High-Performance Process Improvement
Markus Pastinen
High-Performance Process Improvement
Dr. Markus Pastinen Vistalize Oy Kaisaniemenkatu 1 Ba 77 FI-00100 Helsinki Finland
[email protected]
ISBN 978-3-642-10783-2 e-ISBN 978-3-642-10784-9 DOI 10.1007/978-3-642-10784-9 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2009943994 # Springer-Verlag Berlin Heidelberg 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover illustration: Cover picture drawn by Jesperi Vara, Helsinki, Finland Cover design: WMXDesign GmbH, Heidelberg, Germany Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
To all devoted high-performance process improvement practitioners.
Preface
Why is it so hard to gear up for large-scale and sustainable process improvements? Why is there so little impact from all the advice and improvement methods available? How could our company really get the most out of its process improvement potential from a total perspective without spending too much time and money? Do we even know the quality of our process improvement methods? Why for instance will the Toyota approach and six sigma not do when you have to respond to ever-increasing performance needs? The questions above are admittedly crucial questions you might have posed when striving for a better company performance. Very few books provide you with a proper answer to these questions. This book does. After all, the world and thus the improvement needs have changed a lot since the days of the quality movement gurus and the origins of statistical control. The ultimate mission of the company processes is not to produce products or services as well as possible, but to continuously satisfy all company stakeholders in a sustainable way. How to lower the costs, increase the price of the products and services, and sell more, without constantly sacrificing the satisfaction of one or more stakeholders, is the equation modern process improvement methods solve.1 Trying to solve this fundamental business equation in today’s dynamic business environments shows clearly that the currently applied process improvement concepts, approaches, methods, and tools simply do not work. It is high time to improve process improvement itself to respond properly to more demanding improvement needs and more complex, dynamic, and fuzzy improvement settings. The currently applied process improvement methods provide only a modest process improvement impact in practice, considering the time and money spent. There are simply too many issues, constraints, and obstacles that affect both the process improvement effectiveness and efficiency, which should be targeted properly at the same time to gain a great and sustainable improvement momentum. The methods applied, offering only some leverage to raise the process improvement
1
This is the high-performance process improvement equation, shortened the HPPI equation.
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efficiency, are thus heavily restricted by nature realizing only a fraction of the true potential related to process improvement. The old slogan “if you have a hammer, everything starts to look like a nail” proves true. Although common sense would suggest the use of a toolbox with different tools to address this concern, the basic problem would remain. Eventually, this becomes evident when you try to raise the ambition level of the improvement work and the related output, albeit the slogan needs a slight modification to suit the case: “if you have a toolbox, everything starts to look like a bolt, nail, or screw”. It is not a complete surprise that the process improvement toolbox contains these days so many different tools that you are not even able to move it by a forklift. The overall objective of this book is to present a concept, the methods, and the solutions that take process improvement to the next ambition level. I call this level “high-performance process improvement” (HPPI) as opposite to traditional process improvement efforts using, for example, approaches such as hoshin kanri, six sigma, and lean, to mention just a few. The essence of the presented concept is a set of methods forming a generic HPPI process that is able to manage in a classy way all relevant process improvement activities under tight time and money constraints, even in complex and demanding settings. These process improvement activities include the required analyses and syntheses and the practical implementation. The analysis and synthesis parts cover the targeted value chain or network, the related companies or units, and the specific processes. The practical implementation, on the other hand, covers four distinct disciplines. These include the process improvement education and training (raise and maintenance of process improvement knowledge and skills), the realization of the improvement objects or improvement potential, and the follow-up. Besides, the book also targets briefly the issue of how to improve the strategy process and the related output to gain additional improvement momentum. Although primarily intended for companies and corporations, the book is almost as such suitable for persons working in the public sector. Changing terms such as “company,” “profits,” and “owners” to terms such as “organization,” “added-value,” and “the community,” respectively, helps a lot although certain substance issues may need a more profound interpretation to suit the case properly. Companies of emerging markets, especially high-tech companies, have a special interest and motivation of catching-up and even overtaking the best in a global perspective. In such a setting, and any setting for that matter, it is crucial to consider both the performance and the outcome of the applied improvement methods. For emerging market companies, there is additional good news. Companies applying low-performance process improvement methods are often subject to organizational inertia, locking the companies in the low-performance process improvement illusion at least for years and, in some cases, even forever. Such mental inertia may be lacking in emerging market companies. In fact, this mental inertia difference is an overlooked asset that companies with a low mental inertia level should cultivate properly.2 The methods and solutions presented in this book provide, in this regard,
2 Another type of mental inertia is observable when comparing the dynamics of small and large companies.
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a systematic and result-oriented approach on how to achieve and sustain a high improvement traction and thus also a high-performance business. In that sense, it is attractive to consider this new vista from a macro perspective. For example, a reasonably low number of properly educated and skilled experts running the HPPI process presented in this book, e.g. in the top-100 Chinese high-tech companies and their supplier and subcontractor networks, would work wonders in a country as great as China. Toyota has improved its quality and operations during the past 60 years in a disciplined way. Other companies have had difficult times replicating this success because of the application of end-results and the reliance on low-performance process improvement methods, potentially even imperfectly applied. The lack of long-term discipline and the use of process improvement approaches and methods that do not improve the company culture properly as a built-in feature are additional issues that make it hard to replicate success. Understanding how to run the required process improvement activities at a high performance level using dedicated HPPI methods, instead of relying on (selective) individual brilliance and lowperformance process improvement methods, is the critical key to get things on the right track for the benefit of all company stakeholders. With this in mind, the book targets a general and urgent concern with large and versatile implications. It contains three attractive features that realize the concept of high-performance process improvement in real-life: l
l
l
It is the first book to present and define the concepts of process improvement yield and total improvement yield, i.e. the yardsticks to evaluate the real-life process improvement traction that also provide an indication how well the company is able to solve the HPPI equation in practice It is the first book to present a verified and method based generic process improvement process that solves the major obstacles to high-performance process improvement from a total perspective (solving the HPPI equation) It is the first book to present a credible concept, including the methods and solutions, for catching-up and overtaking even the best companies in a systematic and result-oriented manner and for the best to remain at the top.
The separate terms “high-performance” and “process improvement” are common terms, but the total phrase is not. What matters in the end is the substance behind the term and the real-life implications for you as a company stakeholder. These implications may affect you in multiple ways as a customer, employee, owner, supplier/partner, or investor apart from the impact on you as a member of society. After all, prosperous companies, and well-functioning public organizations for that matter, are the basis for a prosperous society. The book is to-the-point, substance-rich, and non-trivial, providing you with both a solid theoretical and practical perspective in this novel substance area. It should resist the ravages of time well, providing you with a proper improvement stimulus for a long period. The book provides also a source to return to for guidance and well-motivated vitalizing vistas.
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One interesting feature of the book, which you may encounter, is that it tends to “grow” with each round of reading. For example, this “eye-opening” feature that is present in the analogies presented in Chap. 6, is an example of Pirsig’s transcendent quality definition (Pirsig 1974). “Quality is neither mind nor matter, but a third entity independent of the two ... even though quality cannot be defined, you know what it is”.
The book contains many opportunities for an aha experience. This exciting attribute is, of course, very individual and depends on many issues. Once you encounter and experience this, the reading and learning experience delivered by the book start to be self-feeding, taking you on an intellectual journey with a new level of understanding as the mental destination. For me, one of the breakthrough aha experiences occurred when I was driving a car back in 1994. At that time, I realized that both the “hard” and “soft” components related to driving have their corresponding issues in the theory and practice of process improvement. This helped me a lot to focus on the crucial substance issues for achieving a detailed total picture of what knowledge and skills the companies actually need to run the process improvement efforts successfully. Another breakthrough aha experience occurred some years ago when I realized that the old slogan “you get what you measure” could also be applied to define, even in advance, the quality output of the improvement approaches and methods from a (total) process improvement perspective. That was when the concept of the process improvement yield was born. Also, the notion that all relevant process improvement activities could be run as a systematic and result-oriented process in a total perspective in addition to the established and well-known problem solving process (the Deming circle), was a breakthrough aha experience that provided the R&D work with a lot of motivation and innovative energy. The genesis of the related R&D work behind this book traces back to 1993 when I wrote my M.Sc. Tech. Thesis at Siemens AG Zentralabteilung Produktion und Logistik3 in Munich, Germany. The findings and experience were that reaching a systematic and result-oriented mode of continuous improvement was hard to achieve in real-life despite of all the research and knowledge in the field. Back in 1993 and during the years until today, the approaches implemented by Toyota have been topical and considered state of the art. This led me to think that instead of trying to implement the methods used by Toyota, it would be more fruitful to consider how to design better process improvement approaches that would, in fact, provide momentum to catch-up and even overtake the best. The insight that lean management (lean production) was not an improvement method but the end-result of a set of improvement approaches utilized by Toyota changed my view totally. The kernel is consequently to create high-performance improvement methods, which increase the improvement performance (=the immediate output) that continuously improves the performance of the focus processes in terms of time, quality,
3
Central Department Production and Logistics.
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and costs (=the outcome). The issue is not to copy or implement end-results but to increase continuously the ambition levels of the improvement activities, the focus settings and the produced products and services. How to do this under (very) tight time, quality, and cost constraints has been unsolved so far. When I analyzed closer the methods used by Toyota and a broad variety of other approaches as well, I discovered severe shortages and deficits. Strangely enough, these shortages and deficits have received little attention during the years. I think many people have taken the Toyota approach, and in some cases six sigma, as the last word as very few, if any, have challenged this view properly. This book consists of seven chapters. I wanted deliberately to have seven chapters to acknowledge and honor the origins of quality and process improvement. Seven is, as you might now, the lucky or magic number in Japan, and it relates to process improvement via the seven-step problem solving process (the PDCA logic) that the seven quality tools support. Japan, and more specifically Toyota, has been the breeding ground of the development and application of the first generation structurized improvement methods that took the improvement activities to the first ambition level. It took me 15 years of “nana-korobi, ya-oki” 4 to create a decent set of HPPI methods and solutions. That is statistically one fall or rise per year! This is probably not a world record, but surely enough for me to understand the essence of that concept! The first chapter outlines in a compressed form the main thread of the book. The second chapter introduces the main concepts and definitions that provide the foundation of later chapters. The chapter functions also as a brief refresher course for those who have forgotten the basic concepts related to process improvement. The third chapter is for those devoted persons who would like to know why and how I designed certain issues the way they are. In that sense, I would like to stress the concept of T and V Values that I will reflect upon in practical terms at the end of the core chapters of this book, i.e., Chaps. 4–6. These chapters present the three main phases or sub-processes of the HPPI process. The presentation logic is to communicate the substance from a method point of view and support this presentation with cases. Specifically, Chap. 5 should be read with proper care and reflection, as this is probably the most important and mind-challenging chapter of the book. The presentation is more profound than the other chapters and includes many descriptive and versatile cases. For those of you especially interested in the quality and output of the due diligence process in company mergers and acquisitions or partner/ supplier/subcontractor selections, I would like to recommend reading Chaps. 4 and 5 with proper care and reflection. Chapter 5 may be especially interesting for those of you looking for a high-class method and output to define, analyze, and improve process based IT/ERP systems in the own company or client companies. Chapter 6 provides an interesting approach and method on how to deal with process improvement education and training besides the realization of the true improvement
4
Japanese meaning “seven falls, eight getting up”, i.e. if you fall down seven times, get up eight times. It is an encouragement to persevere.
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potential and the follow-up. The approach benefits from analogies and visualized stories and cases that boost considerably the learning and the learning experience. IT based solutions and innovative approaches to knowledge and skill transfer are becoming more important than ever, as they provide the means to realize the concept of mass customization for the benefit of meeting the education and training requirements related to HPPI. The final chapter presents two derivative solutions or special cases of the HPPI process. The first issue is the issue of how to improve the company strategy and the related strategy process, and the other issue considers two types of “acid tests” that complement the HPPI process presented in previous chapters. The book ends with some future outlines of HPPI, providing you with some insights related to future opportunities and challenges related to HPPI. The individual chapters of the book provide both a broad and deep insight into the areas considered. These areas form together a coherent and solid basis for truly understanding the essence of modern process improvement. Many company persons regard, mostly rightfully, process improvement efforts as tedious exercises lowering the share of “real work”. With the right methods applied in the right way, and results delivered promptly, process improvement efforts become interesting and even enjoyable. The world is not what it used to be, and the process improvement efforts truly need to contribute to keeping the companies on the right track – despite turbulence, global competition, more demanding stakeholder needs, and networks and processes that are more complex. Distinguishing the vital few improvement objects (problems) from the trivial many and implementing the improvement objects properly have never been this hard. If you think process improvement is hard these days, wait until the Next Generation (the Millennial Generation) starts to enter the corporate scene in larger masses. The time is now to get a solid perspective on modern process improvement and to consider how to organize and run the process improvement activities properly. Helsinki, January, 2010
Markus Pastinen
Acknowledgment
First of all, I would like to thank collectively all those parties that have contributed to the sizable research, development, verification, and application efforts behind this book, either by providing knowledge and insights or financial support or simply just by being a demanding customer with a demanding improvement setting. Although it is not possible to thank every contributor specifically, I would like to express my gratitude to those parties that provided crucial support and advice, especially in the early years. These parties include the Finnish Funding Agency for Technology and Innovation, the Walter Ahlstro¨m Foundation, Prof. Hans Andersin, Prof. Paul Lillrank, Prof. Martti Ma¨ntyla¨, Mr. Ha˚kan Weckstro¨m, Mr. Fred Bach, Mr. Michael Zeman, Mr. Yrjo¨ Halttunen, Mr. Veijo Karppinen, and Mr. Jari Koskinen. Thanks! I am thankful to the Vistalize R&D team, in all its guises, for all the efforts. Mr. Harri Pakarinen and Mr. Jesperi Vara, external members of the Vistalize R&D team, deserve a special mention for the professional attitude and skilled visualizations some of which you may enjoy in this book. The verification and practical application of the high-performance process improvement methods presented in this book are interesting issues that benefit from the real-life understanding of the interaction between the method and solution provider, the external or internal consultant and the (prospective) customer. What works and what not are equally important aspects. In this regard, I am grateful to the input and efforts of Mr. Jan-Henrik Jane´r, Mr. Markku Koivisto, Mr. Paavo Helin, Dr. Henry Sivusuo, Mr. Carl-Axel Rudd, and Mr. Lars-Go¨ran Stenberg. I take a great delight in the seamless co-operation with the team of Dr. Werner A. Mu¨ller at Springer-Verlag (Springer Science + Business Media). I am especially thankful to Mr. Christian Rauscher, the editor of this book, for the high-class and dedicated support and advice in all stages of this project. Finally, I express my warmest thanks to my friends, parents, and family for always being there for me. My wife Petra has supported me, during all the years, more than words can properly describe. As you have inspired me, let this book inspire you!
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Contents
1
High-Performance Process Improvement Fundamentals . . . . . . . . . . . . 1 1.1 Why is Process Improvement an Enormous Waste of Resources and Opportunities? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Why are the Process Improvement Methods Outdated? . . . . . . . . . . . . 6 1.3 The Critical Questions the Business Books Missed to Ask and Answer: Until Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.4 The Current and Prospective State of Process Improvement Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.5 The Research and Development Work and its Result . . . . . . . . . . . . . 10 1.6 The Size of the Improvement Momentum Toyota Loses Every Day and the Momentum Your Company Could Gain Every Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.7 Designing High-Performance Process Improvement Methods. . . . . . . 18 1.8 Defining the Performance Requirements of High-Performance Process Improvement Efforts . . . . . . . . . . . . . . 19 1.9 Summary and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2
High-Performance Process Improvement Concepts . . . . . . . . . . . . . . . 2.1 Key Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Delivery of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Delivery of Value from a Holistic Perspective . . . . . . . . . . . . . . 2.2.2 Delivery of Value from a Key Stakeholder Perspective . . . . . . . 2.3 The Kernel of High-Performance Process Improvement . . . . . . . . . . . 2.4 The Process and Total Improvement Yield. . . . . . . . . . . . . . . . . . . . . 2.4.1 The Process Improvement Yield Concept . . . . . . . . . . . . . . . . . . 2.4.2 The Total Improvement Yield Concept . . . . . . . . . . . . . . . . . . . . 2.5 Summary and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . .
25 25 27 27 31 40 43 44 46 47
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Contents
Design Concepts of the High-Performance Process Improvement Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Standardization and Manageability. . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Optimizing the Interaction of the Process Components. . . . . . . . . . . . 3.2.1 People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Applying the Concept of Reverse Engineering . . . . . . . . . . . . . . . . . . 3.4 The Total Picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Assuring the Quality of the Experts in Charge of the High-Performance Process Improvement Process . . . . . . . . . . . 3.6 Summary and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . .
49 50 51 52 55 56 56 61 63 64
4
Network and Company Analysis and Synthesis. . . . . . . . . . . . . . . . . . . 67 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 4.2 The Process Flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 4.3 The Data Collection and Analysis Criteria . . . . . . . . . . . . . . . . . . . . . 71 4.3.1 The Functional Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 4.3.2 The Operational Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.3.3 The Time Space Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.3.4 Data Collection Criteria Case . . . . . . . . . . . . . . . . . . . . . . . . . . 73 4.3.5 Data Collection Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 4.4 The Synthesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 4.5 The T and V Values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 4.6 Summary and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . 88
5
Process Analysis and Synthesis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 5.2 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 5.2.1 The VISTALIZER1 for Consultants Concept . . . . . . . . . . . . . . 97 5.2.2 The VISTALIZER1 for Process Analysis and Synthesis Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 5.3 Phase 1: Initiation and Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 5.3.1 Initiation of the Analysis (Phase 1.1). . . . . . . . . . . . . . . . . . . . 103 5.3.2 Modeling of the Focus Process (Phase 1.2) . . . . . . . . . . . . . . . 103 5.3.3 Scope Definition and Data Collection Planning (Phase 1.3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 5.4 Phase 2: Data Collection and Basic Definitions. . . . . . . . . . . . . . . . . 109 5.4.1 Determination of the Process Performance Parameters (Phase 2.1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 5.4.2 Creation of the Impact Field (Phase 2.2) . . . . . . . . . . . . . . . . . 118 5.4.3 Giving Priority to the Analysis Parameters (Phase 2.3) . . . . . . 125 5.4.4 Calculation of Criterion 1 and the Reliability Index of the Impact Field (Phase 2.4) . . . . . . . . . . . . . . . . . . . . . . . . 128
Contents
5.5
5.6
5.7 5.8
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5.4.5 Planning for the External Analysis (Phase 2.5) . . . . . . . . . . . . 5.4.6 Setting the Objectives and Evaluation of the Preliminary Monetary Gains (Phase 2.6). . . . . . . . . . . . Phase 3: Sub-process Specific Improvement Plans . . . . . . . . . . . . . . 5.5.1 Analysis of the Specific Sub-processes (Phase 3.1) . . . . . . . . . 5.5.2 Complementing the Sub-process Specific Analysis (Phase 3.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.3 The Optional External Analysis (Phase 3.3) . . . . . . . . . . . . . . Phase 4: The Synthesis and Creation of the VISTALIZER1 Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.1 Processing the Analysis Information and Calibrating Management Expectations (Phase 4.1) . . . . . . . . . . . . . . . . . . 5.6.2 Presynthesis (Phase 4.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3 Creation of the VISTALIZER1 Report (Phase 4.3) . . . . . . . . 5.6.4 Delivery, Presentation and Confirmation of the VISTALIZER1 Report (Phase 4.4) . . . . . . . . . . . . . . . The T and V Values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . .
130 133 138 138 144 147 149 150 163 163 166 166 168
6
The Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Increasing and Maintaining the Knowledge and Skill Base. . . . . . . . 6.1.1 Increasing and Maintaining the Knowledge Base . . . . . . . . . . 6.1.2 Increasing and Maintaining the Skill Base . . . . . . . . . . . . . . . 6.2 The Realization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 The Follow-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 The T and V Values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Summary and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . .
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7
Derivative Concepts and Future Outlines . . . . . . . . . . . . . . . . . . . . . . 7.1 Strategy and Strategy Process Improvement. . . . . . . . . . . . . . . . . . . 7.1.1 The Strategy Improvement Concept . . . . . . . . . . . . . . . . . . . . 7.1.2 Strategy Process Analysis and Synthesis . . . . . . . . . . . . . . . . . 7.2 Acid Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 Future Outlines of High-Performance Process Improvement. . . . . . . 7.4 Summary and Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . .
199 200 201 202 205 206 209
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
List of Figures
Fig. 1.1 The generic HPPI process powered by VISTALIZER1 . . . . . . . . . Fig. 1.2 The projected difference between different process improvement approaches and methods (corporate or company level; like-for-like comparison) . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 1.3 The basic relationships between the different concepts . . . . . . . . . . Fig. 2.1 The core process and the support processes . . . . . . . . . . . . . . . . . . . . . . Fig. 2.2 Maslow’s hierarchy of needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 2.3 The principle of improving the processes of the company (cost aspect) in a scenario where the company does not currently deliver an output at a competitive price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 3.1 The impact of standardized components on the manageability of a construction for process improvement and the impact of customized outputs on the level of change resistance (Pastinen 1998) . . . . . . . . . . . . . . . . Fig. 3.2 Schein’s three approaches to consultation and the general logic for selecting the appropriate consultation approach (Pastinen 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 3.3 The success of the improvement efforts depends also on human and financial constraints (Pastinen 1998) . . . . . . . . . . . . . . . . Fig. 3.4 The total HPPI picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 3.5 A visualization of the work distribution between sight and focus (“T”), i.e. analysis and synthesis at the network/company (unit), process and specific improvement object levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 4.1 The general process flow of the network analysis and synthesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 4.2 Phase 1 of the generic HPPI process (company or unit level) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
13 22 27 36
40
51
53 54 62
63 70 70
xix
xx
Fig. 4.3 Fig. 4.4 Fig. 4.5 Fig. 4.6 Fig. 4.7 Fig. 5.1 Fig. 5.2
Fig. 5.3 Fig. 5.4
Fig. 5.5 Fig. 5.6
Fig. 5.7
Fig. 5.8 Fig. 5.9
Fig. 5.10 Fig. 5.11 Fig. 5.12 Fig. 5.13 Fig. 5.14
Fig. 5.15
List of Figures
An example of the performance of Issue 1.1 in a network with 21 companies (cp. Table 4.1) . . . . . . . . . . . . . . . . 81 An example of the performance of Issue 1.2 in a network with 21 companies (cp. Table 4.1) . . . . . . . . . . . . . . . . . . . . . 81 An example of a stress curve (case: see Sect. 4.3.4) . . . . . . . . . . . . . 82 The current and estimated likely future score (company or unit level) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 The current and estimated likely future score (network level) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 The interface of the software VISTALIZER1 for Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 The framework of the VISTALIZER1 for Process Analysis and Synthesis method. The figure serves also as a memory booster for the person implementing the method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 The flow chart of the VISTALIZER1 for Process Analysis Synthesis method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 The general structure and flow for adding value of a global corporation (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 The flow chart of the case presented in Figure 5.4 . . . . . . . . . . . . 105 The process model of the whole company (Precision plastic products, the tool manufacturing core process with 150 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 The process model in its simplest form (HVAC equipment manufacturer, the export process with nine employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 A picture to visualize process orientation and the potential for improvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 The vital few parameters are chosen from the trivial many to form the spine of the (future) high-performance process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Examples of possible time parameters . . . . . . . . . . . . . . . . . . . . . . . . . . 113 A simple example of the allocation of percentage points to the impact field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 The supplements of the impact field . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 The calculation of Criterion 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 The Criterion 1 value of the example presented in Fig. 5.5 and Tables 5.4 and 5.5 (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 The realistic improvement potential as defined by the operative key persons for each sub-process and the
List of Figures
Fig. 5.16
Fig. 5.17 Fig. 5.18
Fig. 5.19
Fig. 5.20 Fig. 5.21
Fig. 5.22
Fig. 5.23 Fig. 5.24
Fig. 5.25
Fig. 6.1 Fig. 6.2 Fig. 6.3 Fig. 6.4 Fig. 6.5 Fig. Fig. Fig. Fig. Fig.
6.6 6.7 6.8 6.9 6.10
contribution to the overall performance improvement of the focus process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defining the realistic overall effect and comparing the result with the management objectives for calibrating management expectations . . . . . . . . . . . . . . . . . . . . . . . . . . An example of how to calculate the absolute value of Criterion 2 for a sub-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An example of Criterion 2 using absolute values (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An example of Criterion 2 using relative values (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The principle for calculating the value of Criterion 3 for the example phase (P3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An example of Criterion 3 (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An example of Criterion 4 (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The principle for conducting the risk/profit consistency check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The net present value of a support process with the main gain realized in another process (IT services business; the deployment and implementation process with 2,000 persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The net present values of a support process where process external gains are allocated to the support process (IT services business; the deployment and implementation process with 2,000 persons) . . . . . . . . . . . . . . . . . . . The interface of the VISTALIZER1 for Enterprises software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The three approaches to increase and maintain the process improvement knowledge base . . . . . . . . . . . . . . . . . . . . . . The Car Analogy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linking the initial substance area of interest to a more detailed presentation of the selected subject . . . . . . . . . . . . . Linking the initial substance area of interest to a more detailed presentation of the selected subject . . . . . . . . . . . . . The Mountain Analogy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Mountain Analogy (Exploring Mode) . . . . . . . . . . . . . . . . . . . . The Mountain Analogy (Self-tuition Mode) . . . . . . . . . . . . . . . . . . . The three training phases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customizing the story to fit the purpose . . . . . . . . . . . . . . . . . . . . . . .
xxi
145
152 155
155
156 158
158
160 161
161
162 175 175 176 178 179 181 182 182 183 184
xxii
List of Figures
Fig. 6.11 The concept of story telling and customizing the training input and output by relating the tasks to the specific case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 6.12 The PDCA cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 6.13 The PDCA preparatory training phase . . . . . . . . . . . . . . . . . . . . . . . . Fig. 6.14 An excerpt of the PDCA document related to the preparatory PDCA training module . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 6.15 The PDCA training phase (interactive case) . . . . . . . . . . . . . . . . . . . Fig. 6.16 An example of one of the visualized cases (the flow chart) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 6.17 An example of using the Pareto diagram . . . . . . . . . . . . . . . . . . . . . . Fig. 6.18 The logic defining the quality of the PDCA document (basic ambition level) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 7.1 The general process flow of the VISTALIZER1 for Businesses solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fig. 7.2 An example of a strategy process (HVAC equipment manufacturer; 70 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
185 186 187 188 189 191 191 194 201 204
List of Tables
Table 4.1 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Table 4.2 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Table 4.3 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Table 4.4 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Table 4.5 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Table 4.6 The SWOT analysis (example; subcontractor, electronics industry) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Table 4.7 A summary of the scores according to the different perspectives (cp. example in Sect. 4.3.4) . . . . . . . . . . . . . . 84 Table 4.8 The logic for producing the performance profile . . . . . . . . . . . . . . . 86 Table 4.9 An example of a performance profile (see case in Sect. 4.3.4, “Company 5”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Table 5.1 The sub-phases of the first phase of the VISTALIZER1 for Process Analysis and Synthesis approach . . . . . . . . . . . . . . . . . 102 Table 5.2 The sub-phases of the second phase of the VISTALIZER1 for Process Analysis and Synthesis approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Table 5.3 Examples of chosen analysis parameters in different businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
xxiii
xxiv
Table 5.4
Table 5.5 Table 5.6
Table 5.7 Table 5.8
Table 5.9
Table 5.10 Table 5.11
Table 5.12
Table 5.13
Table 5.14
Table 5.15
Table 5.16
Table 5.17
List of Tables
The impact field of the example in Figure 5.5 (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . The supplements to the impact field in Table 5.4 . . . . . . . . . . . . The impact field of the example in Figure 5.6 (precision plastic products, the tool manufacturing core process with 150 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The supplements to the impact field in Table 5.6 . . . . . . . . . . . . The impact field of the example in Figure 5.6 (HVAC equipment manufacturer, the export process with nine employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . An example of the relative importance of the analysis parameters (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . An example of the calculation of the reliability of the impact field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The objectives and the estimation of the related monetary gains regarding the example presented in Figure 5.5 and Table 5.4 (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The objectives and the estimation of the related monetary gains regarding the example presented in Figure 5.6 and Table 5.6 (precision plastic products, the tool manufacturing core process with 150 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The objectives and the estimation of the related monetary gains regarding the example presented in Figure 5.7 and Table 5.8 (HVAC equipment manufacturer, the export process with nine employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The sub-phases of the third phase of the VISTALIZER1 for Process Analysis and Synthesis approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The external analysis of the case presented in Figure 5.5 and Table 5.6 (precision plastic products, the tool manufacturing core process with 150 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The parameter priorities set by the management and customers regarding the case in Table 5.15 (precision plastic products, the tool manufacturing core process with 150 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The parameter performance evaluation as perceived by the customers regarding the case in Table 5.15 and 5.16. Scale: 0 (poor), 1 (passable), 2 (satisfactory), 3 (good), 4 (very good) 5 (excellent) . . . . . . . .
