Balancing Objectives and Measurements

The traditional theorem of the maximization of profit has to be discarded.

To manage a business is to balance a variety of needs and goals.  To emphasize only profit, misdirects managers to the point where they may endanger the survival of the business.  To obtain profit today, they tend to undermine the future.  They may push the most easily sale able product lines and slight those that are the market of tomorrow.  They tend to shortchange research, promotion, and other postponable investments.  Above all, they shy away from any capital expenditure that may increase the investment capital base against which profits are measured; and the result is dangerous obsolescing of equipment.  In other words, they are directed into the worst practices of management.

Objectives are needed in every area where performance and results directly and vitally affect the survival and prosperity of the business.  There are eight areas in which performance and objectives have to be set:  market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and attitude, and public responsibility.  Different key areas require different emphasis in different businesses-and different emphasis at different stages of the development of each business.  But the areas are the same, whatever the business, whatever the economic conditions, whatever the business’s size or stage of growth.

ACTION POINT: In addition to setting profit objectives, set objectives for your business in the following areas: market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance, and public responsibility.

Define BPI's Scope, Goals, and Schedule

Clarify how it relates to other existing processes, as well as to important stakeholders, such as your company's customers or suppliers. 

Define the scope, goals, and schedule for the selected process improvement project.  Scope defines what will and won't be included in the effort.   For example, to improve the way his office sets up new accounts, Joe decides to focus on changing the way people and technology interact to establish accounts.  He prefers not to change people's jobs or adopt new technologies if he can help it.

Also specify how the BPI effort supports your organization's goals.  Clarify how it relates to other existing processes, as well as to important stakeholders, such as your company's customers or suppliers.  And express the desired improvement in numerical terms.  Joe, for instance, determines that improving how his office sets up new accounts will help his company achieve its strategic goal of serving customers more efficiently and quickly.  The process of setting up accounts directly affects customer's satisfaction levels and has links to the other processes involved in approving loan applications, such as evaluating applicants' credit histories.  Joe expresses the desired improvement as: "Customers have to provide financial information only once in order to establish an account with us."

To define schedule, specify which milestones you'll need to achieve in order to change the problematic process and approximately when you expect to reach each milestone.  For example, Joe's BPI milestones include mapping the current new-account process within two months and conducting a trail run of a revised process by the end of the third quarter.

ACTION POINT: Define process improvement efforts with scope, goals, and schedule.

Tips for Prioritizing Business Process Improvement Efforts

Prioritize processes that have the greatest impact on customers.

The following tips can help prioritize your efforts in process improvement.

• Determine which process in your team is most critical to your team's ability to contribute to the organization.  Ask team members, as well as external stakeholders such as vendors and customers for their point of view.
• Prioritize processes that have the greatest impact on customers.
• Select processes for improvement that will generate the most benefit for the least amount of investment
• Look for processes that result in costly problems--such as failure to meet customer needs, high costs, or long cycle times.
• Identify processes needing improvement based on internal considerations.  For example, a problematic process is causing unnecessary conflict among team members, preventing them from concentrating on meeting customers' needs.

ACTION POINT:  Consider the tips above when reviewing processes that need improving.

Select a Process to Improve

This suggests that more than one process may benefit from improvement.

If you're like most managers, you may see several symptoms of problematic processes occurring simultaneously.  This suggests that more than one process may benefit from improvement.  For example, Jo, who manages a regional office for a financial services company, has noticed that customers are complaining about having to provide the same personal information several times while applying for a loan.  In addition, the office's growth--in terms of the number of new accounts signed per quarter--is lower than that of other regions, despite the considerable expertise of Joe's staff.

When it seems that several processes may need improvement, how do you decide which one to tackle first?  Create a process selection matrix in which you rate each process according to criteria such as how easily it might be changed and how problematic it may be for customers.  Rate each possibly problematic process on a scale of 1 to 5, with 5 being the highest score and 1 the lowest.  The table below shows an example of "Joe's process selection matrix".

Once you've rated each process total up your scores.  The highest score suggests the process you might want to improve first.  In Joe's case, he decides to focus on the process of setting up new accounts.

ACTION POINT: Prioritize the processes you seek to improve.

Planning a Business Process Improvement

The answer is yes if you notice certain telltale symptoms...

