devote the same amount of "EPMO energy" to all projects. It is logical that Strategic Projects will need more dedication, because will generate a greater impact. With this in mind, you can have a structure that distributes the attention to the portfolio depending on the program and project importante, as shown:

* From "Enterprise Programme Management: Delivering Value" by David Williams and Tim Parr, Palgrave McMillan 2004.

Understand first the "why" of your Process Mapping Effort.

 "I have no special talent. I am only passionately curious"

Albert Eistein.


It can sound obvious, but the purpose of the process mapping effort should be defined clearly from the beggining. If not, all the construct can be useless and the organization may feel dissapointed with the results of the effort. I have seen several mapping efforts that at the end didn´t fit with what the company expected from it.

I suggest to use techniques, like 5 Whys, to understand the roots of the process mapping effort in order to select what is the best approach. "5 Whys" is a simple technique for problem solving, typically used in the phase of "analysis" of the Six Sigma methodology, Kaizen and Lean Manufacturing, but also can be used in isolation. This technique was originally developed by Sakichi Toyoda and was built by Toyota in its "Toyota Production System".

This technique consists in asking questions iteratively in order to find the root cause of a problem. For example, let´s use this technique to understand the root cause analysis of an initiative of business process mapping:

You can use this technique or any other that help you understand the "why" and the expectations for the process mapping initiative. When you agree with your client what is the purpose, select the best approach for process mapping, in order to guarantee that you will have the proper tools to get the expected outcomes. For example, you can select the tool depending on the business situations as illustrated in the following table:

As you can see, you should select the right approach from the beggining. If there are several issues you want to solve, use a more general approach (like swim lanes or BPMN). For solving specific business situations, you may need to select a specialized technique (like VSM for improving processes).

How to define Key Performance Indicators (II)

The KPIs definitions by themselves will not solve a problem. We have to create an enterprise performance management capability to achieve the expected outcomes, using the KPIs as a key tool. This capability is comprised of processes, organization and tools that guarantee the cycle which starts with the business strategy,  clear and measurable goals, and the execution measured with by the KPIs.

 

It implies that the business strategy has been defined in measurable terms, i.e. EVA growth, market share growth, talent retention, etc. You can use a methodology for the strategic management of the company like Balanced Scorecard, Value Management, or any other and use them to define the KPI and the KPI tree. Then, you should establish goals to those KPIs. There are several techniques to establish such goals but at the end, they will be linked to the expected business outcomes for the year.

Then, the KPIs and goals defined must be "cascaded" to the tactical and operational levels of the company in order to make them consistent. In such way, every employee will know how he/she will contribute to the overall goals of the company.

As a result of the Operation, the KPIs will be affected and we measure their variations and how close they are to the established goal. Then, we take decisions to improve them. Eventually, the KPIs will help to reshape the business strategy.

In the following diagram, we illustrate how the KPIs cascade from the Strategy to the Operation. As you can see, you can have:

- Functional KPIs, related to measuring the outcomes of a specific function.
- Process or Cross-functional KPIs, which involves the collaboration of two or more functions.

When architecting the KPIs tree, make sure that your definition will help to:

- Implement the business strategy
- Align function and processes to the business strategy
- Identify if the KPI will be lagging or leading and why
- Establish the frequency of KPI measurement
- Define who are accountable(s) for the KPI results

Process Leaders: is the solution? (II)

The quality of the process will depend greately upon the process leadership and the process team. But, how to select a good Process Leader that improves our chance of a good business process management? Well, the Process Leader selection should be like the hiring process. It implies:

• - To define the competencies required for the job
• - To have a clear job and role description
• - To link process KPIs and targets to their rewards and compensation
• - To have candidates for the job, and go through a selection process

Let´s discuss about the competencies. Competencies are understood as the measurable or observable knowledge, skills, abilities, and behaviors (KSABs) critical to successful job performance. There are several classification of competencies, but we can use this one for our purpose:

Knowledge competencies - practical or theoretical understanding of subjects.

Skill and abilities competencies - natural or learned capacities to perform acts.

Behavorial competencies - patterns of action or conduct.