124 124
125 125
126
127 130
136
137
137
139
148
149
149
List of Tables
Table 5.18 The sub-phases of the fourth phase of the VISTALIZER1 for Process Analysis and Synthesis approach . . . . . . . . . . . . . . . Table 5.19 Summary of non-discounted, short-term gains (mechanical engineering industry, the technical support process with 450 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 5.20 Summary of non-discounted, short-term gains (precision plastic products, the tool manufacturing core process with 150 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 5.21 Summary of non-discounted, short-term gains (HVAC equipment manufacturer, the export process with nine employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 5.22 The voice of the employees. An example of the main problems or improvement objects related to the different phases of a focus process (IT services business; the deployment and implementation process with 2,000 persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 5.23 The general structure of a VISTALIZER1 Report (large corporation, complex global process) including case specific issues (Sect. 3.15, 5.1–5.3 and Encl. 2–3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 6.1 An example of how the realization is organized when running the implementation according to the principles of HPPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 7.1 An example of the customized strategy criteria used to define a high-class strategy (HVAC equipment manufacturer; 70 employees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Table 7.2 The concept of the VISTALIZER1 Acid Test focused on the company strategy (cp. Table 7.1) . . . . . . . . . . . .
xxv
150
152
153
154
164
165
193
203 204
Abbreviations
CC CEO DMAIC DNA DPMO EBIT EDM ERP FPY GSC HPPI HVAC IT LPPI MI NC NPV PDA PDCA PDSA PIY PV QFD R&D RE SC SE SPC SWOT
Contact Center Chief Executive Officer Define, Measure, Analyze, Improve, Control Deoxyribonucleic acid Defect per million opportunities Earnings before interest and taxes Electrical discharge machining Enterprise resource planning First pass yield Global solution center High-performance process improvement Heating, ventilating, and air conditioning Information technology Low-performance process improvement Measured information Network company Net present value Personal digital assistant Plan, do, check, act Plan, do, study, act Process improvement yield Present value Quality function deployment Research and development Reliable estimation Solution center Subjective estimation Statistical process control Strengths, weaknesses, opportunities, and threats
xxvii
xxviii
T Value T Value (HPPI)
TIY TQM TS V Value
V Value (HPPI)
WEDM
Abbreviations
Theoretical value; the theoretical quality level of an improvement method Theoretical value; the theoretical quality level of an improvement method reached within the general limits of the requirements of high-performance process improvement Total improvement yield Total quality management Technical support Versatility value; the practical performance of an improvement method in terms of satisfying the needs of the generic process improvement process Versatility value; the practical performance of an improvement method in terms of satisfying the needs of the generic highperformance process improvement process Wire electrical discharge machining
Chapter 1
High-Performance Process Improvement Fundamentals
Lowering the costs, increasing the price of the products and services, and selling more – without constantly sacrificing the satisfaction of one or more stakeholders. This is the practical equation every company has to solve continuously – under tight money and time constraints. Sounds hard? Well, it has been, it still is, and will continue to be difficult, unless you start to consider how to run the process improvement activities fundamentally better than the rest – and the best. This chapter provides you with bags of insights towards this end. It delivers thus in a compressed form the essence of high-performance process improvement (HPPI). Section 1.1 deals with the reason or driver for writing this book, i.e. the dilemma of low-performance process improvement (LPPI). Section 1.2 continues to reflect on the main reason for low-performance process improvement presenting and discussing the process improvement paradox. The outcome of this reflection is the input for Sect. 1.3 that raises two simple questions that crystallize the essence of HPPI. The answer to these questions is the connecting thought throughout the book. Section 1.4 considers the current and prospective state of the currently used process improvement methods for the benefit of understanding the “big picture”. Section 1.5 presents the HPPI process and the related research and development work behind this book. Section 1.6 roughly outlines the basics of HPPI, whereas Sect. 1.7 expands this consideration further by presenting the essential design notes of the considered HPPI process. Section 1.8 brings to the table a brief specification of the performance requirements related to knowledge and the time aspect when aiming at HPPI. Section 1.9 contains a summary and concluding remarks. It explains also in a simple way the interrelations of the key concepts presented in the previous sections.
M. Pastinen, High-Performance Process Improvement, DOI 10.1007/978-3-642-10784-9_1, # Springer-Verlag Berlin Heidelberg 2010
1
2
1.1
1 High-Performance Process Improvement Fundamentals
Why is Process Improvement an Enormous Waste of Resources and Opportunities?
Companies in all sectors allocate plenty of resources to process improvement1 initiatives with the aim to increase their performance. The baseline for each company is to get a sound return on the investments. The targeted processes include both product and service related core processes2 besides crucial support processes.3 The set of key processes subject to improvement efforts include thus research and development (R&D), marketing, sales, order–delivery, after sales, and management and administration. The companies have paid much less attention to truly understanding, creating, running and improving the improvement process itself. It is understandably rather hard even to recognize this critical shortage, as the total picture is hard to obtain. Understanding the fundamentals of such a total picture would provide a means for defining measurement criteria to reveal how fragmented this picture is. From a practical perspective, this translates into creating a logic that is able to define the quality of the process improvement methods applied in the companies. Putting faith in process improvement methods commonly judged stateof-the-art could not be wrong, could it? Yes, it could in a big way! What used to be state-of-the-art in a rather static and simple setting is surely not state-of-the-art in today’s dynamic and complex world. In fact, very few process improvement methods consider how to deal with this topical challenge at all. The old truth states that what you cannot measure, you cannot improve. How many companies can honestly answer what their improvement method quality is? This question is very different from the question how well the company applies the improvement method. The latter question is relevant and interesting only if the quality level of the applied method is sufficient. Different actors develop and apply improvement methods with an everincreasing pace because of a strong demand for getting more effective and efficient processes. The traditional process improvement approaches include an abundance of different concepts and solutions. These range from more loosely structurized approaches to strictly formalized methods. Examples include different approaches to improve leadership and coaching, the utilization of IT (re-engineering), six sigma, the balanced scorecard, process modeling and simulation, quality award criteria, quality standards, different kinds of maturity level tests, hoshin kanri and nichijo kanri (incl. the PDCA4 (plan, do, check, act) logic and quality tools), and
1
The term process improvement is defined in this text as a systematic approach for satisfying the organization’s stakeholders by enhancing the performance of the organization’s activities in terms of time, cost and quality (Pastinen 1998). 2 A logical arrangement of activities that produces cash (value) directly, in other words processes that influence the cash flow directly. 3 A logical arrangement of activities that produces cash (value) indirectly. 4 Often also referred to as PDSA (plan, do, study, and act). The abbreviation PDCA is used throughout the book.
1.1 Why is Process Improvement an Enormous Waste of Resources and Opportunities?
3
quality function deployment.5 However, both the companies and the research and development institutes (universities) lack the profound understanding and knowledge of modern process improvement concepts and dynamics, despite of all the research, development, education, training and consulting in the field of process improvement and total quality management. Process improvement using LPPI methods is an enormous waste of resources and opportunities that the company cannot retrieve. The companies waste resources due to a low improvement performance and a low improvement outcome in the focus processes. Moreover, valuable opportunities remain undisclosed and unrealized due to missing methods for assuring both improvement and focus process effectiveness from a total perspective. It is interesting that the techniques used to decrease waste omit these concerns – probably the largest waste of all.6 The vast majority of the process improvement efforts conducted in the world is currently based on LPPI methods. Traditionally, the companies have applied LPPI methods to increase the efficiency of the production process, or more rightfully the manufacturing function, although it is possible to utilize, at least to some extent, some of the LPPI methods in other processes as well. From a total perspective, the LPPI methods increase the efficiency of the improvement work and focus on improving the efficiency of the focus function. It is thus clear that LPPI methods contain many elements affecting productivity issues, but very few elements that would affect issues related to effectiveness. This becomes evident already in small settings where, for example, a wrong business model, a malfunctioning or even lacking strategy, inadequate technological support, lack of innovation, cultivation of the wrong data, an improper interaction with the customer remain undetected for years. In the meanwhile, the companies continue to be busy with targeting explicit customer complaints and obvious quality defects in the process. As the companies do not even realize that such deficits exist, it is of course hard to conduct any corrective actions at all. In fact, the majority of these issues could be, and many times they are, present in the same process – despite a durable application of LPPI methods. You may find these examples in any industry, but in the software industry, covering both in-house and outsourced software engineering, you do not probably even need to seek much. Using a metaphor related to that industry with a strong connection to all businesses and everyday life: it is like scanning your computer for viruses using virus definitions 10 years old and running an inadequate operative system at the same time. The HPPI methods, on the other hand, assure that the virus definitions and virus removal approach are up to date and that the operative system is fit for the purpose. Moreover, the HPPI methods are able to improve what you do and how you do with the computer from a business point of view besides considering the issue of what computer, if any, to use. This issue, i.e. the proper management of the ambition
5
Also known as the “House of Quality” and “Voice-Of-The-Customer”. Examples of these waste decreasing techniques include the “muda”, “muri” and “muri” concepts related to the Toyota Production System. 6
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levels7 regarding the improvement work, the focus setting8 and the produced output, is a feature lacking in the LPPI methods. All these deficits are process improvement issues that place the process and the process performance in a certain mould that is not beneficial from a total perspective. Prolonging the list with other cases and cases from your own company could be an interesting exercise, but to illustrate the effectiveness concern, I think you got the point. In larger settings, such as end-to-end processes and processes that utilize the output of several networks of companies or units located in different parts of the world, this shortcoming is a real pain, not to mention the improvement of whole value chains. If the LPPI methods are inadequate in smaller settings, how could they ever deal with larger settings? This, if anything, is a very serious concern the board of directors and management board of the company need to devote brainwork and resources to. A common solution the companies apply to address this critical shortcoming is individual brilliance – many times combined with brute force. This approach has, however, very little to do with systematic and result-oriented improvement efforts, as the application of dedicated methods fit for the purpose is the answer how to address this shortcoming in a sustainable way. How many companies can continuously attract genuinely brilliant people that remain both brilliant and in the company? This is not to say that individual brilliance and dedicated HPPI methods do not mix, quite the contrary. From a total perspective, the reliance on individual brilliance implies that large areas of the company value chain remain potentially unimproved to the disadvantage of the company stakeholders. This is true also in companies with apparent process improvement and innovation capabilities, as the requirements and expectations just need to be scaled-up to a more demanding ambition level. An excellent performance level may still be far away from the performance level envisaged by the Concept of Zero that is part of the HPPI concept: producing world-class outputs in zero seconds, with zero defects and zero costs.9 However, both a loose and a strict orthodox realization of this vision do more harm than good. Badly applied, this vision causes annoyance and obsessions that divert thinking from a total perspective. In addition, the application of the Concept of Zero, without complementing aspects, results likely in both great dissatisfaction and great satisfaction, depending on what stakeholder is concerned. Such a scenario is hardly sustainable and desirable. Harnessed in the right context, it provides a great support to solve the HPPI equation: how to lower the costs, increase the price of the products and services, and sell more, without constantly sacrificing the satisfaction of one or more stakeholders. In that sense, the Concept of Zero is a bad master, but a good mental challenger. As a mental challenger, the Concept of Zero helps to identify and decrease the obstacles that prevent the companies from realizing the true process improvement potential. This applies also to the development of HPPI methods.
7
Basic level (Level I), articulated level (Level II), exciting level (Level III). Company networks (value chains), companies, processes and individuals. 9 Section 5.5.1.2 discusses the Concept of Zero in more detail when addressing the issue how to apply that concept properly from a practical point of view. 8
1.1 Why is Process Improvement an Enormous Waste of Resources and Opportunities?
5
The first step required to solve the HPPI equation is to acknowledge that LPPI methods fall short on many crucial issues. The second step is to embrace a total perspective to process improvement. The third step is to apply duly designed dedicated methods, i.e. HPPI methods, to boost the process improvement performance. The fourth step is to expand the application of the HPPI methods to cover all activities. The fifth discipline is to keep up and improve the good work by solving more demanding HPPI equations. It would be too trivial to claim that the reason for the low improvement performance is that the academic researchers have slipped too far away from the company world and the companies, on the other hand, have been too busy thinking how to manage every-day issues. Such a claim does not contain any proposal or remedy for how to correct the situation. However, the fact is that the average company and even the top-tier companies conduct process improvement initiatives more or less randomly and without the true desire to achieve significant results on a large-scale basis. According to a study conducted by Vistalize Oy, covering some 30 companies in eight European countries in the very competitive electronics industry, the average score regarding the quality of the process improvement planning was 16%. Likewise, the implementation of the (almost non-existent) plan was on an equally low level (!). This is a clear indication that the root cause for low-performance process improvement is a fundamental issue that deserves attention. To embark on a more detailed analysis of the root cause it is beneficial to consider the evident process improvement paradox. People involved in process improvement in companies may rather easily see that the companies mostly struggle with the same problems year after year. These problems relate, for example, to a low information quality and malfunctioning information processes. Different “task forces” or projects address the issues from one year to the other, but in the end the problems remain, albeit in slightly different guises. Due to this, it is difficult to start solving problems at higher ambition levels because even the basic problems remain largely unsolved. As the customer requirements change, so do the four interacting process components of any process, i.e. people, technology (incl. machines, hardware, software, and methods), information and materials. The overall contribution of these four components affects directly the overall performance of the company in terms of the three fundamental performance parameters (time, quality and costs). How to stay in the game in this dynamic environment is not an easy task. For instance, in the automotive industry all three performance parameters play a major role in close to every process these days, as opposite to a more or less production oriented perspective a comparably short time ago with an uneven attention to time, quality and costs. The one that is able to improve operations most from a total perspective, bearing in mind the challenges of mastering these moving parts in real-life, catches inevitably up with the ones at the top of the game. The cumulative difference of the actual improvement pace, i.e. the process improvement yield, between the own company or value chain and the competitors is the key driver for playing the process improvement game successfully. To keep this difference as big as possible is a simple improvement strategy that goes far beyond the strategy of continuous improvement.
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The process improvement paradox presented in Sect. 1.2 provides an interesting perspective to consider this issue further.
1.2
Why are the Process Improvement Methods Outdated?
A fundamental understanding of the process improvement paradox is relevant when aiming at getting the process improvement efforts on the right track. The root problem causing the process improvement paradox is the fact that the improvement philosophy has been conceived as the strive for “making right things right” in the focus process. This statement recognizes that companies need to consider at the same time both issues related to effectiveness and efficiency. This should eventually translate into an improvement of the focus process performance in terms of time, quality and costs. These three parameters are the only ones that a company has to master in order to be a high-performance business. These criteria, modified to suit the specific need, can be adapted to all processes. These processes include, for instance, the strategy process, the product development process, the marketing process, the sales process, the order–delivery process and the after sales process. This demand is valid in all processes at the same time, regardless process type. Acting according to the statement above it is fully possible over time to improve the process performance to a good, but not excellent, level. Rapidly changing circumstances and demands influence the competitive situation of most companies. This will accordingly influence how the improvement efforts themselves are organized, implemented and improved. The main causes of the turbulence include new customer requirements and needs, increase or decline of knowledge, skills and motivation, financial issues, the counteractions of competitors and an everchanging legislation. The competitive situation may also change due to innovations and new technologies. Many executives, managers, developers, consultants and researchers have taken the “making right things right” mantra as the basis for designing and implementing approaches to process improvement. Both strategic (what) and operational issues (how) have been the focus of method design. Nevertheless, this has led to a bias when designing and implementing appropriate approaches and methods to manage the process improvement efforts, as the process improvement activities themselves have attracted no or little attention in terms of time, quality and costs. In addition, the improvement of already good or excellent processes is very hard, as the limitations of the methods restrict the possibility to reveal and realize the full potential of the selected focus process. Simply stated, the dilemma is that most improvement methods adopted are of low quality, consume much time and/or cost a lot to implement. Most companies do not recognize the dilemma due to the low process improvement knowledge throughout the organization and cultural aspects. These companies have a firm belief that they have the best people attached to the process improvement issues and their process improvement initiatives are state-of-the-art. Consequently, companies put much effort on, for example,
1.2 Why are the Process Improvement Methods Outdated?
7
flow charts, lean management six sigma, scorecards and a countless number of different types of assessments besides outsourcing initiatives and investments in IT systems. Occasionally one might find at a strategic level the adoption of a policy deployment method (such as hoshin kanri). Likewise, one might find at the operational level the adoption of the Deming circle or the PDCA logic, but the companies have mostly implemented these issues at a heading level or without a true understanding of the underlying logic. If the currently applied approaches and methods should be evaluated using the principle of “making right things right, in a fast and cost effective way” very few of them would pass the test.10 This statement is also the kernel of the high-performance process improvement philosophy. Comparing the former statement with the latter statement above may result in an analysis that the difference is not that big. However, in reality the difference is huge. The former statement requires “only” that the processes are effective (“making right things”) and efficient (“making things in the right way”) whereas the latter statement requires additionally that the improvement efforts themselves should be effective and efficient. This means that one should accomplish the (demanding) objectives with minimal risk, low costs and in the specified time. Such a demand requires a new way of thinking in terms of defining, implementing and updating management systems, how to organize everyday work, how to provide education and training as well as how to manage the organizational change. Analyzing closer the current set of methods used under the umbrella “process improvement” reveals that the most commonly used methods, such as the PDCA logic and six sigma, strive to raise the improvement productivity (efficiency). Those that strive to or contain the possibility to raise the improvement effectiveness will in this context, however, only at best provide an analysis (cp. measurement and improvement according to quality award criteria). This analysis does not provide the required input for producing a proper synthesis leading to an “ad hoc” synthesis that will likely contain severe or even fatal biases (cp. hoshin kanri). Very few methods contain any solid and robust logic for assuring the process improvement effectiveness from a method point of view. It is also important to consider how to maintain the achieved performance level and improve it further. This is an important issue, as the long-term cumulative momentum of running high-performance improvement methods is the answer to the question how to really capitalize on the improvement potential of a company in a big way. It is clear that it is very hard to measure, improve and manage process improvement efforts without a systematic and result-oriented process improvement process in place. Without such a process, companies achieve only sub-optimized results at best. Adopting the wrong methods, potentially in the wrong way, make companies 10
One practical way of testing a method’s suitability to process improvement is to implement the method to the process improvement process itself. If the process improvement process is improved in terms of time, quality and costs, then the method might prove useful. Applying the HPPI process (especially Phase 2) presented in this book to the HPPI process itself provides a practical way of assuring a high real-life performance of said process. This feature is an exciting attribute not present in most of the LPPI methods.
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lose considerable amounts of money each year. It is easy to see that the cumulative sum lost during a period of some years will be comparable to or even exceed the annual revenue of the company. This is the price of the process improvement paradox or the cost of low-performance process improvement. The price is considerably higher than the quality costs, as the quality costs “only” consider such costs related to not doing things correctly in the first place.11 The costs related to the process improvement paradox include also the costs of unrealized potential. A highperformance approach to process analysis and synthesis is able to make this total financial potential visual. Chapter 5 considers this aspect more thoroughly.
1.3
The Critical Questions the Business Books Missed to Ask and Answer: Until Now
A process is the interaction of people, technology (machines), information and materials to produce a certain output (Fromm 1992). Broadly speaking process improvement means in the business world that one should make more money by delivering more value to the stakeholders using less time and costs. How to satisfy continuously different stakeholders from a total perspective is a demanding task that one needs to consider more or less in all improvement activities. How to do this in a classy way under tight money and time constraints is the mission of HPPI. However, it is symptomatic that the available time for conducting improvement efforts has been cut down to increase the share of “real work”. In such a setting, where the pace of the race is constantly higher, and where improvement budgets are getting tighter and tighter, also the improvement methods need to adapt to the time and cost demand without sacrificing the quality aspect along the way. It is not interesting how some well-cited landmark company or organization has improved some part of its operations because only a small fraction of the companies truly improves their processes in a systematic and result-oriented way. Much more interesting is the main question, i.e. how to catch-up and overtake the best in a fast and cost-effective way, despite company unique prerequisites. This calls for both evolutionary and revolutionary thinking to take process improvement to the next ambition level, i.e. high-performance process improvement. The crucial following question is, consequently, how to implement the statement “making right things right, in a fast and cost effective way” in practice (cp. Sect. 1.2). Based on management literature it would be rather easy to come up with a reasonable answer if one was to consider the statement “making right things right”. When the requirements are based on this statement, one realizes, usually the hard way, that there will not perhaps be 4 months annually available to define the improvement plan or 5 years of calendar time available for the implementation to reach the next 11
Spending occurs usually in four areas: internal and external costs, appraisal costs and prevention costs.
1.4 The Current and Prospective State of Process Improvement Methods
9
ambition level. Furthermore, one will soon find out that it is not possible to hire an army of skilled consultants, educators and trainers to speed up the efforts. Besides, very few (key) persons have in real-life the time, patience or motivation to attend tens of meetings, seminars, etc. Due to not knowing anything better, the low-performance methods continue to be applied resulting in a great waste of resources and unrealized potential. This, if anything, will cost a lot and will therefore affect negatively all stakeholders (customers, employees, owners, suppliers, society, investors and the environment). The burning question from a company perspective is that for how long can the companies afford to apply low-performance process improvement approaches?
1.4
The Current and Prospective State of Process Improvement Methods
Due to a large-scale lack of understanding covering the companies themselves and their external advisors such as consulting companies and research institutions, it is no wonder that most of the companies stick to methods that are more or less isolated islands on the process improvement map. The use of fragmentary, inflexible and stiff improvement methods will lock the improvement work into a certain mould that restricts the possibility to reach an optimal solution in terms of time, quality and costs – both in the focus processes and the improvement process itself. Obsolete methods do not disclose the true potential of the processes leading to monumental cumulative losses. The executives might feel comfortable with the on-going process improvement efforts because of not knowing of anything better. A 20% increase of the performance level of a certain part of a process might be exciting and satisfy most executives. However, if the whole process could have been improved 40% using only half of the time required, and with only half of the costs, then the deed seems less impressive. The quality of the improvement methods becomes a concern when realizing that the company needs to replicate the deed continuously. The company needs to raise the ambition levels of both the process and the produced output once the company has reached a higher level. Few companies understand in practice the essence and consequences of this fundamental improvement issue from a total perspective. Another point is that a large corporation may have easily more than 100 key processes delivering value in a global perspective. This provides a clue that the cumulative gain of implementing highperformance process improvement solutions is very attractive even from the corporate perspective (board of directors, CEO). Even small companies have a fair amount of key processes that need to be highly competitive as a whole. In fact, it seems that companies are competitive not because of having high-quality processes throughout the organization, but because the competitors are potentially doing even worse in terms of process improvement. The processes are required to operate in a systematic and result-oriented way, but the activities for achieving this is not subject to such criteria. Very few companies, if
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any, have perceived the process improvement efforts as a process that can and should be improved just like any other process in terms of time, quality and costs. For instance, the much sited cases of the Japanese car manufacturers (cp. e.g. Toyota), and their successes in the field of process improvement field are impressive and provide a clear vision what is achievable for other companies as well. However, those production systems and practices have evolved over many decades. These end-results have been customized to fit the specific culture, case and world using improvement methods and concepts that may not provide adequate improvement momentum in today’s world. The achievements are less impressive from an improvement process perspective. This suggests that other companies in any industry can create as competitive or even better systems and practices with only a fraction of the time and money used by, for instance the Japanese car manufacturers, without copying the show-off cases. To do so the concept of high-performance process improvement should be fully understood and implemented. Whereas the company might continuously measure the core processes and most of the support processes in terms of quality, time and costs, at least to some degree, process improvement activities are usually not. In such a setting, the topmanagement never receives facts about the revitalization agility of the company resulting in an unnecessary exposure to making bad decisions that may be hard to discover before it is too late. By understanding the main concepts (the “DNA”) related to high-performance process improvement it is possible to create momentum and implement optimal improvement efforts with the best leverage on the object process despite the magnitude of change required, current performance level or line of business and process type. Additional benefits of these concepts include the ease of management, a high predictability level, and a systematic and resultoriented process improvement even in turbulent, complex and large settings. Could your company benefit from this?
1.5
The Research and Development Work and its Result
The R&D work behind the book has been focusing on the theory and practice behind high-performance process improvement. This includes the definition, creation, implementation, verification (testing), application and improvement of a generic HPPI process. In addition, the work included the design and verification of the related software technology to support the operation of the HPPI process. The core work began in 1993 and ended 12 years later. After this, the R&D work has been focusing on evolving further the theory and practice to form a coherent and solid whole embracing the HPPI concept from a total perspective. The practical test setting covered some 75 different companies of all sizes in nine European countries and six public sector organizations. Approximately 75% of the companies were in the electronics, metal and plastic industry. Other industries or sectors included telecom, food, transportation, waste management, defense, IT services and education.
