Eliminate nonvalue added activities Augment valued activities

1. Process and Activity Management Case Study Eliminate All Activities That Do Not Contribute To Serving The Customer At A Profit Over Time • Eliminate nonvalue added activities • Augment valued activities • Adjust over-performing activities • Allocate resources to critical areas • Elimination of nonvalue activities is required, but all companies should be adjusting those activities valued by the customer to the minimum levels required by the customer. • It is not the intent of this case study to review the theory of process simplification and management. The next slides will focus on • Presenting a high-level road map that companies can use to begin to think about the process of activity based management. • One all to common error made when attempting process simplification.

2. Focus Define Analyze Improve A ROAD MAP TO CHANGE • The focus of process management is on the management of the company’s business processes for long-term continuous improvement. Its logic in anchored in only doing the “right” things and doing those things effectively and efficiently. That is, serving the customer over time at a profit. To do this effectively the company must adopt a longer-term view of management and adopt a methodology for creating and maintaining the organization’s effort so as to deliver change on a continuing basis. Our suggested methodology is systematic and has four phases. • Focus - There is a familiar story about a blind man feeling around the side of an elephant attempting to determine what it is. Thinking about process management in a company is a similar experience. The first step in the methodology is to start to “chunk down” the business processes within the company (assuming you have them defined), identifying those areas where you believe there is opportunity for improvement. Identifying these areas is a big step, for from there you can begin to identify business issues related to the opportunities and to identify who should be responsible for the further investigation. • Define - This second phase in the methodology suggests that the group you have assigned responsibility for further investigation bounds the opportunity for improvement. This means the group more fully describes the designated business process and how it fits across the organization, identifying what the inputs and outputs are, what a standard of performance might be, and what measures would be best to determine if the performance standards are being achieved. • Analyze - This phase is where the suggestions for change arise and are implemented. • Improve - This phase is the continuous improvement phase. The enhanced process is monitored and further opportunities for improvement are identified.

3. Focus Define Analyze Improve • Identify business concerns and opportunities • Obtain input and determine issues • Prioritize issues • Determine processes that effect the issue • Determine responsibility for processes • Deploy to appropriate area of responsibility • For a managed process, describe the process • Establish boundaries of responsibility • Identify standards that address requirements • Develop measures with respect to standards • Streamline/standardize the process • Design data-gathering procedures • Collect data • For each measure, is the process consistent • If inconsistent, address special causes • If consistent, evaluate process acceptability • If acceptable, monitor for opportunities • If unacceptable, monitor for opportunities • Maintain continuous feedback A ROAD MAP TO CHANGE The key elements of each of the high-level road map steps in the process management methodology are illustrated above. (This methodology assumes you have your business processes mapped.) Changing the way a company does business through impacting business processes is not a two week exercise. This truly represents a change in the way business is viewed and conducted on a day-in and day-out basis. As seen in the diagram, the underlying logic in this way of doing business is as simple as the four steps described and as complex as all the communications and cultural change that underlies the effort. When considering all of the dimensions of change for the company, this undertaking will likely seem daunting. As daunting as it may seem, there is likely not an alternative.

4. TECHNOLOGY IS NOT THE SILVER BULLET • Information Technology Does Not Drive Sustainable Competitive Advantage • When asked how companies can best create sustainable competitive advantage in today’s environment, one immediate response is information technology. • First, competitive advantage is not sustainable. This is relatively easy to see. Just recall AT&T and its Godzilla-like size and brand strength; People Express and its low air fares; Spiegel and its ubiquitous catalog. None of these organizations had true sustainable competitive advantage. Today, markets continue to redefine themselves and what was good yesterday, does not “carry the mail” today. • Second, information technology makes a difference. It has obliterated former sources of advantage by making customers and suppliers more powerful and by increasing the speed and discontinuity of change. By having this impact, information technology is making process, organizational knowledge and leadership more critical. In fact, the critical and scarce organization resource is now people and the knowledge they carry about how things get done. • People And Business Process Drive Sustainable Economic Improvement • Information technology does not drive business process optimization. While by definition, there are business process and work flow inherent in the logic of software applications, these applications do not rationalize business processes surrounding the applications. • The processes surrounding the applications are those that need to be integrated and focused on serving customers profitably over time. • It is this integration and focus,which drives down the number of errors and the cost of doing business. It is this integration and focus, which ensures information to be used by management for making critical decisions is accurate and reliable. • Process can be rationalized and redirected, then supported by technology, but sustainable economic improvement comes from people serving customers over time at a profit.

5. TECHNOLOGY WAR STORIES Technology to Ensure Timely, Consistent and Accurate Information - A national industrial products distributor had grown by opening new branches and acquiring other distributors. The company installed the same POS system into the newly opened/acquired branches, but the accounting, purchasing and other primary business functions resided in three different legacy systems. The distributor decided it was time to streamline its business activities in order to eliminate non-essential activities and to improve the accuracy and speed with which transactions were processed. (This was driven by demands from vendors and customers for more timely and accurate information, and by the need to reduce costs.) The IT manager suggested that it was also time to look at new ERP software to replace the different legacy systems. The IT manager suggested that the software installation process be the driver for the changes in business processes across the company. IT consultants were engaged, software was selected and the installation process was initiated. After nine months the system was ready to go live. The switch was flipped, and it was 45 days before the next invoice was generated by the system. The problem was two fold – (1) business processes surrounding the sales and invoicing process/activities were not changed to reflect all of the changes demanded by the new software, and (2) people were not adequately trained in the linkage of business processes and the new system requirements. Technology to Solve Operational Efficiencies - A consumer products company was growing rapidly due to tremendous product acceptance and its sales force’s success with a number of large customers. The growth was straining the operations in the distribution center as new customers brought new demands and volumes increased. To remedy the problem, the company purchased a new warehouse software application. One-hundred and twenty days after installation, headcount was up, overtime was up and shipments were late. The problem – the bottlenecks and operational strains were not being caused by the old system, but were being driven by the business processes employed by the people in the DC. The old system was just a very visible target to assign blame.

6. TECHONOLOGY IS AN ENABLER Process People Technology Information technology will not catapult the company ahead of others in any reliable way. However, the company can find sustainable advantage in process and people. The definition of business processes and the simplification, augmentation and elimination of the activities that make up the business processes will increase transaction speed and lower costs. The building of capabilities within people will enable them to execute the business processes in a way that drives increases in accuracy, speed and customer satisfaction. The integration of technology into the platform of well defined and managed business processes and capable people will bring faster and cheaper information for the people to assimilate into the performance of their business processes. All three: people, processes and technology should help to ensure that customers are served over time at a profit.