After that, you should define the level of competency the Process Leader (PL) should have, based on the following scale proposed by Dreyfus and Dreyfus:

1. Novice: Rule-based behaviour, strongly limited and inflexible
2. Experienced Beginner: Incorporates aspects of the situation
3. Practitioner: Acting consciously from long-term goals and plans
4. Knowledgeable practitioner: Sees the situation as a whole and acts from personal conviction
5. Expert: Has an intuitive understanding of the situation and zooms in on the central aspects

I would not like to elaborate about Competency-based management, so let´s start with these basic definitions. From my expertise, the core competencies a PL must have and he/she should be between the "Knowledgeable practitioner" and "Expert" are:

- Knowlege Competencies

• Process theory and concepts. It is critical. If not, will lose his/her leadership. PL main role is to "teach" these concepts to the team.
• Process methods and tools (like Lead Six Sigma, BPMN)
• Process repository basics. It means, where and how the processes will be documented and maintaned.
• Deep knowledge of the end-to-end process that will be under his/her leadership. PL must suggest improvement based on this knowledge.
• Process measurement and control (KPI, targets, actions, etc.).

- Skill and abilities competencies

• Leadership, and be recognized in the organization as a leader
• Team work, good at working in a team and getting the most from it.
• Excellent communicator. Presentation skills. 
• Change  management skills.
• Program and project management skills.

- Behavorial competencies

• Customer focus
• Alignment to the business strategy
• Focus on service, cost and effectiveness/efficiency
• Thinking in process, instead of function or silos
• Looking for a holistic view of the benefits (look for a greater good)
• Looking for consensus

 

How to define Key Performance Indicators (I)

One of the favorite phrases in business is "You Get What You Measure". Not wonder whay there are many business with not so good results:

- 75% of the companies with a Balanced Scorecard do not connect their Key Performance Indicators (KPIs) to their strategic factors.

- Organizations employ too much time and effort gathering data and information that are not key for the decision making process.

- 43% of managers think that capability of taking important decisions are blocked by too much information.

- Estimates suggest that more than 40 billion USD are employed annually in "data warehousing" applications. 60% of that figure is used in data cleansing.

(Based in a research of Accenture).

Let´s Start with the Basics...

In our experience, KPIs (and metrics in general) should have the following characteristics:

- The KPIs must be linked (directly or in cascade) to the success factors of the strategy of the company. So, it is important to understand the strategy and to know with detail how the KPI will measure the progress toward the strategic goals.

- Differentiate KPIs from metrics. KPIs evaluate the success of the company or a function. A metric measure what a function does. Understand well what are the few KPIs that will help us to identify success.

- Focus more on the KPIs that "predict" a possible future outcome (leading KPIs) and less in the KPIs that help to explain what happened (lagging KPIs).

- The responsibility of a role or position on a KPI is directly proportional to the ability to influence such KPI.

- The KPIs should "cascade" transparently along the business. The employees should know how their performance contribute to a higher KPI and to the business outcomes.

How to identify a well defined KPI?

A well defined KPI should comply with the following criteria:

- Enable decision making and control. If the KPI does not help you to take a decision, may be it is not a KPI.

- Relevant. If the KPI does not support the company strategy (directly or as part of a bigger KPI) is not relevant for the company.

- Easy to understand. If the KPIs requires a degree on math to understand it, it is going to be difficult to calculate and to communicate. Make it simple! As Einstein said: "Everything Should Be Made as Simple as Possible, But Not Simpler".

- Measurable. Sounds evident, but KPIs should be extracted directly from the information systems of the company, not as a result of calculations made by somebody in his/her spreadsheet.

- Specific. Do not use KPIs that may be interpreted in different ways. Try to define them in a clear way and try to measure one variable at a time. If you require to represent several KPIs to identify if you are going in the right direction, define a index.

- Think in a target. The KPI will have a target, so start thinking in the desirable objective and the normal ranges for the KPI. If you can not define it, think twice if it is the right KPI.

Process Leaders: is the solution?

Typically, when we implement a BPM capability, it will be supported by a Process Governance. I do think Process Governance is a key component to assure sustainability of the new capability, and the support for migrating to a process oriented organization.

As you can see in the following figure, we have to make clear the difference between the role of a Functional Leader and a Process Leader. It tends to be mixed but their objectives are different.

A Functional Leader role is devoted to the business outcomes. Depending on the function, the expected outcome may be sales volume, revenues, costs, profitability, employe retention, etc. The Key Performance Indicators (KPIs) of this role aim to these outcomes and typically, will be part of its bonus payment or variable part.

On the other hand, the Process Leader is devoted to the "how". It means, how the company can be more effective and efficient through implementing the best processes. In consequence, the KPIs for this role are oriented to: efficiency, time, cost, agility, etc. The Process Leaders are the responsible and custodian of the design, maintenance, improvement, harmonization and development of business process, and hence, of business capabilities.

