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Process excellence being efficient & effective

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Process excellence being efficient & effective

  1. 1. India 2013 Process Excellence- Being Efficient & Effective Sumit K Jha Consulting
  2. 2. Contents Process excellence- A journey towards relentless performance improvement ........................................... 2 What is process excellence? ..................................................................................................................... 2 What process excellence is not? ............................................................................................................... 2 How should process excellence be pursued? ........................................................................................... 2 Coverage of process excellence is holistic ................................................................................................ 2 Tools/frameworks used for process excellence........................................................................................ 6 Lean ....................................................................................................................................................... 7 Six Sigma ............................................................................................................................................... 7 Bibliography .............................................................................................................................................. 9
  3. 3. Process excellence- A journey towards relentless performance improvement Companies, which have survived the ups and downs of the business environment 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. 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. Process excellence is in fact like the set of automobile headlights that shows where you are headed. 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 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.
  4. 4. 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 manufacture 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.
  5. 5. 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 speeded 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
  6. 6. 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. Examples & explanation Improper reference checks can lead to wrong hiring and lead to losses due to incompetence or fraud. This becomes even more important for higher level hiring. Firing employees can lead to suits if not handled properly. Each of the HR activities needs to adhere to process stipulated by the company and the law.
  7. 7. 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
  8. 8. are focusing on two of the most widely used and comprehensive tools here, 1) Lean and 2) Six Sigma Lean The core idea of Lean is to maximize customer value while minimizing waste. Simply, lean means creating more value for customers with fewer resources. Lean is the set of management practices based on the Toyota Production System (TPS). The phrase ‘Lean Production’ was coined by a group of MIT researchers who wrote the book ‘The Machine That Changed the World’. A popular misconception is that lean is suited only for manufacturing. Not true. Lean applies in every business and every process. It is not a tactic or a cost reduction program, but a way of thinking and acting for an entire organization. Dell had achieved a negative working capital, much higher operating margin, inventory turnover and return on investment due to Lean adoption. Some of the global companies pursuing Lean are Lockheed Martin, Canada Post, Proctor & Gamble, IBM, Officemax and Boeing. Some of the Indian companies pursuing Lean are Dr. Reddy’S, Piramal Healthcare, Sundaram-Clayton, Hero Group, HDFC Bank and Hindalco Six Sigma Six Sigma is a set of tools and strategies for process improvement originally developed by Motorola in 1985. Six Sigma became well known after Jack Welch made it a central focus of his business strategy at General Electric in 1995, and today it is used in different industries. Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in business processes. It uses a set of quality management methods, including statistical methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified value targets, for example; process cycle time reduction, customer satisfaction, reduction in pollution, cost reduction and/or profit increase. The term Six Sigma originated from terminology associated with manufacturing, specifically terms associated with statistical modeling of manufacturing processes. The maturity of a manufacturing process can be described by a sigma rating indicating its yield or the percentage of defect-free products it creates. A six sigma process is one in which 99.99966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million), although, as discussed below, this defect level corresponds to only a 4.5 sigma level. Motorola
  9. 9. set a goal of "six sigma" for all of its manufacturing operations, and this goal became a byword for the management and engineering practices used to achieve it. Some of the global companies pursuing Six Sigma initiatives are Motorola, Texas instruments, Allied Signals, General Electric, Johnson and Johnson, IBM, Sony, Citigroup, ABB and Xerox. Some of the Indian firms pursuing Six Sigma initiatives are Tata Steel, Reliance, Wipro, Infosys, Whirlpool, SRF, LG India, L&T and Samsung India.
  10. 10. Bibliography 1) Business Excellence Organization, Lean Manufacturing 2) Information Management, 10 Ways Process Excellence Impacts Corporate Performance Management 3) Wikipedia 4) PwC- Lean implementation- Indian pharmaceutical industry report 5) Deloitte- Globalizing Indian Manufacturing report

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