Value Creation Through Operations: Tools and Strategies

1. Fagan Draft 2011 MLD-601 Tool Kit Fall 2011

2. Fagan Draft 2011 Took Kit The Tools (as of 10/21/11) • “Who & What” Value Estimator • Value Estimator • Zone of Tolerance • Quality Categories • Deming’s 14 Quality Principles • Quality Readiness Test • Moments of Truth Success factors • 4Ps • 5 Whys • Mapping Value-added • Mapping Basics • Mapping Cards • Mapping with Facts • Business Process Reengineering • Performance Indicators • Public Sector Reengineering • Challenges • Workflow Options Matrix • Capacity Management Strategies • Waiting Truths • Classification of Peaks • Peak Management Strategies • Peak Demand Prioritization • Capacity Analysis and Utilization • Bottleneck Analysis • Inventory Processing Strategies • Public Sector Supply Chain • The Virtuous Cycle of Logistics • Supply Chain Performance Indicators • Disaster to Chaos Red Flags • 2011 MLD-601 Up/Down/Up • Measurement system • Fagan’s 8 Rights of Measurement • The 7 Deadly Sins

3. Fagan Draft 2011 MLD-601 Tool Kit Topic: Value Creation Through Operations (Class #1) Tool:“Who & What” Value Framework Description: Identifying who received value from public services and the nature of the benefits. Example: TSA References: Creating Public Value: Strategic Management in Government, Moore, Mark, (Cambridge: Harvard University Press 1995), Chapter 2

4. Fagan Draft 2011 MLD-601 Tool Kit Topic: Value Creation Through Operations (Class #1) Tool:Value Estimator Description: Estimating the value created through the delivery of cost-effective, quality public services. Example: References: The Accenture Public Sector Value Model, http://www.issa.int/pdf/cracow04/2Annex-Younger.pdf Value of Improved Public Services: An Application of the Choice Experiment Method to Estimate the Value of Improved Wastewater Treatment Infrastructure in India, Birol and Das, 2010, http://www.mse.ac.in/pub/working%20paper%2051.pdf • Value of Air Passenger Safety – Annual Costs Avoided • Cost Categories • Loss of life • Loss of property • Loss of economic activity • Direct • Indirect • Emotional costs • Estimation Options • Bottoms-up calculation • Component based estimation • Willingness to pay modeling • Benchmarking • Bounding

5. Outcome Process Expectations > adequate performance = adequate performance < adequate performance Source: Drawn from Johnson, 1995, pp. 46-61 Fagan Draft 2011 MLD-601 Tool Kit Topic: Quality Service Delivery (Class #2) Tool:Zone of Tolerance Description: Understanding the relationship between desired service and adequate service based on exceptions, process and outcomes. Example: References: Service Operations Management, Christine Hope and Alan Muhlemann

6. Fagan Draft 2011 MLD-601 Tool Kit Topic: Quality Service Delivery (Class #2) Tool:Quality Categories Description: Looking at quality through different lens to focus the organization on the most important aspect for its stakeholders. Example: References: Service Operations Management, Christine Hope and Alan Muhlemann Category Concept Transcendent Innate excellence Manufacturing-based Conform to specs User-based Fit for purpose Product-based More is better Value-based Cost - benefit

7. Fagan Draft 2011 MLD-601 Tool Kit Topic: Quality Service Delivery (Class #2) Tool:Deming’s 14 Quality Principles Description: Providing a set of principles that underlie Total Quality Management. Example: References: Total Quality Management in Humans Service Organizations, Lawrence Martin 1. Create consistency of purpose toward improvement 2. Awaken to the challenges of the new economy 3. Cease dependency on inspection 4. Stop rewarding business on the basis of price 5. Consistency improve the system 6. Institute training on the job 7. Institute leadership 8. Drive out fear 9. Break down barriers between departments 10. Eliminate slogans and targets toward zero-defects and productivity 11. Eliminate quotes 12. Eliminate barriers to pride of workmanship 13. Institute a vigorous program of education and self improvement 14. Put everyone in the company on the job of accomplishing this transformation