The Functional Leadership or Process Leadership roles can be executed by the same person. However, his/her behaviour and orientation will be different based on the role he/she is playing at the moment. For example, a Manufacturing Director plays the Manufacturing Leader role as part of his job. If additionally, he is the Process Leader for "Planning to Deployment", he will have the responsibility of viewing the process end-to-end, implying that he will consider not only the Manufacturing part of the process, but also other players like Finance, Procurement, Human Resources, IT, etc. In the Process Leader role, he must have a vision of orchestration of all actors in the execution of this process.

The problem arises when this second role is not clear. There are four aspects to take in consideration when defining it:

- A clear criteria for defining a Process Leader. If criteria is not clear, the organization can think of a new way of distributing power, and can divert from the target that is to implement or improve a process.

 - The Process Leader itself. There are certain characteristics in this role that are needed. The PL must understand quite well the process, and the impacts of the definition over the performance of the process. If the expected leader has a vision too narrow and functional, it will not work. He or she must have characteristics like: knowledgeable about the operation of the process, good degree of influence over other areas, understand how to lead the team to an agreement, among others.

- The degree of power of the Process Leader.  You can go from a "Assessor type" Process Leader to a "Director type" Process Leader. The power continuum goes from "moral influence" over the team to a "business direction" degree, as an example. I will recommend a actionable degree of power, like "owner of the budget for process improvements".

- The definition of KPIs for the role, and the consequent rewards and compensation scheme tied to such KPIs and their targets. For example, as a Process Leader you may have as part of your objetive to "reduce the cost to serve in x % at the end of the year". With the same goal, all process participants shall share (in a different degree) the same KPI and targets. If not, the Process Leader will not achieve such targets.

These findings are based on my expertise, but feel free to share your opinions as part of the discussion.

Business Process Harmonization: Science and Art (II).

Once you have defined your approach, if you decided "Path B" (see my previous blog in http://bauzanotebook.blogspot.com/2013/05/business-process-harmonization-science.html), I recommend to use the following elements to achieve BPH:

Let´s discuss each element:

- Internal Best Practices: leverage what the companies or regions do right, and incorporate these practices in your inventory to be considered in the harmonized process. To calibrate what is good and what is not so good, use your own expertise and capability maturity models. This is an important element, because we don´t want to discard what has make them different in the market. Also, is a key component in the change management process of accepting a new process design.

- Industry Reference Model: these are those sets of process, best practices, KPIs, etc. used in the industry as a reference to build your own model. For example, is widely known that eTOM (enhanced Telecommunications Operations Map) is a business framework for the Telco industry.  There are several (public and non-public) reference models. We at Accenture have several propietary, very detailed, industry reference models for each industry. It will help you to show the best practices in the industry and a starting point for your new processes, KPIs, etc.

- Vistis, Interviews, Questionaires: devot time in an intelligent way to understand really deep the operations of the two or more companies or regions you want to harmonize. Do not underestimate the time required to do visits, interviews, surveys, questionaries with the operation. Collect evidence and examples of the way they operate. They will be key during the harmonization workshops.

- Harmonization Workshops: this element is key, and define the success of the process. You have to plan the workshop carefully, having in mind the convergence of the process. You will bring to the workshop a "proposal", at least partially validated. Do not start in a white page. Your actions and workshop dynamics should be well thought to lead the team to an harmonized process. Do your homework in socializing findings (beforehand!!!) with key stakeholders. Do not surprise key stakeholders in the workshop, it will play against your objective of harmonization.

There are other elements, but if you plan and implement these elements, you will have more chance of success in harmonizing processes.

Innovation is not working out the way many companies expected.

Accenture recently sought to identify the state of innovation by surveying executives’ at large organizations. The survey revealed that innovation is not working out the way many companies expected. Despite increasing commitment, funding and organizational accountability, many companies are disappointed by the returns they are deriving from their investments.

The survey also found that those organizations that have a holistic, formal system in place for innovation, consistently report better outcomes and higher levels of satisfaction from their innovation investment. To help companies better understand the formal system approach to innovation the PoV describes five key aspects of a formal innovation system.

The report, authored by Adi Alon and Wouter Koetzier, is based on a survey of 519 executives from more than 12 industry sectors across the U.S., U.K. and France. The objective of the research was to explore the current state of innovation and the findings reveal some intriguing results. Let´s share some of them:

- The vast majority of executives, 93 percent, think innovation will shape the company long-term success. However, less than one out of five (18 percent) believe their own innovation strategy is delivering a competitive advantage.