To plan a business process improvement, first decide whether process improvement is needed.  The answer is yes if you notice certain telltale symptoms--including the following:

• Customers are increasingly commenting that your company's product has deteriorated.
• Certain procedures seem overly complicated.
• Tasks take longer to complete than they did previously, or there is noticeable variation in the amount of time different people take to perform the same task.
• Things don't get done right the first time.
• Your team's performance is declining, or the team is consistently failing to reach agreed-upon goals.
• Employees are expressing frustration over confusing processes or bottlenecks that prevent them from fulfilling their job responsibilities.

ACTION POINT: In what areas is your organization experiencing the symptoms above?

Managing for the Short Term and Long Term

John Maynard Keynes’s best known saying is surely “In the long run we are all dead.” It is a total fallacy that, as Keynes implies, optimizing the short term creates the right long-term future.

It is a value question whether a business should be run for short-term results or for “the long run.” Financial analysts believe that businesses can be run for both, simultaneously. Successful businessmen know better. 

To be sure, everyone has to produce short-term results. But in any conflict between short-term results and long-term growth, one company decides in favor of long-term growth, and another company decides such a conflict in favor of short-term results. Again, this is not primarily a disagreement on economics. It is fundamentally a value conflict regarding the function of a business and the responsibility of management. 

ACTION POINT: Does your organization sacrifice the long-term wealth-producing capacity of the enterprise to produce short-term results? Consider how you can break out of this trap and still produce short-term profits

The Six Phases of BPI

...you need to take a structured approach to your process improvement efforts.

BPI offers crucial benefits to any team or organization.  But to generate those benefits, you need to take a structured approach to your process improvement efforts.  Experts recommend the following six phases for relatively complex process improvements:

1. Plan: Select an existing business process you want to improve, define its scope, and assemble your team.
2. Analyze: Closely examine the process you've identified as a candidate for improvement.
3. Redesign: Determine what changes you want to make to the target process.
4. Acquire resources:  Obtain the personnel, equipment, and other resources needed to make the process changes called for in your redesign.
5. Implement: Carry out the process changes.
6. Continually improve: Constantly evaluate the target process's effectiveness and make further changes as necessary.

ACTION POINT:   When you make simple process improvements in your department, you won't necessarily take the time to carry out each of the six phases explicitly.  Rather, you will likely think through the phases quickly.

Benefits of BPI

It could save your company time and money by simplifying overly complex and expensive processes. 

A well-run BPI initiative enables you to generate many important results for your organizaiton.  For instance, BPI could help you understand how effectively your team is meeting the needs of customers and other departments in your company.  

It could aid you in revising your hiring strategies to improve skill levels and expertise in your team.  It could save your company time and money by simplifying overly complex and expensive processes.  And it could help you identify entirely new processes that enable your firm to provide topnotch customer service while reducing costs.

ACTION POINT: How effectively do you understand the needs of your internal and external customers?

Triggers for a BPI Effort

Business change can take many forms--including new technologies, shifts in customer preferences, and the emergence of new competitors.

A BPI effort can be triggered by several types of events.  These include inefficiencies or problematic performance.  For instance, Kara a manger at a regional sales office for a large consumer goods company, realizes that the office's sales figures are 5 percent lower than those of other regional offices.

Her staff work hard, but they're not achieving their goals.  Kara decides to examine key processes--such as the way her staff qualifies sales leads and sets up customer accounts--to see whether any of these processes could be changed in order to increase the sales figures.

Major changes in the business landscape can also trigger a BPI effort.  Business change can take many forms--including new technologies, shifts in customer preferences, and the emergence of new competitors.  For example, Marcus, a manger in his company's human resources department, is intrigued by the possibilities the Internet presents.  He realizes that providing the means for employees to make their yearly benefits changes online would help the company save time and money.  Marcus sets out to review the way the HR department currently caries out its work and to develop ideas for using the Internet to introduce new efficiency to as many processes as possible.

ACTION POINT:  Consider the inefficiencies, problems and major changes your business is facing and the processes that can be changed to address them. 

Business Process Improvment

BPI focuses on changing business processes to improve their effectiveness.

Business process improvement (BPI) is a set of disciplined approaches and tools that managers use to enhance their company's performance.  As the name suggests, BPI (also called business process management, or BPM) focuses on changing business processes to improve their effectiveness.  In organizations that use BPI:

• Managers and employees know their business processes and capture them in process maps, procedure manuals, or agreed-upon "ways of doing things."
• Managers track the performance of processes in the form of metrics that can assess the quality of inputs and outputs or gauge the effectiveness of activities.
• Top management systematically invests in its processes.  In some cases, these investments are intended to improve current operations--for example, enhancing the efficiency or order processing.  In other cases, these investments are meant to improve the company's competitive position--for instance, strengthening the product-development or strategy-formulation process.
• Organizations that do not use BPI may do these same things  However, their use of BPI is usually sporadic, rather than a regular way of doing business.

