Are Our Core Business Processes in Control?
Operationally excellent business processes produce predictable results.
How do we know our business processes are in control?
Business process control requires appropriate measurement systems that track process performance and allow identification of sources of variation.
How do we derive appropriate business process performance measurements?
Process performance measurements are tied to the specifications for what each business process delivers. In the manufacturing world, it is easy to understand that when a product is manufactured, it must meet critical specifications to satisfy the customer. In addition to those specifications, it must also meet operational cost performance specifications to ensure the product being produced will generate the expected level of profitability when it is sold.
In the service world, customers have expectations for services being delivered and the business has expectations for profit that will be derived from the sale of those services. As such, performance measures that address specifications around these expectations are fully appropriate.
The challenge is to design the performance measurement system in such a way that it will allow management to drill down to identify root causes for failure when a business process breaks down. The more quickly we can identify the root cause, the more quickly corrections can be put in place. Building such a system is imperative for each of our core business processes.
In the private sector, core business processes include (adopted and modified from the work of the International Benchmarking Clearinghouse):
• Understand customers & markets;
• Develop new products/services;
• Market & sell;
• Produce & deliver products/services;
• Invoice and service customers
Performance measurements for each of these processes need to be tied directly to expectations around process throughput:
Understand Customers and Markets: The process involves customer surveys and market research. Output from this process will resemble statistically valid findings, conclusions and recommendations. Plans and associated budgets need to be established for both. Performance can be tracked against budget and plan. However this kind of tracking misses the primary objective of the process. We deploy resources to the process in order to understand fully our market and competitive position and discover actionable opportunities. The appropriate performance metrics need to be tied to the value of the actionable opportunities discovered and the cost and time associated with discovering them.
Developing New Products/Services: This process is employed specifically to enable our business to identify potential new products/services, that when added to our offerings will enhance our competitive position and profitability. An effective new product/service development process accurately identifies potential losers early in the development process to minimize our investment in them. Further, it accurately identifies potential winners and enables rapid development shortening the time to market. As such, effective performance metrics for new product/service development processes should address the success rate of new product/service offerings that came through the process, the speed at which they traverse the process, the return on investment generated by new products/services and the percent of sales generated by products/services less than 3 years-old.
Market & Sell: Many organizations struggle with the performance of their marketing and sales process. The two go hand in hand. Marketing establishes the demand for our products/services (targeting market segments for promotions; establishing pricing policies; terms and conditions; etc.) and sales develops customer requirements and establishes the value our products and services will deliver to our customers. Effective measures of our marketing and sales efforts always come down to top line dollars of products/services sold. The top line sales can be broken down by market segment with growth rates compared to our marketing and sales efforts in each. Our ability to drill down into this metric is totally dependent upon our ability track our marketing and sales costs by market segment. A well conceived system will be useless without the cooperation of those responsible for using creating the data to be put into it. This is a critical success factor.
Produce & Deliver Products/Services: Process throughput appears to be a reasonably good performance measure. It is defined as the sales less the direct expenses associated with sales (primarily direct materials and direct labor). As a performance metric, we can estimate throughput at the time an order is placed and with an appropriate cost system track our performance by order.
In addition, we might consider the organization’s ability to deliver orders as agreed upon with the customer – perfect orders. The degree to which we can consistently meet customer expectations as established in our customers’ orders, will go a long ways toward establishing our credibility in the market place. Lean organizations are typically fairly proficient at consistently meeting customer expectations and thereby generating perfect orders.
Invoicing and Servicing Customers: Nothing slows the flow of earned cash into a business like failing to provide timely, accurate invoicing to customers. The product/service was delivered and the invoice sent was either not sent in a timely manner (too early is as bad as too late) or the invoice was incorrect giving our customer the grounds to dispute the bill and withhold payment until the dispute is resolved. With this in mind good metrics for this process will address the timeliness and accuracy of invoices.
After sales service is core to most businesses as well. Typically, after sales service is about responding to customers’ questions/concerns/complaints/claims – typically this amounts to damage control. Effective after sales service will resolve these items equitably and quickly. Speed is of the essence. The longer we allow an unhappy customer to wait, the unhappier they become and the more damage they can potentially inflict upon our reputation and brand. For this reason, appropriate performance metrics for after sales service are related to frequency by category of concern and time to resolution. Some will argue that cost is a critical metric as well. However, we must be careful not to attribute the cost of resolving complaints and claims to the cost of the after sales service process. In fact these costs are a result of the work our other core processes put into delivering our products and services. As such, these costs should be born by them.
In every process, we define the desired outcome from the process and measure the critical aspects of delivering that outcome. Typically with only 2 or 3 metrics for a process we can determine whether our processes are in control and generating consistent reliable results.
This entry was posted on Wednesday, March 10th, 2010 at 11:05 am and is filed under Business Process Improvement, Operational Excellence. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.