1.5 The Research and Development Work and its Result
11
A team of four persons took part in the initial learning and specification phase of the R&D work at Helsinki University of Technology (Finland) 1994–1996. This phase derived advantage from the input of some additional 85 organizations, including 75 documented PDCA works made in 60 organizations in almost all sectors and industries including the public sector. The R&D team at Vistalize Oy, strengthened by two skilled external graphical artists, has been responsible for all R&D efforts since 1996. To support the verification phase and the creation of solutions supporting the management of the HPPI process from a total perspective the R&D work benefited from the input of fifteen external consultants. As there have been five theses and dissertations written at different academic levels targeting some specific area, nine professors of different research fields have contributed to the R&D work. These fields included industrial management, quality management, work and organizational psychology and computer science. The generic HPPI process contains of three key sub-processes or phases as seen in Fig. 1.1: 1. The network and company (unit) analysis and synthesis. 2. The process analysis and synthesis. 3. The implementation, including process improvement education and training, the realization of the improvement potential (improvement objects), and the follow-up.
Fig. 1.1 The generic HPPI process powered by VISTALIZER112
12
VISTALIZER is a registered trademark of Vistalize Oy.
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1 High-Performance Process Improvement Fundamentals
These phases take advantage of specific methods and solutions known as VISTALIZER1. The first two phases assure that the improvement work is effective whereas the third phase assures the productivity of the improvement work. The improvement process depicted in Fig. 1.1 meets the requirements related to HPPI thanks to highly productified methods that utilize a seamless integration into one another. This integration work, besides the development of the methods, is a rather demanding R&D task. A proper integration of the methods is necessary to prevent a loss of improvement momentum when gearing to the next improvement phase or next improvement round. The performance of the HPPI process is very competitive as indicated in Fig. 1.1 (yield level, time consumption). I present and discuss the terms, concepts and substance issues of Fig. 1.1 in detail in subsequent chapters. From a single company’s perspective, it is possible to run the HPPI process in a flexible manner. The process analysis and synthesis, i.e. Phase 2 in Fig. 1.1, would thus be the first phase to run. After this, the implementation and the potential network analysis and synthesis phases are run concurrently. In such a setting, the implementation phase targets internal improvement efforts, whereas the network analysis and synthesis phase targets the external improvement efforts. These external efforts may include, for example, the improvement of the subcontractor and supplier networks. Running the process analysis and synthesis phase with the suppliers’ key processes as the target processes, and running the implementation phase in succession, improves in turn the suppliers’ performance according to the requirements of HPPI. Of course, the supplier may also apply the same logic as its customer to the second level suppliers. A devoted supplier or subcontractor can even harmonize and adapt the network analysis criteria in line with the customer requirements and demands. Coupled this way, it is possible to design and implement a high-performance process to improve the performance of whole value chains or clusters of companies with a wealth of companies, i.e. high-performance value chain improvement. This setting provides an attractive concept to respond to performance and improvement needs regarding large wholes. How to achieve such an improvement momentum and pace using LPPI methods is a question that may not have any proper answer.
1.6
The Size of the Improvement Momentum Toyota Loses Every Day and the Momentum Your Company Could Gain Every Day
The term process improvement process could be defined as a logical set of activities that strives to improve the performance of the targeted value chain in terms of time, quality and costs. This set of activities includes the creation of an appropriate improvement plan on the network (suppliers, own units), company and/or process levels, deployment of the plan(s), educating and training people, realizing the
1.6 The Size of the Improvement Momentum Toyota Loses Every Day
13
solution (potential) and following-up the actions. The quality level of the core improvement activities can be defined by the process improvement yield (PIY). This quality parameter defines how well any set of improvement methods contributes to the process improvement work in real-life (Fig. 1.2). The process improvement yield, expressed as a percentage point, considers both the impact on increasing the process improvement effectiveness and the process improvement efficiency of any given set of improvement methods. A high process improvement yield assures that the focus processes are optimally improved in terms of time, quality and costs (¼the outcome) using as little resources as possible. Besides the company or corporate level, the concept may be enlarged to cover company networks of even whole value chains. In such a setting, the related quality parameter is called the total improvement yield (TIY). Chapter 2 presents the PIY and TIY concepts in detail. The PIY communicates thus a company’s level of internal improvement traction or improvement momentum, whereas the TIY communicates a company’s total improvement traction (momentum) level. Without any improvement traction, there is no controlled and sustainable performance increase
Fig. 1.2 The projected difference between different process improvement approaches and methods (corporate or company level; like-for-like comparison)
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1 High-Performance Process Improvement Fundamentals
at all. A higher improvement traction means that the improvement activities are more systematic and result-oriented providing thus a better input/output ratio, i.e. dollar per PIY percentage points, and a better process performance outcome in terms of time, quality and costs that translates into a single figure financial total gain. The dollar per PIY percentage point ratio and related financial outcome depend fully on the size and complexity of the process, the current and future performance levels, and the available time. The process analysis and synthesis method presented in Chap. 5 is able to define, process specifically, the issues A) to C) in Fig. 1.2 accurately enough in advance. This kind of business intelligence, i.e. how to solve the HPPI equation of a specific process, made visual before implementing a single issue, provides the company with a new level of planning quality and certainty. The terms hoshin kanri and nichijo kanri in Fig. 1.2 are loosely translated from the Japanese in the following way (Soin 1992): l
l
Hoshin kanri. Hoshin means objectives or directions, while kanri means control or management. So in essence hoshin kanri means policy management or management of objectives. Nichijo kanri. Nichijo means daily. Thus, nichijo kanri means daily management. In the Western corporate environment, a clearer definition could be business fundamentals.
The implementation plan focuses on the steps needed to accomplish the strategies or objectives in the hoshin plan. The implementation plan should cover the following elements (Soin 1992): l l
l
Object of improvement and performance measures. The structure of the implementation approach including the time schedules (the PDCA cycle þ schedule). Ownership of responsibility, which must be clearly defined to avoid misunderstandings and confusion.
In addition to the implementation plan, the achieved performance level must be maintained. To do this the company needs a daily management plan. Nichijo kanri (daily management) focuses on keeping the house in order, i.e. maintaining the performance of day-to-day, routine or repetitive processes (Soin 1992). No special efforts other than establishing goals, controlling limits and a monitoring system are required. The prerequisite is that these processes are well understood because there is a wealth of experience and knowledge, which need to be documented. Nichijo kanri requires effective management of routine processes, discovering abnormalities or deviations and preventing their recurrence (Soin 1992). For example, an educated estimate based on the methods hoshin kanri and nichijo kanri, applied by Toyota and others, suggests that the maximum PIY level of Toyota would be slightly below 50% (48%) reached in approximately 20 years. It is likely that the PIY score of Toyota is (much) lower than 48% in real-life because of probable shortages related to Toyota’s actual scores regarding the quality and scope parameters inherent in the PIY concept. The 48% PIY calculation is based on:
1.6 The Size of the Improvement Momentum Toyota Loses Every Day l
l
15
A comparable process improvement plan quality of 60% and a coverage of 100%. i.e. all operations are covered with a hoshin kanri based plan that targets process improvement at a 60% quality level An implementation quality of 100% and an implementation coverage of 80%.
The comparable quality output of the hoshin kanri approach in this context is more in the range of 30% than 60%. This cuts the process improvement yield by 50% to 24%.13 The figure should probably be lower because the hoshin kanri approach does not contain any actual logic or method support to assure the effectiveness of the improvement efforts at any level. To lower the likelihood of deploying garbage, and realizing thus the principle of “garbage in, garbage out”, it is necessary to rely on individual brilliance, although such an approach does not assure the improvement effectiveness in the long run. In addition, the scores related to the quality of the implementation and the related coverage are likely to provide a downgrade. A PIY level in the range of about 15% is probably a reasonable real-life output well in line with the achieved results and the time spent to achieve the results.14 Of course, if other sets of methods than the hoshin kanri/nichijo kanri have been applied, then the scores may be different. It should be noted that this level is very high compared to the average company or any company for that matter especially when considering the cumulative effects of keeping that level for tens of subsequent years. Such a performance will inevitably also form the corporate culture in a way that supports continuous improvement in a real sense. In fact, a PIY of 15% in any larger setting shows a very good command of the applied methods and is probably the level that companies using LPPI methods can achieve at best given enough time. The conclusion in this regard is that the Toyota’s set of methods are the best LPPI methods available. Besides, Toyota has currently probably the largest cumulative PIY score of all companies (the area below the curves in Fig. 1.2). These methods contain many attractive features, especially the deployment logic (hoshin kanri) and the PDCA cycle supported by quality tools (nichijo kanri). How to assure the improvement effectiveness and how to run and ramp-up the improvement activities from a total perspective within a short period of time, in a cost-effective way, according to different ambition levels, are the critical shortages. Also the fundamental application environment (routine processes) and a heavy emphasis on discovering operative abnormalities or deviations (need for measured data) and preventing their recurrence lock the usability of these concepts into a certain mode that is insufficient from a HPPI perspective. The average company has a PIY level of below 3% given infinite time (2.6% to be precise). This score is the average value of 30 companies in the electronics business in eight European countries. Few companies will ever reach a level above 10% given infinite time, as the theoretical score of the most commonly used (set of) 13
Section 4.3.4 discusses this in more detail. Process improvement plan quality 30% * the process improvement plan coverage of 80% * the implementation quality of 80% * the implementation coverage of 80% ¼ 15.4% (0.3*0.8*0.8*0.8 *100%). 14
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1 High-Performance Process Improvement Fundamentals
methods will not exceed that level in practice even if implemented correctly, especially for any longer period of time. This performance level indicates that in terms of systematic and result-oriented process improvement efforts, which are the basis for a sustainable improvement effect, it is neither in theory nor in practice possible to catch-up with Toyota. It may be possible over time to be an industry benchmark and “best case”, if the competitors stick to the LPPI methods or continue to implement end-results of the Toyota approach. The high-performance process improvement approaches and methods presented in this book will provide a TIY and PIY level of above 75% reached in 6 years or sooner. This level is achieved in 2 years or sooner in smaller settings. The financial impact of this is for any company substantial. Such an improvement performance provides also a substantial momentum to not only catch-up with the best, but also even overtake the best. Of course, the best companies can benefit from these concepts and methods to assure that they stay ahead in the competition. History has shown that successfully companies may fall in the trap of their own success, as the companies start to believe that their own supremacy is self-evident and does not require any improved strategies or better improvement approaches. This is good news for open-minded companies looking for a better spot in the market place. After all, arrogant ignorance is the most precious gift any company can give to its competitors. The competitor should appreciate such a valuable contribution by harnessing it as well as possible, i.e. by adopting HPPI methods. The company may even increase the value of the gift by increasing its application of LPPI methods as a bonus. This LPPI swamp is real and once stuck in it, it may be impossible to get away due to rooted perceptions that take time to overcome. However, with the bad comes the good. The LPPI swamp provides almost limitless business opportunities for consulting companies to “help” the customer out of the swamp. This will understandably never happen, as this would make the current swamp based consulting offerings obsolete. Paradoxically, a change in this regard is very hard for many consulting companies advocating change and continuous improvement for their clients, as this would require a move out of the comfort zone. On the other hand, if the customers are happy with the current offerings, why change a winning formula? In the end, changed customer preferences and demands are the prime drivers of most change efforts. Companies and people do not move out of their comfort zones if the pain level forcing them to change is not high enough. Innovative start-up companies are another example where thinking may potentially deteriorate. These venture companies try to predict future market demands by creating solutions, often without an initial explicit need for that solution. If the timing is there and the market matures in favor of their visionary solutions they can really capitalize on their betting. Many times the timing is just not there (yet) and the business momentum is lost due to that. However, the business momentum is there more often than seldom, but the processes are performing so badly that the companies miss their opportunities due to this. In such a setting, where a lot of (own and venture) capital has been invested and the future of the entrepreneurs are at stake, the importance of HPPI is probably even more important than in more
1.6 The Size of the Improvement Momentum Toyota Loses Every Day
17
established businesses. Very few of the start-up companies think about a systematic and result-oriented process improvement that would decrease the burn-rate and increase the quality of the output for the benefit of keeping the company alive longer and making their value propositions more attractive15. This would provide substantial means for exploiting the business idea more properly. A good business plan, adequate funding and a capable management team are necessary, but not necessarily sufficient aspects needed to increase the likelihood of success. Gearing up the business with HPPI methods, preferably from day one, would be in the best interest of all start-up stakeholders and could provide a much-needed complement to utilize properly the energetic and youthful spirit of a start-up company. From a process improvement perspective, four issues form the basis for catchingup, and ultimately overtaking the best in terms of the improvement methods used: 1. 2. 3. 4.
The achievable and sustainable process improvement yield level. The ramp-up performance (time, total cost). The maintenance performance (time, total cost). The optimization of the ambition level regarding improvement plans and the implementation.
High-performance process improvement methods score highly in all four issues. The remarkable achievement of the construction presented in Fig. 1.1 is that it not only optimizes the interaction of people, technology (e.g. methods, software), information/knowledge and material needed in process improvement, but also improves, creates or compensates missing or malfunctioning issues. This provides the solution to run the HPPI process in almost any setting and even to deliver only the output of said process for the specified period, for instance, the desired PIY level for five subsequent years. In such a “turn key” set-up, the company has fully outsourced the operation of the HPPI process, including all human expert resources and software solutions, for the benefit of getting the HPPI process up and running on a short notice. It is also possible to specify a risk and reward scheme regarding to the output and related outcome. This provides a very attractive total offering and new business opportunities for all parties. Although the consideration of the HPPI process from a business point of view is not the objective of this book, I will briefly return to this fundamental matter at the end of the book when considering future outlines of HPPI (Sect. 7.3). After all, the question “What’s in it for me?” is the prime driver of any business and the one that makes people and things tick. How could HPPI be any different?
15
“Burn-rate”: for a company with negative cash flow, the size of that negative cash flow, usually per month. Venture capitalists use the term frequently to define how much time a (start-up) company has to reach positive cash flow before the company runs out of money or requires more funding.
18
1.7
1 High-Performance Process Improvement Fundamentals
Designing High-Performance Process Improvement Methods
To gain momentum in terms of increasing the process improvement yield in a systematic and result-oriented way it is clear that common sense will not do. This means that the companies need a construction (recall Fig. 1.1) to deal with the matter properly. To understand further the nature of the construction it is necessary to outline the general requirements the construction has to satisfy to be useful: 1. It should be scalable. The logic has to deal with any value chain despite the size. It has to be suitable for just one person or a cluster of several hundreds of companies or units. 2. It should be universal. The logic has to deal with any line of business and process, i.e. the solutions need to be fully customized to meet industry and company specific needs. 3. It has to deal with any starting level. The logic should adapt to the current knowledge base, current process performance or level of motivation and change resistance. It should be as useful to a seasoned company as to a company that is just starting with the systematic process improvement efforts. 4. It has to be manageable, copyable and measurable. It should consume as little time and money resources as possible. Despite the size of the target value chain, the first two requirements deal with the question what, whereas the requirements three and four deal with the question how. A what question is typically an indication of that a strategy or some kind of improvement plan needs to be considered or created. To tackle the what question it is beneficial to gain a basic understanding of how to derive an optimal plan. A high-class improvement plan can be created via an information process that contains three main phases: 1. The collection of data. 2. Cultivating the data into information, i.e. making an analysis. 3. Cultivating the information into knowledge, i.e. making a synthesis. These three phases are subject to general quality criteria related to information (Augustin and Oberhofer 1990). Firstly, the logic applied should assure that the collected data and information are correct and relevant. Otherwise, the rule “garbage in, garbage out” will apply. Most approaches and methods applied currently provide at best only an analysis or assessment of the current state. These methods include, for example, quality award criteria, the Balanced Scorecard (BSC) and six sigma. What they do not provide is the synthesis, i.e. what would be the optimal actions to conduct, bearing in mind case specific and unique constraints and priorities that are due to both company external and internal issues. These methods leave the most crucial issue unsolved: as knowledge is the basis for making decisions, the quality of the decisions is subject to a great bias due to the personal constraints of the decision maker. There is thus no systematic and result-oriented
1.8 Defining the Performance Requirements of High-Performance Process
19
way of arriving at the answer. This results in a great loss of momentum at the very early stages of the process improvement efforts, as the company implements potentially the wrong issues. Secondly, it is very important to master the time dimension when creating an optimal improvement plan. There are two important aspects to consider in this regard. The first is that the selected method might be so time consuming that it is impossible to grab the dynamic time window that all companies and processes are subject to. The world and the specific and unique conditions might have altered too much before even the analysis is finalized – the wrong remedy is potentially proposed as a consequence. Another aspect is that many of the non-trivial methods applied today consume too much time and will make the people attached to the case too exhausted to implement anything after the analysis phase. As the process improvement plan gets out of date, a new one has to be prepared although the company has not necessarily implemented much, if anything. Additional requirements of the process improvement plan target the amount of information (“as much as necessary, as little as possible”), its form and place. Furthermore, the plan has to be designed so that it can be immediately deployed and implemented in practice. The first how issue (the third issue above) points out that the construction has to detect and adjust to the current ambition level of the focus process. In addition, it has to define the optimal path how to reach the next level within certain unique prerequisites. The second how issue (the fourth issue above) demands that the construction has to be manageable, copyable and measurable. All these requirements can be satisfied if the construction can be run as a process. It is possible to satisfy also the performance requirements, if the process is improved enough. The claims communicated via the design notes can be satisfied by a generic HPPI process that utilizes high-class information processes. To get a rough guidance related to the performance requirements of the construction it is necessary at this stage to outline briefly the general performance requirements, especially related to the time and knowledge aspects. Chapter 3 (Sect. 3.5) considers the knowledge aspect required to operate the HPPI process properly.
1.8
Defining the Performance Requirements of HighPerformance Process Improvement Efforts
The company should not allocate more than approximately 4% of the annual effective overall working time to process improvement efforts. Besides this rough time limit, also the use of the time allocated to process improvement efforts deserves attention. For instance, if the available process improvement time would annually be, let’s say roughly ten working days, some 8–9 days (80–90%) are typically allocated to planning (data collection, analysis and synthesis) whereas
20
1 High-Performance Process Improvement Fundamentals
only 1–2 days (10–20%) would be left to implementation – in an ideal case!16 This is especially true in large corporations, whereas the ratio might be quite the opposite in small companies, where process improvements are done “ad hoc” without any prior planning. If the process is still competitive in these cases, it is not necessarily due to a systematic and result-oriented improvement work but more thanks to pure luck and the fact that the competitors are performing even worse. With the LPPI methods commonly applied today, it is not possible to switch the ratio the other way around without sacrificing the quality of the planning considerably. Another practical rule of thumb is that at least 40% of the staff should understand in practice the process improvement philosophy, approaches and practical tools, before the company may realize large-scale gains. Usually this figure is (well) below 2% although the company may believe that this figure is much higher. This understanding is by no means a static state, as it has to be continuously maintained and updated according to which ambition level the improvement activities are run on. Reaching even a satisfactory overall level of understanding may be hard due to constraints subject to individual persons. These personal constraints include, among other issues, motivation, current starting level, the targeted ambition level and available resources. It is clear that these issues form a serious obstacle that has to be properly solved before it is possible to realize the full potential of the HPPI concept. Not mastering the time and knowledge requirements causes another problem that affects negatively the possibility to realize large-scale gains and the full potential. Many companies allocate most of the time to planning whereas the implementation phase usually receives much less attention. The improvement work is organized usually via some (internal) consultants/experts or improvement managers that represent only a fraction of the staff. Some of these improvement experts might even understand the improvement philosophy, approaches and practical tools, but these experts represent still only a fraction of the whole staff. Having external or internal experts (consultants) driving the improvement work tend to affect negatively the level of commitment among the people working in the process and could thus potentially cause unnecessary change resistance. This mode of operation is understandable, as the obstacles related to how to continuously maintain and increase the level of understanding on a large scale have not been properly solved, despite all the efforts related to education and training in the field of process improvement. The effectiveness and efficiency of education and training efforts, in combination with meeting the time and cost requirements, are crucial considerations that largely affect not only the realization of the improvement potential, but also what kind of improvement objects can be pursued and recommended in the preceding process improvement plan. A bad education and training performance lowers in other words the ambition level of the process improvement plan and affects likely in a negative way the practical realization of the improvement
16
If the company runs its improvement activities at a low PIY level, it does not matter that much from an improvement point of view, if the company halves or doubles the improvement resources.
1.9 Summary and Concluding Remarks
21
potential, albeit the implementation requirements have been adjusted downwards to suit the projected knowledge and skill base. Furthermore, every improvement activity needs to be customized, verified, prioritized and implemented optimally. The practical application of this simple “one line requirement” under the requirements of HPPI is a demanding matter that cannot be solved based on averages or by studying best practices/cases.
1.9
Summary and Concluding Remarks
Many companies, and in the end even countries, will find out that the conducted process improvement efforts, despite of all the bells and whistles, are of little help when responding to increased performance requirements. Low-performance process improvement methods communicate a false feeling of pleasure. This exposes the companies to options with a considerable risk level. Such options include out- or in-sourcing, change of IT systems, shutting down or moving operations to other countries. The government may even provide help in terms of governmental protectionism in some cases. It is worth noticing that such actions are not process improvements in a true sense, as external factors, such as lower wages or a penalty duty, constitute the basis for the relative productivity rise. Although the concept of high-performance process improvement may seem as an objective that is impossible to realize due to the demanding constraints and requirements attached to the subject, subsequent chapter will piece-by-piece open your eyes. Simply put there are only three core issues to understand and master in order to achieve the objective: 1. The process improvement yield, i.e. the measurable output of the improvement activities. 2. The generic HPPI process, i.e. the construction needed to realize HPPI activities in practice. 3. High-performance process improvement, i.e. the evolving theory and the knowledge base. These three issues are strongly interrelated and thanks to their mutual interplay they will provide a very solid platform for continuously improving both the performance of the improvement work itself (the output) and the focus processes (the outcome) as depicted in Fig. 1.3. The outcome, applied to all (key) processes, solves the HPPI equation for the company. These key processes include, where applicable, the R&D process, the pre sales process, order–delivery process, after sales process, and the strategy process. Applying the HPPI outcome to only one process, solves the HPPI equation for that process. Running Phase 2 of the HPPI process, i.e. the process analysis and synthesis (Chap. 5), and Phase 3, i.e. the implementation (Chap. 6), solves the HPPI equation in practice. In larger settings such as value chains, supplier and subcontractor networks and clusters, Phase 1 of the HPPI process, i.e. the network and company (unit) analysis and synthesis
22
1 High-Performance Process Improvement Fundamentals
Fig. 1.3 The basic relationships between the different concepts
(Chap. 4) tells, among other aspects, which issues and processes need improvement in the first place, and what the improvement potential of the setting is. The strategy process and its output, i.e. the company strategy, affect strongly the solving of the HPPI equation from a total perspective. This whole benefits from a derivative HPPI solution resembling Phase 1 of the HPPI process (Chap. 7, Sect. 7.1). Both the metrics for defining the process improvement yield and the HPPI process, including related skills to run said process, have to be updated accordingly, if the knowledge related to HPPI increases, i.e. the theory evolves. On the other hand, based on the practice of said process, it might be evident that the process improvement yield and the knowledge base related to HPPI have to be updated. In this way, the practice will be continuously considered besides the evolving theory and vice versa. Depending on the level of the process improvement yield it will, on the other hand, affect the generic HPPI process and the knowledge base in terms of adjusting and scaling up to the optimal ambition levels. This subject is a fairly
1.9 Summary and Concluding Remarks
23
advanced subject that I will consider later on more thoroughly. In addition, the improvement of the time, quality and cost parameters are strongly interrelated, which requires a proper consideration in all improvement activities.17 Until now, there has been no systematic and result-oriented process (construction) providing organizations with a solid but yet practical solution to realize in a classy way the concept of HPPI. Fortunately, times have changed, as the missing pieces have been identified and properly cultivated to form a coherent whole that does the job.
17 These activities include data collection, analysis, synthesis on the network, company and process levels, and the implementation, including education, training, realization of the potential and follow-up.
Chapter 2
High-Performance Process Improvement Concepts
The theoretical backbone of high-performance process improvement is by nature dynamic. It changes and improves over time to reflect the interaction between the continuous R&D work and the gained practical experience as depicted in the last section of the former chapter (Sect. 1.9, Fig. 1.3). These interactions, which also consider the performance requirements of the improvement efforts, guide the theoretical considerations and restrict the possibility that the theory would lose contact with practice. In this regard, the theory serves as a platform for assuring and raising the ambition level of the practice. Practice without a solid theoretical backbone is hazardous especially when adapting the concepts related to HPPI. Such a critical deficit cannot be fixed by “hands-on” case studies or by practical improvement work. There has to be a logical framework assuring the performance of all improvement activities. The purpose of this chapter is to outline the needed theoretical backbone related to HPPI. The chapter covers the following issues: l l l l
Key definitions Delivery of value The concept of high-performance process improvement The process and total improvement yield.
The key definitions provide the input for expanding the theoretical framework of HPPI (Sect. 2.1). The crucial issue to understand is the dynamics and complexity behind the delivery of value (Sect. 2.2). The concept of HPPI includes certain general performance demands (Sect. 2.3) that in essence boil down to the achievable and sustainable improvement yield levels (Sect. 2.4). The chapter ends with a summary and concluding remarks (Sect. 2.5).
2.1
Key Definitions
The basic building bricks of the HPPI theory are the definitions and their correct interpretation. Even a comparably small deviation in this regard may have devastating consequences when implementing the concepts and realizing the potential. M. Pastinen, High-Performance Process Improvement, DOI 10.1007/978-3-642-10784-9_2, # Springer-Verlag Berlin Heidelberg 2010
25
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2 High-Performance Process Improvement Concepts
An inadequate theoretical platform will not only affect negatively the quality level of the improvement actions. It may potentially cause an escalation of a bad improvement momentum, and thus divert the improvement of the corporate culture. This is an important issue, as process improvement without a corresponding improvement of the culture will not likely produce long-term effects. This problem is typically encountered when implementing end-results of improvement approaches (cp. lean management or lean production initiatives) or utilizing analysis approaches as an implementation tool (cp. e.g. quality award criteria). Although a prejudicial deviation is detected when defining the process improvement yield, the time and money wasted cannot be recovered any more. The basic definitions include the terms process and process improvement: l
l
A process is the interaction of people, technology (machines), materials and information to produce a certain service or product (Fromm 1992). Process improvement is a systematic approach for satisfying the organization’s stakeholders by enhancing the performance of the organization’s activities (processes) in terms of time, cost and quality (Pastinen 1998).
These two definitions result in an abundance of other related definitions and concepts needed to form a coherent theoretical backbone that provides the required stability when implementing the HPPI concept. The term “high-performance process improvement” could thus be defined as high-class process improvement conducted under tight money and time constraints. Having a coherent theoretical backbone means that the necessary and sufficient understanding of the underlying cause-and-effect chains has been achieved. Keeping the definitions simple, clear and without biasing noise provide the means to reach this understanding. For example, in the case of the process definition, such noise would include any additional element of structure, focus, measurement, ownership or customer. These are, among other issues, changeable aspects, which may provide means and leverage to improve the focus process. The two basic definitions above provide detailed clues what issues are relevant from a theoretical point of view besides the systematic logic and construction needed to implement the theory: l
l
l
Satisfying the stakeholders. This means that the essence of stakeholder satisfaction should be part of the theory. People, technology, information, material and their interaction to produce a certain output. This means that the essence of the four process components and the desired output need to be part of the theoretical backbone. Time, quality and costs. This means that the essence of these three fundamental performance parameters should be part of the theoretical backbone.
