The use of Challenge Sessions

I have experienced on many of my projects resistance to change and a lot disagreement on the way processes are performed within an oraganisation. To alleviate this issue I use challenge sessions which are a series of meetings in focus groups of approximately 15-25 employees who are directly affected by the outcomes and changes resulting from the redesign of work processes. They are particular value during the development of the “To-Be” Process Model and the Detailed process Descriptions.

During the Challenge Sessions, the business solution proposed by the design team is positioned as a preliminary blueprint for the redesign of the organisation’s work processes.  By positioning the work processes in this way the new processes are still open for discussion and challenge. The Challenge Session participants are then encouraged to constructively critique all aspects and impacts of the business solution and to bring forward any new ideas and solutions.

I would recommend the Challenge Session would follow the steps below:

1. Conduct a series of Challenge Sessions with a series of representative a cross-functional groups comprised of both staff, managers and, where appropriate, external customers or stakeholders.
2. Collect feedback gathered at the Challenge Sessions. This can be done in a number of ways; my preference is to complete the whole exercise within the workshop.
3. Synthesise and summarize the findings generated from the Challenge Sessions and present the recommendations to the design team.
4. Allow the design team members enough time to review the Challenge Session recommendations and make clear judgements and decisions on which final solutions they are willing to adopt and present to senior management.
5. All opposing views not incorporated by the design team are compiled and documented in a summary report.  This report is then presented under separate cover to senior management (along with the finalized business solution document) to ensure they have full knowledge of the implications of the proposed business solutions before making any final decisions.
6. As appropriate, distribute copies of both reports to previous Challenge Session participants, to demonstrate that their views have been presented to management, as promised.

Care needs to be taken when running such sessions as they can become repetitive. There is tendency if too many sessions are run the objections tend to resurface and few new ideas are raised. Another important factor is that the workshops use facilitators, in other words all views are heard and respected.

Hints

• Consider inviting process customers to the Challenge Sessions to legitimise their comments. 
• Ensure that Challenge Sessions are facilitated by client organisation design team members.  This approach encourages the client organisation to take ownership of the business solution rather than having it perceived as a unilateral decision made by external consultants.
• Do not be openly be “defensive” about the process redesign solution.   Listen carefully to the views of all members and to accept their ideas as valid.  Instead, ask session participants to “come up with a better idea” that still meets the Stretch Targets. 
• Ensure that there is cross-functional representation in each session.  Reach across functions and levels in the organization in order to avoid resistance which normally forms in homogeneous clusters and groups.
• Ensure that employees firmly believe that senior management is open and receptive to their ideas and opinions (i.e. at least will take them into account in their decisions).  This goes a long way to dispelling resistance to change.

I have worked in many situations where the business process redesign is performed by external consultants. This provides no ownership inside the organisation and the processes are destined for the filing cabinet. It is important to engage the client teams in the business process design and provide a means for them to add their experience to the future processes of the organisation.

What a Mess we are in?

The “Market Driven Economy” is out of control it is destroying our habitat, the means of supporting our dependents and work ethics. We are now, even, marketing education and selling it to organisations as the only way of ensuring they will have smart enough workers to fulfill their future, and strategic objectives. Education marketing also preys on families by selling to them, that, the only way to earn a large and sustainable income is through obtaining certification in one of their products. The really sad thing is, as this way of thinking progresses it becomes the accepted norm and a new indestructible valueless market has been created. It is a shame that a world driven by economic desire and greed increases the level of incompetence and expectation adding further to the slow decay of mankind and its habitat.

This may seem a very negative approach. However, in this section of my Blog I will deliver my views on what I believe to be a way forward. We are developing offspring with insatiable appetites that can never be fulfilled and only have a future of discontent to look forward too. It is important that the youth of today have instilled values that are bound by concern for the environment, add value in everything they do and that future generations maintain this happy equilibrium.

Although I have mentioned education as one of the markets that concerns me, I am concerned about all markets that prey on human weakness. It is my belief that those markets that maintain life and support the sustainable future of mankind should be non-profit organisations supported by the community. Also I believe firmly that if you create a mess you clean up your mess. It is, therefore, important that if we create excessive waste, which is toxic to mankind and other living species on this earth, we are held accountable for disposing of the waste, in way that does not harm the environment and cause future deterioration of our habitat.

