Agenda

1. The Process Enterprise:How Process Transformation Changes the BusinessTom ColemanChief Information and Process OfficerProcess Owner, Strategic PlanningSloan Valve CompanyABPMP Chicago Chapter MeetingOctober 14, 2009Sears Holding CorporationHoffman Estates

2. Agenda • Sloan Overview • Strategic Focus • The Strategic Challenge • The Path to Change • The Results • The Impact • Q&A

3. SloanOverview

4. Sloan Company Overview • 103 year old company • Privately held, mid-sized • Mfr. of specialized plumbing products • Systems: • Business Suite • Business Process Analysis

5. Major Sloan Locations • Illinois (HQ, Design Center, Mfg, DC) • China (Design Center, Mfg) • Arkansas (Foundry) • Massachusetts (Design Center, Mfg) • Michigan (Design Center, Mfg) • Mexico ( Mfg, DC) • California (DC) • Pennsylvania (DC)

6. Sloan Products

7. Strategic Focus

8. What Are We Trying To Do? Cash A/R Inventory Equipment Property Goodwill What? How? Liquidity Tangible Assets Strategy and Process Readiness Human Capital Information Capital Organization Capital Intangible Assets Adapted from: Kaplan and Norton 2004

9. Sample Strategic Planning Process Discovery Core Ideology SWOT Value Plan Strategic Goals Employee Performance Management • Core Values • Mission • Vision • BHAG • SWOT • Value Discipline • Value Prop (VP) • - Financial Val Prop • - Customer Val Prop • Financial • Customer • Process • Resource • Functions • Teams • Individuals What is our vision of today & the future? What can we discover about the market, competitors, and ourselves? To achieve our vision how should we appear to our customers & stakeholders? How shall we achieve our financial and customer goals? What must functions, teams, and individuals do? What resources do we need and how is our Readiness?

10. Sample Strategic Planning Process Discovery Core Ideology SWOT Value Plan Strategic Goals Employee Performance Management • Core Values • Mission • Vision • BHAG • SWOT • Value Discipline • Value Prop (VP) • - Financial Val Prop • - Customer Val Prop • Financial • Customer • Process • Resource • Functions • Teams • Individuals What is our vision of today & the future? What can we discover about the market, competitors, and ourselves? To achieve our vision how should we appear to our customers & stakeholders? How shall we achieve our financial and customer goals? What must functions, teams, and individuals do? What resources do we need and how is our Readiness?

11. Run the same races faster Choose to run a different race Achieving Superior PerformanceOperational Effectiveness is Not Strategy Operational Effectiveness Value Discipline (Strategic Position) • Assimilating, attaining, and extending best practices • Creating a unique and sustainable competitive position

12. Strategy is not only about ways to get better…more importantly, strategy formulation is about finding ways to get…different Source: Michael Porter

13. “Undifferentiated products and services allow the customer to capture most of the value.” Michael PorterAuthor and ProfessorHarvard Business School

14. Value Discipline Low Cost Achieve the low cost position on products and services Solve the customer’s broader problem through differentiation Approach one: Broad market Approach two: Market segmentation Differentiation Adapted from: Michael Porter (1980)

15. Value Discipline Best Total Cost Achieve the low cost position on product and service support Solve the customer’s broader problem and share in the benefit Build a better product for which customers will pay a premium Best Product Innovation Best Total Solution Adapted from: Michael Treacy and Fred Wiersema 1995

16. Value Discipline Best Total Cost Achieve the low cost position on product and service support Solve the customer’s broader problem and share in the benefit Build a better product for which customers will pay a premium Best Product Innovation Best Total Solution Lock-in Adapted from: Norton and Kaplan 2003/2004

17. Delta Model (Value Discipline) System Lock-in Positioning Strategy Proprietary Standard (Microsoft, Intel) Dominant Exchange (eBay) Horizontal Breadth (Fidelity) Low Cost (Southwest Airlines) Total Customer Solutions Best Product Redefining the Customer Relationship (Saturn) Differentiation (Sony) Adapted from: Arnoldo Hax, MIT Sloan School of Management

