Process excellence- A journey towards relentless
performance improvement
Companies, which have survived the ups and downs of the
business for a number of years have one thing in common- their
drive towards relentless performance improvement. Examples are many globally
and also in India. If Toyota has followed the 'Toyota Management System' for
sustained growth, process excellence is embedded into Tata’s ‘Tata Business
Excellence Model' (TBEM). Aditya Birla Group has its own framework for process
excellence and so does Reliance industries.
In the long run, globally and in India, there is a massive
gap between the performance and sustainability of the companies that have
implemented process excellence in one form or the other and companies which do
not have a formal process excellence program in place. For example, GE, for
instance, became a major adopter of Six Sigma, one of the process excellence
tools in the mid 1990s. Reports indicate that GE has saved over 4 billion
dollars and shifted their gross margin from a 10%–12% range to a 12%–15% range.
Many articles cite GE's success as directly linked to the use of Six Sigma.
What is process excellence?
Process excellence
is the efficient and effective application of knowledge, skills,
tools, techniques and systems to define, visualize, measure, control, report
and improve processes with the goal to meet customer requirements profitably.
What process excellence is not?
Process excellence is not a substitute for sound business
strategy but is an essential component to successful and profitable execution
of the strategy.
How should process excellence be pursued?
Process excellence can be as simple as efficiency and
effectiveness in processes. To quote the late management guru Peter F. Drucker,
"Efficiency is doing things right; effectiveness is doing the right
things."
Process excellence shows what are the right things within an
organization and also analyzes if the organization is doing the things right. In companies where sales performance or financial performance
is bad, quite often process performance is the root cause of failures, and the
reverse is also true. If sales performance or financial performance is very
good, often you can trace this success back to process excellence.
Coverage of process
excellence is holistic
A process is a collection of interrelated work tasks
initiated in response to an event that achieves a specific result for the
customer of the process. Process excellence is all-encompassing and can be used
to get a better result from any of the functions within the organization, which
may range from strategy formulation to answering a call from the customer. Some
of the key areas are covered below to show how companies with high level of
process excellence maturity perform the processes with more efficiency and
effectiveness.
Key processes
|
Efficient and effective performance
|
Product Development
|
Product development is the key to success
of organizations in all the industries. However, the product
conceptualization to successful commercialization ratio is still very low in companies
leading to wastage of precious resources.
Examples
& explanation
IKEA,
the global retailer, considers how to ship a product across continents even
before they decide whether to carry it in their stores worldwide. The ability
to ship a product easily is a key requirement for them to sell one. The
product needs to be easily packed in compact, rectangular boxes that can be
stacked in shipping containers to be sent worldwide in cargo ships.
Design
for serviceability is a main consideration when designing automobiles or
large consumer products such as washers and dryers. These impact the sales
and financial performance of companies for many years to come.
Design
for manufacturability is a key process in the semiconductor industry. Product
development and manufacturing process efficiency measures are critical in
chip design. A semiconductor company is always in a race to the finish line
with its competitor because Moore's law states that the number of transistors
in a chip and, hence, its capabilities and speed double every year.
Semiconductor effectiveness measures could be the manufacturability or yield
of the product.
In
consumer products, the initial quality and serviceability needs to be
designed during the product development process. These translate to better
reliability and customer satisfaction and affect sales performance directly.
Repair costs during the warranty period and product recall costs could
significantly affect the financial performance of a company if not enough
attention is paid to the product development and manufacturing processes at
the time a product is designed.
These
processes can affect the sales and financial performance of the company
adversely if enough attention is not paid to them during the product
development and manufacturing setup processes.
|
Marketing
processes
|
The four P's of marketing: price, product,
place (distribution strategy) and promotion lead to many marketing processes
such as brand building, competitive positioning, advertising and channel
development during the introduction of a new product or subsequent
modifications or release.
All of these processes
affect sales performance and the financial performance of the company for a
long time to come.
Examples
& explanation
Marketing processes are
performed repeatedly. They can be the redesign of a logo, new boxes in which
the product is shipped or the general positioning of the company. Intel just
switched from their "Intel Inside" positioning to "Leap Ahead"
to coincide with the many new markets they want to enter, i.e., mobile phones
and small handheld computers.
Efficiency metrics would
measure the time taken for these processes to be performed, while
effectiveness metrics are measured by methods such as testing advertising
recall using surveys, customer or prospect focus groups, etc. Billions of
dollars are spent on marketing processes, and they are subject to efficiency
and effectiveness measurements as much as other processes within the company.
|
Sales
processes
|
Lead generation processes using direct
mail, telemarketing efforts and direct sales processes are all sales
processes that influence sales performance directly. Channel and partnership
development are other such processes. Studies have shown that it costs more
to acquire a new customer than to sell more to an existing customer. Sales
processes should include systematic follow-up and need assessments with
existing customers.
Examples
& explanation
Efficiency measures pertain to new leads
generated, old leads followed up and time taken for these activities.
Effectiveness metrics compare sales generated per lead in currency terms and
number of leads that resulted in a sale compared to total number of leads
generated. Sales force automation software solutions provide a number of
these capabilities already in addition to the ability to present these
process metrics in dashboards.
|
Product
Delivery and Installation Processes
|
Product delivery processes have become more
important because of online businesses. Online businesses tend to be newer
and technologically savvier, and their internal systems are integrated to a
greater extent, even with third-party drop ship suppliers' internal computer
systems. These make their delivery and installation processes highly
efficient, effective and less expensive.
