Managers and Processes (Título do Slide) I have spent years advocating and consulting on process change I can tell you that nothing really good or lasting happens if senior management doesn’t understand and get behind process work This talk is largely derived from the new book I am working on at the moment This is NOT a book about process redesign or improvement and it isn’t addressed to process change practitioners It’s a book for business executives, about why they ought to be concerned about processes
Management and Process Strategies, Value Chains, Customers & Other Stakeholders Measures and Management Understanding Your Processes Managing Processes
What is a Process? It describes an activity that consistently and systematically transforms an input into an output In the case of a business process, the output is valuable to someone What it is NOT is just the formal pattern that describes the transformation It’s the actual activity. It needs to be managed. A process is what a process manager manages A process is all the people and the support activities and the decisions that take place in order to produce the valued outputs
What is Management? (Título do slide) Most business schools follow Peter Drucker and define management as a collection of tasks or responsibilities One formulation has it that managers: Organize, Plan, Manage, and Control. Most approaches add additional tasks No matter how many tasks they list, what is missing is a central way of understanding how a business functions. The closest most business schools come is when they talk about business strategy Many schools put a lot of emphasis on leadership and on organizational design. If you can just get the right people in the right senior positions, they will make it happen
Roger Smith, General Motors, 1987 Interview (Título do Slide) In response to question about why he didn’t just fire the head of GM’s Fisher Body unit for its bad work… Okay, we could do that…but the Fisher manager says, ‘Wait a minute. I did my job. My job was to fabricate a steel door, and I made a steel door, and I shipped it to GMAD.” So you go over to the GMAD guy and say: ‘Listen, one more lousy door and you’re fired.’ He says, ‘Wait a minute, I took what Fisher gave me and the car division’s specs and I put them together, so it’s not my fault.’ So you get to the Chevrolet guy, and you say, ‘One more lousy door, and…’ ‘Wait a minute,’ he says. ‘All I got is what GMAD made.’ So pretty soon you’re back to the Fisher guy, and all you are doing is running around in great big circles.
The Focus of Many Traditional Executives (título do slide) The focus is too often on the organization chart and on the goals established for functional units. (O texto abaixo, já estava aqui, e não está no slide). Increasingly company executives say they want to be more process-centric. What do they mean by “process-centric?” At a minimum, they mean they want to focus more attention on the company processes, to emphasize getting things done more efficiently, to improve the way things are done, to assure that processes satisfy customers, etc. It usually also means less emphasis on functional departments and measures and a greater emphasis on process-related measures of performance that cross the boundaries of traditional departments or divisions. It’s an emphasis on seeing how everything works together to produce results that customers value. Cada vez mais os executivos das companhias dizem que querem ser mais centrados em processos. O que eles querem dizer com “centrados em processos”? No mínimo, querem dizer que querem dar mais atenção aos processos da companhia, para enfatizar a realização das coisas com mais eficiencia, para aprimorar a maneira que as coisas são feitas, e assegurar que os processos satisfazem os clientes, etc.. Geralmente isso também significa menor atenção com os departamentos funcionais e medidas e maior ênfase nas medidas de performance dos processos relatados que cruzam as fronteiras dos tradicionais departamentos ou divisões. É uma ênfase em olhar como tudo funciona em armonia para gerar resultados que os clientes valorizam.