18. Strategy Vs Customer Value Attributes Michael Treacy and Fred Wiersema

19. Aligning Strategy to Processes  = Meets general requirements Adapted from Kaplan and Norton 2001 / Treacy & Wiersema 1995

20. Sample Strategic Planning Process Discovery Core Ideology SWOT Value Plan Strategic Goals Employee Performance Management • Core Values • Mission • Vision • BHAG • SWOT • Value Discipline • Value Prop (VP) • - Financial Val Prop • - Customer Val Prop • Financial • Customer • Process • Resource • Functions • Teams • Individuals What is our vision of today & the future? What can we discover about the market, competitors, and ourselves? To achieve our vision how should we appear to our customers & stakeholders? How shall we achieve our financial and customer goals? What must functions, teams, and individuals do? What resources do we need and how is our Readiness?

21. Mfg Mktg Goals Strategy Objectives Finance Sales Other Service Engineering HR Wheels of Competitive Strategy 1980 2007 1980 Source: Michael E. Porter (Competitive Strategy) 2007 Source: T. Coleman

22. Customer Information Capital & Technology Financial Resources Human Resources Vision & Strategy Products & Services Supply Chain Strategic Focus Areas Six focus areas (AKA “strategic themes”) Note: Alfred Chandler: Structure follows strategy

23. Mfg Mktg Demand Generation Process Goals Strategy Objectives Finance Sloan Strategy and Goals Sales Customer Support Process Order To Cash Process Other Service New Product Development Process Engineering HR Wheels of Competitive Strategy 1980 2007 Functions Functions Functions Functions 1980 Source: Michael E. Porter (Competitive Strategy) 2007 Source: T. Coleman

24. Strategic Planning Old Functions Vs Processes Product Development & Lifecycle Mgt Marketing Sales Tech Support Mat Mgt Mfg QA Research Des Eng Information Technology (IT) Demand Generation Finance Human Resources (HR) Order Acquisition Order-to-Cash Source-to-Pay Cust Support

25. Strategic Planning New Functions Vs Processes Product Development & Lifecycle Mgt (Domain Divided) Supply Chain Product Dev & Lifecycle Mgt Customer Relationships Information Technology & Process Mgt (IT & BPM) Demand Generation Financial Capital Mgt Human Resource Mgt (HR) Order Acquisition Order-to-Cash Source-to-Pay Cust Support Note: Alfred Chandler: Structure follows strategy

26. Strategic Planning New Functions Vs Processes EPO EPO’s EPO’s EPO’s EPO’s EPO’s Product Development & Lifecycle Mgt (Domain Divided) Supply Chain Product Dev & Lifecycle Mgt Customer Relationships Information Technology & Process Mgt (IT & BPM) Demand Generation Financial Capital Mgt Human Resource Mgt (HR) Order Acquisition Order-to-Cash Source-to-Pay Cust Support

27. Mission and Vision The financial value proposition goals go here The customer value proposition goals go here The process goals go here The IT, HR, and the corporate enabling goals go here

28. Mission and Vision

29. Core Processes Belong Here (Not mere tasks/projects) Process

30. ROI Customer Satisfaction KPI: OTC/STP CoQ PCM: OTC Cycle Time BPR OTC/STP Teams SAP SCM installed Hire SCM VP EXAMPLE Note: The Sloan slide is proprietary and has been substituted by this generic BSC Note: A real BSC is completely linked to the strategy map (strategic theme)

31. Sample Strategic Planning Process Discovery Core Ideology SWOT Value Plan Strategic Goals Employee Performance Management • Core Values • Mission • Vision • BHAG • SWOT • Value Discipline • Value Prop (VP) • - Financial Val Prop • - Customer Val Prop • Financial • Customer • Process • Resource • Functions • Teams • Individuals What must functions, teams, and individuals do? What is our vision of today & the future? What can we discover about the market, competitors, and ourselves? To achieve our vision how should we appear to our customers & stakeholders? How shall we achieve our financial and customer goals? What resources do we need and how is our Readiness?