8. Fagan Draft 2011 MLD-601 Tool Kit Topic: Quality Service Delivery (Class #2) Tool:Quality Readiness Test Description: Determining if your organization is ready for total quality management. Example: References: Total Quality Management in Humans Service Organizations, Lawrence Martin 1. We continue to tinker even when things are going well 2. Our entire organization and stakeholders actively participate in improvements 3. We value cooperation rather than competition 4. We gather the facts on perceived problems before we make changes 5. Our training is on-going 6. We communicate up, down and sideways 7. Managers serve as consultants to the organization 8. Teamwork is more highly valued than individual contribution 9. Our suppliers are partners

9. Fagan Draft 2011 MLD-601 Tool Kit Topic: Moments of Truth and Understanding Failure (Class #3) Tool:Moment of Truth Success Factors Description: Focusing the organization of the critical factors that determine the customer's experience. Example: References: At America’s Service, Karl Albrecht 1. Do the basics flawlessly, always 2. Understand that quality drives profits/success 3. Know your customers/stakeholders 4. Incorporate moments of truth into your operations 5. Have a “what ever it takes” attitude 6. Recover skillfully when errors do occur 7. Internal service quality leads to external service quality 8. Management is an enabler 9. Employees are valued along with customers 10. Always looking to improve performance

10. Fagan Draft 2011 MLD-601 Tool Kit Topic: Moments of Truth and Understanding Failure (Class #3) Tool:4Ps Description: Exploring the root cause of failure using a structured assessment of people, policy, process and plant. Example: References: Total Quality Management in Humans Service Organizations, Lawrence Martin • Passionate leaders • Field presence • Connection with employees • Local empowerment and voice • Clear accountability • Safety is a core value • Rules compliance, period • Clear consistent • response to violations • No safety – pay linkage Policy People • Field driven rule design • In-house training • Confront bad actions • Psychology of actions • Keep it fresh • Eliminate “condition” uses • Automate risks (e.g. pin-puller) • Continual health monitoring • Preventive maintenance Process Plant

11. Fagan Draft 2011 MLD-601 Tool Kit Topic: Moments of Truth and Understanding Failure (Class #3) Tool:5 Whys Description: Exploring the cause of failure by asking why enough times to get to the true root issue. Example: References: Root Cause Analysis Using Five Whys, NHS, Institute for innovation and Improvement, http://www.institute.nhs.uk/quality_and_service_improvement_tools/quality_and_service_improvement_tools/identifying_problems_-_root_cause_analysis_using5_whys.html “The patient's diagnosis of skin cancer was considerably delayed. Why? The excision biopsy report was not seen by the surgeon. Why? The report was filed in the patient's notes without being seen by the surgeon. Why? It was the receptionist job to do the filing. Why? The junior doctors were busy with other tasks. Why? The root cause - that the doctors' other tasks were seen as more important than filing. The system has now  been changed. A copy of all biopsy reports is now sent to the consultant surgeon responsible for the patient and no reports are filed unless they have been signed by a doctor.”

12. Fagan Draft 2011 MLD-601 Tool Kit Topic: Moments of Truth and Understanding Failure (Class #3) Tool:Moment of Truth Success Factors Description: Focusing the organization of the critical factors that determine the customer's experience. Example: References: At America’s Service, Karl Albrecht 1. Do the basics flawlessly, always 2. Understand that quality drives profits/success 3. Know your customers/stakeholders 4. Incorporate moments of truth into your operations 5. Have a “what ever it takes” attitude 6. Recover skillfully when errors do occur 7. Internal service quality leads to external service quality 8. Management is an enabler 9. Employees are valued along with customers 10. Always looking to improve performance

13. Fagan Draft 2011 MLD-601 Tool Kit Topic: Moments of Truth and Understanding Failure (Class #3) Tool:4Ps Description: Exploring the root cause of failure using a structured assessment of people, policy, process and plant. Example: References: Total Quality Management in Humans Service Organizations, Lawrence Martin • Passionate leaders • Field presence • Connection with employees • Local empowerment and voice • Clear accountability • Safety is a core value • Rules compliance, period • Clear consistent • response to violations • No safety – pay linkage Policy People • Field driven rule design • In-house training • Confront bad actions • Psychology of actions • Keep it fresh • Eliminate “condition” uses • Automate risks (e.g. pin-puller) • Continual health monitoring • Preventive maintenance Process Plant

