Chapter 3

Process & Customer Value

Designing Value-Creating Processes

Process Improvement Tools

Process Design Processes design needs to follow a simple litmus test:

does the process create superior customer value?

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

Organizations must recognize the link between process and value

The Link Between Process and Value

GOAL: maintain fit

between value and process

Process

Value

Process delivers value through:• Quality

• Cost reduction• Flexibility

Definition of Process

A process is a specific group of

activities and subordinate tasks

which results in the performance

of a service that is of value

Key Business Process Orientation (BPO) Elements

1) Process management and measurement

2) Process jobs

3) Process view

A BPO ModelA BPO Model

Business Process Orientation

(BPO)

Inter-functionalConflict

(IF)

Inter-departmentalConnectedness

(IC)

Esprit de Corp(EC)

Business Performance

(OP1)

(+) 0.500*

(-) 0.497*

(+) 0.279**

(+) 0.255***

Significance: . ** p<.003, *** p<.007, * p<.001

Note: All numbers shown are Standardized Regression Coefficients of relat ionships.

Process vs. Functional View

Process

Approach

Functional (Traditional)

Approach

Emphasis on improving “how work is done”

Which products or services are delivered

Cross-functional coordination,

teamwork stressed

Frequent “hand-offs” among functions which remain largely uncoordinated

“Systems” view – i.e., entire process is managed

Pieces of the process are managed

Customer orientation Internal/company orientation

X9. Procurement

X8. Technology Development

X7. Human Resource Management

X6. Firm Infrastructure

X5. Service

X4. Marketing and Sales

X3. Outbound Logistics

X2. Operations

X1. Inbound Logistics

SUPPORTPRIMARYPROCESS

Table 3.2. The Generic Value Chain

Source: Porter, Michael (1985) Competitive Advantage: Creating and Sustaining Superior Performance: New York: The Free Press

The Generic Value

Process Ownership

☛ One of the most visible differences between a process-driven enterprise and a traditional organization is the existence of process owners

☛Hammer recommends that process ownership be a permanent role in order to evolve as business conditions change, and process owners should guide that evolution

☛Managers’ must be given authority over designing the process, measuring its performance, and training the frontline workers who perform it

The Marketing Cycle, Business Processes and Process Indicators

The PDCA (Deming) Cycle

The PDCA (or Deming) Cycle is a continuous sequence of activities that represents a powerful decision-making tool for affecting organizational change

Each of these 4 activities are held in equal balance and are equally important

The cycle indicates that the task of process improvement is never done, as past results drive future action

Stabilizing and Improving Processes via the PDCA Approach

PDCA 1: Plan

PlanningPlanning involves examining how the type of involves examining how the type of value firms offer their customers affects their value firms offer their customers affects their processes processes

An alignment between the value that customers An alignment between the value that customers want and the value the process generates want and the value the process generates indicates overall effectiveness indicates overall effectiveness

To ensure that a fit exists between value and To ensure that a fit exists between value and process, a “value statement” should be developedprocess, a “value statement” should be developed

The Value Deployment Matrix is a useful tool for The Value Deployment Matrix is a useful tool for mapping value attributes and core processes mapping value attributes and core processes

Value Deployment Matrix

Source: Band, W. (1995) “Customer-accelerated Change”, Marketing Management, Vol. 4 (3), Winter, p. 54. Reprinted with permission from Marketing Management , published by the American Marketing Association

PDCA 2: Do The do phase deals with process design and

congruency issues Once a value statement is created or refined,

processes need to be assessed according to their efficacy and congruence with the firm’s value statement

A series of questions such as those listed in Table 3.3 can help determine where to direct process improvement efforts

After examining processes for their fit with the firm’s value statement, individual processes should be studied in order to determine their relevance and importance from the customer’s perspective

Understanding Process Improvement

Table 3.3 Process Assessment

PROCESS DESIGN ISSUES KEY MANAGEMENT QUESTIONS

What? What are the customer requirements?

Where? Where do process inefficiencies exist?

When? When do processes start and end? When is each process activity performed?

Who? Who is assigned process ownership?

Why? Why does the process exist? Why organize around the process this way?

Would? Would the customer be willing to pay for step(s) performed in the process?

Does? Does the process (or steps in the process) bring you closer to delivering the service to the customer?

How? How significant is the process? How does the process support the value?

Customer Travel Consultant Data Processing Ticketing Department Counter Person

Requests booking

Fills out travel request

May pay in advance

Calls on telephone

Walks in

Holds tracker; waits for ticket

Pulls tracker; puts with ticket

Posts ticket data to computer

Puts ticket in hold box

Makes booking

Prints ticket

Fills out “tracker”

Issues ticket

Walks in for ticket

Customer pickup

Mails or delivers ticket

Collects Payment

Gets customer signature

Updates tracker

Delivery to customer

Receives ticket

Updates computer with final data

Source: Albrecht, K. (1990)

Figure 3. 5. Service Flow Diagram

Service Flow Diagram (from Albrecht, K (1990) Service Within, Homewood, IL Irwin. With Permission.)

Service Flow Diagram

Other Benefits of Other Benefits of Flowcharting a ProcessFlowcharting a Process

Focuses Focuses on the customer and his/her expectations and on the customer and his/her expectations and experiencesexperiences

ShowsShows how the technical procedures relate to how the technical procedures relate to administrative and relationship building activities of administrative and relationship building activities of product or service deliveryproduct or service delivery

IdentifiesIdentifies those activities that can be proceduralized as those activities that can be proceduralized as well as those which must be individualized and given well as those which must be individualized and given special attentionspecial attention

Identify Identify gaps in the market that need to be addressedgaps in the market that need to be addressed

Shows Shows staff members how their own activities relate to staff members how their own activities relate to one another one another

PDCA 3: CheckCheck

Once processes are evaluated for their value- creating effectiveness and measures are developed, then data-driven tools can

be used to routinely monitor, inspect, andimprove them.