32. The Challenge

33. Strategic Order-to-Cash Goals • Develop avg. delivery from X days to X days • Improve inventory turnover from X turns to X • Achieve X% perfect order performance • Improve quality from Xsigma to X sigma for OTC • Improve DSO from X days to X days • Develop a program to better transition of NPDI to OTC • Develop a rigorous education and training program for OTC process performers • Look for ways to change our operational practices to become more eco-friendly (lighting, packaging, and cradle-to-cradle program, etc.)

34. Tactical Order-to-Cash Problems List Terms today do not facilitate the timely receipt of cash. Credit policy consumes significant available OAP/OTC lead-time (e.g., 1 day) - OAP. Possible lack of correlation between orders on credit hold and invoice collections which affects total customer lead-time. Mexico has different terms and they are informal with respect for handling (China?). There is a disconnect between commission payouts and cash receipts Scrap process informal without ownership (reporting issue) Union contract a problem for perceived to-be vision for OTC (e.g., Midwest DC @ FKP) Orders that have shipped and even delivered are not deemed to be closed today and may be modified Mixing of standard product and special orders (special finish) -- lead-time issue Customers return products without an RMA number Existence of obsolete or seldom used parts Wrong people making decisions affecting orders Invoicing problems associated with pricing, quality, quantity, expedited shipments. Inventory is not accurate. Weak handling of the returns sub-process of OTC. Reject Matl for Rework (RMR) is not followed Inaccurate bill of materials (BOM) Discipline is not uniformly applied (e.g., union contract, other) Customer shipping errors unacceptable No perfect order performance tracking and metric. Lack of comprehensive under-standing about profits/benefits versus what it cost in OTC to do it (e.g., old, low-volume product, etc.). No global common metrics for OTC No global common reporting tool for OTC metrics Lack of variance analysis We have very limited automation for information processing (e.g., bar-codes) China is not on SAP (e.g., China) resulting in lack of information and synchronization. Due to WIP processing methods, scrap material cannot be processed in real-time A need for automated SAP processing for foundry scrap. Manually updating prices in Augusta every Monday morning (time consuming) No visibility of overseas items coming in or promise dates Manifests are manually intensive Manifests are sending only 9 tracking numbers back to SAP No integration between tracking numbers and handling units (weights, etc.) Delivery processing is not real-time (post-goods issue: PGI) Customers are requiring detailing packing for advanced notification Innovation Communications problems within sites (e.g., quality problems, production schedules). Communications problems with other Sloan sites (e.g., quality problems, production schedules). Inventories build at times when large volume deliveries occur from China versus JiT. Substandard collaboration between Operations, Quality, and Customer Service Engineering changes -- lack of communication lines with all parties affected (including customers) Lack of communications with Credit on order handling plans Lack of understanding of who is responsible and accountable for information and resolution Each location's prod schedule is not synchronized for published lead-times (especially slow moving/non-stock and old parts) When demand exceeds supply, we keep promising the customer the same lead-time Lead-times are too long Accuracy of promise dates Lead-times are misrepresented to customers We don’t ask customers what delivery dates they would like to have Lack of a quick change set up program to support OTC objectives Lack of product knowledge on the floor Lack of work instructions and training TQM principals are not being used in the process Need for continuing education and training to support continuous improvement. No corporate sales and operations planning for new and existing products. Lack of rough-cut capacity planning (resource requirements planning) No forecasting -- must anticipate long-lead items Not doing real forecasting to include integration with promos and supply chain No total productive maintenance system (TPM) Lack of statistical process controls (SPC) knowledge and controls. New product lead-times are such that orders go past due and are sold before OTC can fulfill. Lack of coordination of new products into OAP and OTC We take orders with standard lead-times for new products not available We don’t know the customers requested delivery date; we may not deliver products timely to their need. Frequent problems having clean orders in OTC. OTC doesn’t always know what the customer wants; it appears that the customer does not know what they want. PTP is not controlling purchase at the raw materials and S&OP level causing surplus inventory. No vendor mgt program (e.g., receive product from vendors with wrong counts but not caught until too late) Vendors deliver materials late, creates shortages Raw material availability is a problem for certain commodities (AMI/substitutes) Purchase material shortages We cannot take a clean order and deliver it in four days ATO and 2 days MTS on average (or whatever the customer and competitive situations dictates). All product are promised to customers with the same lead-time. Collections/DSO/AR is not collecting ASAP (e.g., disputes, terms vs. actual). Sloan does not have one face to the customer. Lack of order coordination driven into assembly/fulfillment. Lack of capacity planning (CRP) Kanban/QR levels not dynamically set based on S&OP plans and OTC constraints Kanban/QR use needs to be re-reviewed to meet strategic plan Expedited customer orders adversely affect other previously promised orders. Multiple shipping locations -- customer gets multiple shipments Customer returns material and we lose it Too many materials shortages Finished good inventory strategies lacking that prevent complete shipments Inaccurate promise dates cause us to spend a lot of money on expedited shipments; no way of calculating accurate promise delivery dates The returns goods process at all locations is inadequate Lack of supply management MTS items intended for DC are sent to regular customers instead Too much rework No way to verify customer claims about order inaccuracies We take orders with standard lead-times for products under revision (ECM) not available Length of time for documentation to get through the system (MDM, cost of products, BOM's) Process Change Mgt in shop not engaged Lack of product lifecycle mgt (discontinuations, end-of-life, product rationalization). Tool Mgt System (is not used as part of a solution)

