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Process governance that works
September 2015
Business Transformation
STRATEGY EXECUTION PERFORMANCE
2www.wilsonperumal.com
Andrei PerumalManaging [email protected]
Francisco SotoTeam Lead – Operational [email protected]
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Agenda
• The typical process governance initiative
• The key reason why they fail to achieve the desired outcomes
• The 4 primary ways in which this occurs
• A better approach to business transformation
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Typical process governance initiatives
consist of 4 phases
Define Process
Architecture
Inventory processes
Assign process owners
Reengineer and
optimize
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These projects are expensive and often fail
to achieve desired outcomes
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$10MM+
Failure rate up to 70%
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Why do they fail?
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Agenda
• The typical process governance initiative
• The key reason why they fail to achieve the desired outcomes
• The 4 primary ways in which this occurs
• A better approach to business transformation
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The world has changed!
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“Individual productivity”
Volume
Cost
Pre-Industrial Age
Driven by
variable costs
“Economies of Scale”
Volume
Industrial Age
Driven by
fixed costs
“Complexity”
Complexity
Post-Industrial Age
Driven by
complexity costs
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Complexity is stretching the capabilities of
most organizations
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TECHNOLOGYPRODUCTS & SERVICES
PROCESSES
ORGANIZATIONS
REGULATIONS
MARKETS
X
XX
X
XCOMMUNICATIONS
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Organization
Value add
Non-value add
Complexity is the #1 driver of process
performance
The Complexity Cube:
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Complexity’s impact grows exponentially
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#Items #links
1 0
2 1
3 3
4 6
5 10
…
10 45
$
Complexity
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Many companies are passing a complexity
threshold
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Level of complexity you can support
VALUE(diminishing returns)
COST & RISK(exponential growth)
$
Complexity
Few companies are still here
Many companies are here
An increasing number of companies are here
* Inflation-adjustedSource: “Diagnosing the decline in pharmaceutical R&D efficiency,” Scannell, Blanckley, Boldon, & Warrington,
Nature Reviews Drug Discovery, March 2012 13
Example: Pharmaceutical R&D efficiency
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Number of drugs per billion $US R&D spending*
The number of new drugs approved per dollar (inflation-adjusted) spent on R&D drops by half every 9 years
EROOM’S LAW:
Source: “Variability in Protocol Design Complexity by Phase and Therapeutic Area,” Getz, Campo, Kaitlin; Drug Information Journal, 2011 14
Clinical trial complexity has driven up costs
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2000-2003 2008-2011Increase in Complexity
Total Procedures per Trial Protocol (median)(e.g., bloodwork, routine exams, x-rays, etc.)
105.9 166.6 57%
Total Investigative Site Work Burden(median units)
28.9 47.5 64%
Total Eligibility Criteria 31 46 58%
Clinical Trial Treatment Period(median days)
140 175 25%
No. of Case Report Form Pages per Protocol (median)
55 171 227%
Trends in Clinical Trial Protocol Complexity
During the last decade, clinical trial design and procedures have become much more complex, demanding more staff time and effort, and discouraging patient enrollment and retention
Source: “A Billion Here…Rand report dismisses joint-program savings,” Sweetman, Aviation Week & Space Technology, Dec 2013 / Jan 2014; “Can’t Touch This,” Gilson, Mother Jones, 2013 15
Example: The F-35 Joint Strike Fighter
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“The F-35 Joint Strike Fighter program will cost more than three single-service programs would have done.”
—2013 Rand Corporation Report
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Complexity has driven up aircraft
development timelines
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SR-71Blackbird
F-18Hornet
F-35Lightning
10 20
3 years
6 years
18 years!
Aircraft Development Duration (years)
0
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America’s first jet fighter in just 143 days!
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• Clarence “Kelly” Johnson
• Objective was to build the first U.S. jet fighter in 180 days
• Completed with 37 days to spare
• Done with just 23 engineers and 30 support people
“The number of people having any connection with the project must be restricted in an almost
vicious manner. Use a small number of good people (10% to 25% compared to the so-called
normal systems).”
—Kelly Johnson
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Main Reason for Failure:
Failing to account for complexity
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Agenda
• The typical process governance initiative
• The key reason why they fail to achieve the desired outcomes
• The 4 primary ways in which this occurs
• A better approach to business transformation
www.wilsonperumal.com
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Failing to account for complexity is seen in 4 ways
1. Taking a bottom-up approach
Complexity
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Typical methodologies take a “bottom-up”
approach
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Bottom-up approach: Improving one process at a time
Top-down approach: Start with a framework
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Failing to account for complexity is seen in 4 ways
1. Taking a bottom-up approach
2. Not addressing complexity in the overall strategy
Complexity
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A company’s performance is driven by two
primary factors – strategy and execution
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Sound
Strategy
Operational
Excellence
Leading
Performance
7 Value Drivers
1. Safety2. Environment3. Compliance4. Quality5. Productivity6. Yield 7. Cost
Strategy
1. Product portfolio2. Markets served3. Distribution channels4. Price point5. Level of service6. Partnerships7. Operating model
Operational excellence is the execution of the business strategy more consistently
and reliably than the competition.