These three aspects are closely interrelated perspectives on the delivery of value. To understand the connections it is necessary to consider delivery of value from a holistic perspective (Sect. 2.2.1) and from the stakeholders’ perspective (Sect. 2.2.2). This rough guidance limits greatly the risk of focusing on irrelevant issues.
2.2 Delivery of Value
2.2
27
Delivery of Value
There are two issues to consider when discussing delivery of value from a process improvement perspective. The first is the delivery of value from a holistic point of view and the second is the delivery of value from the stakeholders’ perspective. The latter provides the requirements and needs that the value producing systems, i.e. the own operations and company external operations (supplier and partner networks), need to fulfill especially regarding the requirements and needs of the customers, employees and owners. As these needs never receive the level of complete fulfillment, there is always a need to raise the ambition levels and to improve the performance of the processes. The demands and needs of the three stakeholders are additionally contradictory by nature, which leads to an evident need to prioritize and customize more or less every improvement action.1
2.2.1
Delivery of Value from a Holistic Perspective
In essence, any company utilizes two types of processes to deliver value to its stakeholders. The two types are the core processes and support processes (Fig. 2.1). A core process produces value directly to its customer whereas a support process produces value indirectly (Pastinen 1995). From a company perspective, this means that a core process influences the cash flow directly whereas a support process influences the cash flow indirectly. In principle, the basis of definition could be some other aspect rather than the cash flow. However, it is hard to see what the basis could be in reality. This is because the definition needs to be clear, standardized and applicable in all enterprises despite size, sector and performance level. The very basic nature of an enterprise is to generate cash and profits. The cash flow generated
Fig. 2.1 The core process and the support processes
1
These activities include network, company (or unit) and process analysis and synthesis and the implementation (incl. education, training, realization of the potential, and follow-up).
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2 High-Performance Process Improvement Concepts
by the company is the ultimate consequence (the effect) of the measures taken (the causes). Consequently, if not basing the definition on the ultimate effect of the measures taken, it will be hard to justify why cause X and not cause Y would be the most appropriate basis of definition in a specific case. This dilemma could result in great confusion because human aspects (mood, background, interests, etc.), the present state and needs of the company would likely bias the modeling of the company. If it were possible to arrive at different results from time to time, about how the company fundamentally delivers value to its customers, then the focusing of improvement efforts would be much harder to do. With the presented definitions, it is possible to select the best focus processes for improvement depending on present and forthcoming performance needs in the short, medium and/or long term. The core and support processes and their current performance and realization of the improvement potential affect cash flows and profits differently in terms of the selected time span (short, medium and/or long term). It is worthwhile noticing that increasing the performance of one process causes also a need to increase the performance of other processes as well. Improving greatly, for instance, the order– delivery process without assuring that the performance of the marketing, sales and after sales processes are accordingly upgraded can potentially even reset the improvements achieved in the core process. To which process (core or support) a particular activity belongs can be easily tested by the following guideline. It is necessary only to cut off the output of the phase in question. Doing so, the activity cannot deliver the required input to the following phase. If the consequence is that the cash flow stops immediately, then the activity is part of the core process. If, on the other hand, the company is able to deliver value to its customers some time after the cut-off, i.e. the customer is still satisfied with the output and pays the invoice, then the function is a support process. However, after a while the cash flow will be affected negatively and eventually even cease. Examples of activities or functions, which belong to the core process, are offer and order management, production planning, production, packaging and delivery and invoice management. Often these functions are also referred to as processes (for example the production process and the delivery process) although they are from a total process perspective sub-processes. If the company offers customized products to the customers, there will be a configuration step necessary to produce the customized output. This configuration step has a direct influence on the cash flow and is therefore part of the core process. The configuration phase is unnecessary if the company offers mass products without any option for customization. In its simplest form, the core process starts with the receiving of the customer’s order and ends with the receiving of the payment. If continuous efforts are required to receive each order, then the core process contains also a sales phase that generates the orders. Many times, however, the customers may place an order without any actual sales efforts. In such a setting, the sales process is technically speaking a support process. The support processes deliver usually services, which the core process or another support process needs. Examples of support processes include research and
2.2 Delivery of Value
29
development, marketing, sales,2 administration (accounting, financing, management of human resources, etc.). In principle, the support process can also deliver an output to itself. For example, the administration process provides services related to payroll calculation, which the administration clerks themselves need. It is important to understand that the term “core process” is not the same as “core competence” or “key process”. For instance, the core competence of a company can be research and development, which is a support process.3 However, this process may be crucial to the company. The categorization of processes into core and support processes does not indicate that the core processes would be more important than the support processes. Any process (core or support process) may be a key process, i.e. a crucial process that needs to be highly competitive for the company to succeed in the market. Incidentally, the concept of the core process does not require that the process is world class. On the contrary, there may be many shortages, which are targets of improvement efforts. Every company has to have at least one core process. Otherwise, there will be no cash flow at all. A value chain from the raw materials to the final product consists of a variety of core processes connected together (supplier networks and own units). The amount of interrelated first line core processes in any larger setting (cp. e.g. shipbuilding, car or aircraft manufacturing) may easily exceed 500 and together with the related support processes the amount may exceed 2,500. In many cases, the amount is five to fifteen times higher if second and third line suppliers are considered. How to improve continuously such value chains in a fast and cost-effective way is utterly important, as whole value chains compete against each other, not necessarily single companies. In this regard, many companies need also to understand the needs of the end customer and the business customers closer to the end product and the end customer. The core and support processes provide the basic understanding how companies produce value. This picture has to be perfected by yet another process type to gain maximum momentum from a process improvement perspective. The missing process type is the information process that exists as an integrated part in almost every process regardless process type. Information processes are information related activities such as collection, preparation, storage and transformation of information. There are different types of information processes. To gain an understanding of what kind of information processes may exist in a company they can be categorized using two approaches, which are not mutually exclusive (Pastinen 1993): l
l
The actor-oriented approach, which can be divided into inter-organizational, inter-functional and interpersonal information processes The task-oriented approach, which can be classified based on the strategic relevance of the information processes (operational, tactical and strategic levels).
2 Technically speaking marketing and sales may be momentarily part of the core process, if the company is launching its products or services for the first time. 3 Research and development can also be a core process if the company is, for example, an engineering bureau offering such services to its customers.
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The inter-organizational information process takes place between the company (employees) and its external stakeholders (customers, owners, communities, governments, regulators, suppliers and partners). Examples include the reception of an order that is an information process between a customer and the company. Another example is product development that is an information process between the company and its suppliers and customers. The realization of these processes benefits greatly from IT. However, the information processes are not always married to technical applications. A “face-to-face” discussion between the employee of the company and a customer is also an information process. Likewise, a machineto-machine communication is also an information process that is custom in highly automated processes. An inter-functional information process takes place between different functions within the company. An example is the information process between departments or functions like marketing and production. One of the big challenges when improving the performance of the company is to get the different departments of a company to “talk” to each other. Hence, it is very hard to improve, for instance, the product development process, if there are great deficits in the inter-functional information processes. The interpersonal information process, on the other hand, takes place between persons who work within a team or a group. An example of an interpersonal information process is brainstorming. The information processes can also be categorized according to their competitive relevance (Zeman et al. 1993). The relevance may be divided into three levels, i.e. strategic (competitive relevance very high), tactical (competitive relevance high) and operational (necessary but not decisive). At the strategic level the possibility of computer support is low (cp. development of marketing concepts or corporate strategies), whereas it on the tactical level is high (cp. medium range capacity planning) and on the operational level very high (cp. order confirmation). The quality components of the output produced by the information processes can be summarized to include the following requirements (adapted from: Augustin and Oberhofer 1990): l l l l l l
Correct information (understood and needed by the receiver) Correct point of time (enough to make a decision) Correct amount (“as much as necessary, as little as possible”) Correct place (accessible to the receiver) Correct format (immediately useful) Correct price (paid by the user or receiver).
Improving the quality components above improves the productivity of the core or support processes utilizing the output. Assuring and improving the relevance of the requested information increase in turn the effectiveness. This task is primarily the responsibility of the process needing the information, not the information process delivering the output. One of the major shortages of the LPPI methods is that they strive to increase the improvement efficiency, not the improvement effectiveness in a true sense.
2.2 Delivery of Value
31
The possibilities of information technology (IT) influence largely both external and internal information processes of the company. IT lives in a symbiotic relationship with the different processes of the company (Davenport and Short 1990). Two questions formalize this symbiotic relationship: “How is the performance of the company’s processes influenced by IT” and “How do the processes influence the IT applications?”
2.2.2
Delivery of Value from a Key Stakeholder Perspective
The word “satisfaction” comes from the Latin words satis (enough) and facere (to do or make). These words communicate the essence of satisfaction, which is fulfillment. At a basic level, this translates into solving up-coming problems reactively. At a more advanced level, the concept of fulfillment or satisfaction involves doing more than just solving and eliminating problems. It involves besides preventive actions the concept of excitement and delight for all stakeholders. In the end companies have to satisfy each of their stakeholders to be successful. Stakeholders are all those interest groups, parties, actors, claimants and institutions – both internal and external to the corporation – who either affect or who are affected by a corporation’s actions, behavior and policies (Mitroff 1983). The company stakeholders include customers, employees, owners, investors, partners, communities, governments and regulators, suppliers and the environment. The most critical stakeholders are the three first mentioned in that specific order. If the companies cannot meet the needs of customers, employees and owners, they will not normally be able to meet the needs of the remaining stakeholders either. Deming developed what is known as “the Deming chain reaction” (Deming 1986). It states that when quality improves, cost will decrease and productivity will increase. The result is more jobs, greater market share and a long-term survival. The same kind of logic communicates how stakeholder satisfaction increases the competitiveness of companies. Satisfied customers lead to fewer customer defections, which in turn lead to higher profits and growth. This leads to owner satisfaction. Satisfied owners, on the other hand, are more likely to invest in a particular company in terms of human resources as well. Higher wages may be one way. Other attractive means include the provision of education, training, equipment and conditions that make the work more effective, productive and enjoyable. A dedicated work force is more likely to produce superior products and services, which in turn leads to a higher customer satisfaction. From a process improvement, perspective the focus should primarily be on the satisfaction of customers, employees and owners, as this provides the required leverage to satisfy other groups of stakeholders as well.
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2.2.2.1
Customer Satisfaction
It is difficult to improve customer satisfaction without identifying adequately distinct customer groups. A categorization scheme provides a rough outline to understand the diverse needs of different groups of customers. There are at least three different groups of customers: l l l
The end user (buyer, payer, user)4 Other parties (the public, neighbors, third parts)5 Internal customers (the next process).
From an end user’s (hereafter “customer”) point of view, a firm’s value to its customers may be seen as consisting of four components: the physical product, service, service environment and service delivery. The physical product is whatever the organization transfers to the customer that can be touched; it is tangible and physically real. Examples include television sets, cars and books. The service, on the other hand, can be planned and designed, but is not physical and tangible. For example, technical support, consultation and cleaning are services. The service environment is the physical backdrop of the service. For instance, the facilities of a restaurant, the show room of a car dealer and a soccer stadium are service environments. The service delivery is the way the company (organization) actually provides the service. Examples in this regard include the physical distance to the service, the possibility to use the service electronically (on-line) and how frequently it is possible to use the service (e.g. 24/7). Each of the components mentioned contributes to the overall company performance as perceived by customers in terms of quality, cost (price) and time. Juran’s user-based quality definition, “quality is fitness for use”, is probably the most established general definition of quality (Juran 1974). The quality of a physical product consists of different elements. Examples of such elements are performance, features, reliability, conformance, durability, serviceability, esthetics and perceived quality (Garvin 1988). In a similar way, one is able to list important quality aspects related to a service (e.g. friendliness and proficiency), the service environment (e.g. tidy and spacious) and the service delivery (e.g. conformance to specifications). Parasuraman et al. have measured quality as perceived by customers. They concluded that the following dimensions are valid indicators of customers’ overall evaluations of service quality (Parasuraman et al. 1990): (1) Tangibles, i.e. the appearance of physical facilities, equipment, personnel and written materials.
4 Consider for example medicaments. In many cases the physician is the buyer, society is the payer and the patient the user. The pharmaceutical industry has to focus its marketing efforts differently on diverse groups of customers, and of course according to market specific laws. 5 Consider for example a company providing its customers with nuclear plants. Such a company must also consider the opinion and satisfaction of the public, neighbors (other countries) and third parts.
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33
(2) Reliability, i.e. the ability to perform the promised service dependably and accurately. (3) Responsiveness, i.e. the willingness to help customers and provide prompt service. (4) Assurance, i.e. knowledge and courtesy of employees and their ability to inspire trust and confidence. (5) Empathy, i.e. caring and individualized attention given to customers. The cost (price) is rather straightforward. It is the amount of something valuable (cash, goods, work output, etc.) that customers must give to the company in order for an exchange (product or service) to take place. The customer bases the purchase decision not only on quality related issues, but also on what attributes the customer receives at an acceptable price. Although not optimally fitted for the intended use, the price factor may nevertheless make some product or service more attractive than other procurements. To make a proper analysis of the delivered value it is insufficient to rely exclusively on quality and price (cost). Hence, the consideration of the time factor is of importance. Time related concepts include the following parameters: l l l l
Time-to-market (need expressed ! ! product/service available) Delivery time (order received ! ! product/service delivered) Delivery certainty Total cycle time (need expressed ! ! payment received).
The value of a product or a service can be worthless, if the time aspect does not fulfill the requirements of the customers. This is especially true in technology intensive companies, where the life cycle of the products can be very short. Many project businesses face severe penalty terms if the company does not comply with time requirements. In many cases, the time expectations are met at the expense of the quality and costs. For example, one large telecom company passed systematically the offer material to the next phase when the deadline of the latter phase was due whether the material had been cultivated enough or not. The shortages were then corrected later on in the negotiation phase increasing substantially time, costs and dissatisfaction. In such a setting, there are no winners, but many losers. The fact that the four components and their underlying characteristics (quality, costs and time) are weighed differently increases the complexity of customer satisfaction. With this in mind, customers’ needs can be grouped into three categories, each of which has different strategic implications (Kano et al. 1986; Rust et al. 1994): l
l
Basic attributes are those assumed to be present in any service or product. For that reason, they may not always show up in customer discussions, even though they are essential. If customers do not get these, there will be extreme dissatisfaction. An example of this is a reliable, safe and easy to use product. Articulated attributes are those, which customers generally mention as desirable or decisive in their choice of a service or product. Poor performance on these attributes will lead to customer dissatisfaction and good performance will lead to
34
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2 High-Performance Process Improvement Concepts
satisfaction. An example of this is the auto repair shop that fixes the muffler on time and at the promised price. Exciting attributes are those, which would delight and surprise customers if they were present. Delivering these attributes is the key to building strong loyalty among customers, but they are also harder to identify. Customers do not expect them, so it requires a sense of innovativeness to realize them. Certain car features provide good examples. These features become in relatively fast way articulated attributes and later on basic attributes. Examples include the anti-lock braking system (ABS) and air bags in the 1980s’ (already basic attributes), electronic stability control in the 1990s (soon basic attribute) and currently, for instance, night vision and active cruise control.
An important lesson of the issues above is that customers, if asked, focus almost solely on communicating aspects related to the articulated attributes. Companies basing their improvement actions heavily on customer satisfaction surveys (measurements) may potentially fall in the trap of neglecting the improvement and proper management of the two other attributes. You may observe such an omission in cases where the company is running the processes at a pace not supported by the actual process capabilities, for example, when the growth is high or the processes are geared towards a strong growth mode in a short period of time. Examples regarding neglected basic attributes are the safety recalls in the automotive industry: a potentially dangerous floor mat,6 a faulty cruise control switch7 and a faulty brake light switch.8 Putting too much faith on customer satisfaction surveys may also cause the company to fall short of delivering high-class innovations for the delight of its customers. In such a case, the company has not put enough emphasis on creating and enhancing a culture, including high-performance processes, supporting the creation (design), marketing, sales, production, delivery and after sales of innovative offerings from the customers’ point of view. Companies with a strong technically oriented culture face an opposite problem by designing and producing outputs that neglect too much the basic and articulated attributes requiring thus another like-minded engineer to appreciate the exciting attributes of the output. Examples of such cases include cumbersome software applications and PDAs/ smartphones. The omission to deal with the basic and articulated attributes properly potentially spoils the positive effect of offering exciting attributes. A well-designed product or service should be based on basic and articulated attributes and have at least one exciting attribute. The gulf between satisfied
6
Toyota, 3.8 million cars recalled solely in the USA (September 2009). Source: http://www. businessweek.com. According to a Toyota press release (November, 2009), the recall is voluntary, as no defect exists in vehicles with properly installedfloor mats (source: http://pressroom.toyota. com/pr/tms/toyota/toyota-consumer-safety-advisory-102572.aspx). 7 Ford, altogether over 14 million vehicles recalled (1999–10/2009). Source: http://www.switchfires.com. 8 Volkswagen, 790,000 vehicles recalled solely in the USA (February 2007) expanding the recall for the same reason in 2006 (362,000 vehicles). Source: http://www.usatoday.com.
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customers and completely satisfied customers can swallow a business (Jones and Sasser 1995). Except in a few rare instances, complete customer satisfaction is the key to securing customer loyalty and generating superior long-term financial performance. Process improvement efforts should ultimately translate into profits. Fundamentally, there are only three ways of making more profits: lowering the costs, increasing the price, and selling more (increasing market shares and revenues). Very few companies are able to manage all these three issues properly without sacrificing (constantly) the satisfaction of one or more stakeholders along the way. For example, the hunt for more revenues may result in bad investments or bad acquisitions that do not increase the value adding capabilities of the company or value chain. Increasing the price without offering more articulated and exciting attributes may shoo away even the loyal customers. Lowering costs by saving on the wrong issues may affect employee satisfaction badly, leading to an abundance of negative effects, such as employee absence, bad attitudes and a bad atmosphere. This affects in the end also the satisfaction of other stakeholders. It is clear that proper process improvement is not an easy task these days, especially when the LPPI methods do not offer any substantial support to deal with the three ways of generating profits in a sustainable way. Without profits, there will eventually be no customer satisfaction at all, or any stakeholder satisfaction for that matter. That is the basic rule of business. Companies have to master both the process quality and the quality of the output. From the customers’ point of view, this means that companies must deliver to the customers a valuable product and/or service at a given time and at an acceptable price. This requires at a minimum that the R&D process (where applicable), the marketing process, the sales process, the order–delivery process (incl. invoicing) and the after sales process are competitive from a total perspective. Improving the manufacturing function represents usually only a fraction of the total improvement need in a company. The same logic used for categorizing customer needs may be applied in a total perspective providing thus the HPPI methods a suitable framework for managing the ambition levels9 regarding the improvement activities, the focus setting10 and the produced output.
2.2.2.2
Employee Satisfaction
To better understand the concept of employee satisfaction a review of Maslow’s hierarchy of needs is helpful (Maslow 1954, see also: McGregor 1960). Maslow’s hierarchy of need consists of five levels of need: physical need, safety, social need or identity, appreciation and self-realization (Fig. 2.2):
9
Basic level (Level I), articulated level (Level II), exciting level (Level III). Company networks (value chains), companies, processes and individuals.
10
36
2 High-Performance Process Improvement Concepts Selfrealization Appreciation
Social Need Identity Safety Need Physical Need
Fig. 2.2 Maslow’s hierarchy of needs11
1. The physical need is the most important need of the individual. It includes rest, food, water and shelter. Although it is at the lowest level in the hierarchy, it becomes very important if it is not satisfied. 2. The safety need arises when physical well being is secured. Hence, the individual wants a safe place to live (neighborhood and country). The safety need includes also such things as fair terms of employment and a predictable income. 3. The social need includes the need for an identity, the need for acknowledgement and the need of being accepted. The satisfaction of the social need and higher levels of need do not have a significant impact unless the lower levels of need are satisfied. 4. The appreciation need has to do with self-esteem. The individual wishes to be able to appreciate and trust him- or herself and to be able to learn and achieve certain objectives. Compared with lower levels of need, the appreciation need (or ego) is more complex and harder to measure and satisfy. Furthermore, different people have a different appreciation need. 5. Self-realization concentrates on uncovering the potential skills of the individual. It relates to self-development, skill usage and creativeness. The need of a certain level emerges as the needs of the previous levels are sufficiently, but not necessarily fully, satisfied. The company should consider this principle when dealing with employee satisfaction. Employees’ physical needs are satisfied in terms of wages paid, which gives employees the possibility to buy goods and services. The safety need is satisfied by fair terms of employment and improved working conditions. The social need is satisfied in a company by belonging to a team or a group and by achieving a particular status within the team or group. Examples how to satisfy the appreciation need include positive feedback, opportunities to succeed, the satisfaction of having completed a task, and the possibility to
11
This picture was drawn by Harri Pakarinen. It is published with due permission of Vistalize Oy.
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37
function independently. A person may reach the level of self-realization, if the individual gets the opportunity to use all his or her skills at work.12 Individuals that are at this level of satisfaction strive to improve themselves on a continuous basis and believe that the work itself is satisfying. There are many approaches to alter, support or eliminate the way things are done in a company. Usually these approaches take the shape of step-by-step lists, which target the task of managing organizational change, decrease change resistance and increase motivation. To cover the design notes used regarding the subject of organizational change management would be too exhaustive for the purpose of this book. To make a long story short the used design notes may be summarized by the approach and thoughts presented by Schein. Schein suggests that the change process takes place in three steps (Schein 1987): 1. Creation of motivation and commitment to change. 2. Change through learning new ways of doing the work. 3. Putting theory into practice and getting measurable results. In the first phase, the emphasis is on creating awareness in the company that its performance could be better and something should be done to improve the situation. It is important that the employees and managers of the company feel psychologically safe. This means that it is important not to place blame on anyone without cause for not fulfilling the objectives and personal targets. Usually the inefficiencies are due to lack of knowledge and skills. Instead of finding a scapegoat, the focus should be on improving the culture, the processes and the supporting systems. In the second phase, new approaches of doing the work are learned. The managers and employees are encouraged to take advantage of new methods and new sources of information to facilitate the improvement efforts. In the last phase, the newly learned approaches should be put into practice. It is important that the employees or managers are able to use their recently acquired knowledge within a short period. Otherwise, the persons forget the knowledge, which results in minor or no results at all. Both higher and lower ranking employees should approve the new approach. Unless this is the case, the employees lack support and eventually return to the old way of doing the work. Ultimately, there should be measurable results from the efforts made. It is thus important that the companies monitor the success of their education and training efforts. Integrating the monitoring into the performance measurement system provides a way to manage this issue properly.
2.2.2.3
Owner Satisfaction
Improvement efforts have to translate into (more) profits. If companies cannot in the long run generate cash (rise of the company value and dividends) commensurate 12
The Merriam-Webster’s on-line dictionary (http://www.m-w.com) defines the term “skill” as “the ability to use one’s knowledge effectively and readily in execution or performance”.
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with the level of risk involved, owners and investors will lose interest in investing. Proper financial considerations related to efforts undertaken for product and process improvement are crucial keys to satisfying the owners. Establishing a sound balance between the price of the output and return-on-investment is crucial. This balance needs continuous maintenance like any ordinary machine. The price aspect of the product or service influences both customer and owner satisfaction. If the output is valuable to customers, it has a competitive price. From a profit perspective, the crucial issue is the difference between the total costs versus the price received and the volume of products or services sold. Process improvement initiatives may enhance all three issues in a sustainable way for the benefit of satisfying all stakeholders. Traditionally, the process improvement efforts focus only on production-oriented issues, and especially the issue of conforming to certain standards or specifications. This is the home turf of the LPPI methods that gain their momentum from statistical control. Relying on such an approach is, of course, too limited in today’s world where crucial processes such as the strategy process, the R&D process, marketing, sales, order–delivery (not merely manufacturing), and after sales, have to be improve in concert and with a perspective that goes far beyond statistical control. The company has to conduct this improvement work continuously and under strict performance requirements besides the improvement of the supplier and subcontractor network. It is easy to see that six sigma, lean and most of the other LPPI methods contribute only modestly to improving such a whole. These methods are not able to grasp to any significant extent the overall picture and assure the effectiveness of the improvement efforts from a total perspective. In fact, the manufacturing function is usually the one that requires least attention, but as you only have a toolbox, everything. . .you know what. The methods of HPPI harness the significant process improvement opportunities to capitalize on the true improvement potential related to the three profit issues above. Considering just a few examples of implications related to a poor performance provides insights into customers’ everyday decisions and behavior that sum up to a big cumulative negative effect related to owners’ satisfaction. There are many surveys conducted during the past decades focusing on company performance and customer satisfaction and behavior and thus also owners’ satisfaction. For example, the United States Office of Consumer Affairs conducted already in 1986 a survey considering the implications of poor performance. It concluded that: l
l
l
l
Only one of four customers tells the company of deficits associated with products or services A satisfied customer tells five others about good performance, whereas an unsatisfied customer tells ten others about bad performance Ninety percent of unsatisfied customers will not buy again from the company, which provided unsatisfactory performance To get a new customer requires five times more resources than keeping an old one.
Keeping constantly the cost of quality and the loss of unrealized potential at a low level is the strategy that increases owner’s satisfaction best. The HPPI methods presented in this book provide a systematic and result-oriented way to assure that
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39
the targeted value chains, companies, units and processes are both more attractive to the market and internally more effective and efficient. An increased market attraction increases the possibility to get new customers besides keeping the old customers and getting the customers to buy more. The LPPI methods can harness only a fraction of these different opportunities because of low improvement yield outputs. The PIY level communicates directly how well a single company harnesses these opportunities in reality. The TIY level communicates the same issue from a value chain or network perspective. With this in mind, it becomes clear that these two very crucial performance measurement criteria are missing from the executive dashboard. Establishing urgently such performance measurement criteria should be very high on the agenda of the board of directors and executive management teams. A 15% traction seems low, but if the others have a traction in the range of 0–5%, it is not that hard to understand why a certain car is moving while the others struggle to even move from the spot. As an owner, and company stakeholder in general for that matter, I would not tolerate this kind of play. Having a constant traction above 80% would make a great difference when taking part in any race. Discussing thoroughly pricing issues, price strategies and methods used to support these issues, goes clearly beyond the scope of this book. From a substance point of view, these considerations and outlines are part of the company strategy. The considerations are admittedly many times higher art. It is, however, purposeful to consider some interconnections to process improvement in this regard. One way of determining the price of a product or a service is to define the (total) costs needed to produce the specific output and add to that sum the particular company’s profit margin. This strategy pushes the product to the market. Ultimately, this is a “take-itor-leave-it-strategy” because the company has not priced the output according to how much the customers are willing to pay for it, or could pay. Using this strategy, this translates normally into an optimization between selling fewer products (services) at a higher price, or selling more products (services) at a lower price. In certain settings, the opposite logic may also be true, i.e. selling more products/ services at a higher price thanks to, for example, a premium status attracting more customers. A company may be tempted to dump its prices with the aim at cashing in once the competitors are out of the market. Selling at a loss, applying predatory pricing, or using cross subsidization price models, are in many countries prohibited by law as such actions are anti-competitive practices. Even if it would be a legal conduct, this affects negatively the market because such a company is robbing market shares aggressively without a sustainable basis. The result of such a conduct may be that the competitors have to respond to this strategy, which decreases the competitive advantage of the company that started the price war. Afterwards all companies will likely operate with lower margins, even negative ones, which will affect for instance the research and development budgets. The outcome of this exercise may be quite the opposite than the company initially expected. The policies described above do not result in any actual improvement efforts whatsoever. Those are passive approaches to owners’ satisfaction, which at best only results in short-term gains. An active approach advocates incremental and radical change of the way the company delivers value to its customers and its
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Fig. 2.3 The principle of improving the processes of the company (cost aspect) in a scenario where the company does not currently deliver an output at a competitive price
stakeholders, including the owners, at large. In such a setting, the company has to evaluate the competitive price by, for instance, asking its customers. The improvement potential is, generally speaking, the difference between the competitive price and the today’s price (Fig. 2.3). Improving the processes, instead of cutting the profit margin, is the way to reach the price objective. Additional benefits applying HPPI methods include lower total improvement costs as depicted in Fig. 2.3. This saving may be quite substantial over the years although this represents only one aspect when solving the HPPI equation. To reach a competitive price level, one of the key factors affecting customer satisfaction, and sustaining or increasing the profits, a key factor affecting strongly owner satisfaction, companies must look for opportunities to improve the performance of a selection of key processes such as R&D, marketing, sales, order–delivery and after sales. This approach is more difficult and requires more time to implement than, for instance, cutting the margins. On the other hand, it will result in a more competitive company in the end. It is seldom wrong to have high-performance processes operating in a sustainable way. In that sense, the improvement initiatives and related achievements live in a symbiotic relationship with the pricing strategies and options. After all, what to do with all the money should not be too big a problem for the board and the executives to figure out. I am sure the money will find a good home.