14. Fagan Draft 2011 MLD-601 Tool Kit Topic: Moments of Truth and Understanding Failure (Class #3) Tool:5 Whys Description: Exploring the cause of failure by asking why enough times to get to the true root issue. Example: References: Root Cause Analysis Using Five Whys, NHS, Institute for innovation and Improvement, http://www.institute.nhs.uk/quality_and_service_improvement_tools/quality_and_service_improvement_tools/identifying_problems_-_root_cause_analysis_using5_whys.html “The patient's diagnosis of skin cancer was considerably delayed. Why? The excision biopsy report was not seen by the surgeon. Why? The report was filed in the patient's notes without being seen by the surgeon. Why? It was the receptionist job to do the filing. Why? The junior doctors were busy with other tasks. Why? The root cause - that the doctors' other tasks were seen as more important than filing. The system has now  been changed. A copy of all biopsy reports is now sent to the consultant surgeon responsible for the patient and no reports are filed unless they have been signed by a doctor.”

15. Fagan Draft 2011 MLD-601 Tool Kit Topic: Process Mapping: The Starting Point for Quality (Class #4) Tool:Mapping Value-added Description: Facilitating quality service delivery through structured analysis. Example: References: Better Faster: Streamlining Recruitment in the APS, Australian Public Service Commission, Australian Government, 2007, http://www.apsc.gov.au/publications07/betterfaster.pdf 1. Explore why things are done as they are 2. Identify and represent breakdowns and inefficiencies in information flows or activities 3. Identify the bottleneck 4. Highlight unproductive utilization of resources 5. Reengineer processes for greater quality

16. Beginning and End Tasks Decisions Work Flows Fagan Draft 2011 MLD-601 Tool Kit Topic: Process Mapping: The Starting Point for Quality (Class #4) Tool:Mapping Basics Description: Guiding the comprehensive mapping of processes. Example: References: Total Quality Management in Humans Service Organizations, Lawrence Martin 1. Identify all steps 2. Order by time sequence 3. Label with simple descriptors 4. Lay out the process from top to bottom on left to right 5. Use standard symbols 6. Link all tasks 7. Decisions are binary – yes or no

17. Fagan Draft 2011 MLD-601 Tool Kit Topic: Process Mapping: The Starting Point for Quality (Class #4) Tool:Mapping Cards Description: Simplifying the creation of process maps and the evaluation reengineering opportunities. Example: References: Better Faster: Streamlining Recruitment in the APS – Card Set, Australian Public Service Commission, Australian Government, 2007, http://www.apsc.gov.au/publications07/betterfastercardset.pdf

18. Fagan Draft 2011 MLD-601 Tool Kit Topic: Process Impact on Quality (Class #5) Tool:Maps with Facts Description: Incorporating data into process maps to more comprehensively understand outcomes. Example: References: Client Project, City of Boston Moving Permit Process

19. Process Steps 1. Understand business vision 2. Map process and identify gaps 3. Redesign process and pilot effectiveness 4. Implement change 5. Monitor performance and refine Fagan Draft 2011 MLD-601 Tool Kit Topic: Quality via Process reengineering (Class #6) Tool:Business Process Reengineering Description: Analyzing and redesigning and implementing new process to enhance service quality delivery. Example: References: Business Process Reengineering in the Public Sector: The Case of the Housing Development Board in Singapore, Thong, Yap and Seah, 2000. Best Practices 1. Simple, clear vision 2. Full time, co-located team 3. Doers and new eyes 4. Steering committee oversight 5. Under way today is done 6. Streamline to the vision 7. Understand the human impacts 8. Align incentives 9. Measure, monitor, refine…

20. Singapore Housing Reengineering Performance Measures Customer Service - Waiting time - Unanswered calls Lease and Tenant Services - Processing time - Applications pending Financial Services - Processing time - Manual adjustments - Prepaid vouchers General and Administered - File retrieval time - Daily volume Fagan Draft 2011 MLD-601 Tool Kit Topic: Quality via Process reengineering (Class #6) Tool:Performance Indicators Description: Establishing clear measures of process performance. Example: References: Business Process Reengineering in the Public Sector: The Case of the Housing Development Board in Singapore, Thong, Yap and Seah, 2000.