35. Order-to-Cash KPI Benchmarks * Aberdeen

36. Order-to-Cash PCM Benchmarks * Tolerances used to calculate accuracy vary widely and do not comply with APICS recommended best practices or best practice cycle count policies * Aberdeen

37. The Path

38. Gartner defines BPM as a managementdiscipline that treats processes as assets that directly contribute to enterprise performance bydriving operational excellence and business agility. What’s wrong with this?

39. BPM is a managementdiscipline that treats processes as assets that directly drive enterprise performance through operational excellence, business agility, and strategic differentiation.

40. Process Enterprise “An enterprise in which all work is thought of, designed, performed, and managed as process work by everyone” Sloan 2002

41. Process Definition “An organized group of related tasks that work together to create value for customers.” A “Process” is end-to-end Source: Michael Hammer

42. Process Direction at Sloan • Easy To Do Business With (ETDBW) • Focus on customers and outcomes • Define goals in customer terms • Use metrics for improving, not just accounting • Form a collaborative, team-based organization • Embrace a vision beyond enterprise boundaries • See work and design work in end-to-end terms(governance, core, and enabling processes) • Continuously learn • Think outside the box • Focus beyond improvement to design Source concepts adapted from The Agenda (Dr. Michael Hammer)

43. Sloan Enterprise Process Model SPP Strategic Planning Process Strategic Process Governance Processes Core Processes Enabling Processes EPM Employee Performance Mgt Process BPP Business Planning Process AOP Annual Oper Plan Process QAP Quality Assurance Process S&OP Sales & Oper Planning Process DGP Demand Generation Process OAP Order Acquisition Process OTC Order-to-Cash Process CSP Customer Support Process NPD New Product Development Process MDM Master Data Mgt Process ECM Engineering Change Mgt Process PCM Shop Process Change Mgt Process STP Source-to-Pay Process BPM Business Process Mgt Process

44. Sloan Enterprise Process Model SPP Strategic Planning Process Strategic Process Governance Processes Core Processes Enabling Processes EPM Employee Performance Mgt Process BPP Business Planning Process AOP Annual Oper Plan Process QAP Quality Assurance Process S&OP Sales & Oper Planning Process DGP Demand Generation Process OAP Order Acquisition Process OTC Order-to-Cash Process CSP Customer Support Process NPD New Product Development Process MDM Master Data Mgt Process ECM Engineering Change Mgt Process PCM Shop Process Change Mgt Process STP Source-to-Pay Process BPM Business Process Mgt Process

45. Sloan Enterprise Process Model SPP Strategic Planning Process Strategic Process Governance Processes Core Processes Enabling Processes EPM Employee Performance Mgt Process BPP Business Planning Process AOP Annual Oper Plan Process QAP Quality Assurance Process S&OP Sales & Oper Planning Process DGP Demand Generation Process OAP Order Acquisition Process OTC Order-to-Cash Process CSP Customer Support Process NPD New Product Development Process MDM Master Data Mgt Process ECM Engineering Change Mgt Process PCM Shop Process Change Mgt Process STP Source-to-Pay Process BPM Business Process Mgt Process

