Chapter 3 Process & Customer Value Designing Value-Creating Processes Process Improvement Tools

Process Design Processes design needs to follow a simple litmus test: does the process create superior customer value? The goal of the organization is to maintain a fit between value and processes Successful organizations recognize that value and process are “seamless” in the eyes of their customers Organizations must recognize the link between process and value

The Link Between Process and Value GOAL: maintain fit between value and process ProcessValue Process delivers value through: Quality Cost reduction Flexibility

Definition of Process A process is a specific group of activities and subordinate tasks which results in the performance of a service that is of value

Key Business Process Orientation (BPO) Elements 1) Process management and measurement 2) Process jobs 3) Process view

A BPO Model A BPO Model

Process vs. Functional View Process Approach Functional (Traditional) Approach Emphasis on improving “how work is done” Which products or services are delivered Cross-functional coordination, teamwork stressed Frequent “hand-offs” among functions which remain largely uncoordinated “Systems” view – i.e., entire process is managed Pieces of the process are managed Customer orientationInternal/company orientation

The Generic Value

Process Ownership ☛ One of the most visible differences between a process- driven enterprise and a traditional organization is the existence of process owners ☛ Hammer recommends that process ownership be a permanent role in order to evolve as business conditions change, and process owners should guide that evolution ☛ Managers’ must be given authority over designing the process, measuring its performance, and training the frontline workers who perform it

The Marketing Cycle, Business Processes and Process Indicators

The PDCA (Deming) Cycle The PDCA (or Deming) Cycle is a continuous sequence of activities that represents a powerful decision-making tool for affecting organizational change Each of these 4 activities are held in equal balance and are equally important The cycle indicates that the task of process improvement is never done, as past results drive future action

Stabilizing and Improving Processes via the PDCA Approach

PDCA 1: Plan Planning involves examining how the type of value firms offer their customers affects their processes Planning involves examining how the type of value firms offer their customers affects their processes An alignment between the value that customers want and the value the process generates indicates overall effectiveness An alignment between the value that customers want and the value the process generates indicates overall effectiveness To ensure that a fit exists between value and process, a “value statement” should be developed To ensure that a fit exists between value and process, a “value statement” should be developed The Value Deployment Matrix is a useful tool for mapping value attributes and core processes The Value Deployment Matrix is a useful tool for mapping value attributes and core processes

Value Deployment Matrix

PDCA 2: Do The do phase deals with process design and congruency issues Once a value statement is created or refined, processes need to be assessed according to their efficacy and congruence with the firm’s value statement A series of questions such as those listed in Table 3.3 can help determine where to direct process improvement efforts After examining processes for their fit with the firm’s value statement, individual processes should be studied in order to determine their relevance and importance from the customer’s perspective

Understanding Process Improvement

Service Flow Diagram

Other Benefits of Flowcharting a Process Focuses on the customer and his/her expectations and experiences Focuses on the customer and his/her expectations and experiences Shows how the technical procedures relate to administrative and relationship building activities of product or service delivery Shows how the technical procedures relate to administrative and relationship building activities of product or service delivery Identifies those activities that can be proceduralized as well as those which must be individualized and given special attention Identifies those activities that can be proceduralized as well as those which must be individualized and given special attention Identify gaps in the market that need to be addressed Identify gaps in the market that need to be addressed Shows staff members how their own activities relate to one another Shows staff members how their own activities relate to one another

Check PDCA 3: Check Once processes are evaluated for their value- creating effectiveness and measures are developed, then data-driven tools can be used to routinely monitor, inspect, and improve them. Table 3.4 lists some common tools for measuring, monitoring, controlling and improving process quality.

Major Process Improvement Tools

Benchmarking Benchmarking is a process of consistently researching new ideas for methods, practices, and processes, and either adopting the practices or adapting the good features, and implementing them to obtain the “best of the best” (Camp) Benchmarking is the most important tool for evaluating and improving processes Benchmarking compares a company’s own practices (processes or tasks) against similar practices of firms recognized as superior in these areas By comparing itself against the best possible practices, the benchmarking firm seeks to identify gaps between its current processes and the processes it should implement

Generic Benchmarking Process

Common Denominators in Using Benchmarking Processes First, you need to thoroughly know your operations, assessing the strengths and weaknesses of your internal processes Second, you should know the industry leaders or competitors Third, learn from the industry leaders and emulate their strengths Fourth, use benchmarking as a proactive tool by looking not just at competitors, but at what customers value and how other practices meet those needs Finally, benchmarking needs to be continuous and institutionalized as part of the company culture

Surveys/Checklists & Control Charts Surveys/Checklists Typical information obtained from surveys or checklists include: (1) what happened; (2) how does it happen; (3) how often does it happen; (4) how long does it take; (5) how important is this? Control Charts > Useful for monitoring the performance of a process by reporting measurements that are predictable within a given process and those that are random in nature. > Control charts usually show fluctuations within a process that occur within control limits. Points that fall outside the control limit range should be reported or investigated (see Figure 3.8)

A Control Chart Figure 3. 8 Example

Scatter Diagrams & Pareto Charts  Scatter Diagrams (Figure 3.9) Examines 2 variables at one time to determine the relationship that exists between them Help determine possible process “fail points” or measure the results of recently changed processes  Pareto Charts (Figure 3.10) Used when there is a need to determine the relative importance of certain variables in process variation Helps isolate the “vital few” (as opposed to the trivial many) causes of process variation

A Scatter Diagram Fig 3.3 Example

A Pareto Chart Fig 3.10 Online Banking

Fishbone (Cause & Effect) Diagram Useful in process analysis and redesign by stimulating thinking about a process under investigation, helping to organize thoughts into a rationale whole Documents the level of understanding about a process and provides a framework for expanding an understanding of the “root cause” of the problem Representation between a problem and its potential causes, possible solutions?

A Fishbone Analysis Fig Example

PDCA 4: Act The final step in the Deming Cycle Corrective actions should be taken to improve processesthat fail to add value 5 ways to improve business processes: 1) Eliminate tasks altogether if it has been determined that they are unnecessary 2) Simplify the work by eliminating all non-productive elements of a task 3) Combine tasks, where appropriate 4) Change the sequencing to improve the speed and execution 5) Perform activities simultaneously

Concluding Remarks Process Improvement & Management: Concluding Remarks ■ In most cases, the people who perform the processes are the ones most capable of determining how to improve or simplify the process ■ Management has to create a culture that values employee input and rewards people for process innovation ■ Once a process improvement has been made, the change must be measured and evaluated for effectiveness cont… cont…

Concluding Remarks - cont.. Process Improvement & Management: Concluding Remarks - cont.. ■ The effective use of process integration is enabling firms to organize in new ways and to better manage supply chains and business relationships. ■ Processes represent more than simply the “operations” of the company, but rather serve as a means to superior performance ■ Unique, value-creating processes are strategic assets for organizations