21. Public Organization Challenges vis-à-vis the Private Sector Issue Implication Less market exposure Less incentive for redesign More procedural constraints Fewer degrees of freedom Broad array of stakeholders Harder to satisfy all Use of governmental power Monetary and sovereignty costs Less autonomy Longer sell cycle Cyclical leadership changes Resell of not implemented, inertia “Employment for life” Need creative incentives Fagan Draft 2011 MLD-601 Tool Kit Topic: Quality via Process Reengineering (Class #6) Tool:Public Sector Reengineering Challenges Description: Understanding he unique reengineering challenges faced by public sector. Example: References: Business Process Reengineering in the Public Sector: The Case of the Housing Development Board in Singapore, Thong, Yap and Seah, 2000.

22. Fagan Draft 2011 MLD-601 Tool Kit Topic: Organizing Work Flows (Class #8) Tool:Workflow Options Matrix Description: Providing alternative approaches for processing inventory. Example: References: Production and Operations Management, Martin Starr, 2004, p. 165 Workflow Options Option Variety Volume Customized Extensive Individual Job Shop Moderate Moderate Assembly Shop Limited High Continuous Flow Very limited Very high Flexible System Wide range Wide range

23. Fagan Draft 2011 MLD-601 Tool Kit Topic: Work Processing Strategies (Class #9) Tool:Capacity Management Strategies Description: Determining the “right” approach for setting capacity. Example: References: Service Operations Management, Hope and Muhlemann, 1997, p.265 Capacity Management Strategies Level Demand-based Focus Process efficiency Customer satisfaction Outcomes Cost effective Happy customers but but queues and angry customers flexibility at a cost Actions Schedule demand Change processes first Hold some excess capacity then technology then infrastructure

24. Fagan Draft 2011 MLD-601 Tool Kit Topic: Work Processing Strategies (Class #9) Tool:Waiting Truths Description: Waiting’s impacts on customer service. Example: References: The Psychology of Waiting Lines, HBS 9-684-064, rev. 1984 • Principles of Waiting • Unoccupied time feels longer than occupied time • Pre-process waits feel longer than in-process waits • Anxiety makes waits feel longer • Uncertain waits are longer than know, finite waits • Unexplained waits are longer than explained waits • Unfair waits are longer than equitable waits • The more valuable the service, the longer I will wait • Solo waiting seems longer than group waiting

25. Fagan Draft 2011 MLD-601 Tool Kit Topic: Capacity Utilization (Class #9) Tool:Capacity and Utilization Calculator Description: Calculating the capability of a system to generate outputs and the degree to which this capacity is utilized. Example: References: Victoria Station Teaching Notes, Fagan

26. 62% “No Worries” Fagan Draft 2011 MLD-601 Tool Kit Topic: Capacity Utilization (Class #9) Tool:Bottleneck Identifier Description: Determining the binding constraint in a process. Example: References: Victoria Station Teaching Notes, Fagan

27. Fagan Draft 2011 MLD-601 Tool Kit Topic: Capacity Utilization (Class #9) Tool:Long-term Capacity Management Factors Description: Determining the binding constraint in a process. Example: References: Service Operations Management, Hope and Muhlemann Factors Examples Markets growth, competitive environment Competitors markets, offerings Economy growth rates, interest rates Social Employment, green Political taxation, international relations Technical new technology

28. Fagan Draft 2011 MLD-601 Tool Kit Topic: Managing Demand Peaks (Class #10) Tool:Classification of Peaks Description: Waiting’s impacts on customer service. Example: References: Peak Management, Ronen, Coman, Schragenheim, Int. J. Prod., 2001, p. 3187 Classification of Peaks Peak Occurrence Expected Unexpected Firm’sPrepared Classical Rapid response Condition Unprepared Unexpected Opportunity or Christmas Crisis mgt.