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A company’s strategy is a function of its
customer offering & its operating model
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Right Customer Offering
Aligned Operating
Model
Sound Strategy
Sound Strategy
Operational Excellence
Leading Performance
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In most companies, most products loose
money
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• Often the most profitable 20% to 30% of products generate more than 300% of the profitsin a company, meaning…
• …the remaining 70% to 80% lose 200% of the profits.
Products that
create profit
Products that
“lose” profit
0% 25% 50% 75% 100%
100%
300%
% Total Products
0%
% Total
Profits
Complexity costs are often the single biggest determinantof a company’s cost competitiveness
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Complexity is the single largest driver of
process performance
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N = Number of different tasks performed at an activityA = Number of activities or steps in a processS = Longest setup time in the process
V = Value-add timeX = Defect rateP = Processing time per unitD = Total demand
PCE = 2V(1-X-PD)
N(2A+1)S
Simplified Complexity Equation
PCE = Value-add time
Total Lead Time
Process Cycle Efficiency
Process Cycle Efficiency (PCE) is the best measure of overall process health
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Complexity impedes process flow
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CLIENT EXAMPLE
Single ProductPCE >20%OEE >95%
More ProductsPCE 5-10%OEE 60-80%
Many ProductsPCE 1-2%OEE <50%
3. Not addressing complexity in the management system
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Failing to account for complexity is seen in 4 ways
1. Taking a bottom-up approach
2. Not addressing complexity in the overall strategy
Complexity
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A company’s ability to execute is a function
of its management system and culture
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Effective Management
System
Culture of Operational
Discipline
Operational Excellence
A Management System is the collection of process and procedures used to manage the company’s operations to achieve a particular objective.
Sound Strategy
Operational Excellence
Leading Performance
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There are many types of formal
management systems
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An OEMS delivers excellence across all
Value Drivers
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PeopleProcess
EquipmentChange
KeyControls
Safety
PeopleProcess
EquipmentChange
KeyControls
Environ-mental
PeopleProcess
EquipmentChange
KeyControls
Quality
PeopleProcess
EquipmentChange
KeyControls
Reliability
PeopleProcess
EquipmentChange
KeyControls
Cost
Common Management System Approach
Operational ExcellenceManagement System
PeopleProcess
EquipmentChange
Increased performance Accelerated learning
Reduced cost and overhead
Safety
Quality
Environmental
Reliability
Compliance
Cost
KeyControls
3. Not addressing complexity in the management system
4. Not addressing culture in the right way
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Failing to account for complexity is seen in 4 ways
1. Taking a bottom-up approach
2. Not addressing complexity in the overall strategy
Complexity
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A company’s ability to execute is a function
of its management system and culture
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Effective Management
System
Culture of Operational
Discipline
Operational Excellence
An OEMS alone is insufficient—Operational Discipline is also required.
Sound Strategy
Operational Excellence
Leading Performance
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Culture is increasingly needed in a complex
environment
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The US Nuclear Navy maintains a superb
safety and operational record
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• Has never had a reactor accident
‒ Over 50 year history
‒ Over 150 nuclear reactors
‒ Over 6000 years of reactor plan operation
• Operates in a challenging environment
‒ Remote, dynamic, and harsh environment
‒ Young crews / high turnover
• Is looked to as the best practice in safety and operational performance:
‒ Three Mile Island accident
‒ Loss of Space Shuttle Columbia
‒ US Air Force lapses in nuclear accountability
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The Nuclear Navy’s culture stands out
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“The nuclear navy emphasizes training and education in a way that would be thoroughly astonishing if you were not already familiar with it. And I urge you, in the strongest possible terms, to take a look at that program.”
President’s Commission on Three-Mile Island
Dr. John Deutsch, Director of Energy Research & Acting Secretary of Energy Technology, U.S. DOE
“One of the best examples of the creation of an HRO culture is the US nuclear navy.”
—Andrew Hopkins, Failure to Learn
BP Texas City Refinery Disaster
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The culture required was a vast departure
from traditional military culture
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Traditional Military Culture
Follow orders
Do what you are told
Don’t ask questions
Never question your superiors
Nuclear Navy’s Culture
Have a higher level of understanding
Follow procedures
Question procedures when things don’t seem right
Back each other up
Do it all with integrity
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Agenda
• The typical process governance initiative
• The key reason why they fail to achieve the desired outcomes
• The 4 primary ways in which this occurs
• A better approach to business transformation
www.wilsonperumal.com
A formal management system is used to control the processes
Culture change is incorporated correctly into overall improvement
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Process improvement can root out complexity if…
Starts with a broad, interconnected view of the business (top-down)
Bad complexity is rooted out in conjunction with process transformation
Complexity
40www.wilsonperumal.com
Andrei PerumalManaging [email protected]
Francisco SotoTeam Lead – Operational [email protected]
Follow us on
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More information on the topics we covered today is available through these publications:
Making Complexity Reduction Count
Achieving Operational Excellence in the Face of Complexity
Achieving Operational Excellence While Slashing Costs
A Better Definition of Operational Excellence
Additional materials on Operational Excellence
Additional materials on Strategy