46. Sloan Enterprise Process Model SPP Strategic Planning Process 2005 Strategic Process Governance Processes Core Processes Enabling Processes (many more) EPM Employee Performance Mgt Process 2007 BPP Business Planning Process AOP Annual Oper Plan Process QAP Quality Assurance Process 2008 S&OP Sales & Oper Planning Process WIP DGP Demand Generation Process OAP Order Acquisition Process 2009 OTC Order-to-Cash Process 2009 CSP Customer Support Process 2008 NPD New Product Development Process 2006 2007 MDM Master Data Mgt Process 2004 ECM Engineering Change Mgt Process 2004 PCM Shop Process Change Mgt Process WIP STP Source-to-Pay Process WIP BPM Business Process Mgt Processes 2003

47. Pillars of Strategic Focus – Core Focus Customer Main Processes Demand Generation Order Acquisition Customer Support Main System CRM, SD Functional Dept Business Development KPI’s Revenue Market Share DGP/OAP/CSP Cycle Time Customer Response Index CSP Call Abandon Rate Sales Forecast Accuracy DSO (with CFO) Focus Supply Chain Main Process Order-to-Cash Source-to-Pay Main System SCM, MM, PP Functional Dept Supply Chain Operations KPI’s Perfect Order Perf. Cost of Quality Sigma Performance Inventory Turnover Cost of Goods Sold OTC/STP cycle times DPO (w/CFO) Focus Products Main Processes New Product Dev Engineering Change Mgt Master Data Mgt Main System PLM, BOM, CAD Functional Dept Research & Development KPI’s Time-to-Market Project Delivery Perf Project Budget Perf New Product Gap (w/BD) Innovation Rate (w/BD

48. Pillars of Strategic Focus – Enabling Focus Business Technology Main Processes BPM, BPR, CI IT Dev/Ops Main System BPM, NetWeaver Functional Dept Business Technology (IT) KPI’s Project On-time Perf Project Budget Perf IT budget as % Sales Customer Response Index SLA Compliance Process KPI Achievement Focus Human Capital Main Process Performance Mgt Change Mgt Main System HCM Functional Dept HR KPI’s Revenue Per Employee Job Satisfaction Index Training $ Vs Budget Employee Turnover Recruitment Cycle Time Recruitment Costs EPM Compliance Focus Financial Capital Main Processes Business Planning Risk Mgt Main System SEM, FI, CO Functional Dept Finance KPI’s DSO (w/BD) DPO (w/SCO) Cash Mgt Vs Revenue What else?

49. Sloan Process Governance Organization Executive Committee (Process Council) Strategic Planning Process Customer Processes Supply Chain Processes Product Dev Processes HCM Processes ICM Process FCM Processes Chief Process Officer (CPO) Executive Process Owner (EPO) Process Lifecycle Mgt Process Business Process Redesign Process Sustaining Improvement Process Process Transformation Facilitator Process Owner (PO) Demand Generation Process Order-to-Cash Process New Product Dev Process Employee Perf Mgt Process Systems Dev Process Budgeting Process Etc. Process Lifecycle Mgt Process Business Process Redesign Process (BPR) Sustaining Improvement Process (SI) Process Team A Process Team B Process Team C Order-to-Cash Process Demand Generation Process Global Quality Assurance Process

50. Sloan Process Governance Organization Executive Committee (Process Council) Strategic Planning Process Customer Processes Supply Chain Processes Product Dev Processes HCM Processes ICM Process FCM Processes Chief Process Officer (CPO) Executive Process Owner (EPO) Process Lifecycle Mgt Process Business Process Redesign Process Sustaining Improvement Process Process Transformation Facilitator Process Owner (PO) Demand Generation Process Order-to-Cash Process New Product Dev Process Employee Perf Mgt Process Systems Dev Process Budgeting Process Etc. Process Lifecycle Mgt Process Business Process Redesign Process (BPR) Sustaining Improvement Process (SI) Process Team A Process Team B Process Team C Order-to-Cash Process Demand Generation Process Global Quality Assurance Process