- Companies feel that they have sluggish innovation processes.

- Those organizations that have a holistic, formal system in place for innovation, consistently report better outcomes and higher levels of satisfaction from their innovation investment.

There are 5 key aspects to implement this formal innovation system in your company:

- Run innovation as an end-to-end value chain emphasizing speed and flexibility.
- Move from product to business innovation.
- Apply risk management practices specially tailored to innovation.
- Leverage the digital power of Big Data and social media to integrate the Voice of the Customer.
- Pursue frugal innovation to capture middle class consumers in emerging economies and also to disrupt markets in developed economies.


More information:

https://primary.acn-edit.accenture.com/us-en/Pages/insight-low-risk-innovation-costly.aspx

Business Process Harmonization: Science and Art (I).

I have gone through the process of business process harmonization in big companies and I´ve learned some lessons I would like to share. We understand Business Process Harmonization as the “elimination of differences and inconsistencies in their activities, inputs, outputs or owners among processes that share the same goal in order to make them uniform or mutually compatible”(1).

Typically, the companies initiate a Business Process Harmonization (BPH) project as a result of:

•    A Post-Merger and Acquisition process
•    Implementation of a enterprise wide system (like an ERP)
•    Difficulties in the interoperability of Regions
•    A expansion strategy
•    Definition of a common model (or Company-Way)

The benefits of a BPH are:

•    Improvements in efficiency
•    Decreasing operating costs
•    Increasing internal control
•    Reduce IT spends
•    Improve interoperability across regions
•    Speed in the implementation on new operations
•    Achieve synergies

There are essentially two ways to define and implement a BPH:

I have used both path, but I consider Path B as my preferred. Why? Look at the following table:

If you want to seize the opportunity of process harmonization to redefine and implement best-practices, Path B should be the choice.

Sources:
(1)    “A literature review in process harmonization: a conceptual framework” http://cms.ieis.tue.nl/Beta/Files/WorkingPapers/wp_379.pdf

5 steps to consider before starting your Process Mapping effort.

A process mapping effort, especially if it will be enterprise-wide, implies an important investment of resources and time. Hence, it is important to consider at least five important things before starting to map:
 
1.     Define the Strategy: be clear what the business objective(s) of the process mapping effort is. This objective (or objectives) must be shared with the project team. Depending on the strategy, the type of mapping shall be defined. For example, you may want to do a mapping effort for:


·        Compliance: to have the process maps to fulfill requirements of auditing, ISO-9000 initiatives, normative, company documentation, enterprise architecture, etc.
·        System implementation: the process maps will be the business blueprint for an ERP or another type of information system.
·        Process improvement: the maps will be used to detect areas of opportunities to be more efficient or productive.
·        Reengineering: the process maps will be used as the tool to reengineer the operation.
·        Process orchestration: the main purpose is to serve as the basis for the process orchestration using a methodology like BPM/SOA.
·        Training: main objective is to train employees in the way the company do the work.
·        Process harmonization/homologation: the company requires having standard process across geographies, business units, etc. Typically, we need this approach in a post-merger integration or in the preparation of the company to a global strategy.
·        Cost reduction: when you want to understand where the cost opportunities are in the different process of the company.

It is clear that depending on the purpose, the information reflected in the process map (so, in the same way, the methodology used for mapping) will be different. The other aspect that must be well defined is the time horizon of your mapping:

·        Is it an “As-is” process mapping?
·        Is it a “To-be” process mapping? If so, what is the time horizon (i.e. next year, aligned to a milestone, etc?)

This time horizon must be applied to the whole process mapping. If not, you are going to have a mixture of future with present processes.

If the strategy is not clear, you will have an organization “frustrated” because it didn´t get the expected benefits of the mapping effort.

2.     Create a process inventory: have a preliminary list of all the process that will be part of the mapping effort. This inventory will change, but you should have a starting point. This inventory and the complexity of each process will help you to dimension the size of the teams. The approach should be “top-down” with adjustments coming “bottom-up”. This is one of the reasons that you may start with a business process framework for the company and then go down to the list of the further levels.

3.     Establish the plan: have a detailed plan of the process mapping effort, indicating clearly time and resources required in each activity. You should use the estimation based on the process inventory to identify quantity and skills of resources needed.