ACTION POINT: BPI is a tool that can be used at every level of an organization--by a manager who sets out to change a relatively simple process within her department or by top executives who introduce a company wide initiative designed to improve performance throughout the organization.

Universal Entrepreneurial Disciplines

The entrepreneurial disciplines are not just desirable; they are conditions for survival today.

Every institution-and not only businesses-must build into is day-to-day management four entrepreneurial activities that run in parallel.  One is organized abandonment of products, services, process, markets, distribution channels, and so on that are no longer an optimal allocation of resources.  

Then any institution must organize for systematic, continuing improvement.  Then it has to organize for systematic and continuous exploitation, especially of its success. And finally, it has to organize systematic innovation, that is, create the different tomorrow that makes obsolete and, to a large extent, replaces even the most successful products of today in an organization.  I emphasize that these disciplines are not just desirable; they are conditions for survival today.

ACTION POINT:  Abandon what is about to be obsolete, develop a system to exploit your successes, and develop a systematic approach to innovation.

Tips for Developing a Process Mindset

Make a distinction between core and support processes. 

The following tips can help your team develop a process mindset:

• Help your employees understand that the team's work is composed of tasks that result in an output.  The way these tasks are put together is a process.  Each person in the team is part of one or more business processes.
• Ask people involved in a process to map the steps in the process.  Ask them to identify the inputs and outputs for each step. 
• Invite people to specify the inputs necessary for their work, to describe the work they do, and to identify the outputs.  Ask them, "Who receives your outputs?  What do they do with the outputs?  How does the quality of your outputs affect their job?"
• Make a distinction between core and support processes.  Core processes deliver value to customers directly; for example, customers support and product development.   Support processes enable core processes and include hiring and training, budget approvals, purchasing, and other everyday operations.
• Have "upstream" workers interview "downstream" workers to see how upstream work affects downstream work.  For example, order-entry people could question customer-fulfillment people to determine how unclear specifications and lack of customer information affects the processing of orders.
• Create a flow chart of the processes in your team.  Then explore with your team what happens when variations--accommodating last-minute requests, not following established communications steps--are introduced into the process.  consider how workers and customers are affected when people don't follow established processes.

ACTION POINT: Use the steps above to identify and reinforce core and support  processes in your organization.

The Need for a Process Mindset

Your reward? Greater efficiency, higher customer satisfaction, reduced errors, lower costs and enhanced company profitability.

Because establishing the right business processes is so essential to an organization's survival, you and your team can create enormous value for your company by adopting a process mindset.  When you have a process mindset, you regularly think about how to improve the way your group turns inputs into desired outputs.  You seek to understand the quality of your group's business processes by using measurements and process mapping to discover and correct weak points.

You can cultivate a process mindset in your team by helping team members understand and articulate the many business processes they take part in, and by encouraging them to constantly look for ways to improve those processes.   Your reward? Greater efficiency, higher customer satisfaction, reduced errors, lower costs and enhanced company profitability.

ACTION POINT: Cultivate a process mindset in your organization.

Process Problems

...most organizational difficulties stem from flawed processes

Everyone in and related to your organization--you, your boss, peers, and direct reports, and your customers and suppliers--carries out many different processes every day.  But because business processes are invisible, many people don't consciously think about them or realize the impact they have on an organization's performance.   Instead, when problems do crop up (for example, a customer's order is filled incorrectly), people often look for someone to blame.  Managers may spend time and money replacing the person supposedly at fault.  Or they might choose to invest in expensive new technology to try to overcome the problem.

Yet many managers find that these "solutions" don't work.  Ultimately, the same problems keep surfacing,  What's going on?  As it turns out, most organizational difficulties stem from flawed processes--not incompetent individuals or inadequate technology.  By understanding the process glitches that led to a problem, you and your team can correct the process to get the results your company wants.

ACTION POINT: "Don't find fault, find a remedy." - Henry Ford

Formal and Informal Processes

Some processes start out as informal, and then the organization decides to formalize them.

Processes can vary in their degree for formality.  Here's an example of an informal process: Your contact at a company that is a long-time customer asks you for a discount if the company purchases double the normal amount of your product.  There is no rule saying you can't provide such a discount, nor is there an established way to give the discount.  So you give the discount.  You have just created an informal process.  Your company hasn't documented this process as a set of steps that must be performed under certain conditions.  For now at least, the discount program exists only in your head.