2.3
The Kernel of High-Performance Process Improvement
The kernel of high-performance process improvement includes two issues that are inseparable, imperative and continuous: l l
The theoretical backbone (outlined previously in Sect. 2.2) The performance requirements (outlined in this section).
2.3 The Kernel of High-Performance Process Improvement
41
From a process improvement perspective, this forms a set of exclusive requirements, which assures that the process improvement activities run under the umbrella of HPPI, are fit for the purpose.13 This means in practice that the quality, time and cost parameters related to the improvement activities have a quantifiable minimum level that the company or network needs to reach for the activity to be classified as a HPPI activity. Interesting enough, if you consider the specific pieces of requirements separately, you may conclude that there is nothing special about these requirements. Considered as a whole and with the appropriate reflection and understanding the conclusion is quite the opposite. Traditionally whatever piece of theory or theme is selected for whatever reactive reason and implemented in whatever way.14 In such a setting where anything goes it is impossible to define a sensible minimum performance level aiming at a systematic and result-oriented process improvement. Without a sensible requirement specification, it is impossible to conduct any sensible research and development work in this regard. The general performance requirements of HPPI can be summarized to cover three demands: 1. Approximately 40% of the staff needs to understand in practice the (a) process improvement philosophy, (b) approaches & (c) tools before large-scale improvement can be realized on a sustainable basis. 2. Every improvement activity needs to be customized, verified, prioritized and implemented optimally. 3. The improvement efforts should consume 4% of the total annual working time. No more than 10% of this time should be allocated to planning. The rest should be allocated to education, training and the implementation. The second point may potentially decrease the possibility to benefit from external cases, as profound background knowledge of the cases is required to see how the cases would contribute to the specific improvement object in real-life. The PDCA logic contains a good framework in this regard and boosts organizational learning and the improvement work in other parts of the organization. Usually, the failure, success or “how to do” cases presented in business journals and books contain only “nice to know” information, but no knowledge or perspective that could be applied to a specific case from a HPPI perspective. From a LPPI perspective, the cases may be very attractive, as the use of fragmented and ill-suited information is not a problem in such a setting. In fact, many improvement experts and their clients rely heavily on cases and some companies even try to use case based approaches as an improvement framework. Probably the best example is the use of lean 13 These improvement activities include: (1) data collection analysis and synthesis (network, company [unit] and process levels); (2) process improvement education and training; (3) the realization of the potential in practice (incl. follow-up). 14 Such initiatives are usually implemented as projects. They are furthermore seldom subject to any performance requirements more than a resource consideration (time [calendar, person-hours], money).
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management (lean production) cases. Mixing the lean philosophy and the related end-results to implement the lean concept is a never-ending story with little possibilities for the companies to really get the improvement momentum up. Toyota did not utilize such an approach for obvious reasons, nor should any company do. For consultants, educators and trainers this is probably the best way to earn money, as these parties can practically deliver the same things from year to year. The question “Then what?”, indicating that the improvement leverage gained via the lean initiatives have saturated and new approaches are needed to raise the ambition level further, will never be asked. If it would, there would be no proper answer how to improve operations beyond the lean concepts. The hoshin kanri method and the methods included in the nichijo kanri concept do not run into this problem, as they provide life after having implemented the lean concept fully. Not understanding the difference between applying end-results (incl. the effects of the end-results) and applying the methods that led to the end-results is like heating the air of a broken hot-air balloon. If the balloon suddenly would lift slowly, but anyway lift, you would not be able to steer it and gain enough height to overcome the nearby obstacles. In turbulent conditions, this is highly hazardous. The balloon should therefore be operated only in calm conditions where you might occasionally gain some height to see new perspectives before the balloon goes down again. In such a setting, it is understandable not to specify too detailed objectives or budgets, as it is hard to predict when you will reach your destination, if ever. It is worthwhile noticing that gaining new perspectives is not enough, as the distance from gaining a perspective to achieving large-scale, real-life results is long and bumpy. Fixing the balloon is hard, as there will be new holes besides a malfunctioning heater and expanding old holes. When you are fixing these problems, you are still not preparing for take-off, as the balloon is out of service due to maintenance and a possible upgrade of skills and equipment. Even in a perfect setting with no holes and a functioning heater, many challenges would remain, as a too heavy a load would hinder the balloon from lifting at all. In addition, the wind direction could be bad so that you would reach a destination that you did not desire. Maybe a change of transportation means would do the trick? After all, when it comes to process improvement many companies stick to the broken hot-air balloon, but they surely would not choose it as their preferred means of transportation in real-life, would they? This is one very interesting revelation that should be the main theme of any high-class process improvement conference. So far, the majority of the conferences have focused on discussing how to fix and improve the balloon as well as possible. Seriously speaking, how fun is that? If the applied methods meet the requirements presented in the three points above, then the output (i.e. the process improvement yield) of the (set of) methods can be measured and plotted as a function of time (cp. Fig. 1.2). Once the methods are at this ambition level, then it is purposeful to consider the performance curve of different methods to find the optimum combination of methods that would provide the optimal performance curve from a total perspective. The core solutions presented in Chaps. 4–6, complemented with the solutions presented in Chap. 7, provide for a high number of companies (by far) the best improvement output
2.4 The Process and Total Improvement Yield
43
and outcome, despite diverse process improvement settings, including IT system development projects. This conclusion is based on the R&D work conducted so far, including the conducted (scientific) verifications, and my own extensive practical experience. There are four performance criteria to consider in this regard: 1. 2. 3. 4.
The achievable and sustainable process improvement yield level. The ramp-up15 performance (time, total cost). The maintenance performance (time, total cost). Possibility to adapt/select the appropriate ambition levels regarding the improvement plans and the implementation.
This consideration assures that the interaction between theory and practice is bound to continuous improvement both in a relative and absolute sense. This means that from a method point of view there is neither any hidden roof nor any restriction regarding evolutionary or revolutionary improvement regarding the methods, the output and the outcome. This makes the methods by nature very durable against the ravages of time. Applying the same methods year after year provides additional benefits, as many of the initial hardships and efforts do not replicate later on. Such hardships and efforts include, for example, initial change resistance, management and key person buy-in, cultivation of the culture to an acceptable level, and process improvement education and training. The initial ramp-up phase is the hardest phase due to the organizational inertia. Once the momentum is there, things proceed smoothly.
2.4
The Process and Total Improvement Yield
The improvement yield concepts consist of the process improvement yield and the total improvement yield. The first is applicable at the process level whereas the latter is an extension of the former, as it broadens the concept to cover also the company and company network level, or depending on the case and the setting, unit and unit network level. The improvement yield is simply speaking the improvement effectiveness times the improvement efficiency specified in the following way16: l
l
15
Process improvement yield (%; PIY) = the quality (%) * the coverage of the process improvement plans (%) * quality (%) * the coverage (%) of the implementation Total improvement yield (%; TIY) = the quality (%) * coverage (%) of the plans for improving company networks * PIY.
The time in which a certain process improvement yield level is reached. The terms “coverage” and “scope” are used interchangeably in this book (as synonyms) when referring to the improvement yield calculation or formula. 16
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The sections below consider each of these concepts in turn. Do not worry if you think that these concepts and formulas seem at a glance cumbersome. In fact, they are logical and very down-to-earth. Subsequent chapters deal with these issues in more detail and from a practical view.
2.4.1
The Process Improvement Yield Concept
Based on the theoretical backbone discussed in Sect. 2.2 and the requirements specified in Sect. 2.3 it is possible to define the yardstick of a high-class process improvement plan. A 100% quality score contains the following issues: Stakeholder analysis (customers, personnel, owners) Analysis of capabilities (strategic and operative, quantitative and qualitative consideration of change resistance) Process modeling and process analysis in terms of time, quality and costs Identification of the most crucial improvement objects (problems), prioritizing, preliminary solutions (people, technology, information and material), consideration of ongoing and forthcoming efforts/projects Commitment and motivation of key persons, deployment of actions and performance measures Synthesis, the financial net effects on the bottom line and strategic weights, preliminary implementation schedule.
l l
l l
l
l
Besides these issues, the following three aspects are imperative when creating a high-class process improvement plan: The collection of data, the cultivation of data into information (analysis) and the cultivation of information into knowledge (synthesis) The quality criteria (correctness, time/timing, amount, place, format) related to information processes (cp. Sect. 2.2.1) The performance requirements related to HPPI.
l
l
l
How well any given process improvement plan deals with the contents can be defined by giving relative weights to the specified substance issues17 and by evaluating how well these issues have been considered according to the selected ambition level (0–100%). This score will be a percentage number (e.g. 15 points out of 50 or 30%). If the method used to create the process improvement plan is known, then the expected quality level of the output (the process improvement plan) can be defined with a reasonable good accuracy before the plan has even been created. The quality level of a process improvement plan produced according to the HPPI criteria
17
50 points are shared according to importance and relevance.
2.4 The Process and Total Improvement Yield
45
will not increase to any higher degree even if the available time would be doubled, tripled or even infinite. The output quality level is based primarily on the logic and construction operating under the specified constraints and secondarily on the knowledge and skills attributed to the expert in charge running this phase of the HPPI process (Phase 2). From a R&D perspective, this has meant that the R&D work could not be expanded to cover the implementation phase before this process analysis and synthesis method had been created and verified and the related output quality known. Quite on the contrary, there might even be an increased risk of getting lower quality improvement plans by increasing the available time, as this would potentially bias and distract thinking both when designing the construction and applying it. In addition, the scope needs to be considered as part of process improvement effectiveness, i.e. how many processes are covered/should be covered by a process improvement plan? If two processes out of five are covered with a quality of 30% (=15 points of 50 possible), then the result is 12% (0.4*30%) for the issue relating to the improvement effectiveness. How well the actual improvement work complies with the PDCA logic18 defines the quality of the implementation. The PDCA logic is spilt into smaller subphases that are evaluated how well they have been executed. At the lowest ambition level a score of 0 (poorly), 1 (satisfactory) or 2 (well) for each subphase is enough. The total score amounts to 200 points and a score of at least 170 points means that the person masters the basics of the PDCA logic and that the cycle has been finalized at least reasonably well. The coverage deals with how many persons master the PDCA cycle in a true sense. If, for example, the skill level is 70% (140 points out of 200 using the basic PDCA Quality Measurement Criteria) and the actual scope is 15% (e.g. 15 people out of 100) then the result is 10.5% (0.7*15%).19 The process improvement yield of the example above is thus 1.26% (0.12*0,105*100%). Section 4.3.4 (Table 4.1) presents another example in more detail. Chapter 6 presents due to the structure of the book the PDCA quality measurement logic at the most detailed level when considering in Sect. 6.3 (Fig. 6.18) the issue of following-up the improvement efforts and measuring the true improvement output.
18 Walter Shewhart developed originally the PDCA cycle, but Edward Deming popularized it. Hence, it is often also called the Deming cycle. The PDCA cycle is divided into four phases. The first phase is the Plan (P) phase. Important aspects concerning this phase are definition of the problem(s) and hypothesizing about possible causes and solution. The hypothesis is tested and the solution of the problem implemented in the Do (D) phase. The possible results of the test are observed and evaluated in the next phase, which is called the Check (C) phase. If the results are unsatisfactory, there will be a feedback loop going back to the Plan or Do phase to find the cause of the unsatisfactory results. When an acceptable solution is found, it is standardized and established in the Action (A) phase. The phase ends in a review of the whole procedure and suggestions about the next steps. 19 This score provides a good picture of the improvement culture in general. Often the companies are in a mode described as ”I believe that I know” leading to a false feeling of comfort.
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2.4.2
The Total Improvement Yield Concept
How to define the quality of the plans for improving company networks differs from the logic of defining the quality of the process improvement plan. The networks consist of a set of dependent and independent companies that together form the value chain. This means that the most interesting issue is the question of how competitive the specific units or companies are from the specific network perspective. Furthermore, the competitive state is interesting from two perspectives: the current and likely future competitive state. This makes it possible to define the main issues to focus on for each company (unit) in terms of the required data collection, analysis and synthesis: l
l
Past and current operational competitive state: the track record and current performance regarding time, quality and costs Future competitive state: the process improvement yield (or total improvement yield) and supporting issues (management, level of co-operation, technology, competence, innovativeness).
Based on these issues it is possible to create an operational cause-and-effect chain that will indicate the competitive state of both a single unit or company and the whole network. How well the contents are dealt with can be defined by giving relative weights to the specified contents issues and then by evaluating how well these issues have been considered according to the selected ambition level (0–100%). The criteria how to do this is based on a network vision that is made explicit. Based on this data collection and analysis the data and information are cultivated into knowledge. The synthesis that takes the shape of an improvement plan has to comply with the general requirements of high-performance process improvement, i.e. contents and the performance. It should be noted that the score (0–1,000 points) related to the competitive state is not the one that is utilized when defining the quality of the company and network level improvement plan. The quality is defined based on the improvement plan (i.e. the synthesis) and how well the plan at the network level complies with the required substance. If the method applied has been designed according to the criteria of high-performance process improvement, the quality level of the plan is 100% provided the method has been applied properly. If some other method is used or the plan is made “ad hoc” then the quality level is between 0 and 100%. Chapter 4 considers how to do this more thoroughly. The coverage, expressed in percent, considers the relative amount of companies (units) that have a network improvement plan in place. For instance, a network consists of ten key suppliers; three suppliers do not have any plan at all, one supplier has a plan with a quality level of 30%, two suppliers have a plan with a quality level of 60%, three suppliers have a plan with a quality level of 85% and one supplier has a quality level of 95%. The corresponding score for the network is thus 50%.20 20
(3*0%+1*30%+2*60%+3*85%+1*95%)/10. Seven suppliers (coverage 70%) have some kind of improvement plan in place.
2.5 Summary and Concluding Remarks
47
If the average process improvement yield for all these suppliers is 2%, then the total improvement yield is 1.0% for the network. Such a performance level is much better21 than the average score in the electronics industry that operate at about a 0.5% TIY level.22 In fact, not many networks or value chains operate at a higher level than a few percentage points.
2.5
Summary and Concluding Remarks
This chapter has introduced the basic concepts related to high-performance process improvement. The presented concepts are applicable in all industries despite the current performance level. The proper interpretation and application of the concepts provide also the substance backbone to manage the ambition levels from the customers’, employees’ and owner’s perspective. In the end, the improvement of the interaction between the four process components23 provides the means to satisfy these stakeholder needs in a sustainable way. This improved interaction improves directly the process performance in terms of time, quality and costs. The vast number of dynamic issues that the company needs to consider at the same time, and from different perspectives, results in an evident need for a high-class construction to deal with these issues properly. The concepts are also applicable, with some modifications, in the public sector although this book focuses on HPPI from a company (corporation) perspective. From a company perspective, the most important issue is to achieve and sustain a high process improvement yield level. In many companies, it is also important to contribute to the improvement of the value chain. The total improvement yield will provide a solid guidance in such a case. We all deserve to enjoy high-performance processes throughout our lives. In the end, someone always pays for low-performance processes both in a physical and mental sense. Unfortunately, that someone is you and I. The beating is taken not once but multiple times, as you might be a customer, employee and a stockholder of a company not to mention the bad impact of low-performance processes on society and the environment realized through higher taxes, inadequate service levels, unnecessary pollution and use of energy. From a total perspective, this amounts to an incredible large improvement potential throughout the world. This potential needs to be realized bit by bit by applying evolving high-performance process improvement approaches. We need to get serious and improve considerably the traction of all improvement wheels instead of spinning around. Achieving and sustaining a high-performance mode is very hard if applying lowperformance process improvement methods. Applying LPPI methods works as long 21
Actually, 100% better. A network study conducted by Vistalize Oy. The network included 30 subcontractor companies located in Europe. 23 People, technology, information and materials. 22
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as the competitors also utilize LPPI methods although this mode requires plenty of resources. This creates a window of opportunity that is reasonably long thanks to comparably long penetration times associated with new process improvement methods. Hypothetically speaking, even if all the competitors would run the HPPI methods at the same ambition levels, then there would still be an upside of the HPPI methods compared to the LPPI methods, despite a vanishing direct competitive advantage of applying HPPI methods. The level of required resources targeting process improvement efforts would be considerably less besides the potentials realized along the way. In that sense, everybody wins. Catching-up with a company operating at a very high total improvement yield level is hard, especially if the company has succeeded to run the improvement efforts on a higher ambition level than the basic level. Such a situation fosters future R&D work of the HPPI methods and solutions, as the theory and practice need to be reviewed thoroughly to see if there would be any possibilities to upgrade the total HPPI concept to the next ambition level. From an R&D point of view, I am already looking forward to this situation although this will not happen tomorrow. How to apply the concepts and methods of HPPI properly in any business is a good question that deserves a good answer. Luckily, the preparation of the answer will start on the next page and the question will be fully answered by the end of the last chapter.
Chapter 3
Design Concepts of the High-Performance Process Improvement Process
Based on the previous chapter it is possible to lay down the general outlines for the generic HPPI process (the construction) besides those guidelines discussed already in Sect. 1.7.1 These additional outlines cover the following cornerstones: l
l
l
l
The maximum output is an 100% process improvement yield and an 100% total improvement yield despite the business and current performance level of the targeted value chain The real-life process improvement yield and total improvement yield can be defined at any given point of time allowing a company, for example, to define, improve and sustain the yield levels according to the potential and current ambition levels of the processes and the produced output (product and/or services) The output is produced according to the specified performance requirements (recall Sects. 1.8 and 2.3) The outcome is an improvement of the focus process(es) in terms of time, quality and costs that increases the overall competitive state of the target company and network.
These requirements boil down to creating a construction that: l
l
l
Manages the optimization of the four process components, i.e. people, technology (e.g. methods, software), information/knowledge and material needed in high-performance process improvement Improves or creates missing or malfunctioning process components needed in high-performance process improvement Provides follow-up information about the current and likely forthcoming improvement yield levels.
It is beneficial to consider these aspects in turn via three design concepts: l
Standardization and manageability
1
Figure 1.1 (Sect. 1.5) presents the flow chart of the total HPPI process.
M. Pastinen, High-Performance Process Improvement, DOI 10.1007/978-3-642-10784-9_3, # Springer-Verlag Berlin Heidelberg 2010
49
50 l l
3 Design Concepts of the High-Performance Process
Optimizing the interaction of the process components Applying the concept of reverse engineering.
The issue of standardization and manageability provides the general means for designing a generic process that meets the specified requirements despite unique company specific settings (Sect. 3.1). The issue of optimizing the interaction of the process components, i.e. people, technology, information and material, provides the general means for managing and improving the process performance in terms of time, quality and costs (Sect. 3.2). The concept of reverse engineering provides a suitable means for designing a logic that produces the requested output according to certain expressed performance requirements (Sect. 3.3). Section 3.4 presents the total HPPI picture. Section 3.5 considers how to assure the quality of the experts in charge of the HPPI Process. The chapter ends with a summary and concluding remarks (Sect. 3.6).
3.1
Standardization and Manageability
The generic HPPI process has to be operational despite of company specific circumstances and requirements. This calls for a robust logic that allows a mass customization of the improvement activities regardless of the focus company’s performance level, branch or size. This requirement is very different from an “one size fits all” logic. A logic based on averages and best practices is not fit for the job under the requirements of HPPI. This would be like calculating the average shoe size of a soccer team and order only one size for the whole team. Although the ordering is easy and the discount for buying such a batch may be attractive, the likely outcome is that the shoes would not fit anyone properly. If there would be a fit, it would only be thanks to pure luck. HPPI is not about luck or copying best practices and trying to fit bricks in holes, which do not match. The remedy cannot be to break the pieces to make them fit the puzzle, as the picture will look awkward once the work is finished. The essence of HPPI is to increase substantially the probability of great success in a systematic and result-oriented way, and to achieve this rapidly and cost-effectively. A robust logic is in this connection such a theory that produces in practice a unique and useful output based on the specific case. Without such a prerequisite, it is hard to construct an approach that would be independent from the performance level of the company and branch and that would not cause unnecessary change resistance. From a manageability point of view, this means that the specific components used in the construction have to be standardized.2 The different types of components result in different organizational implications as described in Fig. 3.1.
2
A “component” is here equal to a concept, logic or theory used to produce some specific output.
3.2 Optimizing the Interaction of the Process Components
51
Fig. 3.1 The impact of standardized components on the manageability of a construction for process improvement and the impact of customized outputs on the level of change resistance (Pastinen 1998)
The assumed logic is that as the degree of standardized components increases, the manageability of the construction increases. Likewise, it is assumed that as the level of customization increases, the change resistance will decrease. This assumption does not suggest that if the output is fully customized, then there will not be any change resistance at all. This is because the level of change resistance is due to many different factors. Customizing the output to fit the purposes of the specific company is only one way of decreasing the change resistance besides a certain level of change resistance included in almost any improvement effort. Other issues include, for instance, the quality of the substance and the way the substance is created, presented and utilized.
3.2
Optimizing the Interaction of the Process Components
The detailed design notes how to optimize the interaction of the four process components3 related to the generic HPPI process is a very complex question the answer of which is clearly out of the scope of this book. Therefore, it is sufficient and fruitful to consider some of the applied concepts to form a rough picture about
3
People, technology, information and material.
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3 Design Concepts of the High-Performance Process
the underlying fundamentals. Subsequent chapters present the end-result of the development in detail. The material component will not be considered below, as this issue is better covered in the information component (i.e. information based material). Optimizing the interaction of the process components related to the generic HPPI process improves the time, quality and costs parameters of the improvement work. This increased performance makes it possible to optimize the interaction of the process components of the focus process that in turn improves the time, quality and cost parameters of the focus process. Running the improvement activities permanently according to the requirements of HPPI generates the best impact towards creating and maintaining a high-performance business.
3.2.1
People
There are groups of people that have different roles and tasks when running the generic HPPI process. To run the process there has to be at least one person mastering the logic. This person may be either an internal or an external expert/ consultant. Depending on the culture and current ambition level of the company, there might also be a need for a change agent to co-ordinate and break ground for forthcoming improvement activities. The other required people are attached to the process on a need basis. These persons are the ones that are managing the focus process (the management) and the persons working in the focus process (the employees). As there is no massive organization needed to run the generic HPPI process, it is easy to integrate it into the corporate process chart. Another advantage from such a mode of operation is that the HPPI process is instantly operational. Due to this set-up, it is crucial how the expert in charge of mastering the HPPI process, or a part of it, acts and deals with the people attached to said process. This general logic is guided by three different approaches or models to consultation as presented by Schein (Schein 1987): l l l
The expert model The doctor–patient model The process consultation model.
The consultation approach is the logic used by the expert or consultant to intervene in the company. As a result, different substance knowledge is required depending on the nature of the problem (“do not know what to do” vs. “do not know how to do”) although the same consultation approach may be used. In the expert model, the customer buys the expertise needed to solve a certain problem. The task of the expert or consultant is to solve the problem, so that the customer (internal or external client) can focus on other issues in the meanwhile. The prerequisite of using the expert model is that the client has defined his or her problem correctly. Besides, the customer needs to know where to get the help wanted and what kind of help is needed. This mode is applied only for learning to
3.2 Optimizing the Interaction of the Process Components
53
run the HPPI process, not when interacting in the focus company or focus process. These are two different issues despite they are inseparably applied at the same time. The doctor–patient model gives the expert or consultant more freedom to carry out the diagnosis and decide what knowledge is needed and who would solve the problem best. The consultant is asked to inquire what the problem is and to suggest how to solve it. The process consultation model does not provide the customer with a ready solution. It provides the customer with the means necessary to come up with a solution. The role of the expert or consultant is to support the customer in his or her struggle to find a workable solution. The consultant is thus more of a coordinator than a “wizard”. In such a case, the customer has to do the main brainwork. The knowledge about how to basically analyze and solve problems stays with the customer, which is crucial when thinking about the “learning organization”. However, it is often beneficial to rely on the consultant to perform more demanding analyses and syntheses, as the ambition levels evolve. This is especially true regarding process analysis and synthesis, i.e. Phase 2 of the HPPI process, although the network and company (unit) analyses and syntheses also require some mental efforts to proceed smoothly. In terms of change resistance, the customer is more committed to the solution, if he or she has closely participated in the improvement process. This mode is the primary approach when interacting in the focus company or focus process. The logic of the doctor–patient model or the expert model provides occasional support to that main approach. The generic HPPI process deals with two issues, as there are two key processes to consider at the same time. These processes are the HPPI process itself and the focus process, or the focus company (unit) if running Phase 1 of the HPPI process. What consultation approach to use depends on the case and it changes due to changed ambition and knowledge levels. The default setting is that the generic HPPI process is run using the expert model and the intervention in the focus process is managed using the process consultation model (Fig. 3.2). Depending on upcoming issues in the focus process, the consultation model may be altered straight off.