4.     Select and prepare a process repository: based on the strategy, you should define the type of repository and tools needed. If for example, you want to do simulations, you have to be sure that the tool will support this functionality. The same applies to other functionalities like process orchestration.

5.     Establish the process mapping conventions: define clear rules for the process mapping. You should not start any process mapping effort without the rules of mapping. You can use a standard as a basis (i.e. BPMN), but always aligned to the strategy you already defined. The conventions must help you to achieve the project objective. The rules must be easy to understand and to apply, and be as exhaustive as required. You have to define, in this convention:

·        The standard that will be the base of the convention
·        The naming conventions
·        The symbols conventions
·        The style conventions
·        Diagrams of what is allowed and what is not, and examples of good mapping
·        Attributes to be filled in the diagrams
·        Change control procedures and documentation
·        Users and security standards

If you fill these steps, you will have a better chance to start with the right approach the mapping effort.

The right sequence: Process, Organization and then, Technology.

It is normal to consider that one way of making changes to a better level of operation in the organization is through the implementation of a new technology (i.e. a new ERP or information system). One of the paradigms behind that is that the "ERP brings the best practice". Although this statement is partially true, this road has driven to more problems than solutions. With the high investment in technology the companies make, it is recommendable to take a second look to the sequence.

The main subject is that we are humans (and should be treated like that...), and there are some steps to be fullfilled to achieve the change required. In this article, we consider the definition on each element as follows (I´m assuming that the Strategy is clear for all cases):

- Process: changes in activities, way of doing the work, techniques, methodologies, KPIs.

- Organization: changes in roles, responsibilities, objectives, targets, job title, job description, organization charts.

- Technology: changes in systems, new technologies, equipments.

Let´s take a look to the combinations and see the possible outcomes (I do not pretend to be exhaustive...). Ideally, you should do all changes at the same time, but depending on the degree of the change, the organization may or may not absorb it completely. Also, the "Solution designer" may have a clear picture about the vision of all elements working together and not to be completely sequential. It means that if you are designing process supported by an ERP, you have to consider the ERP restrictions from the very beginning.

Map the Business Model, then the Business Process Model (II).

Someone can think "it is very difficult to understand the Business Model, let´s do the work and let´s start mapping processes...". The reality is that if you gather the  required audience (leaders and decision takers of the organization), you can have a good understanding of the Business Model, before starting to map a Business Process Model.

I recommend to take a look to the book of Alexander Oster and Yves Pigneur, "Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers", or review presentations that explain quite well the concept and the methodology, like http://www.slideshare.net/Alex.Osterwalder/what-is-a-business-model


Let´s try, for example, to map the business model for a non-alcoholic beverage company. For this company, we start with the Customer Segments, and then move to the left in the canvas. It is desirable to create a first draft model, and complete the model with the leadership of the company during a workshop.

Then, we can analize the model in terms of required capabilities to deliver the value to the clients, and start to list them. Such capabilities will be part of the Business Process Model of the company. In this case, we find that some of the capabilities are:

- Client and consumer sales capabilities
- Supply chain management capabilities (procurement, manufacturing, distribution, warehousing, transportation)
- Product lifecycle management capabilities
- Marketing and Trade Marketing capabilities
- Support capabilities (HR, finance, TI)

As a first draft and as simplified example, we can create a Business Process Model that will contain the capabilities mapped in the following way:

You should refine this model (and its representation) with leadership. Macro-process, processes, subprocesses and so forth will be linked to these capabilities and will form the process inventory for the company.

A proposed scale to achieve process adoption.

Adoption is one of the principal challenges for the processes defined. In this article we will understand "adoption" as the execution of the process as it was designed, i.e. following the steps, executed by the designed roles, using the inputs, generating the outputs and complying with the process KPIs.

We may have the best business blue print, very well structured and consistent, but if the business does not execute the process as it was mapped, it is useless.

We tend to think that if we make the effort (most of the time, a daunting effort) to map the business process, we will have a big advance in the execution of the process in the real life. My experience is not like that...

From my point of view, the adoption scale will depend of the methodology and tools that we use to achieve this goal. This scale can be depicted as follows:

The scale is cumulative, in other words, you should have the previous methodology and tools in the scale to achieve the required level of adoption. What the figure suggests is that we stop at Process Mapping, we are not going to achieve much. We should train the actors that will execute the process, or even better, design the new process with them.

When you have the responsibility of process design, think in adoption. It will make the difference...