If you can’t define what you do as a process, you don’t know what your job is.
W.Edwards Deming Process innovation combines a structure for doing work with an orientation to visible and dramatic results.
Thomas H.Davenport
INTRODUCTION
As explained in Chapter 2, practicing a market orientation is fundamental to creating sustainable customer value. Exceeding customer expectations; knowing the competition’s strengths, weaknesses, and strategies; and encouraging cross-functional sharing and decision-making lead to superior business performance. This chapter focuses on designing business operations and processes that create value. That is, process design needs to follow a simple litmus test: does the process create superior customer value?
Moreover, value drives process design as shown in Figure 3.1. Note that the goal of the organization is to maintain a fit between value and processes. Successful organizations recognize that value and process are seamless in the eyes of their customers. Consider the experience of successful companies that have recognized the link between process and value.
Before retiring, GE CEO Jack Welch ordered a move to e-processes, applying business- to-business technology everywhere. For example, at GE Information Services, employees use a system called Trading Partner Network Register to order office supplies from prequalified vendors over the Internet. By GE estimates, making purchases offline can cost $50 to $200 per transaction; online costs amount to only about $1 per transaction.
Figure 3.1 Link between Process and Value
IBM conducted a wholesale review of its processes a few years ago. Because its large corporate customers were increasingly operating on a global basis, IBM knew it would need to standardize its operations worldwide. It would be necessary to institute a set of common processes for order fulfillment, product development, and so forth to take the place of the diverse processes then used in different parts of the world and in different product groups. IBM even changed its management structure, assigning each major process to a member of its most senior executive body. Furthermore, each process was assigned an owner, referred to as a business process executive, who was given responsibility for designing and deploying the process. Each of IBM’s business units is now expected to follow processes designed by its business process executive. Shifting organizational power away from units and toward processes has helped IBM standardize its processes around the world. The benefits have been startling: a 75% reduction in the average time to market for new products; a sharp upswing in on-time deliveries and customer satisfaction; and cost savings in excess of $9 billion.1
Giant retail broker firms like Merrill Lynch and PaineWebber have for years excelled at four business processes crucial to overall business success: client management;
information delivery; portfolio modeling; and operational statistics. However, with the Internet fast becoming the preferred channel among investors, online trading has emerged as a fifth critical process. PaineWebber and Merrill Lynch, with their fat brokerage fees ranging in the hundreds of dollars per transaction, reluctantly began shifting some of their business to the Internet.
Federal Express Corp. recently announced plans to launch an online service that will let the delivery company’s business customers review and pay invoices over the Internet.
FedEx, a unit of FDX Corp., said the electronic bill-presentment and bill-payment service, called Invoice Online, will allow customers to schedule payments as many as 15 days in advance. A second, and arguably more ambitious, process improvement effort, involves FDX trying to recast itself as a major provider of supply chain management systems that threaten the company’s very existence. FDX plans to design a network that
can supplant a company’s inefficient stream of faxes and phone calls with digital exchanges of information about demand, factory schedules, and the availability of materials. Such systems would select the most logical, most economical type of transport—air, land, or sea—for delivering packages on time. FDX would then also coordinate customs clearances around the world and minimize the amount of time any item sits in a warehouse along the way (see FedEx case)
Increasingly, evidence from these and other successful companies is that superior customer value results from a combination of the organization’s assets (brand image and trademarks) and skills (e.g., innovation, marketing capabilities), when applied advantageously to business processes. According to Mroz, “in the information economy of the twenty-first century, corporate survival will depend on the effectiveness of the corporation’s innate business processes…corporations will be defined not so much by their industry or products, but by the nature of their processes.”2 What prompted these organizations to change their processes? In short, they desired to serve their customers better and, in the process, deliver greater value to enhance their business performance.
In fact, organizations that view themselves as a collection of processes that must be understood, managed, and improved are most likely to achieve this end. Thus, the focus needs to shift from managing departments to managing processes. This chapter will examine key organizational processes and how they relate to the marketing cycle, assessing their effectiveness and achieving a process orientation, and the steps in process improvement and process improvement tools.
Key Organizational Processes
Before discussing key organizational processes, it is necessary to define “process.” A process is a specific group of activities and subordinate tasks that results in the performance of a service that is of value. Business
Table 3.1 Process View vs. Traditional Functional View
Process View Functional View
Emphasis on improving how work is done
Which products or services are delivered
Cross-functional coordination, teamwork stressed
Frequent “hand-offs” among functions that remain largely uncoordinated
Systems view, i.e., entire process is managed
Pieces of the process are managed
Customer orientation Internal/company orientation
process design involves the identification and sequencing of work activities, tasks, resources, decisions, and responsibilities across time and place, with a beginning and an end, along with clearly identified inputs and outputs. Processes must be able to be tracked as well, using cost, time, output quality, and satisfaction measurements. Businesses need to monitor, review, alter, and streamline processes continually in order to remain
competitive. A process view of the organization differs from the traditional functional view, as presented in Table 3.1.