Examples
& explanation
Many of them provide automatic tracking of
packages by linking with delivery services (such as UPS and FedEx) through
the Internet. Installation processes for products such as refrigerators,
washers and dryers are often outsourced to local service providers. If you
buy a refrigerator from Sears and they send out a third-party contractor for
the installation, as far as you are concerned, it is still Sears you are
dealing with. Efficient and effective performance of these processes
determines sales and financial performance.
|
Financial
Processes
|
Financial processes, especially billing
processes and accounts receivables management, impact both sales and
financial performance.
Examples
& explanation
For example, errors in phone bills lead to
customer dissatisfaction and money wasted on fixing the errors. Production
and dispatch of bills on time enables efficient and effective collection
processes. In this process, the percentage of bills printed and dispatched in
a timely manner is the efficiency metric worth considering.
Effectiveness metrics may deal with
collection of money against the bills dispatched. When sped up even by a
day, accounts receivables processes earn companies interest because of
earlier collections. One would think that an accounts payables process may
need to be delayed as much as possible because it involves paying out money
to suppliers. Not so! Taking advantage of cash discounts for quicker payments
could save the company money by paying suppliers invoices earlier.
Process measurement and management in the
finance function offers the potential for significant savings.
|
After-Sales
Service and Support Processes
|
After-sales service and support processes impact
sales performance as well as financial performance, especially when the
purchase of a product or a service involves a lot of after-sales service and
support - such as automobiles or insurance products.
Examples
& explanation
The efficiency and effectiveness with which
these services are scheduled, delivered and successfully implemented have a
profound impact on future repeat and referral sales. Support processes have
significant impact on customer satisfaction or dissatisfaction and impact sales
and financial performance.
|
Compliance
Processes
|
Compliance processes (such as
Sarbanes-Oxley, BASEL II and The Fair Credit Act), information privacy
processes (such as HIPAA), taxation processes and governmental laws and
regulations dealing with human resources (HR) issues all have profound
impacts on an organization. Failure to comply with these processes on time
(efficiency) and meeting all standards of the law and ethics (effectiveness)
could have significant impacts on the company's financial performance.
Examples
& explanation
Public perception of organizations that
violate these laws and regulations has the potential to significantly affect
sales and even completely bankrupt a company if customers boycott them.
Compliance processes have become so
important that even companies not headquartered in the U.S. or European Union
may still need to comply with many of them, if they do business in these
countries, are suppliers to businesses in these countries or if they are
listed in the stock exchanges in these countries.
Process excellence in compliance processes
may not be a nice-to-have but a must-have! Not doing so has very adverse
consequences on overall business performance.
|
Human
Resource Processes
|
A variety of HR processes such as hiring,
firing, retirement, benefits administration and HR compliance and how they
are executed have profound impact on the sales and financial performance of
companies. How efficiently and effectively HR processes are executed affects
almost every function within a company.
|
Outsourcing inwards / outwards
|
Outsourcing is a fact of life, no matter
what the function is within a company – whether design, manufacturing, HR,
financial functions or service and support. Third-party service providers
supply almost every functional process as an outsourced service. You may be
placing your valuable intellectual property, prospects and customers in the
hands of outsourcing service providers. Third-party service providers may not
have the same urgency in dealing with your prospects and customers as you do.
Examples
& explanation
Monitoring, measurement and analysis of
efficiency and effectiveness in outsourced business processes are a must.
Outsourcing contracts often have clauses for service level agreements, but
they may be meaningless and unenforceable, if the efficiency and
effectiveness measures they may represent are not measured, reported and
analyzed periodically.
|
Innovation
|
Innovation and creativity in companies are
considered to be spontaneous and not subject to the process approach. Nothing
could be farther from the truth. Organizations that have harnessed their
employees' creativity and innovation quite often have very clearly
articulated formal processes or well-understood informal ones. Methodologies
such as the Phase Gate Methodology take many ideas from research and
development (R&D) through a brainstorming stage to product development to
manufacturing and provide formal process frameworks for innovation and new
product development.
Examples
& explanation
Here the efficiency measures would be how
many new ideas flowed from R&D to successful product development and how
fast? Effectiveness measures would be how successful these were at satisfying
the sales and financial performance goals of the company.
The Apple iPod is an excellent example of
how a single product could shift the sales and financial performance of the
company. Innovation processes in a company address the question, what happens
if an employee or a group of employees has a new idea for a product or a
service? Is there a formal way for these creative ideas to be considered,
analyzed and good ones tried out? Innovation processes are the key
determinant of future corporate performance management. They establish far in
advance what the sales and financial performance of a company is going to be.
|
Tools/frameworks used for process excellence
As discussed earlier, process excellence can be
applied to all aspects of business and hence it cannot be fully developed by
one tool/framework and there are several tools/frameworks which are available
from which an organization can pick and choose according to their unique
requirements.
These tools and frameworks are overlapping and draw from
each other. They differ mostly in terms of philosophy behind them. We are
focusing on two of the most widely used and comprehensive tools here, 1) Lean
and 2) Six Sigma
Please connect with the author of the article at jhasumit@gmail.com for any help on operational excellence.
Please connect with the author of the article at jhasumit@gmail.com for any help on operational excellence.
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