Here's an example of a formal process:  You manage a call center that resolves customer concerns over the phone and through the Internet.  You and your team have established a rigorous set of procedures for answering customers' questions and solving their problems.  Your team has documented these procedures, and all new employees are required to study them before staffing the call center's phones.   Thus, the process for handling customer concerns is highly formalized. 

Some processes start out as informal, and then the organization decides to formalize them.  For instance, suppose you created an informal process by asking current employees to suggest job candidates for an open position.  The process proves highly successful, enabling you to identify and recruit a new hire who then excels on the job.  As a result of this success, your company decides to make this practice a formal part of its recruitment efforts.  It even sets up a bonus program to reward employees who recommend candidates who are hired.

ACTION POINT:  Are the informal processes that can be improved if they were formalized?

Converting Strategic Plans to Action

The best plan is only good intentions unless it degenerates into work.

The distinction that marks a plan capable of producing results is the commitment of key people to work on specific tasks.  Unless such commitment is made, there are only promises and hopes, but no plan.  A plan needs to be tested by asking managers, “Which of your best people have you put on this work today?”  The manager who comes back (as most of them do) and says, “But I can’t spare my best people now.  They have to finish what they are doing now before I can put them to work on tomorrow,” is simply admitting that he does not have a plan.

Work implies accountability, a deadline, and finally, the measurement of results, that is, feedback from results on the work.  What we measure and how we measure determine what will be considered relevant, and determine, thereby, not just what we see, but what we-and others-do.

ACTION POINT: Establish specific numerical criteria to measure results.  Set deadlines for yourself and your organization to achieve these results.

Business Process

Processes determine the effectiveness and efficiency of your company's operations, the quality of your customer's experience--and ultimately, your organization's financial success.

In short, business processes constitute all the activities your company engages in--using people, technology, and information--to carry out its mission, set goals, measure performance, serve customers, and address the inevitable challenges that arise while doing so.  Processes determine the effectiveness and efficiency of your company's operations, the quality of your customer's experience--and ultimately, your organization's financial success.

Every organization contains a large number of business processes.  Some are simple processes carried out in a single department--such as entering a customer's order into a computer.  Others are complex processes implemented throughout your company--for instance, developing successful solutions.

ACTION POINT: Use a process mindset to view your company's activities.

People, Technology, and Information

...technologies facilitate process activities 

You can also think of business processes as the series of events that bring together people, technology, and information in ways that create valuable outputs.  To do this, take a moment to glance around your offices.  Notices that:

• The people  around you are carrying out process activities based on the inputs they receive -- such as customer requests.  Their skills and knowledge constitute additional inputs.

• These people are often working with technology --for example, software applications and the Internet.  These technologies facilitate process activities  -- such as order entry, e-mailing a customer or retrieving customer data.

• Information is also all a around you--stored in data bases, provided by customers, or held in people's minds.  As such, information can be a process  input (such as the number of parts in the warehouse)  or an output (for instance, a consultant's report).

ACTION POINT:  Recognize the people, technology and information used in all of your business processes.

Inputs, Activities and Outputs

But processes exist in every company--not just those that make physical goods. 

Technically, a business process is the set of steps a business performs to create value for customers.  A process consists of three basic components.

• Inputs - They start the process.  For example, if you're building a bicycle, the inputs are the tires, wheels, nuts, bolds, chains, gears and so forth.
• Activities - These transform inputs into outputs.  In the bicycle example, activities would include building a frame, attaching the wheels and tuning the gears.
• Outputs - Sometimes also called outcome, outputs are the result of the activities.  In this example, the finished bicycle.

Processes are easier to understand when you consider physical goods like bicycles.  But processes exist in every company--not just those that make physical goods.  For instance, in a company that provides management consulting services, there are still inputs (such as a consultant's knowledge) activities, (for example, conducing an employee-morale survey at a client organization), and outputs (such as a plan for cultural-change initiative at the client organization).

ACTION POINT: Identify process areas in your organization and determine the inputs, activities and outputs.

Improving Business Processes

Even small improvements to a relatively simple process can pay big dividends for your organization.  

Your organization's success hinges in large part on how ell it carries out its business processes--activities that turn inputs such as knowledge and raw materials into products and services that create value for customers. 

Every time you improve your company's business processes, you generate crucial benefits for your organization in the form of cost savings, efficiency gains, and greater customer loyalty and profitability.

Even small improvements to a relatively simple process can pay big dividends for your organization.  

ACTION POINT: Master the basics of business process improvement and help sharpen your company's competitive edge and position your business for sustained success.