I want to make it clear I have no political affiliations and believe that corruption in politics is “THE” major contributor to the state we are in today.  Each individual person has a right to his or her own views; those views should not detract from any other individual’s belief and collectively should add value to our future. 

You may be asking yourself what has this Blog to do with Business Performance. In my opinion everything, it is important we build responsible and sustainable organisations that enhance our living standards and care for the future of our planet. That all individuals that work in these organisations add value to their goals and objectives through processes that reduce waste and respond efficiently and produce only sufficient output to meet demand. Process innovation integrates our views, creating a common set of values that realises a set of mutually agreeable objectives.

Ratio Analysis is KEY to Understanding Process Decomposition

When I was working for the Burroughs Corporation in the early 80’s, I came a across a paper on the DuPont Ratio Analysis. I was intrigued by this method of analysing key ratios and started to use it as a sales tool for justifying the investment in large software products. When targeting a company we would use Dun and Brad Street to obtain the Industry Sector Key Ratio averages and then obtain copies of the annual reports of the prospects and their competitors. Using this information we built a DuPont Ratio Analysis model in a spreadsheet to compare the prospective companies key management ratios with the Industry average and their competitors. Using the spreadsheet model we attempted to demonstrate to the prospect how by improving selected key ratios by the use of our software we could improve their competitive position and justify the investment in the software.

This method of Ratio Analysis is still very effective when using Business Process Management combined with Business Intelligence. When considering a key ratio it is important that it is determined from an end-to-end process that it can be de-composed through lower level processes and their corresponding Key Performance Indicators (KPI’s). This provides a mechanism to assign responsibility and analyse the impact of the ratios changes on the overall performance of the organisation.

The Level 1 key ratio that reflects a measure of operational performance to an organisation is Return on Total Assets (ROTA). The Operating Profit is selected as this is under the direct control of Operational Management within an Organisation. ROTA is an indicator of how effectively a company is using its assets to generate earnings.

ROTA equals Operating Profit (or EBIT) / Total Assets (TA).

Using the DuPont Pyramid Model ROTA can be decomposed to Level 2 ratios by multiplying it by Sales/Sales which is expressed as  EBIT / Sales (or Operating Margin) multiplied by  Sales / TA (or Return on Assets – ROA). The operating profit margin indicates how effective a company is at controlling the costs and expenses of its operations whereas Return on Assets indicates how effectively a business has been making its assets work.

The spreadsheet above shows how the ratios can be further decomposed into operational ratios that can be assigned to departments or individuals. This concept is important when considering the creation of a new, or updating an existing, Profit Formula in Business Modeling.  By generating a spreadsheet or using a planning tool what if scenarios can be created to assist in the modeling of possible outcomes.

Entity Business Models

I came across the use of Entity Business Models when working for KPMG Consulting. They were used by the Audit Business in support of the audit process to evaluate audit risk, understand the issues and risks arising and to be better prepared to discuss the detailed operations of the business. The Business Models were generic to a specific Industry sector providing a starting point for investigating and understanding a particular client business.

The business model template is used to document a client’s business and for making comparisons and contrasts. The design of the template was to support getting answers to the following questions:

• Do the strategies and the business relationships of the organisation address the external forces in the industry?
• Does the design of the business processes support the organisations strategic objectives?
• Has management developed a comprehensive understanding of the business risks that could prevent them from achieving its strategic/business process objectives?
• Are management’s assumptions about the significance of those risks reasonable?
• Does the design of the control framework adequately address the risks identified?
• Has management derived a set of critical success factors and key performance indicators that monitor objectives and management of the risks?

When engaged in a number of Business Process Improvement projects I found the template most useful. It provided a framework for discussing a client’s business processes and speeded up the identification of Key Performance Indicators (KPIs) and their corresponding Critical Success Factors (CSFs).  This methodology provides an excellent way of describing the decompositions of performance metrics and how measures are used to determine the performance of key business processes. Also it presents a consistent way of documenting the discussions with the process owners and key users and obtaining consensus on the outcome of the deliberations.

