How to Link Strategy to Business Performance
Few executives would argue with the proposition that successful companies are driven by a clear, energizing vision. Such companies have a portfolio of products and services that meet enduring needs. The scope and emphasis of markets are carefully delineated. The metrics of financial success are in place, along with the key strategic capabilities. But vision will remain just that unless it is grounded in business reality, and this requires putting effective business processes in place.
Think of business processes as a set of bridges, which span the gaps between vision and action. Everything from information to product development to measurement systems is buttressed by business processes. Such processes are nothing less than the way work gets done.
Consider the three types of business processes:
LINE WORKFLOWS, such as business generation, product development, and order fulfillment;
STAFF WORKFLOWS, such as hiring, accounts receivable, and conference planning;
MANAGEMENT WORKFLOWS, including strategy development, resource allocation, and performance measurement.
Some processes—procurement, monthly closing, patent application—are present in most businesses. Others—mortgage loan approval, plastics extrusion, insurance policy underwriting—are unique to an industry. Yet no organization will ever significantly address its key needs without improving its business processes. The need for improvement is critical in each of these areas:
Revenue growth. If an executive team plans to fulfill its growth strategy through the rapid introduction of successful new products, it must install a well-oiled product development and commercialization process. To attain growth through penetrating new customer groups or geographies, processes for market entry must be effective and efficient. If an organization plans to grow rapidly through merger or acquisition, a host of processes—partner identification and selection, deal structuring/negotiation, due diligence, product/service assimilation—must be streamlined. Mergers commonly fail due to weaknesses in the cultural integration process.
Quality improvement. Whether quality is approached through formal programs (such as Six Sigma or Total Quality Management) or baked into day-to-day operations, business processes are a key variable in the quality equation. In a manufacturing organization, quality is to a large degree a function of the effectiveness of a series of processes: scheduling, production, inventory management, maintenance, and supplier management. A service organization that fails to address the needs of its service definition and communication process, its customer care process, and its back-office processes will be equally ineffective in using quality as a competitive weapon.
Cost reduction. Across the board cost-reduction mandates (“all departments will cut 10 percent”) rarely produce sustainable results. In most organizations, the cost of certain functions could be reduced by as much as 80 percent; in other areas, particularly those that fuel the top line, investment could and should be increased. To target the areas of greatest opportunity, to eliminate excessive costs that are hard-wired into the business, to avoid cutting muscle as well as fat, and to ensure that costs don’t creep back in (for example, through the use of expensive contractors), an organization needs to take a critical, zero-based look at its processes.
Cycle-time reduction. In many industries, speed is the make-or-break competitive variable. An organization with a superior product or service will often lose business to one that responds more quickly to a request for proposal, fills an order the next day, or answers technical support questions on the spot. Organizations can compress time only if, based on a thorough examination of business processes, they eliminate non-value-added behaviors, design steps to run in parallel rather than in sequence, and automate manual and paper-intensive activities.
Intelligent deployment of information technology. Ideally, an organization’s business objectives drive its major technology initiatives. Growth, quality, cost, or cycle-time goals, for instance, should drive the installation of an enterprise resource planning system, or the launch of an e-commerce program. However, as IT investments grow larger and more complex, too often such initiatives drive rather than serve the business. Only a strong foundation of business processes, underpinned by the organization’s strategy, ensures that a given IT solution will meet the needs of the organization and its customers.
Let’s look at an example of the power of process improvement.
After discovering that inadequate account set ups were costing between several hundred and several thousand dollars per incident (depending on when errors were discovered), a consumer products company targeted its account set up process for improvement. Other processes already in place were theoretically sound, but incorrect information from the set up process caused a ripple effect of problems down the line, from forecasting and shipping to billing. The company discovered that 40 percent of new accounts were set up with incomplete or inaccurate data.
In analyzing the existing process, the management team found two critical problems. First, it was difficult and time-consuming for sales staff to provide the correct information during account set up. Second, the handoff of information (from the customer to sales to customer service) left too many opportunities for human error.
By clearly articulating the objectives for an optimal account set up process, and by involving key stakeholders (including customers) in the effort to improve the process, the improvement team made a number of changes:
- They established an additional two percent commission incentive for correct set ups to encourage sales staff to include accurate data.
- They provided new customers with an electronic set up form that could be transmitted directly to customer service.
- They guaranteed delivery-to-request to those customers who provided accurate and complete account data.
- They educated sales staff and customers on the improved process.
The result? Now less than five percent of new accounts are set up with inaccurate or missing information. This created an unexpected result; the customer service operation was suddenly overstaffed since people no longer needed to chase down correct customer data. The company redirected customer service representatives toward identifying and improving other components of customer satisfaction. Service to customers and delivery-to-promise improved significantly.