29. Fagan Draft 2011 MLD-601 Tool Kit Topic: Managing Demand Peaks (Class #10) Tool:Peak Management Strategies Description: Providing a set of approaches to mitigate demand peaks. Example: References: CSX and the Fall Peak, Fagan, 2005

30. Fagan Draft 2011 MLD-601 Tool Kit Topic: Managing Demand Peaks (Class #10) Tool:Peak Demand Prioritization Description: Prioritizing demand during the peak to maximize long-term value. Example: References: CSX and the Fall Peak, Fagan, 2005

31. Fagan Draft 2011 MLD-601 Tool Kit Topic: Efficient Service Delivery (Class #12) Tool:Logistics Components Description: Effectively including the physical aspects of service delivery. Example: References: Humanitarian Aid Logistics: Supply Chain Management in High Gear, L.N. Van Wassenhove, The Journal of the Operational Research Society, Vol. 57, No. 5, May 2006, pp. 475-489 Requirements planning Procurement Transportation Warehousing Inventory Delivery Administration

32. Fagan Draft 2011 MLD-601 Tool Kit Topic: Efficient Service Delivery (Class #12) Tool:Disaster to Chaos Red Flags Description: Understanding the factors that can lead to chaos after a disaster. Example: References: Humanitarian Aid Logistics: Supply Chain Management in High Gear, L.N. Van Wassenhove, The Journal of the Operational Research Society, Vol. 57, No. 5, May 2006, pp. 475-489 Unusual event Media attention Disaster Chaos Excessive funds Lost infrastructure No processes

33. Fagan Draft 2011 MLD-601 Tool Kit Topic: Efficient Service Delivery (Class #13) Tool:Rapid Response Supply Chain Success Factors Description: Focusing on the right issues and relationships in responding to crises. Example: References: Humanitarian Aid Logistics: Supply Chain Management in High Gear, L.N. Van Wassenhove, The Journal of the Operational Research Society, Vol. 57, No. 5, May 2006, pp. 475-489 Rapid, Responsive Efficient, Flexible Agility Alliances Dynamic Adaptability Alignment Different interests Risk/resource sharing

34. - + Sales Accuracy of Demand New Forecasting Products R B + + - Profits Inventory Levels - MLD-601 Tool Kit Topic: Efficient Service Delivery (Class #13) Tool:Systems Thinking Feedback Loops Description: Providing a structured approach for examining complex operations and understanding the inter-relationship of processes. Example: References: Business Dynamics, Systems Thinking and Modeling for a Complex World, John Sterman, McGraw-Hill, 2000, pp. 3-39

35. Fagan Draft 2011 MLD-601 Tool Kit Topic: Performance Measurement (Class #14) Tool:2011 MLD-601’s Up/Down/Up Performance Measurement Design Description: Designing a measurement system that aligns process participant input with agency strategy Example: Today Tomorrow Process work measures Agency mission Individual work measures Subprocess work measures Agency strategy Subprocess work measures Individual work measures Agency measures of success Process work measures

36. Fagan Draft 2011 MLD-601 Tool Kit • Topic: Performance Measurement (Class #14) • Tool:Fagan’s 8 Rights of Measurement • Description: Checklist for designing a performance measurement system • Example: • Right Focus: Customer oriented; actionable on what matters • Right Level: Simple but drillable (think onion) • Right Linkage: Process orientation • Right People: Value in knowing; accountable for action • Right Collection: Automatic, fast, accurate, accessible, embedded in the process • Right Incentives: Align with core values and strategy; rewards short and long term • Right Culture: Continuous improvement philosophy • Right Measures: Control and improvement; end-to-end business focus, balanced, hard to game, facilitates decisions and actions

37. Fagan Draft 2011 MLD-601 Tool Kit • Topic: Performance Measurement (Class #14) • Tool:The 7 Deadly Sins • Description: Potholes to avoid when designing a performance measurement system • Example: • Vanity – make us look good • Provincial – org. boundaries • Narcissism - Internal not customer focus • Lazy – no homework • Pettiness – no big picture • Inanity – fail to consider human reaction • Frivolity – lack of seriousness • References: The 7 Deadly Sins of Performance Measurement and How to Avoid Them, Michael Hammer, MIT Sloan Management Review, 2007, Vol. 48 NO 3, pp. 19-28