1. Process Standardization Sharing best practices Leveraging systems and knowledge Improving consistency Some of the material in this presentation was drawn from the following sources: “Build-to-Order & Mass Customization, the Ultimate Supply Chain and Lean Manufacturing Strategy for Low-Cost On-Demand Production Without Forecasts or Inventory,” by D. Anderson (2004). Harrington, H., Esseling, E. and Van Nimwegen, H. (1997), Business Process Improvement Workbook, McGraw-Hill: New York, NY.

2. Trends in Process Management Outsourced processes Example: Dell (text, pg. 122) Process standardization BA 553: Business Process Management2

3. 3 What is process standardization? Definition of process standardization: “The degree to which work rules, policies, and operating procedures are formalized and followed.” 1 Objective of process standardization: “To make process activities transparent and achieve uniformity of process activities across the value chain and across firm boundaries.” 2 1.Jang, Y. and Lee, J. (1998), “Factors influencing the success of management consulting projects”, International Journal of Project Management, Vol. 16 No. 2, pp. 67-72. 2.Muenstermann, B. and Weitzel, T. (2008), “What is process standardization?” In Proceedings of the International Conference on Information Resources Management, 2008. Conf-IRM 2008.

4. BA 553: Business Process Management4 Why standardize processes? Reduces costs: Lowers salary costs due to collaboration between different units (employees can fill in for each other) Lowers overhead costs due to sharing documentation and training materials across the organization Reduces materials costs (ordering larger quantities of standard parts and materials provides purchasing leverage where buyers can benefit from suppliers economies-of-scale and arrange more frequent deliveries, to support just-in-time operations) Reduces inventory levels (aggregating demand for parts and supplies enables the safety stock and inventory levels to be reduced) Reduces material overhead (time spent to procure standard parts and materials, which are more common, more readily available, and have more sources) Lowers IT costs due to supporting similar information systems across the organization (no “one off” applications being used)

5. BA 553: Business Process Management5 Why standardize processes? Increases quality: Reduces variability in product / service quality, as all employees perform the process in a similar manner Achieves more consistent results and outcomes, driving world- class performance Improves product / service quality, as employees make fewer errors when they understand how to do their jobs Improves product / service quality through the use of continuous improvement and sharing of best practices

6. BA 553: Business Process Management6 Why standardize processes? (Cont’d.) Reduces cycle time: Reduces rework and inefficiency - less work at business unit level as processes are developed once instead of ten times Improves average cycle time through risk pooling (aggregating demand for parts and supplies across locations means that high demand from one area can be offset by lower demands from other areas, leveling the demand and reducing the risk of running out of parts)

7. BA 553: Business Process Management7 Why standardize processes? (Cont’d.) Improves organizational management: Facilitates early identification and proactive management of risks Improves accuracy of estimates Improves external relations, as the company presents a single face to its suppliers and customers Provides a stronger foundation for any organizational restructuring, as processes are similar across similar job functions Improves knowledge management (more opportunities to leverage and reuse knowledge) Facilitates knowledge sharing and applied learning across organizational boundaries Facilitates various organizational reviews (e.g., SOX reviews) Increases organizational flexibility, as resources such as people and assets can be reassigned according to market requirements Improves employee retention, as people understand their jobs and what’s expected of them Enables implementation of process control methods (collecting similar metrics and reporting on them)

8. BA 553: Business Process Management8 Steps in Process Standardization 1.Clarify the purpose of the standardization effort (e.g., reduce product cost, increase product quality, improve product cycle time) 2.Identify which aspects of the process need to be standardized to achieve the stated purpose 3.Document a single version of the process 4.Use impact analysis to identify consequences for the organization, e.g., equipment or paperwork changes required 5.Identify and document any training needs based upon standardized process design 6.Develop a plan for implementing the standardized process 7.Train employees in the new process 8.Roll out the new processes to the various regions 9.Identify decision authority for future modifications to the standardized process design

9. Process Standardization Steps 1 and 2 1.Clarify the purpose of the standardization effort (e.g., reduce product cost, increase product quality, improve product cycle time) 2.Identify which aspects of the process need to be standardized to achieve the stated purpose Both of these steps are specific to the company or process being standardized, and cannot be prescribed. BA 553: Business Process Management9

10. 10 3. Document a single version of the process Document the versions of the process being used Conduct workshop with representatives from various regions and functions involved in the process Identify best internal practice (sections of the process may be done best by different regions) Identify where process needs to be tailored (for instance, due to tools, language, culture, local regulations), and document these alternatives Determine whether process improvements are possible and within scope - if so, identify improvements to incorporate into the new process Develop a specification for the process Document a single version of the process in a flowchart