Kepner-Tregoe’s Approach to Process Improvement and Management
The Kepner-Tregoe (KT) approach to the improvement and ongoing management of processes follows these steps:
- Step 1: Identify the Process(es) to be Improved. Based on an examination (and enhancement, if necessary) of the business strategy, the executive team identifies the organization’s highest priority processes. These will include processes that provide competitive advantages, as well as those that need to be brought to competitive parity. The team then identifies the need for each of these priority processes—creation, radical redesign, incremental improvement, or ongoing management—and develops a plan to meet those needs.
- Step 2: Structure a Process Improvement Project. For each process that needs to be created, redesigned, or improved, the executive team identifies a process owner and a steering team. The steering team provides guidance and oversight by establishing goals, boundaries, and improvement plans. It also identifies a cross-functional improvement team to perform the process analysis and design.
- Step 3: Document and Analyze the Current Process. If, as is typically the case, a process or set of activities already exists, the process improvement team documents them and identifies strengths and weaknesses. Analyzing the current process builds understanding across the entire team, highlights areas that need to be changed and those that are working well, and establishes the starting point for the implementation plan to come.
- Step 4: Design the New Process. The process improvement team initiates the creative part of the project. Using their shared knowledge and experience, benchmarking information, an objective facilitator, and input from customers and others not on the team, they create a number of alternative future processes. They then use a set of rigorously developed and tested criteria to evaluate the options. In the end, they often create a hybrid that incorporates the strengths of several alternatives.
- Step 5: Develop Process Metrics. Team-defined measures of success— which should include end-of-process lagging indicators, as well as upstream leading indicators—enable process performance to be tracked and continuously improved. Such measures address both customer-focused dimensions like quality and cycle-time, and internal ones like cost and safety. Together these metrics provide a “balanced scorecard” of process performance.
- Step 6: Develop the Implementation Plan. During this step, the process improvement team, with extensive input from others, creates a comprehensive plan for implementing the new process. This plan includes not only changes to the process flow, but also any changes required in policies, resources, systems, forms, job design, skills, and reward systems. Regardless of the nature and extent of change, the plan for communicating the “what, why, and how” to all stakeholders is a key output. Plans are also made for regular monitoring once the plan is implemented.
- Step 7: Implement the Plan. Successful implementation is predicated on increasing participation company-wide. Gaining such involvement ensures that: 1) implementation will be accomplished in an acceptable amount of time; 2) technical expertise in areas like systems design and job design will be available; and 3) the commitment critical to the success of the new process is built throughout the organization.
- Step 8: Manage the Process. The process team and its owner implement their plan for ongoing management and continuous improvement of the newly designed process. This plan typically includes: process planning and budgeting; a measurement/monitoring system built around the process metrics already developed; continuing process ownership; and regular process reviews.
Advantages of the KT Approach to Process Improvement and Management
Throughout a process improvement project, Kepner-Tregoe’s approach to analysis, design, and implementation incorporates our core processes: Situation Analysis, to clarify the organization’s current status and need for process improvements; Problem Analysis, to identify the root cause of process breakdowns and deviations; Decision Analysis, to select among alternative process designs; and Potential Problem/Opportunity Analysis, to ensure that implementation and continuous improvement efforts are successful. KT ’s proprietary analytical processes have been applied in hundreds of client organizations over the last four decades to build skills that enable them to effect concrete, lasting change.
These tools are the starting point for a unique approach to working with our clients.
- In addition to our analysis, design, and implementation methodology and tools, we provide executive coaching, design experience, and team facilitation. However, we do not conduct the analysis or create the design. The fingerprints on the end product belong not to the consultants, but to the people who oversee the process, use the process, and are served by the process. This ensures the new process won’t become just another good idea stuck on the shelf.
- We do not treat processes in isolation. We link them to the strategy, to the jobs of the people within them, and to related processes.
- We build an organization’s customers into the design process, often as members of the steering and process improvement teams.
- The buy-in and big-picture perspectives of executives are critical to success. We ensure that key executives become the improvement team’s partners through participation on the steering team.
- KT methodology draws on analytical as well as creative thinking; both are essential to successful process improvement.
- We have no bias regarding the amount of change. We don’t adhere to formulaic assumptions, whether they are from the clean-slate “reengineering school” or the incremental “kaizen school.” We help our clients to change as much as necessary to achieve the process goals—no more, no less.
- We come with no predetermined solutions. We don’t steer organizations toward pat IT packages, training programs, or theoretical organization models.
- We don’t focus on design, and then drop the ball on implementation. After all, most process improvement efforts fail due to poor deployment. Our world-class project management methodology and facilitation expertise support planning and implementation teams. As experts in change management, we also ensure that human and cultural factors are treated as carefully as more structural dimensions.
- To ensure that the newly-designed process is kept evergreen in a fast-changing world, we help our clients design and install a process measurement system and other components of a continuous improvement infrastructure.
- We don’t believe in sacrificing growth and quality on the altar of cost reduction. We do believe in maintaining and building on the strengths of the current process, rather than throwing them out along with the weaknesses. We hold no upfront bias on the role IT should play in the redesigned process. Most importantly, we make sure we leave behind a process for continuous improvement.