The authors strongly advocate a “process view.” Succeeding in the new economy will require companies to weave their key business processes into hard-to-imitate strategic capabilities that distinguish them from their competitors. Corporate survival will depend on the effectiveness of internal processes and their integration with supply chain partners and customers. Competitors can match individual processes or activities but cannot match the integration or fit of these processes between network partners. Building a common process view represents a key component of business process orientation, or BPO, which serves as a building block as firms compete in virtually integrated networks of the new economy (see customer value insight 3.1).
CUSTOMER VALUE INSIGHT 3.1: WHAT Is BPO?3
As they enter the new millennium, organizations are undergoing a sea change fueled by ever demanding customers and employees; rapidly shrinking product life cycles and response times; and new global and virtual competitors. A new paradigm is emerging that focuses on the integration of business partners and the alignment of core business processes. Processes are now considered strategic assets. Corporations are extending outside their legal boundaries as a normal way of organizing. Partnering, functional outsourcing, business process outsourcing, alliances, and joint ventures are yesterday’s requirements for success. Competition
in the future will increasingly occur between networks, rather than standalone businesses.
Management needs to promote the right conditions not only within the company, but within the organizations that are part of its value-adding and creating network.
A business process orientation (BPO) serves as a useful tool to promote such conditions within the firm. A BPO is not simply a new business operations strategy;
rather, it emphasizes process as opposed to hierarchies, with special emphasis on outcomes, particularly customer satisfaction. The key BPO elements are: (1) process management and measurement; (2) process jobs; and (3) process view.
In traditional, functionally oriented organizations job design was often based on how to limit responsibility and focus on a task. Authority typically rested with the boss, not someone who actually served the customer. A business process orientation, on the other hand, assigns authority and responsibility to employees who are actually serving the customer. Process-oriented work involves pleasing internal customers as well as the end customer, representing a dramatic shift for many organizations. A process orientation should result in greater responsiveness, thus improving the value delivered.
Using a BPO questionnaire developed by McCormack and Johnson, research was conducted with over 100 domestic and international manufacturing companies. These firms represented a broad cross section of industries, ranging in size from approximately
$100 million to several billion in annual sales. The results of the research showed that BPO is critical in reducing conflict and encouraging greater connectedness within an organization, while improving business performance. BPO also led to a more positive corporate climate, including higher esprit de corps.
Educating employees in the organization to understand the benefits of BPO is also
critical. A rationale for introducing changes in workflow or job responsibilities must be clearly communicated. McCormack and Johnson’s research showed that most employees value less conflict, improved cross-departmental connectedness, and esprit de corps.
Using the BPO instrument can prove fruitful as a discussion and diagnostic tool to supply the momentum and energy for process change.
Processes are not simply obscure, backroom operations of the service concern, but instead an integral part of delivering the value proposition. Processes and service are inseparable, that is, the process is the service. An effective process is driven by results and derives its form from customer requirements (how and when customers want to do business with you). Market-oriented companies ensure that the service encounter is positive by asking “how can we make our customer’s life easier?” GE asked that question and came up with the idea of GE’s Answer Center, a fully staffed customer call center that operates 24 hours a day, offering repair tips and helping owners of GE appliances with their problems.
Which processes deserve the most attention? Keen recommends assigning importance to various processes by classifying them into four categories4:
■ Identity is a process that defines the company; it differentiates a firm from its competitors (e.g., L.L. Bean’s order fulfillment, Amazon’s one-click ordering, and UNUM [this industry leader in disability insurance defines itself in terms of its processes for pricing risk]).
■ Priority processes tend to be invisible to customers yet are the source of organizational effectiveness. For a company like FedEx, which defines itself by speed and reliability of package delivery, its aircraft handling would represent a priority process. Southwest Airlines is known for the quick turnarounds of its aircraft at the gate to minimize the time spent on the ground (less than 20 minutes on average). A priority process is the fueling of the planes (see Southwest Airlines example later in the chapter as part of the discussion of benchmarking) and the high level of coordination required among ticket agents, operations agents, ramp agents, mechanics, aircraft cleaners, and caterers to service the planes.
■ Background processes are necessary to support daily operations, i.e., administrative and overhead functions.
■ Mandated processes are carried out only because the company is legally required to do so.
Keen also recommends determining a process’s worth by determining whether it returns more money than it costs.
Another approach that can be used for evaluating processes is the value chain (also referred to as supply chain). Michael Porter proposed the value chain as a tool for identifying ways to create greater customer value. Porter identified nine interrelated primary and secondary generic processes common to a wide variety of firms (see Table 3.2).5 According to Porter, an organization achieves a competitive advantage by managing its value chain more efficiently or more effectively than its competitors do.
Once the generic value chain is specified, relevant firm-specific activities can be identified. Process flows can then be mapped and used to isolate individual value-
creating activities. Linkages among the activities should also be identified. A linkage exists when the performance or cost of one activity affects that of another and a competitive advantage may be realized by optimizing and coordinating these linked activities.