Fig. 3.2 Schein’s three approaches to consultation and the general logic for selecting the appropriate consultation approach (Pastinen 1998)
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3 Design Concepts of the High-Performance Process
If the HPPI process is transferred to the company so that the company itself would be able to master the process, then the selected consultation approach is initially the expert model. After this, the applied approach alters to the doctor– patient model and eventually to the process consultation model (“teaching the teacher”) according to who is in charge of mastering the process (the external expert or the internal expert). Besides the two “what” and “how” dimensions depicted in Fig. 3.2, it is advantageous to consider two other dimensions when improving the focus process (Fig. 3.3). The first is the consideration of human aspects, which translates into “wants to do”. The human aspects are crucial for the success of the improvement efforts. Without the desire to change, there is not much to be done to improve the operational strength of the organization, except for efforts to increase the desire. A high-class process improvement plan provides as such a support to increase the desire. The other dimension depicted in Fig. 3.3 is the consideration of sufficient funding, which translates into “can afford to do”. This dimension has an interesting consequence. Without the consideration of that dimension, the improvement efforts would be a rather trivial task to conduct.4 For example, if the consultant masters process improvement related techniques and approaches he or she only needs to ask an employee or a manager “What’s the problem?” If the change resistance is at an
Fig. 3.3 The success of the improvement efforts depends also on human and financial constraints (Pastinen 1998)
4 One should under no circumstances underestimate the necessity of addressing the “knows what to do”, “knows how to do” and “wants to do” aspects, but to illustrate that it is not sufficient to master just these three dimensions let us assume that these three dimensions are taken care of.
3.2 Optimizing the Interaction of the Process Components
55
acceptable level, it is a rather straightforward task to put things in order once the problem is stated. Unfortunately, life is not that easy. The challenging part is the proper use of resources. If you have only 100 units of money, 100 units of “smartness” at the current ambition level, 100 units of time and 100 different problems, where should you deploy the money to make the most use? To succeed in the improvement effort all four dimensions (“what to do”, “how to do”, “wants to do”, and “can afford to do”) should be revised to find the optimal interaction between different process components and the best outcome. The consultant in charge of running the HPPI process should use a logic that revises these four dimensions when interacting in the company regardless of the consultation approach used. This is especially important in the initial phases of the improvement efforts because it is better to do things right firstly than correct problems afterwards.
3.2.2
Technology
The application of technology increases the performance of the generic HPPI process. Technology and machines are in a sense extensions of the human brain and muscles respectively. As the HPPI process as such only deals with data, information and knowledge, the focus is on technology that extends the human brain and thus provides leverage in terms of running the process according to the requirements. Basic (commodity) technologies used in process improvement work are not of interest in this case.5 The focus is on a technological support (software) that would: l
l
Help to assure that the expert in charge of mastering the HPPI process is able to run said process according to the requirements Help to assure that the persons of the focus process are able to take part in running the HPPI process according to the requirements, especially the implementation phase (Phase 3 of the HPPI process).
In essence, the question is about how to update the brainware so that the HPPI process runs as smoothly as possible. The challenge is, consequently, how to transfer and manage knowledge as opposite to traditional transfer and management of data and information. The increase of process improvement knowledge has been conducted by traditional education and training efforts that follow a predefined, usually chronologically organized path that, at least on the surface, may be interactive. The performance requirements related to high-performance process improvement make these approaches potentially obsolete. The knowledge level that has to be reached and sustained is one concern, and the available time to reach 5 E.g. communication solutions (telepresence, video conference, e-mail, phone), office applications (text editor, spread sheet application, slide editors, etc.), performance measurement systems, ERP systems, process modeling applications.
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3 Design Concepts of the High-Performance Process
that level is another. The question of sustaining the knowledge level is essential, as people tend to forget, way too fast, what they have learned. If the “forgetting pace” is higher than the “preserving pace” then the “learning pace” suffers, as old issues have to be repeatedly relearned. This affects in turn negatively the possibility to move on from the basic improvement ambition level in real-life. Traditional education and training efforts are potentially subject to both effectiveness and efficiency concerns. Such efforts cannot be applied to any higher degree when running HPPI efforts according to the specifications and requirements. This deficit becomes more evident as the size of the improvement effort grows. From a pure substance point of view, it does not make sense to put resources on approaches with a low process improvement yield output. In such a case, it does not help much to utilize technology to enhance the education and training efforts.
3.2.3
Information
The information related aspects considered so far include the information quality criteria, information process types, their competitive relevance, and the general cultivation logic of data and information into knowledge. Mastering the information processes of the HPPI process requires a proper understanding of these requirements. Due to this dynamic set of requirements and the risk for misunderstandings, it is not possible to gather hardly any of the required data and information by traditional predetermined questionnaires. To tackle this dilemma a logic that rules out irrelevant questions and not needed data should be applied so that only relevant and correct data is collected and relevant questions are asked and answered.6 Such a logic will not only increase the information quality and cut time, but will also increase motivation of the persons providing the data and information. The analysis phases does not benefit from collecting irrelevant and incorrect data, as this may even divert the focus from relevant data. In any case, this waste should be prevented from arising in the first place.
3.3
Applying the Concept of Reverse Engineering
The concept of reverse engineering is helpful when defining the rough process flow of the HPPI process. This means in this context that the output and performance requirements of said process should first be clearly understood and defined. After 6 Process audits and maturity tests (enterprise and/or process level) contain usually many questions the majority of which are not relevant for the specific case. The data collection and analysis should always be seen in the perspective of a useful and implementable synthesis. If this link is missing then the end-result is at best only “nice to know”. Implementing such an analysis and likely biased synthesis is not advisable.
3.3 Applying the Concept of Reverse Engineering
57
this, the question of how to meet or exceed these requirements and specifications is put in the development focus. This is by no means a novel design concept although such an approach has seldom been applied when designing process improvement methods. As the development work may last a long time, it is necessary not only to get information regarding how much time is available in real-life, for example, for creating a process improvement plan. It is also important to consider possible future performance demands once the solutions have been finalized. Surveys will in this regard only communicate articulated needs, not exciting needs. For instance, in the case of defining a process improvement plan the field study conducted in 1994 showed that this may take no more than 2 days of the key persons’ time. As the specific solution to produce the improvement plan would be ready much later, I reckoned that the time limit had to be 1 day per attending person. Such a performance reserve should by enough to cope with the ravages of time. As a rule of thumb, the improvement work should not in the long term exceed 4% of the annual working time (8–10 days per person). This figure is applicable on both the company and individual level. At most 10% of that time should be allocated to assuring that the improvement work is effective whereas 90% should be allocated to assuring that the improvement work is efficient. Five to about twenty carefully selected persons would provide the adequate knowledge base to conduct the required data collection and analysis for any given focus process. This amount of people would also usually be sufficient from an initial change management perspective. For example, if the man power of a process is 400 persons then the available resources for process improvement would be sixteen man years annually (220 working days/year; about 9 days/person). If the creation of a process improvement plan takes one working day for each of the twenty persons7 then this corresponds to 20 days that is about 0.6% of 16 man years. This figure is much lower than 10% and would leave 99.4% of the time left for the implementation. It is crucial to observe that the twenty persons will at an individual level also comply with the 4% rule, as they will have 8 days left for the implementation (the 380 other persons have a full 9 day resource pool left). The corresponding number in a process with twenty persons would allow eighteen persons to attend the data collection and analysis phase although five to eight persons would likely be enough. Applying the dynamics of HPPI to processes with a low complexity level and a conservative improvement potential may show that the needed resource allocation is not 4% of the working time, but in the range of 1 and 2% of the working time. This is because the improvement activities can be conducted at a lower process improvement yield level that still results in a reasonable and sufficient outcome. This optimization is made by lowering the requirements and specifications related to the coverage (scope) parameters, not the quality parameters related to the process improvement yield formula. The selection of the ambition level of the plans and the implementation is a different concept not related to this issue of customizing the utilization of resources by lowering the coverage level.
7
Theoretically, about 350 persons could be attached to the creation of the plan.
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3 Design Concepts of the High-Performance Process
The results of the initial survey made in 1994 to gain an understanding of the problems companies face when improving operations revealed one crucial issue that has to be taken into consideration when designing the generic HPPI process. This is the issue of increasing the performance of the expert or consultant in charge of mastering said process. Consider below my observations made in the early years (Pastinen 1998). Fifteen in-depth interviews were conducted in the fall 1994 to gain a deeper understanding of the problems related to improvement programs of Finnish smalland medium-sized enterprises (SMEs). Seven of the companies were in the service sector and eight in the manufacturing sector. The size of the companies in terms of employees ranged from about five to sixty employees. The corresponding revenues ranged from approximately 0.5 MEUR to 5 MEUR. The companies’ domiciles were in the area of Tampere, Helsinki, Turku, Kuopio and Vaasa. Principally the interviewees were managers or directors and approximately half of the companies in both sectors had a quality assurance system in place. The survey provided the following guidelines: l
l
l
l
l
The experience of consultants is diverse and mostly negative. For example: the initiation of consultants lasts too long; the skills of consultants vary considerably; consultants are able to point to problems, but they are not able to solve them; and the experts are not necessarily able to adequately grasp companies’ general state of affairs. The major problem confronting companies in general, and various employees more specifically, is haste. The three most important training foci are the motivation and commitment of employees, general knowledge relating to quality issues and customer orientation and satisfaction. The main causes of dissatisfaction among company employees are attributed to not doing things right the first time, slow information flow (communication barriers) and poor organization of work. Bureaucracy and reworking consume most of the non-value adding time.
These observations provided me with additional guidelines to focus the research problem. According to my emerging hypothesis, there was a barrier between the consultant and the client company. This barrier was formalized according to the following points: l l l l
The initiation period of consultants lasts too long. Consultants’ skills vary considerably. Consultants are able to point to problems, but they are not able to solve them. Experts are not necessarily able to depict the overall view of the company. As a consequence, the improvement efforts may target irrelevant issues (suboptimization).
These aspects, among others discussed earlier, led me to conclude that a gap existed in the interaction between the consultant and the client company. The gap seemed to be related to the initial intervention in the company. An analogy may serve as
3.3 Applying the Concept of Reverse Engineering
59
clarification: consultants and client companies require a “communication interface” for effective communication in much the same way as one is required between humans and computers. In sum, I maintain that a “consultant–client company interface” should be a target of improvement and may serve as one means of eliminating the obstacles described above. To function properly the “interface” must consist of two components: 1. A component that makes an analysis of the existing processes in the company. 2. A component that provides clues as to how to improve the object of improvement. Without the first component, it is impossible to know what to improve. To get the best leverage the resources should be deployed where they make most use from a business perspective. Without the second, it is impossible to know how to remove the problem. Therefore, a dilemma ensues: there cannot be a universal solution fitting every need and every company. Hence, every solution has to be more or less customized. This is due to a variety of reasons, including, but not limited to: cultural aspects, the nature of the problems, the maturity level of the company, the type of business and the competitive context. The logic should therefore also consider this dilemma. In addition, I recognized that the analysis needed to be quantified and communicated physically in terms of an improvement plan. This is because having a mental view (in the head of the consultant) about what should be improved will not foster consensus in the client company. If the performance of the improvement experts or consultants cannot be assured, and if needed increased, it is hard to reach the requirement of at least 40% of the staff mastering the process improvement substance in real-life. The missing teachers would inevitably affect the implementation phase, as the required momentum would not be reached. Self-tuition may be plausible for a limited number of people, but the roll-out and continuous implementation of HPPI concepts cannot rely on such assumptions. To tackle the problems discussed above the HPPI process has to contain a process for educating and training the expert supposed to master the HPPI process. Such a setting would provide the optimal momentum to run and boost the improvement activities in any setting, as there would be, if needed, a built-in logic for producing skilled consultants or experts suitable for mastering said process. Based on the considerations above it is possible to outline the flowchart of the HPPI process (recall Fig. 1.1). It has to contain three main phases – two for assuring the improvement effectiveness, i.e. the network/company/unit level (Phase 1) and process level (Phase 2) and one for assuring the improvement productivity and the quality of the implementation (Phase 3). The annual time consumption of the phases should be on an individual level the following: l l l
Phase 1: approximately 1 day of effective working time. Phase 2: approximately 1 day of effective working time. Phase 3: 5–10 days of effective working time.
The lead time for the two first phases should be as short as possible because these phases do not actually improve anything, as these are planning phases. The sooner
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the implementation phase is begun the sooner results will show. It should be noted that the implementation phase contains also the education and training phases if the implementation knowledge base is on an inadequate level with respect to the requirements. The lead time of these subphases should also be kept short, as these phases are not actually improving the performance of the process although enhanced attitudes, culture, knowledge, skills and motivation may already improve the performance to some extent. The phases should detect the current performance level of the improvement activity in advance and if shortages are detected then the specific phase should fix the problems properly so that the specified output, i.e. the process improvement yield and total improvement yield, can be produced according to the specifications. These requirements are met by utilizing the criteria for defining the yield levels and applying the criteria on the existing documentation and by producing an output, the documentation of which is on an adequate level. It is most convenient to measure the quality of the produced output of the HPPI process by targeting four different measurement points: 1. The quality of the network improvement plan (at the end of Phase 1, see Fig. 1.1 for the flow chart). 2. The quality of the process improvement plan (at the end of Phase 2). 3. The quality of the process improvement education and training (in Phase 3). 4. The quality of the implementation, i.e. compliance to the PDCA logic (during the PDCA work, but no later than at the end of Phase 3). The concept of process improvement yield does not cover Issue 3 as such. However, the objective of the education and training is to assure that the quality of the implementation is in line with the process improvement ambition level. By utilizing the same criteria used when measuring the quality of the implementation it is possible to measure the quality of the training. Instead of a real-life setting, the test setting would provide some kind of simulation suitable for testing a person’s skills of implementing the PDCA logic at the specified ambition level. Such a test would be more important than testing the quality of the education, as the practical skills to run the PDCA logic would be the only significant aspect, as this issue is part of the process improvement yield concept. This is not to say that the quality of the education is unimportant, quite the contrary. Without adequate education, it is not possible to create the knowledge basis and scale up the ambition levels of the improvement process, the focus process and related outputs and outcomes in subsequent years. The difference is that the quality of the training has to be quantified for each individual by an expert whereas the education quality test can often be done using self-tests or tests based on conversation and reasoning without defining a quantified output. Measuring the implementation quality will also reflect the quality level of the education especially if the specified ambition level is higher than the basic level. Such a logic assures that the implementation quality required to run the improvement efforts for the next 12 months will at least be on the minimum level.
3.4 The Total Picture
3.4
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The Total Picture
To run the HPPI process in compliance with the performance requirements two issues need to be known and understood: l
l
The quality of the substance the methods are transferring, cultivating or utilizing (the T Value) The practical ability of a method to realize the generic HPPI process or a phase of said process (the V Value).
How well these aspects play together in real-life, when also the scope of application is considered, is defined by the “watchdogs”, i.e. the improvement yield concepts. The most important improvement yield concepts in this regard are the total improvement yield and the process improvement yield (recall Sect. 2.4). The T and V Values, together with the total improvement yield concept, quantify the missing and crucial parameters needed to complete Fig. 1.3 (Fig. 3.4). The “T” in the term “T Value” symbolizes both sight/breadth (the “roof”) and focus (the base) of the process improvement substance that have to be properly dealt with in each of the phases related to the generic HPPI process (network, company [unit] and process levels and the implementation). Each phase has a related T Value that defines how well a certain method complies with the substance requirements of high-performance process improvement. The T Value equals the improvement yield level of the method except for the scope parameter. Another difference is that the T Value is a theoretical value whereas the improvement yield level or score is the practical, real-life quality output of a certain method (the scope parameter excluded). The yield level without the scope parameter is therefore at best the same as the T Value, but due to imperfections in the practical application of the specific method used, it is likely that it is lower. The roots keeping the “T” up are the time, quality and costs performance parameters that are the fundamentals of a competitive and prosperous business. If the roots of each company are not taken care of properly, they will start to fade one by one. Eventually the whole “T” may start to sway and this movement can cause it to drop. These parameters and related issues are subject to a detailed analysis (incl. data collection) and synthesis. How well a method is able to deal with this is defined by the “V” value. The letter looks like a funnel with data collection at the top, the analysis in the middle and at the point the synthesis. The V Value depicts the versatility of the method and communicates in other words what kind of performance a method is able to deliver to realize the generic HPPI process in practice. The questions answered by the V Value is: “What is the actual way of sorting out the trivial many issues from the vital few and how are these vital few issues taken care of (implemented)? The value can be stated as a “V Value” and a “V Value (HPPI)”. The first value denotes the contributing performance delivered without any time limitations. The second value denotes the performance if the performance has to be delivered within the limits of the time requirements of high-performance process improvement (HPPI).
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Fig. 3.4 The total HPPI picture
The key is to get grip on the time, quality and cost improvement objects that are below the surface before signs of decline appear above the surface as visualized in Fig. 3.5. The task of the network analysis and synthesis is to show where to dig. The task of the process analysis and synthesis, on the other hand, is to tell how to dig and what remedy to apply. The task of the analysis and synthesis at the improvement object level is to clean the root from biasing elements, specify the remedy in more detail and implement and follow-up the remedy properly. The implementation phase fine-tunes the planning, updates knowledge and skill deficits and realizes the planned actions in practice.
3.5 Assuring the Quality of the Experts in Charge of the High-Performance
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Fig. 3.5 A visualization of the work distribution between sight and focus (“T”), i.e. analysis and synthesis at the network/company (unit), process and specific improvement object levels8
3.5
Assuring the Quality of the Experts in Charge of the High-Performance Process Improvement Process
Two crucial issues or wholes form the fundamentals of the HPPI process. The first issue is the quality of the methods and substance behind the phases of the HPPI process (the T and V Values for each phase). The second issue is the quality of method transfer to the experts in charge of running the different phases related to the HPPI process. This aspect strives to achieve a mode where the T Value is the same as the corresponding improvement yield level (excluding the scope parameter). The focus of the book is primarily to present and discuss the first issue, but to understand the whole it is necessary also to consider the second issue. The education and training of the required experts or consultants are organized via a concept called VISTALIZER1 Center of Excellence that is closely attached to the research, development and beta testing activities of Vistalize Oy. The center is responsible for the transfer, ramp-up, maintenance and update of knowledge and skills of individual experts or consultants in a certain region, geographical area or corporation. The difference between the T Value and the corresponding improvement yield level (excluding the scope parameter) associated to a certain expert or all experts is the primary quality parameter of the VISTALIZER1 Center of Excellence. As a result, it produces authorized VISTALIZER1 experts or consultants in four areas: l
8
The network and company (unit) analysis and synthesis (VISTALIZER1 for Networks)
Image drawn by Harri Pakarinen and published with due permission of Vistalize Oy.
64 l
l
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The process analysis and synthesis (VISTALIZER1 for Consultants; VISTALIZER1 for Process Analysis and Synthesis) and the output, i.e. the process improvement plan VISTALIZER1 Report VISTALIZER1 Services for implementing the VISTALIZER1 Report, including among other issues (software based) process improvement education and training and definition of yield levels (VISTALIZER1 for Enterprises; VISTALIZER1 Acid Test) The concept and process for analyzing, creating deploying, implementing and monitoring a corporate strategy (VISTALIZER1 for Businesses).
The most important issue is in most cases, at least initially, the second one (VISTALIZER1 for Consultants), as this affects heavily in real-life the effectiveness of the process improvement activities. Chapter 5 considers the related method and its output more thoroughly. Besides the objective of continuously assuring the quality level of the experts or consultants, the center supports also the internal or external marketing, sales and testing/piloting of the solutions. The logic would not be complete if the VISTALIZER1 Center of Excellence would not contain an approach for replicating itself. As a result, it is possible to manage and improve all aspects of the HPPI process in a systematic and result-oriented way.
3.6
Summary and Concluding Remarks
There are many things to consider when designing a HPPI process. We have in previous chapters so far considered the concepts behind HPPI, the generic HPPI process, and the improvement yields. A proper mental orientation regarding these main issues is beneficial for understanding the solutions and methods presented in subsequent chapters. These issues need to be bundled together to form a coherent whole that can be implemented according to the requirements and specifications. There is a “critical mass” that has to be reached in terms of the substance much like assembling a car. If one piece of material or equipment is missing it will affect the whole negatively. If many parts are missing it is clear that the vehicle will not move according to specifications, if moving at all. In addition, the motion might be unsafe and uncontrollable leading to unexpected and unwanted situations that have to be dealt with somehow. Fixing problems the causes of which are essentially related to shortages of the selected improvement method (logic) is a never-ending story that is hard to end successfully. This will little by little alter the offering of the company so that eventually the company may end-up having the wrong products, produced with the wrong cost basis at the wrong time, and sold and delivered with the wrong approach. In such a setting the ostrich model (“out of sight, out of mind”), alternatively the fire fighting model, is often applied reactively and tool-oriented. This leads to treating effects and not causes although the identified problem may be target for a local root cause analysis. This biases thinking, as no one reflects on the possibility that the root cause could in fact be an effect from a holistic process
3.6 Summary and Concluding Remarks
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perspective. Fixing such problems locally will not provide any real, longer lasting, advantage. This affects negatively the overall corporate culture, the process performance and overall competitive situation, as the company is not able to disclose and realize the most advantageous improvement objects and the true improvement potential (cp. Fig. 1.2, “Traditional approach”, i.e. going from C to B). Improving the absolute performance is a good thing if the relative performance has also improved although care should be taken not to compare the own performance to the best that did not pass the class.
Chapter 4
Network and Company Analysis and Synthesis
A network is in this context an interconnected system of companies or business units the processes of which produce a certain product or service. The produced product or service may be a sub-product or subservice to a larger whole. The reasons for conducting a network and company (unit) analysis and synthesis are manifold. Such an analysis shows the performance level of specific companies (units) and the related network. The synthesis, on the other hand, tells how to improve these performers. Besides the improvement of existing network companies, the presented method and the related output can be utilized to analyze prospective future partners, subcontractors or suppliers. Another area of application is company mergers and acquisitions, where this approach provides an attractive complement to the traditional due diligence process and the related output. For very demanding due diligence cases, for example, to define a proper market value of a company, it might be necessary to dig deeper into the concerns and conduct a process specific analysis and synthesis as presented in Chap. 5. The purpose of this chapter is to present the VISTALIZER1 for Networks method, i.e. the network and company (unit) analysis and synthesis method of the generic HPPI process. Sect. 4.1 provides a brief introductory to the subject and the concept. How this concept fits into the concept of the generic HPPI process is the subject of Sect. 4.2 where the process flow is considered. Sect. 4.3 presents the data collection and analysis criteria related to the matter whereas Sect. 4.4 considers the synthesis. Sect. 4.5 reflects on the T and V values. The chapter ends with a summary and concluding remarks.
4.1
Introduction
It is possible to define the term “network” in the same manner as the definition of a process. A network is thus the interaction of companies or business units, technology, information and material to produce a certain output. Such an interconnected system forms at least a partial value chain the performance of which is M. Pastinen, High-Performance Process Improvement, DOI 10.1007/978-3-642-10784-9_4, # Springer-Verlag Berlin Heidelberg 2010
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based on three fundamental performance parameters, i.e. time, quality and costs. The end-customer, who pays for all activities in the value chain, judges eventually the value of the outcome. This means that if the end-customer does not place any order or does not buy the product or service, no one is paid. This incentive is the prime driver why all companies of a value chain should be keen on utilizing a proper network and company analysis and synthesis for the benefit of the own company and the whole network. The motto of the famous Three Musketeers, “one for all, all for one”, suits well in this connection.1 The competitive state of the offering and the profitability of the companies belonging to the value chain are complex issues that are due to a fairly complicated cause-and-effect chain. These issues include at a heading level the total offering (incl. terms) and related issues starting from presales activities, going to order–delivery and ending with after sales activities. Subjective issues (feelings) of the end-customer that are due to historical reasons, present issues and future prospective issues affect these issues also. From a process improvement perspective this translates into three key areas that have to be mastered properly throughout the network or value chain: l
l
l
The research and development of products and services (assures that there is something valuable to sell) The cash generating value chain including (short term) enabling wholes, i.e. (pre)sales ! order–delivery ! after sales (assures that there is a continuous and preferably increasing cash flow that should result in profits) The strategy process producing and deploying the corporate strategy (assures that there is vision, direction and overall coordination of the activities).
By excelling in all these three areas, it is possible to affect positively the subjective issues of the customers. Running the generic HPPI process presented in this book improves these three key areas in line with the requirements of HPPI. There are many different approaches how to conduct a network analysis many of which take the shape of audits, maturity level tests, or quality system checks. Every company has some kind of metrics for evaluating the performance of the own units and the (prospective) suppliers, subcontractors or partners. Sometimes this may be in the head of one person, but if the operations are substantial, then there are usually a logic and written criteria to support the work. The metrics focuses typically on different issues such as quality, costs, time (delivery time and delivery certainty) and profitability. In many cases, the metrics is not only quantitative, but also qualitative, influenced by, for example, the metrics used by quality awards. It is out of the scope of this book to dig deeper into the metrics used by different companies. Such an analysis, even properly conducted, does not provide the required input to make a proper synthesis from a HPPI perspective. A proper network and company analysis and synthesis address in this regard the three key areas listed above. Furthermore, the metrics used in this context has to fit into the
1
The Three Musketeers, written by Alexandre Dumas (pe`re), is a serialized novel published in 1844.
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concepts of HPPI and the generic HPPI process as considered earlier (recall Sects. 1.7 and 2.3). Besides these requirements and guidelines, an additional issue needs to be emphasized. This issue is the time perspective of certain critical points of performance that have to be reasonable well covered in the past and present time as well as estimated in future time (12–24 months). These issues are not at this stage subject to a root analysis, but considered more from an end-result point of view, as a deeper understanding of causes and effects is gained in subsequent phases of the generic HPPI process. In this total process a data collection, the following analysis and the final synthesis are actually conducted four times, i.e. on the network level, company (unit) level, process level, and on the specific problem or improvement object level (within the PDCA framework).2
4.2
The Process Flow
The process flow of the network and company analysis and synthesis is twofold (Fig. 4.1). One part of the process flow is needed only when the analysis criteria (the metrics) are defined or updated. The other part of the process flow is needed repetitiously as many times as there are companies or units that have to be analyzed. As seen in Fig. 4.1, it may be necessary to consider also the corporate or company strategy and a possible update or creation of it. A high-quality strategy process provides additional momentum to the process improvement activities as such. Besides other crucial processes, it should therefore be a compulsory focus process of the generic HPPI process, especially when running the improvement efforts with a higher ambition level than the basic level. Chapter 7 (Sect. 7.1) considers this strategy related aspect more thoroughly. The process flow repeated according to the amount of companies or units is presented in more detail in Fig. 4.2. This part corresponds to the first phase of the generic HPPI process. As considered earlier in Sect. 1.5, this phase can also be run simultaneously with the implementation phase (Phase 3 of the HPPI process). The kernel of Phase 1 is the data collection and the used analysis criteria that form the basis for the synthesis at both the company (unit) and the whole network level. These issues are produced and cultivated based on the actions taken in the other boxes preceding and succeeding Phase 1 as seen in Fig. 4.1. The other activities depicted in Fig. 4.2 are more or less self-explanatory. Although the analysis criteria are customized to fit the specific need and network, it is possible to look at general issues and principles for conducting the data collection and analysis. This will also provide a good input for understanding the crucial activities related to the network and company (unit) analysis and synthesis. 2 The company (unit) level data collection and analysis provides as such the input to the network level analysis. Therefore, it could also be argued that there are only three different data collection phases, but four different analysis and synthesis phases.