Entity Level Business Model

The entity-level business model is used to describe the inter-linking activities carried out within a business entity, the external business drivers and stakeholders that bear upon the entity and the business relationships with persons outside the entity.

The items included in the entity-level business model include the following components:

1. External Business Drivers and Stakeholders – are those outside factors, pressures etc that can prevent an entity from attaining its objectives.
2. Markets - are the segments of an industry that are applicable to the entity
3. Business Processes – is a structured set of activities within an entity, designed to produce a specified output.  A business process emphasis how work is performed rather than what is done. It is also structuring of work activities across time and place to transform inputs, such as information, materials and resources, to outputs, such as the products or services for customers or other users. Processes are usually linked with the outputs of one process being the inputs of another process and can be subdivide into three main groups:
   1. Strategic Management Processes – defines the organisations mission and the overall business objectives.
   2. Resource Management Processes – are business processes that provide appropriate resources to the other business processes.
   3. Core Business Processes – are the processes that develop, produce, sell, and distribute an entity’s products and services. These processes do not follow traditional organisational or functional lines, but reflect the grouping of related business activities.
   4. Alliances and Relationships with Suppliers – are the types of relationships with third parties that entities in the industry may establish
   5. Products and Services – are the significant products and services typically offered by organisations within the industry
   6. Customers - are the significant types of consumers within the markets in the industry that organisations may choose to focus on.

Process Template

The business process template is used to provide a consistent means of documenting the Strategic Management, Core and Functional Business Processes within an organisation. A number of standard templates are available for different industries providing a means of stimulating the discussion and speeding up the documentation process. Below is a list of the key areas covered by the template:

1. Process Description – provides an overview of the entire process and provides focus for the process analysis.
2. Process Objectives - are statements that define the direction needed to be taken with respect to the process.  Objectives often relate to items such as customer satisfaction, efficient use of resources and compliance with applicable regulations.
3. Critical Success Factors (CSFs) – are the prerequisites and areas of dependency for a process to be successful.
4. Key Performance Indicators (KPIs) Linked CSFs - are the quantitative measurements, both financial and non-financial, of the process’s ability to meet its objectives through trend analyses within a company or benchmarking against a peer of the company or its industry. 
5. Inputs – represent the elements, materials, resources, or information needed to complete the activities in the process.
6. Activities - are those actions or sub processes that together produce the outputs of the process.
7. Outputs - represent the end result of the process i.e. the product, deliverables, information or resource that is produced.
8. Systems – collections of resources designed to accomplish process objectives. 
9. Risks that Threaten Objectives – are the risks which may threaten the attainment of the process’s objectives.
10. Managements Responses Linked to Risks – are the policies and procedures, which may or may not be put in place, that help provide assurance that the risks are reduced to a level acceptable to meet the process’s objectives.
11. Symptoms of Poor Performance – are areas for performance or process improvement. 

Disruptive Business Modeling

My next Blog was going to focus a little more on Ratio Analysis as a follow on to my previous discussions. However, when researching for an opportunity I am pursuing, I came across an interesting Harvard Business School video interview with Clayton M. Christensen entitled “Should You Reinvent Your Business Model”. 

During this interview he touched on how technological innovations can cause significant disruption to businesses and may require a new business model to adapt to the disturbance. One of his examples was the evolution of the Computer Industry from mainframes to mini computers to PCs. In the interview he takes IBM as a good example of a company that managed its way through this evolution where many failed. He discusses how IBM did not try to adapt its existing business models to manage its way through these changes but started entirely new organisations in each case with its own innovative Business Model. His reasoning is that as technology evolves the resources requirements change, cost structures transform and the profit margins reduce as volumes increase and so entirely new business models are required to meet the new demand.  

When asked to define a business model he states there are main four elements which need to be considered when investigating the impact of disruptive innovation:

1. All Business Models start with a Value Proposition
2. Next stage is a Profit Formula to establish a cost structure to support technological changes and the new demand for the product.
3. Then put into place a Set of Resources i.e. People, Products, Technology, Buildings, and Equipment etc. working inside of the profit formula.
4. And then as then Processes are developed within this framework to get things done

This explanation helped me put some of my ideas and previous experiences into perspective. Its shows the importance of understanding the impact of external change within the life time of an organisation. Also it highlighted the relationship between processes and profit and, how, sometimes process improvement will be sufficient if the business model radically changes. Finally technological innovation is not the only factor into today’s dynamic markets that affects radical change; also the economic cycles and the depth of recession can have the same destructive impact.