With the emergence of e-commerce, information is being used to extend and enhance a firm’s physical value chain. The virtual value chain is the digital, networked, virtual world of information, which parallels the tangible world of goods and services or the physical supply chain.6
Table 3.2 The Generic Value Chain
Process Primary Support
1. Inbound logistics X
2. Operations X
3. Outbound logistics X
4. Marketing and sales X
5. Service X
6. Firm infrastructure X
7. Human resource management X
8. Technology development X
9. Procurement X
Source: From Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press.
Herman Miller, the large office furniture manufacturer, has successfully exploited the virtual value chain when it comes to order fulfillment. When an order is received, it is immediately sent via the Web to a factory in Michigan or California. Once the order has been transmitted, a manufacturing date is set and space on a truck is reserved to deliver the order a week or two later. The dealer and customer are notified via an e-mail confirmation within 2 hours of the delivery and installation time.
One of the most visible differences between a process-driven enterprise and a traditional organization is the existence of process owners. Managers must be given end- to-end responsibility for individual processes; to succeed, they must have real responsibility for and authority over designing the process, measuring its performance, and training the frontline workers who perform it. Hammer recommends that process ownership be a permanent role in order to evolve as business conditions change, and process owners should guide that evolution.7
As an example, a successful Canadian hotel chain significantly improved guest relations by asking managers to take ownership of key processes (see customer value insight 3.2). Canadian Pacific Hotels applied process mapping to the cycle of service to determine ways to add value to their guests’ experiences (see customer value action item 8 at the end of this chapter).
CUSTOMER VALUE INSIGHT 3.2: PROCESS IN FOCUS
When Canadian Pacific Hotels set about to gain a competitive advantage through closer relations with business travelers, it realized that it needed to realign its organization around team-based processes that cut across
functions. With 27 hotels in the quality tier across Canada, Canadian Pacific Hotels has been proficient with conventions, corporate meetings, and group travel but wanted to excel with business travelers. This is a notoriously demanding and difficult group to serve but also very lucrative and much coveted by all other hotel chains. When conducting in- depth research on this important market segment, it found that frequent guest programs had little appeal because these road warriors preferred airline mileage. They also appreciated beyond-the-call-of-duty efforts to rectify problems when they happened.
What they mostly wanted was recognition of their individual preferences and lots of flexibility on when to arrive and check out.
Canadian Pacific Hotels responded by committing to customers in its frequent-guest club that it would make extraordinary efforts always to satisfy their preferences for type of bed, location in hotel (high or low), and all the other amenities. Delivering on this promise proved remarkably difficult. It began by mapping each step of the guest experience, from check-in and parking valet to check-out, and set a standard of performance for each activity. Then it looked to see what had to be done to deliver on the commitment to personalized service. What services should be offered? What processes were needed? What did staff need to do or learn to make the process work flawlessly?
A major challenge was its historic bias toward handling large tour groups, so the skills and processes at hand were not the ones needed to satisfy individual executives who did not want to be asked about their needs every time they checked in. Even small enhancements such as free local calls or gift shop discounts required significant changes in information systems. The management structure was changed so that each hotel had a champion with broad, cross-functional authority to ensure the hotel lived up to its ambitious commitment. Finally, it put further systems and incentives in place to make sure every property was in compliance and performance was meeting or exceeding the standards. In a business that demands consistent attention to innumerable details, no single factor determines whether a customer will be loyal. It is the sum of many elements that makes the difference and the market rewards the effort. In 1996, Canadian Pacific Hotels’ share of Canadian business travel jumped by 16%, although the total market was up just 3% and Canadian Pacific Hotels had added no new properties. By all measures it is winning greater loyalty from its target segment.
Managers should first take a “big picture” view of the company by looking at key processes in relationship to the marketing cycle. Figure 3.2 shows this cycle and how it relates to business processes and process indicators. Note that various market constituents such as customers, suppliers, and publics determine how and to what extent the marketing cycle
Figure 3.2 The Marketing Cycle and Process Model
elements are performed. Customers, in particular, determine the composition and nature of the marketing cycle and the subsequent core processes required to support these selected marketing cycle functions. For example, the customer service process is performed as part of the service management function of the marketing cycle. Customer service activities would include, but not be limited to, such activities as tracking and trending customer complaints; recovery from customer service failures; and establishing customer service standards.
The process indicators represent the metrics for measuring the core processes. One of the process indicators for the customer service process is gauging customer satisfaction levels. Many banks are now including customer retention as part of their service management process and for good reason. A 5% increase in retention can mean an increase of up to 85% in bank profitability.8 It should also be pointed out that a synergy exists within the marketing cycle elements. That is, process breakdown in one area, such as logistics, affects other areas such as distribution.
Assessing Process Effectiveness
Dr. W.Edwards Deming pioneered the use of statistical tools and sampling methods for use in product and process quality control. Much of Deming’s work in these areas was applied during World War II to improve productivity for the U.S. war effort. Yet, after the war many of his applications never appeared in the American workplace because many companies considered them time consuming and unnecessary. However, Deming’s work found wide acceptance in Japan, where he was asked to join the Japanese Union of Scientists and Engineers (JUSE) in the late 1940s. Eventually, he would conduct a series of statistical quality control seminars in Japan, which would later accelerate the movement of Japanese industry into a statistical quality control phase of improvement.