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Fig. 4.1 The general process flow of the network analysis and synthesis
Fig. 4.2 Phase 1 of the generic HPPI process (company or unit level)
4.3 The Data Collection and Analysis Criteria
4.3
71
The Data Collection and Analysis Criteria
Defining the general analysis criteria is the key to designing the way the data collection should be executed. The criteria can then be easily customized to fit the specific case. The data collection approach, on the other hand, can be standardized to assure that the performance requirements are met in Phase 1 (Fig. 4.2). Reverse engineering, as considered earlier in Sect. 3.3, is the operational concept used to reach an adequate solution. Having the right data collected in the right way and managing properly also the other issues related to data and information quality (recall Sects. 1.7 and 3.2.3) provide a high-class input for the synthesis at the network and company (unit) levels. The criteria to guide the data collection can be classified according to three perspectives: – The functional perspective (according to logical themes) – The operational perspective (the cause-and-effect-chain) – The time space perspective (according to what time space the data reflects) The perspectives have to be mutually inclusive meaning that any criteria of any perspective should also fit into the two other perspectives. This approach will assure that the underlying logic for customizing the network specific criteria will be robust and fit for the purpose. How well the specific focus company or unit complies with that network criteria is graded by giving points. The specific issues have different maximum points. This makes it possible to put more weight on certain issues. An imperfect verification of the considered issues results at least in a halving of the maximum scores. The maximum total score is 1,000 points. Section 4.3.4 presents later on a data collection criteria case organized according to the functional perspective.
4.3.1
The Functional Perspective
The functional perspective includes the following criteria: l l l l l
Management quality and the level of co-operation Time Process and output quality (product/service quality) Price (costs) Technology and knowledge/skills.
The management quality is a complex theme. To deal with the issue it is necessary to restrict the evaluation criteria to such aspects, which are simple and useful enough to provide sufficient data and information without too much biasing noise. The criteria should provide the basis for increasing the level of systematic and result-oriented improvement actions. Three areas cover these considerations:
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The quality of the corporate or company strategy (considered in Sect. 7.1) The quality of the process improvement plan (recall Sect. 2.4.1) The quality of the implementation (recall Sect. 2.4.1).
The evaluation of the quality of the corporate or company strategy is not a compulsory issue when running the improvement activities at the basic ambition level. The two other criteria are compulsory issues even at the basic ambition level, as these two criteria form the basis for evaluating the process improvement yield. The level of co-operation is in this connection defined based on how well the company or unit contributes to developing new, enhanced or more cost-effective concepts, products or services. These development related issues form the core value proposition of the value chain and are thus a reflection of the effectiveness in this connection. Time, process and product/service quality, and costs are in this connection productivity related matters that boil down to defining how well the company (unit) complies with certain requirements. This restricts the amount of different parameters to a handful of parameters. These include the lead time, delivery time, delivery certainty, quality defects, and the cost level compared to average market prices. To get a better understanding of the main drivers for increasing competitiveness from a total perspective it is necessary to understand also the technological level of the company besides issues related to knowledge and skills. These aspects provide also an understanding of investment needs and the innovation capability.
4.3.2
The Operational Perspective
The operational perspective communicates the level of systematic actions, the results and supporting issues. The objective for having such a structure is to cover on a rough level the cause-and-effect chain of how to improve the performance. The systematic actions include the planning quality from both a product/ service development and process improvement point of view (the cause). The results are the effects of the planned actions and can be defined, for instance, based on the process performance of certain key processes such as the core process performance (time, quality, costs), response time to technical support requests and inquiries, flexibility of the core process (e.g. ramp-up time to double production volume), innovation capability and actual skills of employees. Supporting issues relates to, for example, the production technology, performance measures, functionality and level of the quality system, the pricing model (contents, transparency), and investments in education. The operational or cause-and-effect perspective reveals much about how the company achieved the results and what the likelihood is for copying and sustaining success. For example, having a high score in the cause issues, but a low score in the effect issues, will disclose potential areas of interest, if analyzed together with the
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time space perspective. A low score in the cause issues, but a high score in the effect issues, provide valuable clues what and how to improve the company or unit.
4.3.3
The Time Space Perspective
The time space perspective groups the criteria of the two other perspective in terms of what time frame the criteria reflect, i.e. past, present or future time. For instance, much of the criteria of the development issues reflect future time, as does the planning quality. Core process performance criteria (time, quality and costs/price level) usually reflect past time as an average performance of the past 6–12 months is usually considered. In some cases, it might be interesting to measure the real-time or even future performance level. This is especially the case regarding the price (note: not costs) where the historical trend, current and future (e.g. next 12 months) price level can be defined reasonably well. Having a time space perspective enhances the synthesis quality, as it will shed light on the real and realistic potential of the company. This provides also additional insights how well different parts of the organization function as a whole and in relation to the network (value chain). Such an internal and external view adds necessary relevance to the collected data and information especially when running the improvement efforts on a higher ambition level than the basic level.
4.3.4
Data Collection Criteria Case
A real-life example of the analysis criteria at the basic ambition level is presented below. The case criteria relate to a network of some 50 companies in three networks operating in the electronics industry. The considered subcontractor network with 21 companies, including the case company “Company 5”, provide their input to a publicly listed company with a strong desire to double its revenue organically on a global scale in three years and still sustain a sound profit level (12% EBIT). The criteria were also modified to suit the two remaining networks, i.e. the logistics network and the supplier network. The first excerpt presents Issues 1.1 and 1.2 that cover the process improvement yield (Table 4.1). The criteria were used both to improve the current networks and to analyze potential new subcontractors, suppliers and logistics partners. As seen in Table 4.1 (Criteria 1.1 and 1.2), the process improvement yield is about 0.7%. From a process improvement perspective, this means that the company is not able to conduct any systematic and result-oriented efforts. Such a mode produces at best only minor results. The performance of the company relies heavily on individual persons’ performance, intuition and motivation. This causes inevitably a situation where the company cannot improve the stakeholders’ satisfaction as a whole in a sustainable way. In Issue 1.2, the framework is the PDCA Quality Measurement Logic (200 points) that has been converted to suit the network data
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Table 4.1 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) Criteria Max Score Comments 1. Management quality and level of 250 81 Improvement yield ¼ 0.67% co-operation (16%*4.2%) 1.1 The quality of the process improvement plan 50 12 Scope of the improvement Yield of the improvement plans ¼ 2 out of 3 !67% plans ¼ 16% (12/50*67%) 1.1.1 Stakeholder analysis (customers 2 p., 6 1 Customers OK 1 p. personnel 2 p., owners 2 p). 3 1 Operative capabilities 1.1.2 Analysis of capabilities (strategic 1 p. and OK !1 p. operative 1 p., quantitative and qualitative consideration of change resistance 1 p.). 1.1.3 Competitors analysis (2 p.) 2 0 1.1.4 Process model (1 p.) and analysis of time 7 0 (2 p.), quality (2 p.) and costs (2 p.) 1.1.5 Identifying the most crucial improvement 15 1 Improvement objects objects 3 p., prioritizing 3 p., preliminary considered roughly !1 p. solutions (people 2 p., technology 2 p., information 2 p., material 2 p.), consideration of ongoing and forthcoming efforts/projects 1 p. 1.1.6 Commitment and motivation of key 2 1 Selected key persons persons 2 p. committed to the plan 1.1.7 Deployment of actions 3 p. and aligned 6 3 Actions deployed to 2 levels performance measures 3 p. out of 3 !2 p., some relevant measures considered, but none that tracks the usage (fulfillment degree) of means !1 p. 6 4 No synthesis, but a sound 1.1.8 Synthesis 2 p., the financial net effects financial consideration on the bottom line 2 p. and strategic together with strategic weights 2 p. weights !4 p. 1.1.9 Preliminary implementation schedule 3 p. 3 1 A rough schedule defined without responsibilities & resources !1 p. 1.2 The quality of the implementation 50 14 (of the process improvement plan) Scope of the implementation using the Implementation Yield ¼ 4.2% PDCA logic ¼ 15% out of 100% (14/50*15%) 1.2.1 Plan Phase (78 p. max [PDCA measure] 19.5 4 Detailed analysis: see the !19.5 p.) PDCA measurement logic/ document presented on (Sect. 6.3, Fig. 6.18). 1.2.2 Do Phase (50 p. max [PDCA measure] 12.5 4 !12.5 p.) 1.2.3 Check Phase (16 p. max [PDCA measure] 4 3 !4 p. max) 1.2.4 Act Phase (46 p. max [PDCA measure] 11.5 2 !11.5 p.) 1.2.5 The technical implementation of the PDCA 2.5 1 work (10 p. max [PDCA measure] !2.5 p.) Part of the document D2 in Figs. 4.1 and 4.2
4.3 The Data Collection and Analysis Criteria
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collection framework (50 points). Chapter 6 (Sect. 6.3, Fig. 6.18) considers this measurement logic in more detail. If the criteria defined in Table 4.1 (Issue 1.1) would be applied, for example, to the hoshin kanri approach the score would be at most 30 points out of 50, i.e. the quality level would be 60%. However, this level is very hard to achieve in real-life, as it at this level boils heavily down to personal qualities of the persons concerned. This causes quality variations and biases. The hoshin kanri approach is not a good approach when dealing with multiple issues, as it is not able to prioritize and quality-check the improvement issues and concerns from a multi-dimensional perspective, not to mention the issue of raising the ambition level of the improvement work and the related output. The missing synthesis logic and the document quality are also major concerns in this context. After all, the hoshin kanri approach is not at all designed to assure the effectiveness of the improvement efforts although a skilled application of the approach may provide some minor support in this regard. This becomes even more evident in the process analysis and synthesis phase that is lacking in the hoshin kanri approach, as the objectives at the highest level (executive level) is based on a given task or an overall objective (decrease quality defects by 20%, raise profitability by 15%, etc.). The strengths of the hoshin kanri approach are the deployment and commitment logic, and the customization of the performance measurement criteria at different organization levels. Due to the practical shortages to deal with the required issues properly, the true output quality is approximately 15 points. A quality level of 30% achieved using the hoshin kanri approach is by all means a good score and shows that the company has digested that concept profoundly. The 60% quality level represents thus the T Value of the hoshin kanri approach. The comparable result of, for example, six sigma is much lower, as that approach does not address the issue of assuring the effectiveness of the improvement efforts as presented and understood in this book.3 The second excerpt (Issues 1.3 and 1.4) shown in Table 4.2 considers how well the company or unit supports the development work of new or modified products, services or concepts. Issue 1.3 considers the capability to take part in the R&D work (1.3.1), and what contribution the output of the subcontractor would provide to the buyer’s (the development project owner’s) own product (1.3.2). On what level a pricing model exists and is disclosed are considered in Issue 1.4. Having an open and transparent pricing model requires, of course, that the thrust is on an adequate level. It is easier to design a cost-effective and profitable product or service if the whole cost picture is clear. Later on, it will be much harder to reach cost-effectiveness. This is especially true, when the following issues are considered (Andersin 1992): l
l l
3
Eighty percent of the quality problems are related to activities of the product development Seventy percent of the costs are determined in the development phase A delay of 6 months in market introduction may result in 30% lower incomes from the product over its life.
The six sigma approach provides support to assure the efficiency of the improvement efforts.
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Table 4.2 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) Criteria Max Score Comments 1.3 Common planning and action plans to 100 25 develop products 1.3.1 Several common planning projects, 50 10 Resources exist to realize common 50 p., one joint-planning project with projects (10 p.) a reasonably good outcome, 30 p., resources to realize common planning projects, 10 p. 1.3.2 World-class technological 50 15 Evident cost reduction (10 p.), ability þ evident cost somewhat improved quality (5 p.) reductions þ clear improvement of the product (service) quality (all three items, 50 p., 2 items, 30 p., 1 item 10 p.) 30 A rough pricing model exists (25 p.), 1.4 The pricing model. Works on “open” 50 net/gross price made explicit (5 p.) calculations (net price/gross price; materials by component, phase by phase work, general costs, transportation fees) 50 p., a rough pricing model exists and is disclosed (25 p.), no pricing model, or the price model exists, but is not disclosed (0 p.) Part of the document D2 in Figs. 4.1 and 4.2
Preventing problems is far better than correcting them afterwards. This means that the activities relating to the development phase are crucial to the quality of the planned product the buyer intends to bring to the global market. Issues 1.3 and 1.4 provide a fast and simple way of gaining an adequate understanding in this regard. The third excerpt considers criteria related to process and product quality (Table 4.3). As seen in the table, the emphasis is on assuring increasing volumes and managing the time, quality and cost factors. These factors would provide the basis for gaining market shares. If the market is declining these issues are even more important. A growing market brings along other problems related to, for instance, the supply of components and higher prices that the company cannot necessarily pass on to the customers. The fourth excerpt considers criteria related to the time aspect (Table 4.4). Issue 3.5 considers the development time of the subcontractor by analyzing more thoroughly issues affecting the development time. The fifth excerpt considers criteria related to the price, technological expertise and production equipment (Table 4.5). The price and the price trend are important issues, as the price erosion is severe in the electronics business, in this specific case about 6% annually. The data collection ends with a SWOT analysis that provides complementary information about the subcontractor (Table 4.6). The network analysis uses the data collected of the specific companies as an input. Important analysis results include the average, minimum, maximum and
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Table 4.3 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) Criteria Max Score Comments 2. Quality 300 62 2.1 Operational flexibility 40 14 2 Financing OK 2.1.1 A growth strategy exists (education 10 plan, resource allocation, financing, time schedule) 2.1.2 The viewpoint of the customer 10 6 Regular discussion between the parties Company is considered (communicated to the board of directors) 2.1.3 Short term adaptability to the needs 20 6 30% increase is possible in 3 months of the Customer Company; capability to double volumes in 3 months 2.2 Analyzed lead time and trend 40 14 2.2.1 Analyzed order–delivery lead time 5 2 A rough analysis has been made (order handling 1 p., production planning 1 p., production 1 p., testing 1 p., shipping 1 p.) 5 3 A (rough) action plan has been prepared 2.2.2 The results of the analysis are integrated to the improvement plan (an action plan has been made based on the analysis) 2.2.3 The action plan has been realized 10 3 Some (minor) actions done 2.2.4 The trend of the lead time is 10 3 The trend varies, it is mainly neutral (1), positive sometimes positive (2) 2.2.5 Variation is (relatively) small 10 3 Variations exist, sometimes even big ones 2.3 Order procedure and means of 30 15 delivery 9 No actual efforts to optimize the issues, 2.3.1 The supplier’s own order–delivery 15 but the issues are handled better than process has been optimized in the average (no big problems regard to its suppliers (packages, detected) transportation, documentation) 15 6 Transportation packages consume much 2.3.2 The order–delivery process empty space and produce too much between the Customer Company waste. Packages are robust (1) and and its supplier has been optimized weather proof (1), documentation is (packages, transportation, very good (4 p.) documentation) 2.4 The level and function of the 30 8 quality system 3 According to the old ISO 9000 criteria 2.4.1 The company has a certified quality 10 (2), the environmental management (5) and/or environmental system is not certified (1) management system (5) 5 Application submitted 2.4.2 Scores according to quality award 20 criteria, e.g. EQA (350–450 quality award points or application submitted ¼ 5 p., 451–600 quality award points ¼ 10 p., > 600 quality award points ¼ 20 p.) 100 4 Product defect rate very high 2.5 Product defect rate. Ability to produce quality to the customer (in products/services, where defects (continued)
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Table 4.3 (continued) Criteria Max per million opportunities [DPMO] calculations are not applicable) > 97.5–100% (25– 100, 15 p per 0.5%-units); 95– 97.5% (0–25, 5 p per 0.5%-units). DPMO (measured at the assembly line): 3.6–50 DPMO ¼ 100 points, 51–100 DPMO ¼ 90 p, 101–250 DPMO ¼ 70 p, 251–500 DPMO ¼ 50 p, 501–750 DPMO ¼ 30 p, 751–1,000 DPMO ¼ 10 p. DPMO > 1,000 ¼ 0 p. 2.6 Quality measurement and reporting 60 (measures have to be operational, the measured data has to be communicated widely and utilized in the improvement efforts) 2.6.1 Process quality: five points/ 30 measure (e.g. productivity, flexibility, lead time, costs, quality costs, customer satisfaction, speed, waste, knowledge and motivation) 2.6.2 Product/service quality: five points/ 30 measure (e.g. DPMO, FPY, Out of the Box Test, SPC) Part of the document D2 in Figs. 4.1 and 4.2
Score Comments
7
4
No measure is communicated widely or utilized in the improvement efforts
3
Almost non-existing.
mean score of each data collection criterion besides the graphical score spreads. A SWOT analysis at the network level, based on the SWOT analyses made at the company or unit levels, provides a complementary input to the network synthesis. Based on the data collection made at the company (unit) level, it is possible to draw different graphs of relevant and crucial issues from a network perspective (Fig. 4.3). Comparing the profile with the profile shown in Fig. 4.4 reveals that the companies are better “planners” than “doers”.
4.3.5
Data Collection Concerns
Besides defining the right network/company (unit) analysis criteria, it is necessary to collect the required data properly. Section 3.2.1 considered already the general guidelines and advice in this regard. However, the criteria contain a potential pitfall that should at least be considered to minimize negative effects such as a bad spirit and violated time limits. This pitfall is the order in which the data is collected. Such issues that are harder to grasp and where the company scores badly may cause a
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79
Table 4.4 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level, “Company 5”) Criteria Max Score Comments 3. Time 150 49 3.1 Delivery certainty 30 5 20 2 Monthly delivery certainty equals 95.5% 3.1.1 Monthly delivery certainty to the Customer Company 95% ¼ 0 p., 96% ¼ 4 p., 97% ¼ 8 p., 98% ¼ 12 p., 99% ¼ 16 p., 100% ¼ 20 p. 3.1.2 Monitors delivery certainty in 10 3 Randomly and only reactively general 3.2 Delivery time. Agreed and realized 50 10 On average 10 days delivery time 1–3 days (50 p.), 4–6 days (30 p.), 7–14 days (10 p.), > 15 days (0 p.) 3.3 The ability to react to complaints 20 10 On average 2 weeks (response time). The response in 5 working days (20 p.), 2 weeks (10 p.), no response (0 p.) 3.4 The ability to react to technical 20 15 On average in 8 days inquiries and problems (response time). The response in 5 working days (20 p.), 2 weeks (10 p.), no response (0 p.) 3.5 Product development time (level of 30 9 the R&D activities) 3.5.1 World-class planning level 10 3 No process in place, IT solutions not adequate, test laboratory good (3 p) 3.5.2 Commitment and knowledge/skills 10 3 Modest investments, the people have a good educational background (3 p.) 3.5.3 Resourcing and time schedules 10 3 The management of the R&D work is obscure, some broad guidelines considered once a year (1 p.), project and portfolio management satisfactory (2 p.) Part of the document D2 in Figs. 4.1 and 4.2
reaction to influence the evaluation aggressively. This may potentially bias the data collection if the expert in charge is inexperienced. The concerned issues include especially the quality of the company strategy, the quality of the process improvement plans and the implementation quality. This is especially true if the company is a potential new supplier or is potentially subject to a refusal of an agreement renewal. To tackle the potential pitfall a potential stress level curve is defined (Fig. 4.5; cp. also the case in Sect. 4.3.4 for the contents of Issues 1.1–5). This curve helps the expert to prepare the interviewees and manage the time dimension from a data collection point of view. Such a profile is roughly defined in advance. It is reviewed and refined based on the gathered experience achieved along the way.
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Table 4.5 An excerpt of the data collection criteria (subcontractor network, electronics industry, basic ambition level) Criteria Max Score Comments 4. Price (Costs) 150 54 4.1 Price competitiveness. Deviation from 100 33 Slightly above the market price the market mean price 15% (100 p.), 10% (75 p.), 0% (50 p.), + 10% (25 p.), + 15% (0 p.) 4.2 Price trend. Price decrease 10% 50 21 Price trend 5.2% (50 p.), 7%...10% (30–50 p.), 5%...7% (20–30 p.), 5. . .3% (0–10 p.) with consideration to occurrences elsewhere in the world 150 41 5. Technological/organizational knowhow and the technological level of the production equipment 5.1 Identification of education needs and 50 13 educational efforts 5.1.1 Identified education needs 10 1 Not conducted, only discussed 5.1.2 Effort: two points/education day 40 12 50 15 Manual to semi-automatic (10 p.), 5.2 Production technology. Level of 6 years on average (5 p.) automation of the production process (manual, semi-automatic, automatic, 25 p.) þ the age of the machinery (25 p., MT 0–3 years ¼ 25 p., 3–5 years ¼ 15 p., 5–7 years ¼ 5 p., > 7 years ¼ 0 p. With consideration to branch specific needs) 50 13 Generally speaking average 5.3 Technological level of the product. technology (10 p.), some Average (copied technology) (10 p.), components better than average better than average (20 p.), named (3 p.) innovation (30 p.), several innovations/ unique solutions (40–50 p.) Part of the document D2 in Figs. 4.1 and 4.2 Table 4.6 The SWOT analysis (example; subcontractor, electronics industry) 2. Weaknesses 1. Strengths – Many units – Many innovations – Change of personnel (on a high level), no – Skillful and versatile personnel (long reserve person system experience), language – The projects operate differently (due partly to – Many units, Brazil/India/China (close to the customers) the customer) – Tool problems – Demanding customers – Dependence on the staff – Delivery certainty – One big customer – Continuity of customer projects – Profitability – Low technical product knowledge – Management of project changes 3. Opportunities 4. Threats – New customers – New, more demanding customer requirements – Resource pools (focus on certain – New competitors specific issues) – The staff will be fed-up – Supplier network – (Changes in the customer’s purchase organization)
4.3 The Data Collection and Analysis Criteria
81
1.1 Quality of the Process Improvement Plan (Max 50 Points) 50 45 40 35 30 25 20 15 10 5 0 Company 1
Company 7
Company 21
Company 16
Company 2
Company 5
Company 13
Company 4
Company 3
Company 6
Company 12
Company 18
Company 8
Company 19
Company 17
Company 15
Company 14
Company 11
Company 10
Company 9
Company 20
Maximum points
Fig. 4.3 An example of the performance of Issue 1.1 in a network with 21 companies (cp. Table 4.1) 1.2 Implementation Quality of the Process Improvement Plan (Max 50 Points) 50 45 40 35 30 25 20 15 10 5 0 Company 2
Company 8
Company 1
Company 17
Company 5
Company 4
Company 10
Company 11
Company 12
Company 14
Company 15
Company 18
Company 19
Company 20
Company 9
Company 3
Company 13
Company 21
Company 7
Company 6
Company 16
Maximum points
Fig. 4.4 An example of the performance of Issue 1.2 in a network with 21 companies (cp. Table 4.1)
The stress curve has no aspiration of being scientific. It is a rough experience based estimate communicating potential time-consuming areas, which may need special attention. Issues 1.1 and 1.2 in Fig. 4.5 are potentially very hard cases especially in companies that have in real-life operated on a low process improvement yield level – despite of having the “best forces attached to the improvement efforts” and despite of major efforts that have cost a lot. This is by no means an indication that the possible achieved improvements have been bad as such. The issue here is that many important issues may have been overseen to the disadvantage of satisfying optimally all major stakeholders, i.e. customers, employees and owners using as little resources as possible. The “best forces” operating with lowperformance process improvement methods and a comparably big improvement budget cannot compete with the average Joes operating with high-performance process improvement methods and a comparably small improvement budget. It is
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Fig. 4.5 An example of a stress curve (case: see Sect. 4.3.4)
hard to level out method deficits with time and money. The thing is that the traditional improvement efforts such as lean, six sigma and hoshin kanri rely to a high degree on individual (process improvement) gurus, not so much on the quality and scope of the applied improvement methods. This fundamental issue does not change even if the expertise of the gurus is further mystified using analogies from martial arts. “The Emperor’s New Clothes” by the eminent H.C. Andersen provides an interesting analogy in this regard.4 This fairy tale is a descriptive complement to the discussion of LPPI and should be read with an open and humorous mind. The analogies to LPPI are largely self-exploratory and striking. After all, all networks companies or units need to shape-up for the benefit of the whole network and its stakeholders.
4.4
The Synthesis
Based on the data collection and the analysis of the criteria in terms of the three perspectives discussed above it is possible to create a high-class synthesis that directs and guides the improvement efforts in the network. The essence of the synthesis is to get traction to subsequent efforts so that the performance can be 4 “The Emperor’s New Clothes” (Kejserens Nye Klæder) is a fairy tale by Danish poet and author Hans Christian Andersen about an emperor who unwittingly hires two swindlers to create a new suit of clothes for him. The tale was first published in 1837 as part of Eventyr, Fortalte for Børn (Fairy Tales, Told for Children). Source: http://en.wikipedia.org/wiki/The_Emperor’s_New_ Clothes.
4.4 The Synthesis
83
improved process by process depending on the needs and focus areas. The single most important issue that can be seen based on the analysis is the process improvement yield score. This score can be expanded to cover also the quality level of the company strategy. This acid test, discussed further in Chap. 7 (Sect. 7.2), predicts accurately enough the real improvement momentum of the company or unit. This score is especially important in companies that rely on loose talk, quick fixes and cosmetic improvements. Operating in such an environment requires solid methods, as such a setting produces biasing noise that can potentially manipulate the data collection. The analysis points also out those processes, which need improvement most. This finding increases the quality of the synthesis considerably. The cumulative quality of specific companies’ intervention mechanism for achieving a systematic and result-oriented improvement mode is the fundamental basis for improving the performance of the whole value chain. A malfunctioning or even missing intervention mechanism is like having a car with a malfunctioning or missing drive shaft. The engine will run and consume fuel, but the vehicle will not move anywhere. Producing power that cannot be utilized properly costs a lot besides the time lost in the effort. This issue should not be confused with the specific issue of getting power to the wheels, but lacking traction and being unable to move because of this. This issue indicates that the improvement effectiveness is low due to targeting the wrong improvement objects or problems, not because of a poor implementation. This dilemma is detected, if the network analysis and synthesis phases are run on a higher ambition level than the basic level. Traditional audit methods cannot discover such an issue, as those will only, if in the criteria at all, assure that the issue has been considered. They will not analyze in a true sense the quality of the consideration to any necessary and sufficient degree. The company or unit specific synthesis is typically 15–20 pages. The network synthesis is somewhat longer. Both the company (unit) and network synthesis are designed for implementation, which means that they consider actively forthcoming phases of the generic HPPI process. Such a rough improvement plan can be utilized as a stand-alone solution and it can be implemented by the means considered appropriate by the management. However, without a solid framework for implementing the issues properly, it is likely that there will be too little traction for the improvement efforts, if conducted at all. This is especially true in supplier networks with many independent suppliers that serve a large customer base. Such a setting provides each customer only with little leverage for directing the improvement efforts to suit the vision and needs of a specific customer. This might be a problem only if the supplier is a key supplier. Having a written plan provides nevertheless a good basis for conducting constructive talks. The written synthesis covers the areas listed below. This structure is used in both a company (unit) and network context: l l
Summary of points (scores) and most crucial observations The competitive state/general state-of-affairs (incl. the process improvement yield)
84 l l
l l
4 Network and Company Analysis and Synthesis
The performance profile of specific criteria Detailed specifications and evaluation of the improvement potential (12 þ 12 months) SWOT analysis Synthesis and recommendations.