What’s Missing from the Organization Chart? (Título do Slide) The Customer isn’t shown There’s no clear indication of what the business is trying to accomplish There’s no clear description of what the business needs to do to generate products and services There’s no indication as to how the activities in the different functions might depend upon activities in other functions
Management by Functional Departments (Título do Slide) Since the Industrial Revolution, most organizations have divided themselves into functional units, each specializing in doing one job: Marketing, Finance, Fabrication, Assembly, Shipping Business schools have their courses organized around functions: Marketing, Finance, Operations… Which means no one is in a position to see the effort as a whole. No one is a position to assure that all the inputs and outputs of all the activities really add up to the desired final output
Management by Functional Departments (Título do Slide) It’s not just that the activities managed by different departments aren’t coordinated… In most cases, the measures organization’s use to determine the effectiveness of functional efforts are not closely tied to the ultimate outputs that are desired Moreover, many senior executives think the way to control departmental failures is to fire and replace departmental executives – assuring that smart departmental executives are going to work hard to meet their departmental goals, no matter how irrelevant those goals are to the ultimate outputs that are desired
The Focus of Process-Focused Executives (Título do Slide) The focus is on the creation of value for customers. The focus in on Value Chains that generate value for customers (O texto abaixo, já estava aqui, e não está no slide). Increasingly company executives say they want to be more process-centric. What do they mean by “process-centric?” At a minimum, they mean they want to focus more attention on the company processes, to emphasize getting things done more efficiently, to improve the way things are done, to assure that processes satisfy customers, etc. It usually also means less emphasis on functional departments and measures and a greater emphasis on process-related measures of performance that cross the boundaries of traditional departments or divisions. It’s an emphasis on seeing how everything works together to produce results that customers value. Cada vez mais os executivos das companhias dizem que querem ser mais centrados em processos. O que eles querem dizer com “centrados em processos”? No mínimo, querem dizer que querem dar mais atenção aos processos da companhia, para enfatizar a realização das coisas com mais eficiencia, para aprimorar a maneira que as coisas são feitas, e assegurar que os processos satisfazem os clientes, etc.. Geralmente isso também significa menor atenção com os departamentos funcionais e medidas e maior ênfase nas medidas de performance dos processos relatados que cruzam as fronteiras dos tradicionais departamentos ou divisões. É uma ênfase em olhar como tudo funciona em armonia para gerar resultados que os clientes valorizam.
Magement and Process Strategies, Value Chains, Customers & Other Stakeholders Measures and Management Understanding Your Processes Managing Processes
A Value Chain (Título do Slide) Defined by Harvard Business School professor Michael Porter in his 1985 book Competitive Strategy A Value Chain is all of the activities that it takes to generate a product or service If you add together the costs of all of the activities it takes to produce a product or service, and then subtract that from the income received for the sale of the product or service, you can determine the profit margin of the firm.
A Value Chain: The Largest Processes We Define Within an Organization (Título do Slide)
Michael Porter on Competitive Advantage (Título do Slide) Competitive advantage allows a company to dominate its industry for a sustained period of time “ Ultimately, all differences between companies in cost or price derive from the hundreds of activities required to create, produce, sell, and deliver their products or services such as calling on customers, assembling final products, and training employees… “ “ Activities , then, are the basic units of competitive advantage.”
Operational Effectiveness and Strategy (Título do Slide) “ Operational effectiveness means performing similar activities better than rival perform them.” “ Few companies have competed successfully on the basis of operational effectiveness over an extended period, and staying ahead of rivals gets harder every day.” “ Strategic positioning means performing different activities from rivals’ or performing similar activities in different ways.” “ While operational effectiveness is about achieving excellence in individual activities, or functions, strategy is about combining activities.”
Fit and Competitive Advantage (Título do Slide) “ Competitive advantage grows out of the entire system of activities. The fit among activities substantially reduces cost or increases differentiation.” “ Achieving fit is difficult because it requires the integration of decisions and actions across many independent subunits.” “ Positions build on systems of activities are far more sustainable than those build on individual activities.” Michael E. Porter. “What is Strategy?” HBR, Nov-Dec 1996. (Available on amazon.com )
An Organization with One Value Chain (Título do Slide) In organizations with only one value, divisions are less clear
An Organization with Two Value Chains (Título do Slide)
Corporate Management vs. Value Chain Management (Título do Slide) As a broad generalization… Corporate management is concerned with capital, with acquiring it and generating a return on it. They may have general visions, and express strategic intents, and the often promote specific programs (e.g. Reduce costs, Shift to a new technology), but… It’s the value chain managers who should be concerned with developing a specific business model and a strategy for achieving the goals of the value chain I suspect this is just as true with government and non-profit organizations, although they talk about it a bit differently
So How Do You Define a Value Chain? (Título do Slide) Do not define a value chain in terms of its product or services And do not assume your current business units equal value chains Define a value chain in terms of the customer value proposition it addresses A customer value proposition defines a problem or a need that customers have and that they are willing to spend money to solve.