The Impact of Performance Ratios

To understand how KPI’s are derived it helps to be able to visualise how operational performance impacts the Business Goals and Objectives of an Organisation. There are three primary objectives in an organisation:

1. Profitability
2. Growth
3. Stability

These three objectives are financial conditions that reflect the Performance of a Company and its management team. All other objectives support the “HOW” do we achieve these primary goals. When setting goals and objectives they should be SMART (Specific, Measurable, Achievable, Relevant and Time Bound). Too many organisations define objectives with no clear idea as how they are going to be achieved and whether they support the Vision and Goals of the Management Team.

EXAMPLE:

One company I worked for set unrealistic goals of 25% increase in revenue and 16% increase in profit when the industry average was 3% and 2%. They also tied company bonuses (20% of salary) to these goals but had no plan to support how these goals would be achieved. This caused a great deal of uncertainty and unrest with employees because they saw no way their contribution could impact the goals of the company and, more importantly, for them to achieve their full bonus potential.

Before considering frameworks for achieving an organisations goals there two approaches that are helpful in understanding how to build performance metrics and define operational ownership. The first is to understand the concept of Ratio Analysis based on DuPont Pyramid Analysis and second is the understand entity relationships.

Ratio Analysis

Pyramid Ratio Analysis is a way of decomposing Management Ratios. It provides a means of assigning ownership and operational responsibility to the departments and individuals. One of the Key Management Ratios used to measure Operational Performance is Return on Assets (ROA) which is used to measure and analyse the Assets utilised to generate the Profits within an Organisation.  The top level ratio is defined as EBIT (Earnings before Interest and Tax)/ Total Assets (TA) or EBIT/TA which is decomposed into the second level ratios by taking into account Sales i.e. (EBIT/Sales) x (Sales/TA). The ratio can be broken down further into lower level ratios which allowing assigning ratios at the departmental and individual levels.

Entity Business Model

The entity-level business model is used to describe the inter-linking activities carried out within a business organisation, the external business drivers and stakeholders that bear upon the entity and the business relationships with persons outside the entity. The items included in the entity-level business model include the following components:

 

The Business Entity Model is specific to different Industries and Organisations. It provides a common view of an Organisation and enables Processes to structure in a consistent manner providing a framework for comparative analysis. Ratio Analysis provides the means of decomposing Metrics (KPI’s) to allow Management to analyse the impact of Operational Management on the Goals and Aspirations of an Organisation.

In future Blogs I will expand both of these topics.

Using off the Shelf Business Performance Frameworks

Many of the Business Intelligent projects I have worked on have been exceedingly challenging. The challenge is not the technology; it is often determining what should be measured that proves to be the problem. Many managers do not seem to have a clue, when it comes to determining the key metrics that can be used to establish the performance of their organisations operational units. There is also the other side of the coin, where management focuses at a too detailed a level, and cannot link operation performance back to the higher key performance indicators of the business. There is no need to re-invent the “wheel”. Several frameworks are available that can be used to accelerate a Business Intelligence project. I have used a Balanced Scorecard approach and the Supply Chain Councils SCOR framework on some of the projects I have worked on. These can be used at a more detailed level in conjunction with Six Sigma and Lean principles. Most frameworks are similar in their approach and rely on the decomposition of organisational goals and objectives into more detailed activities and tasks. This approach provides a framework for assigning responsibility and ownership of the performance metrics. As an example of process decomposition we consider the cash-to –cash cycle time which is made up of three other key processes:

1. Days Payable Outstanding (Accounts Payable)
2. Inventory Days of Supply (Inventory Management)
3. Days Sales Outstanding (Accounts Receivable)

The three sub-processes can be further decomposed to involve other parts of the organisation i.e. Planning, Procurement, Manufacturing, logistics and Sales etc. Which when applied tightly integrates the organisation breaking down barriers of communication. Using pre-defined performance frameworks accelerate the successful implementation of Performance Management Projects. They also provide a means of benchmarking an organisations performance against others in similar industries.