Table 3.4 lists some common tools formeasuring, monitoring, controlling andimproving process quality.

Major Process Improvement Tools

Table 3.4 Tools of Process Improvement Process Tool Purpose

BENCHMARKING measuring and comparing process results to a standard of excellence (see Figure 3.7)

DATA COLLECTION TOOLS (surveys, sampling, check sheets)

document internal and external customer assumptions and perceptions about appropriateness and effectiveness of a process and reveal unstable processes

CONTROL CHART identifies stability, capability and central tendency of a process (see Figure 3.8)

SCATTER DIAGRAM show graphically the relationship between process performance data and some overall performance measure such as customer satisfaction or service quality (see Figure 3.9)

PARETO CHART separates the “vital few” causes of process failures (see Figure 3.10)

FISHBONE DIAGRAM show possible causes of process shortcomings or weaknesses (see Figure 3.11)

Benchmarking

Benchmarking is a process of consistently researching new ideas for methods, practices, and processes, and either adopting the practices or adapting the good features, and implementing them to obtain the “best of the best” (Camp)

Benchmarking is the most important tool for evaluating andimproving processes

Benchmarking compares a company’s own practices(processes or tasks) against similar practices of firmsrecognized as superior in these areas

By comparing itself against the best possible practices, thebenchmarking firm seeks to identify gaps between its current processes and the processes it should implement

Generic Benchmarking Process

Common Denominators in Using Benchmarking Processes

First, you need to thoroughly know your operations, assessing the strengths and weaknesses of your internal processes

Second, you should know the industry leaders or competitors

Third, learn from the industry leaders and emulate their strengths

Fourth, use benchmarking as a proactive tool by looking not just at competitors, but at what customers value and how other practices meet those needs

Finally, benchmarking needs to be continuous and institutionalized as part of the company culture

Surveys/Checklists & Control Charts

Surveys/Checklists

Typical information obtained from surveys or checklistsinclude: (1) what happened; (2) how does it happen;

(3) how often does it happen; (4) how long does it take; (5) how important is this?

Control Charts

> Useful for monitoring the performance of a process byreporting measurements that are predictable within a given process and those that are random in nature.

> Control charts usually show fluctuations within a process that

occur within control limits. Points that fall outside the control limit range should be reported or investigated (see Figure 3.8)

A Control Chart

Figure 3.8 Control Chart Example

Measurement

Measurement

Measurement

A.

B.

C.

Upper Control Limit (UCL)

Mean (Average)

Lower Control Limit (LCL)

UCL

Average

LCL

time

time

time

UCL

Average

LCL

Process is in control

Process is NOT in control (special cause)

Process is NOT in control (4 common causesin sequence)

Figure 3. 8 Example

Scatter Diagrams & Pareto Charts

Scatter Diagrams (Figure 3.9)Examines 2 variables at one time to determinethe relationship that exists between them

Help determine possible process “fail points” or measurethe results of recently changed processes

Pareto Charts (Figure 3.10)Used when there is a need to determine the relativeimportance of certain variables in process variation

Helps isolate the “vital few” (as opposed to the trivial many)causes of process variation

A Scatter Diagram

Fig 3.3 Example

A Pareto Chart Fig 3.10 Online Banking

Fishbone (Cause & Effect) Diagram

Useful in process analysis and redesign by stimulatingthinking about a process under investigation, helping toorganize thoughts into a rationale whole

Documents the level of understanding about a process and provides a framework for expanding an understanding of the “root cause” of the problem

Representation between a problem and its potential causes, possible solutions?

A Fishbone Analysis Fig. 3.11 Example

PDCA 4: Act

The final step in the Deming Cycle

Corrective actions should be taken to improve processes that fail to add value

5 ways to improve business processes:

1) Eliminate tasks altogether if it has been determined that they are unnecessary

2) Simplify the work by eliminating all non-productive elements of a task

3) Combine tasks, where appropriate4) Change the sequencing to improve the speed and

execution5) Perform activities simultaneously

Process Improvement & Management: Concluding RemarksConcluding Remarks

■ ■ In most cases, the people who perform the processes In most cases, the people who perform the processes are the ones most capable of determining how to improve are the ones most capable of determining how to improve or simplify the process or simplify the process

■ ■ Management has to create a culture that values Management has to create a culture that values

employee input and rewards people for process innovationemployee input and rewards people for process innovation

■ ■ Once a process improvement has been made, the Once a process improvement has been made, the change must be measured and evaluated for effectiveness change must be measured and evaluated for effectiveness

cont…cont…

Process Improvement & Management: Concluding Remarks - cont..Concluding Remarks - cont..

■ ■ The effective use of process integration is enabling The effective use of process integration is enabling firms to organize in new ways and to better manage firms to organize in new ways and to better manage supply chains and business relationships.supply chains and business relationships.

■ ■ Processes represent more than simply the Processes represent more than simply the “operations” of the company, but rather serve as a “operations” of the company, but rather serve as a means to superior performancemeans to superior performance

■ ■ Unique, value-creating processes are strategic Unique, value-creating processes are strategic assets for organizationsassets for organizations