Customer Value Propositions (Título do Slide) The value chain produces a product/service Customers have value propositions – which define problems or needs they hope to solve by acquiring a product/service Customers choose between products/services based on how well they believe a product/service will help them deal with their problem Markets are groups of customers that share a similar customer value proposition
IBM in 1993 (Título do Slide) IBM was in trouble in 1993 – sales of mainframes, its major source of income – was dropping fast IBM hired Louis Gerstner as its new CEO and he set out to determine what IBM’s Customer Value Proposition was Critics urged Gerstner to break IBM up into separate companies that sold mainframes, software, and consulting services Gerstner determined that what customers wanted was a single organization that could handle all their computing problems. They didn’t want to deal with multiple companies Gerstner kept IBM together because he decide that the Customer Value Proposition was: Provide integrated computing capability
A Value Chain Should be Tightly Integrated (Título do Slide) Each activity should add value to the next activity in a value chain If it doesn’t, consider that you have more than one value chain In 1989 Robert Horton became CEO of British Petroleum (now simply called BP) He wanted to identify his value chains. Everyone told him BP had one: Deliver Refined Petroleum products, which was subdivided into 3 major subprocesses: Upstream Production, Midstream Transport, and Downstream Refining Horton challenged this assumption
Are the Processes Tightly Integrated? (Título do Slide)
Implementations of Value Steams (Título do Slide) The same value stream can be implemented in multiple places BP’s Upstream Value Chain, was an oil field with a lifecycle: It was brought online, produced, and then was retired Horton quickly realized that he wanted a process manager for each oil field, and wanted data on how each did, independent of the other fields And then he set about identifying the best practices so he could improve what was done
Three Possible Bank Value Chains (Título do Slide)
One Value Chain With One Value Proposition (Título do slide) What is the Value Proposition: Provide financial services. The goal: That each customer have 5 different services from the bank. Better to start with a single value chain and then introduce variations as necessary. It avoids the problem of having lots of activities that are essentially similar with different names
Why Is the Value Chain so Important? (Título do slide) Because the only way you can tell if something needs to be done, or is being done right is by determining if it adds to the value your organization is set up to create
Process Gives Meaning to All the Other Perspectives (Título do Slide) (O texto abaixo, já estava aqui, e não está no slide). The big difference is between people who name a process and then look inside, vs those who name a process and then look at how it relates to its environment. A grande diferença está entre as pessoas que nomeam um processo e depois olham para ele, contra aqueles que nomeam o processo e depois olham para como ele impacta no ambiente.
Balanced Scorecards, Measures, and Management Performance Reviews (Título do Slide) Most organizations do scorecards for departments
Some Organizations Have Scorecards for Departments and for Processes (Título do slide)
Process Managers Have Two Sets of Metrics if They Report to Two Managers (Título do Slide)
A Modified Scorecard Can be Use to Collect Measures (Título do Slide)
The Top Level Scorecards Are Populated by Values Propositions from Each Stakeholder Interaction (Título do Slide) Different value streams and stakeholders generate different process metrics to monitor
Scorecards Need to Be Aligned with Processes (Título do Slide)
Accounting for Costs (Título do Slide) Most accounting is still focused on departmental efforts Great article in Sept 2011 Harvard Business Review on “How to Solve the Cost Crisis in Health Care” by Robert Kaplan and Michael Porter of HBS. They argue that hospitals need to look at processes that result in value for customers, and then determine the costs that go into producing those results. Moreover they argue that the real cost is the total lifecycle cost per patient per health problem. This article is just one example of the renewed interest in Activity-Based Costing – and particularly in the new version: Time-Driven Activity-Based Costing See Time Driven activity Based Costing by R.S. Kaplan and R. Cooper. HBR Press, 2007
Costing the Process (Título do Slide) Trying to figure out how a company is doing using traditional financial accounting measures is very difficult You need to know what is costs to perform an instance of a process. And you need to know how successful each performance is. With those numbers you can begin to get serious about reducing the costs of processes while maintaining the quality of service Alternatives, like cutting 10% across the board, just degrades service and gives you a temporary and unsustainable reduction in costs