11. BA 553: Business Process Management11 5. Identify and document training needs Identify and document any training needs based upon standardized process design: If this is a new process design, it may involve new technology or systems that require employee training If this is an existing process, the adoption of methods used in other regions or the implementation of improvements may require training

12. BA 553: Business Process Management12 6. Develop implementation plan Develop a plan for implementing the standardized process, including the following components: Training plan Communication plan Measurement plan Process implementation plan

13. BA 553: Business Process Management13 9. Identify decision authority level Identify level of decision authority for future modifications to the standardized process design: If decision authority rests with local groups, the benefits of standardization may not be maintained If decision authority rests only at the enterprise level, the process may not be flexible or adapt easily to changes This is less of an issue for smaller companies than it is for global organizations

14. BA 553: Business Process Management14 Decision Authority Models Enterprise Model Description Ultimate decision authority is at the Enterprise level by process Enterprise governance body can be led by a single process owner or small board of owners Regional and/or BU level bodies make lower level decisions Advantages Less costly to maintain Full standardization benefits Enables global management of the business Tradeoffs Some loss of flexibility to meet specific business needs Greatest change challenge Business Unit Model Description Ultimate decision authority is at the Business Unit level by process The BU process owners may meet to gain informal consistency across the enterprise Regional level bodies make lower level decisions Advantages Provides flexibility for business units in process design Decision making typically faster than Enterprise Model Tradeoffs Loss of cross Business Unit synergies Some loss of local control Regional Model Description Ultimate decision authority is at the regional level by process The regional process owners may meet to gain informal consistency across the enterprise Local governance bodies make lower level decisions Advantages Provides flexibility for regions in process design Decision making typically faster than Enterprise and BU Models Tradeoffs More difficult to manage enterprise globally Some loss of flexibility to meet business unit needs within a given region Localized Model Description Ultimate decision authority at the local level by process Localities have lead process owners who make decisions for their locality Consistency not maintained across the enterprise Advantages Enables nimble decision making Localities have flexibility to design processes to meet their needs Tradeoffs Costly solution to build and maintain; loss of efficiencies Loss of standardization benefits Most difficult to manage business globally StrictOpen Typical Attributes  Exceptions granted as requested  Loose network of process experts (if any)  Local review boards manage exceptions  Decentralized decision making Typical Attributes  Regional or BU business justified exceptions granted  Regional or BU process expert network  Decision making bodies Typical Attributes  Exceptions typically granted only for compliance or significant benefit  Corporate process owners  Global review boards  Centralized decision making Example from Chevron, 2005.

15. BA 553: Business Process Management15 Process Standardization Example Modus offers supply chain management processes such as customer care services, content and materials management, product assembly, and fulfillment Modus operates 21 manufacturing/distribution facilities in 12 countries The company decided to standardize its processes across facilities to improve customer benefit The effort resulted in a 35% reduction in inventory costs, 61% reduction in order turnaround time, and a 64% reduction in working capital requirements. Manrodt, K. B. and Vitasek, K. (2004), “Global process standardization: A case study”, Journal of Business Logistics, Vol. 25 No. 1.

16. BA 553: Business Process Management16 Process Standardization Example Chevron has found significant savings in standardizing refinery process steps using mobile workflow software and rugged PDAs to deliver decision support to field workers Chevron has increased refinery operating reliability, reduced maintenance costs, and improved safety and environmental compliance Chevron estimates that these process improvements will save the company $3 million to $5 million annually” across eight refineries “Chevron Drives Process Standardization and Efficiency with Mobile Decision Support”, September 2008, http://mobilesolutions.wonderware.com/customers/cs_chevron.pdf website, accessed 7 February 2010. http://mobilesolutions.wonderware.com/customers/cs_chevron.pdf

17. BA 553: Business Process Management17 Process Standardization: Principles for Success Beginning standardization effort with a pilot process to demonstrate success Selecting processes for standardization that are part of the value chain Design process to achieve improved metrics around process time, cost and quality (as described earlier) Employee involvement in designing the process, including identifying best internal practice Employee ownership of the standardized process Management buy-in to the process design Management commitment to make the infrastructure changes necessary to enable standardization (e.g., purchase of common systems and software) Process simplification wherever possible (standardization should not lead to over-complication) Train employees as needed in the differences between their local processes and the standardized process

18. BA 553: Business Process Management18 Process Standardization: Issues to Address Lack of clarity on purpose for the standardization effort Lack of understanding of the benefits of standardization Lack of time and resources to design and deploy standardized process Lack of involvement of all regions or groups in the new design Unclear on decision-making authority when disagreements arise Employee resistance to change Turf battles by functional managers Standardized process does not address intent of the effort: does not reduce cost, improve quality, or reduce cycle time Lack of training in how to perform the standardized process Allowing too much tailoring in initial design standardization effort Not enforcing adherence to standardized process once deployed