Management and Process Strategies, Value Chains, Customers & Other Stakeholders Measures and Management Understanding Your Processes Managing Processes
What the CEO Manages (Título do slide) The CEO manages the overall direction of the company and its capital He or she also manages the value chains (Hopefully via value chain managers who are held responsible for achieving value chain goals) Most large organizations are, in fact, operating with a portfolio strategy, betting more on value chains that get good results (ROI) and eliminating those that don’t Jack Welch at GE famously decided that every GE “company” had to be the best, or second best, in its industry, or he sold it off
What the Value Chain Manager Manages (Título do Slide) The Value Chain Manager assures that the value chain is delivering value to customers and getting a reasonable return on its use of capital Each Value Chain should be based on a Business Model which, in essence, states: This value chain exists to satisfy X need for Y customers It does this by creating a unit, M, for N cost It sells M for P price, and makes a profit of P-N per unit Investment in technology, expansion, etc. all depend on this basic formula
Types of Organizational Structure (Título do slide) (O texto abaixo, já estava aqui, e não está no slide). This is a chart from the Process Management Institute. It emphasizes that a company can be classified as to how much emphasis they put on functions vs. processes. There are different criteria to suggest where specific organizations lie – whether the functional or the process managers control resources, for example. Este é um gráfico de um Instituto de Gerenciamento de Processo. Ele enfatiza qua a companhia pode ser classificada como quanta enfase eles dão a funções vs. processos. Existe um critério diferente que sugere onde organizações específicas mentem – se é o funcional ou o gerente de processos que controla os recursos, por exemplo.
Managing a Value Chain Process (Título do slide)
Wearing Two Management Hats (Título do Slide) Lots of organizations have functional managers who also serve as process managers In some companies a Line of Business manager is very similar to a Value Chain Manager and the same person can fill both roles In smaller organizations with only one value chain the COO also serves as the Value Chain manager Wearing two hats always creates conflicts. It’s more popular in weak matrix organizations than in strong matrix organizations Few organizations have more than two layers of process managers – in effect, Value Chain Managers and Level 1 Process Managers
Process Management (Título do Slide) However you arrange it, you have to manage each value chain and each major value stream or subprocess Someone has to be responsible for seeing that the whole value chain or steam works together to generate the desired outcome This isn’t something that a functional manager can do Functional managers always want to suboptimize – they do things for their department at the expense of the value chain, as a whole For most companies process management isn’t something existing managers are trained to do -- you need to create, train them to focus on whole processes, set clear goals and establish bonuses, and then support them
Using Processes Depends on Knowing Your Processes (Título do slide) There are lots of different ways to talk about processes If you are going to focus on Process Management, you need a broad agreement on what value chains your organization has and what value streams make up those value chains You need a Business Process Architecture This IS NOT something you should entrust to your IT group. This is something the chief executives of the organization need to create
A Good Business Process Architecture Includes (Título do Slide) A model of your organization’s value chains and value streams processes – a knowledge of how things flow to obtain desired results A description of the policies/business rules used to make key decisions in each value chain or stream A description of the values being produced, and clear Key Performance Indicators (KPIs or Metrics) to use to measure the results Constant measurement Process managers responsible for obtaining the specific KPIs associated with each value chain or stream
Value Chain of a National Oil Company (Título do Slide) This architecture was developed by the executive committee of the company specifically to assign management roles
Boeing GMS Identified 300+ Processes (Título do slide)
Value Chains Support High Level Analysis (Título do Slide) Consider this financial data about a value chain as recorded on the financial statement of the company (in millions) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Revenues 12.1 37.3 70.5 98.3 116.9 170.7 Oper. Exp. 12.4 35.3 63.9 88.5 106.7 157.7 Revenue/$1 Dollar of Oper. Exp. 0.98 1.06 1.10 1.11 1.10 1.08 Note that if you were a non-profit, you could consider the cost of successfully completed client/interactions rather than revenue
Restated Graphically: Productivity is Declining (Título do slide) Why is productivity declining?
Process Gives Meaning to All the Other Perspectives (Título do Slide)