The summary of the scores communicates the total score and the allocation of the points regarding the different perspectives (Table 4.7). The chapter dealing with the competitive state and general state-of-affairs explains what the total score means from a financial, performance and improvement point of view. In addition, the current and likely future contribution to value-adding activities from a network point of view is considered. The chapter provides furthermore an estimate of the likely trend regarding the total score. This estimate covers the next 2 years (Fig. 4.6). “Company 5” is operating below the network average. Table 4.7 A summary of the scores according to the different perspectives (cp. example in Sect. 4.3.4) Functional perspective Management quality and level of co-operation Time Process and output quality Price (costs)
Points score (% of max) 81 of 250 (32)
Technology, knowledge & skills Total score
41 of 150 (27)
“Company 5” Operational Score (% of max) Perspective Causes 68 of 250 (27)
Time space perspective Past
Score (% of max) 24 of 200 (12)
49 of 150 (21) 62 of 300 (31)
Effects (results) 141 of 500 (28) Supporting 78 of 250 (31) issues
Present Future
134 of 400 (34) 129 of 400 (32)
54 of 150 (36)
Total score
Total score
287 of 1,000 (29)
287 of 1,000 (29)
287 of 1,000 (29)
Current and Future Total Score
600
502
500 442
430
400 316 300
374
287
200 Total Score 2009
Total Score 2010e Total Score 2011e
Fig. 4.6 The current and estimated likely future score (company or unit level)
Company 5 Network
4.4 The Synthesis
85
In the future, it is likely that the company will operate at a higher level than the network average. Based on the estimates of specific companies it is possible to predict the future performance of the whole network (Fig. 4.7). This information can be passed to the specific company so that the company can compare its performance to the network performance. The names of the other companies can naturally be kept anonymous. The performance profile of specific criteria is based on a classification logic that depends on the current and desired ambition level of the network (Table 4.8). The purpose of the performance profile is to provide the management with an easy and fast way of getting the total picture of the competitive state. Table 4.9 presents an example of a performance profile. The profile is based on different colors, i.e. red for “Critical”, yellow for “Important”, white for “”Needs attention” (not included in Table 4.9), and green for “OK”. The purpose is to visualize the relative performance with no figures, but with meaningful statements attached to a color to strengthen the message. This relative performance is due to the selected ambition level. A company receiving only “OK” and “Important” marks when applying the criteria of the basic ambition level could get only “Critical” marks when applying the evaluation criteria of a higher ambition level. Consequently, this performance profile communicates how well the specific company complies with the network vision behind the utilized analysis criteria. The performance profile guides also which criteria will be considered further and how much effort will be put on creating an improvement proposal for the issue. The detailed specification and evaluation of the improvement potential for each analysis issue provide a motivated recommendation how to deal with the specific issue. Those issues targeted in this road map are primarily those criteria, which have a “Critical” mark in the performance profile. The criteria marked “Important” and even “Needs attention” may also be considered if the amount of “Critical” marks is
Score 2009 (Lower Curve) and the Improvement Potential for 2010 800 745
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100
om 18 pa n om y 7 pa C om ny pa 4 n C om y 1 pa 6 n C om y 1 pa 7 n C om y 1 pa 2 C ny 1 om 5 pa n C om y 3 pa n C om y 1 pa n C om y 2 pa n C om y 9 pa C om ny pa 5 n C om y 2 pa 1 ny C om 20 pa C om ny pa 6 ny 13
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0
Fig. 4.7 The current and estimated likely future score (network level)
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4 Network and Company Analysis and Synthesis
Table 4.8 The logic for producing the performance profile Critical An issue gets this “red” status if it scores in the range of 0–40% of the maximum points. If so, the issue requires immediate attention and commitment of the top-management (understanding the issue, showing interest, allocation of resources, monitoring). If the issue is neglected or executed half-hearted, then the consequences might be of serious nature, such as a remarkable deterioration of the competitive state. The corrective actions should commence immediately (0–3 months), assuring, however, an adequate knowledge base for identifying and implementing the correct actions.
Important
As a rule of thumb, if an issue gets 41–60% of the maximum score it will be
marked with this yellow label. The issue requires the attention and commitment of the managers in charge (understanding the issue, showing interest, allocation of resources, monitoring). If the issue is neglected or executed half-hearted, then the effect might show up as time, quality and/or cost problems or potentially loosing opportunities. The corrective actions should begin within a reasonable time frame (6 months) so that the shortages will not affect everyday business.
Needs attention
An improvement object has been identified regarding the issue despite
potentially high points (61–70%). Hence, the problem should be considered in the improvement work and should also be potentially fixed (as a preventive action). The corrective actions should begin within 1 or 2 years to avoid future problems.
OK
The issue, marked with a green color, does not require any actions at the moment.
It should be noted that the priorities are always set in relation to the other improvement objects. An “OK” mark does not assure that the issue will be in order also next year. Hence, it could even be critical if the circumstances have changed accordingly (e.g. customer requirements, rising the evaluation “toughness” or due to the fact that all issues below 70% will be objects for improvement).
low. Based on the proposed improvement actions there is also an estimate of the impact on the score, if the company targets the improvement issue properly. The estimate will also consider the actual means and commitment of achieving a sustainable improvement mode. Considering the three perspectives (functional, operational, time space) from a holistic point of view provides hints in this regard. The SWOT analysis lists the strengths, weaknesses, opportunities and threats of the company or unit. These aspects, which are usually not ranked, provide complementary information to support the making of a synthesis and recommendation. It is conducted as a brain storming session at the end of the data collection phase (recall Table 4.6, Sect. 4.3.4).
4.5
The T and V Values
The basic concept of defining the T value at the network/company (unit) level or Phase 1 of the generic HPPI process was considered in Sects. 2.4.2 and 3.4. The only issue to omit from the consideration is to restrict the consideration to the
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87
Table 4.9 An example of a performance profile (see case in Sect. 4.3.4, “Company 5”) Issue/item Priority Issue/item Priority 2.6 Quality measurement The competitive state Critical Critical and reporting as a whole/the general picture 1.1
Quality of the process improvement plans
Critical
3.1.1 Monthly delivery certainty
Critical
1.2
Quality of the implementation
Critical
3.1.2 Monitoring delivery certainty
Critical
1.3.1 Common projects and action plans to develop products
Critical
1.3.2 Technological contribution
Critical
1.4
Pricing model
OK
3.2
Delivery time
3.3
The ability to react to complaints (response time)
3.4
The ability to react to technical inquiries and problems (response time)
3.5
Product development time
Critical
4.1
Price competitiveness
Critical
4.2
Price trend
Critical Important
OK
Important 2.1
Operational flexibility
2.2
Analyzed lead time and trend
2.3.1 Order procedure and means of delivery regarding the own supplier network 2.3.2 Order procedure and means of delivery regarding the customer (s) 2.4.1 Quality/environmental management system 2.4.2 Quality award criteria
2.5
Product defect rate
Critical Critical Important
Critical
Critical Critical Critical
5.1.1 Identified education needs
5.1.2 Educational effort
Important
Critical
Critical
5.2
Production technology
Critical
5.3
Technological level of the product
Critical
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4 Network and Company Analysis and Synthesis
network/company (unit) level and not consider the scope (coverage) parameter. The corresponding T value of the VISTALIZER1 for Networks method is 100%. The V value is defined based on how well the method deals with the network analysis and synthesis in terms of running Phase 1 of the generic HPPI process. The critical performance parameters in this regard are (format of the value: p þ s þ t/n/T [n]): l
l
l
The number of functions or processes covered in one run according to the level of consideration (primary [p], secondary [s] and tertiary [t]) The number (n) of organizational levels from which the input is collected (topmanagement, middle-management, employees) The achievable T value; in brackets the number of ambition levels where the method’s approach to data collection, analysis and synthesis is still operational (T [n]).
The V value of the VISTALIZER1 for Networks method, applied at the individual company or unit level (on-site), is 1/3/100% (3). The corresponding V value (HPPI) is 1 þ 1 þ 1/3/100% (3). Given infinite time, it is possible to make a network analysis and synthesis of the whole company or unit covering all functions or processes. When time is a limiting factor this amount is reduced considerably. The notification “1 þ 1 þ 1” means that one process is considered thoroughly (e.g. the core process; p = 1), another process reasonably well (e.g. the R&D process; s = 1) and a third process only superficially (e.g. after sales process; t = 1) when the method is applied in a HPPI context. This means that when the network data collection and analysis criteria are defined, the focus network should be clearly defined and understood so that one run covers the most interesting and crucial considerations. In fact, most networks such as R&D networks, sales networks, production unit networks and subcontractor/supplier networks can be covered with this performance, as the units deliver usually a certain type of output based on one or a very limited number of key processes. Of course, doubling the available time from one on-site day to two would also double the “1 þ 1 þ 1” performance to a “2 þ 2 þ 2” or a “3 þ 1 þ 1” performance. Naturally, in such a setting it would also possible to conduct two fully separate runs if the unit or company belongs to two different networks, for example, an internal sales network and a production network.
4.6
Summary and Concluding Remarks
The quality of the synthesis related to a specific company (unit) and the related network is assured thanks to three issues: l l
l
The data collection criteria are correct and relevant (minimizing bias) The logic how to decide the score of the criteria is based on facts and real-life evidence The data collected can be analyzed according to different relevant perspectives.
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89
Based on these three issues it is possible to: l l l
Reveal critical focus areas for improvement Define the quality level of the mechanism to influence the cause-and-effect chain Define the likely future performance level and the contribution to the current and future competitive state of the value chain (network).
The essence is to create and improve the mechanism that increases both the ambition level of the operations and the produced output throughout the network. If this cannot be reached then the improvement efforts will be ad hoc and reactive. As a result, considerable amounts of money and stakeholder satisfaction will be lost each year. Running improvement efforts with an ad hoc and reactive logic cost probably much more than operating the efforts in a systematic and result-oriented way. It is usually advisable to present the results and findings and plan for future actions when all the key partners are gathered. At this occasion it is also possible to hear comments and dig deeper into cases to promote motivation and learning in the network. It is especially important that the management of the partner/subcontractor/ supplier companies attend the sessions, as these persons are the key persons for getting real improvement under work and done. These sessions should also target the change resistance aspect, as a number of the partner companies will not in real-life be willing to improve their operations sufficiently, if at all. Increasing the performance of a whole value chain requires hard work and without solid concepts and methods, it is not even worthwhile trying. After all, the improvement efforts need to generate more money than placing the money in low-risk bonds. The great thing about process improvement is not only the internal perspective (cost-effectiveness), but also the external perspective making it possible to increase sales and market share without sacrificing the profit levels. This, if anything, increases the value of the company and the satisfaction of the owners. Prosperous companies with happy customers and employees are the backbone of our standard of living enabling also a functioning society and a secured pension. Therefore, I like to think that HPPI is not only about improving the processes as well as possible with the available means, but also a concrete way of contributing to society in a sustainable way. After all, we all have obligations to ourselves and the generations before and after us.
Chapter 5
Process Analysis and Synthesis
A high-class process analysis and synthesis is required to assure that the improvement efforts are effective and that the company targets the right issues when aiming at a proper solution of the HPPI equation at the process level. How to decide which focus process to go for is in an ideal case based on considering the profit level of the company, the attractiveness of current offerings and the growth rate. Naturally, the output of Phase 1 of the generic HPPI process provides also the necessary input to this end. However, in many cases the management selects the focus process based on the gut feeling. This gut feeling factor, although largely used throughout the world, is a very serious biasing factor that needs to be properly taken care of. The real improvement objects do not necessarily coincide with this gut feeling even at the process level. In any case, it is necessary to communicate and discuss the process analysis and synthesis output properly between the concerned stakeholders. It is a necessity to formalize the output into a written document the quality of which is quantifiable. To qualify as a sub-process or phase of the HPPI process the related activities, i.e. the data collection, analysis and synthesis and creation of the required document, have to match the performance requirements both in terms of quality and resource utilization (time, costs). In addition, the output has to fit in the process improvement flow in totally four directions. This means that it has to be seamlessly integrated upstream (network analysis and synthesis), downstream (the implementation) and sideways (another process). The output should also be able to target the need of moving upwards if necessary (the strategy process and the corporate or company strategy). Chap. 5 is probably the most important chapter of the book, as it deals with the issue how to assure the effectiveness of the improvement work where it really counts, i.e. on the process level. The presentation is thus detailed which may require, at least initially, a higher concentration level compared with the previous chapters. A too hasty run-through of the first three chapters may also cause problems when digesting the contents and message of this chapter in detail. Chapter 5 starts with an introduction (Sect. 5.1) and an overview (Sect. 5.2) the purpose of which is to prepare you with the big picture and the outline of the concepts related to this phase of the HPPI process. Reading these two sections with adequate time and reflection paves the way for understanding the subsequent M. Pastinen, High-Performance Process Improvement, DOI 10.1007/978-3-642-10784-9_5, # Springer-Verlag Berlin Heidelberg 2010
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sections. The essence of Chap. 5 is the VISTALIZER1 for Process Analysis and Synthesis method presented in Sects. 5.3–5.6. The output of the method is the highclass process improvement plan called VISTALIZER1 Report. This output is one of the key issues when raising the PIY level according to the requirements of HPPI. The presentation contains also several cases to illustrate a certain functionality or feature of the method. Section 5.7 defines and discusses the T and V values from a process analysis and synthesis perspective and defines the related performance of the considered method. The chapter ends with a summary and concluding remarks.
5.1
Introduction
The commonly used analysis approaches1 used to improve the performance of a company and the related processes are not necessarily bad as such. The situation changes dramatically when aiming at HPPI conducted at the adequate ambition level. Most approaches fall short of providing any substantial means or leverage for detecting, improving and managing the ambition levels of both the focus process and the improvement work itself. Another crucial shortage is that the time and cost performance requirements of the improvement activities are neither met. The fundamental deficit from a process analysis perspective is that these approaches provide information that is either too general or too narrow. The collection of irrelevant and biased data is also a problem. Such an inadequate input restricts the possibility of producing a high-quality synthesis from the outset. A high-class method for process analysis is applicable in a variety of companies without losing perspective and focus in terms of the data collected and the information cultivated. Another critical shortage is that almost every analysis approach aiming at improving the company and process performance is diagnostic-only by nature and does not offer much of a synthesis and treatment. The diagnosis is derived from criteria, which are more or less fixed. This means that you obtain a diagnosis in terms of some rather narrow problem area. For instance, if you apply a customer satisfaction survey, you will probably get some conclusions regarding the purchasing decision of your customers, for instance, “the product is 30% too expensive” or “delivery time should be cut by 40% to be competitive”. On the other hand, if you go for an employee satisfaction survey, you will probably receive some insights what the employees feel and think, for example, “the working conditions are bad” or “motivation could be improved”. Furthermore, if you utilize quality award criteria your award is a broad indicator of the general state-of-affairs of your company. These single statements suggest some areas of improvement. If different tools or approaches are used, different improvement areas are identified. Which of 1 These approaches include e.g. quality award criteria, performance measurement based approaches (incl. concepts such as scorecards, six sigma and different kinds of satisfaction surveys) and the “House of Quality” and “Voice-Of-The-Customer” (Quality Function Deployment).
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these areas are most important to improve and why? Were all areas properly considered or were some areas omitted? If you only have a hammer or a toolbox, everything. . . It is clear that this is a very crucial issue, as the proper selection of the improvement objects has a remarkable effect when realizing the improvement potential. This includes also the way the selection is made, not only the end-result of picking the improvement objects. It could be argued that any diagnostic tool could be used, and once the diagnosis is known application of improvement tools such as the seven quality tools and the seven management tools should follow, maybe in the context of the PDCA logic. This approach is not entirely advisable because the result of the analysis is to some extent already decided by the selection of the analysis approach. Of course, supporting tools should be utilized where appropriate when the problem is known. After the problem has been isolated, it is rather easy to choose which improvement tool to use. Another consideration is to know if the problem is relevant from a total perspective. Fundamentally, there are two approaches to picking a problem to solve or an improvement object to cultivate. The first argues that some structure or approach should be applied to select the relevant few from the trivial many. The second says “ad hoc” selection of a problem or improvement object is possible, after which a solution is sought and implemented. The first approach is more commonly used in large organizations whereas the second approach is applied in small companies. In large companies, formal structures are important, but this is not necessarily the case in small companies. In the ad hoc or “anarchistic” approach, there is no need to “waste” resources by analyzing the situation. It is possible to pick any problem and start solving it, possibly with the help of some supporting logic.2 The activities may be coordinated at a strategic level by a common vision, which may be to some extent vague. This vision communicates the desired future state of the company. Therefore, there is no preceding method or formal approach stating that it is advisable to concentrate on some specific problem. The advantage of this approach is that it does not consume plenty of resources as far as the initial analysis is concerned. In any event, it will concentrate on problems, which the person in question believes to be relevant. The coordination of the activities relies on the close interaction between key players, which is possible in small companies. The fact that no formal approach is used to analyze the initial situation may be due to lack of knowledge and experience as far as the improvement of processes is concerned.3 Many times contributing factors include also a restless nature of the key persons and a company culture that tend to fix problems reactively once they have escalated enough (admiration of “fire fighters”). 2
E.g. the PDCA logic and related improvement tools (Pareto analysis, scatter diagram, check sheets, etc.). 3 Compare with the principle “anything goes”. If you do not know about anything better, something in the right direction will suffice. This will improve the absolute performance level of the company, but not necessarily the relative performance level.
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A general problem when analyzing processes is the bias of the collected data. A person who has the strongest will (or voice) can affect the coordination, which relies heavily on the close interaction between key players. For instance, one key player may have to some extent an “aggressive” nature, which the other key players are afraid of. This aggressive person may also be the opinion leader, which means that this domineering person dictates the improvement efforts. After all, these efforts may not be the best because there can be some problems that are more crucial, but do not get any attention. Examples of possible causes include4: l l
The other key players hesitate to adduce the problem The “aggressive” key player does not think that the problem in question is crucial (because he or she did not come up with it).
It may be argued that solving any problem is better that not solving even one problem. In addition, it may be argued that the focus is to learn how to use different improvement tools, and therefore any problem will do. The argument to this is that, would it not be better to focus on a relevant problem in the first place? By doing so, one could “kill two birds with one stone”. George Steiner puts it nicely when considering the issue of formal strategic planning. The reflection below is also applicable in the context of process analysis and synthesis. “If an organization is managed by intuitive geniuses, there is no need for formal strategic planning. But how many organizations are so blessed? And if they are, how many times are intuitives correct in their judgments?” (Steiner 1979).
From a method point of view, the problem is not to find a problem and solve it. The problem is to find a relevant problem and solve it properly. Such an objective brings the improvement efforts to a higher ambition level that also increases the impact on the business results. Considering also the time and cost requirements related to the improvement work increases the ambition level further. It is not an easy task to achieve a sound balance between sight and focus without having some structured approach to getting things right. In the short run, success through good luck without using a structured approach is possible, but this will probably not be the case in the long run. The anarchistic approach concentrates on “making things right”, but it does not consider to any larger extent how to “make right things”. If the aim is to “make right things right” it seems that the anarchistic approach overlooks one important component without which improvement efforts are likely to fail. Besides, the performance requirements of the improvement activities have to be considered. What is missing is a method that integrates different views and, based on this knowledge, derives a result that is directly useful in terms of solving problems. It is crucial that the link from the diagnosis to treatment is not too long. Statements like “the product is 30% too expensive” and “motivation could be improved” should be translated into more operational terms to be useful. This requires a proper balance
4
This is also true for the structured approach.
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between sight and focus. It is obvious that most of the structured approaches used today do not properly address these aspects. Therefore, the anarchistic approach is in many cases a good choice when improving the processes of the company. This does not necessarily mean that this approach is effective. Thus, “anything goes” as far as it improves the processes in some way.
5.2
Overview
This chapter focuses on the presentation of a high-performance approach to process analysis and synthesis that complies with the requirements considered in Chaps. 1–3. The name of the method is “VISTALIZER1 for Process Analysis and Synthesis”.5 The objective of the method is to create a high-class improvement plan under tight time and cost constraints. The method produces a fully customized output, the VISTALIZER1 Report, using a standardized production process. Ideally, it utilizes measured data and information, but if this is not possible, it relies on estimations made by those persons that know the focus process best. The analysis and synthesis are ideally done by a highly qualified expert because the method and the produced output, i.e. the process improvement plan VISTALIZER1 Report, require a thorough understanding of the theory and practice of HPPI. Whether the consultant needs to be an internal or external change agent depends on the specific situation. To capitalize on the advantages and avoid the disadvantages of being an internal change agent internal consultants can work together with outsiders as a team. External consultants possess, generally speaking, several advantages such as being independent and having new perspectives. As insiders, people are intimately involved with the well-being of the organization and themselves, which gives them a different motivation than the financial compensation for initiating and running change processes. Advantages of internal consultants include the following (Hunsaker 1985): l
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They know the system: where the power is, who the opinion leaders are, where the strategic leverage points are. They understand and speak the language of the organization: the special ways members refer to things; the tone and style of discussing things. They understand the norms: the commonly held beliefs, attitudes and behaviors; they probably follow and behave in accordance with them. They identify with the organization’s needs and aspirations: if the organization prospers, it will also probably help them, so they have a personal incentive for helping.
The scientific verification of the method considered in this chapter is presented in the doctoral dissertation (Helsinki University of Technology, Finland) “Process Improvement Essentials: A Framework for Creating and Implementing Operational Improvement Plans” written by me and published by Vistalize in 1998 (second edition in 2000). ISBN 951-97912-0-5.
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They are familiar figures: what they are trying to do is understandable as “member” behavior; they do not represent the threat of an unfamiliar outside force.
Naturally, being an internal consultant brings along also some disadvantages (Hunsaker 1985): l
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They may lack an “objective” perspective: because of their involvement and history with the organization, they may be biased or not able to see the organization as a whole system. They may not have the special knowledge or skill required: since consulting is not their primary vocation, they may not have had enough training to be a true expert in the change situation. They may not have an adequate power base: unless being at the top of the organization, their plans may be confronted by superiors or competing peers. They may be hindered by past images: they may have to lie down past failures or hostility generated by past successes. They may not have independence of movement required to be effective: the obligations of their job may severely limit the time and energy that they can invest in a change agent role. It may be difficult to refine their on-going relationships with other members of the organization: when taking on the change agent role they must be able to change the expectations that their associates have about how they will behave and how the associates will relate to them.
The quality and performance requirements related to this sub-process or phase of the generic HPPI process are demanding as considered earlier. It is not sufficient only to consider the process analysis and synthesis approach as such. It is equally important to understand the importance of designing and implementing a concept, approach and the supporting means for producing duly educated and trained persons capable of mastering both the related production process and the final output. A high-class solution in this regard will not only comply with the requirements of HPPI, but will also make it an interesting business case. The question how to raise and maintain the quality level of the consultants (method experts) in a fast and cost-effective way deserves also attention. If the consultants are able to produce valuable solutions to their clients in a fast and cost-effective way, this provides a way for all parties to make more money. This means that the measured quality of any VISTALIZER1 Report is close to the specified requirements and the quality variation is low. The solution for producing a VISTALIZER1 Report according to the specifications is called VISTALIZER1 for Consultants. It assures the appropriate knowledge and skills of the person in charge of implementing the related method and producing the final output. The VISTALIZER1 for Consultants solution contains education, training and supporting software. The whole is managed by a concept named VISTALIZER1 Center of Excellence as mentioned earlier in Sect. 3.5. The center could be seen as a support process of the generic HPPI process. This support process is activated and run once a need for educating and training an expert arises.
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The final part of this overview considers the supporting whole assuring the quality of the expert or consultant implementing the method (Sect. 5.2.1) and the framework of said method (Sect. 5.2.2). Sections 5.3–5.6 present and discuss the method in detail.
5.2.1
The VISTALIZER1 for Consultants Concept
The VISTALIZER1 for Consultants solution contains the required means of assuring the knowledge and skills of the internal or external expert/consultant implementing the VISTALIZER1 for Process Analysis Synthesis method. This technology supports considerably the production of VISTALIZER1 Reports that meet the requirements of HPPI. The main means of assuring this are: l l l l
A thorough education of the related theory and practice A thorough real-life training The software VISTALIZER1 for Consultants Feedback and additional education and training (if needed).
The education contains six half-day modules covering the substance needed to grasp the whole from a process improvement and commercial point of view. The training contains at least four VISTALIZER1 Reports produced under the supervision of a senior authorized expert assigned by the VISTALIZER1 Center of Excellence. In the first two reports, the master is the principal consultant of the assignment whereas the apprentice makes observations and notes. Both produce a report. If the masters evaluates that the second report is of sufficient quality, then the master and apprentice change roles so that the apprentice will act as the principal consultant and the master makes observations and notes. The master will assure that the process will proceed smoothly. In any case, there will be a high-class process improvement plan that is subject to invoicing according to the agreement with the client. The software VISTALIZER1 for Consultants provides extensive support for attaining and maintaining the knowledge and skills related to the method, and the production of the report (Fig. 5.1). It is worthwhile noticing that the most important issue is a good command of the method. The software provides only a support to understand the method and to enhance the creation of the report.
5.2.2
The VISTALIZER1 for Process Analysis and Synthesis Framework
Different persons participate in the data collection and initial analysis phase to get the information needed for the analysis. These people include people representing
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Fig. 5.1 The interface of the software VISTALIZER1 for Consultants6
the owners (the management or the process owner), employees (key operative persons or the sub-process owners) and customers. These three groups of people correspond to the three most important stakeholders of the company and have to be case specific defined. The VISTALIZER1 for Process Analysis Synthesis method is divided into four distinct phases (Fig. 5.2). The first phase is a coordinating phase where the focus is on analyzing and modeling the environment in the extent required. The second phase collects the basic data and information regarding the performance of the focus process. In addition, the preliminary performance objectives of the process are stated, from which the monetary gain basis is evaluated and calibrated. The third phase cultivates the data of the second phase into information that takes the shape of sub-process specific analyses that define improvement initiatives for each subprocess. This analysis includes an estimate of the improvement potential from both a performance (time, quality and costs) and monetary point of view (outcome). The fourth phase includes an extended analysis covering both internal (supporting efforts and systems) and external issues (customers’ considerations) besides the main issue of the Phase 4, i.e. the cultivation of all analysis results into a synthesis that also contains motivated recommendations. Figure 5.3 presents the flow chart and average time allocation of said method. The time consumed by the approach is in the range of 5–7 h for each of the attending persons. The number of attending key persons is usually eight to fifteen persons.
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Graphics and picture drawn by Jesperi Vara. Published with due permission of Vistalize Oy.
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Fig. 5.2 The framework of the VISTALIZER1 for Process Analysis and Synthesis method. The figure serves also as a memory booster for the person implementing the method
Fig. 5.3 The flow chart of the VISTALIZER1 for Process Analysis Synthesis method
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Example Agenda/Day 1 08:00–08:10 Introductory words by the Process Owner (director in charge) 08:10–08:30 Introduction, objectives, roles, the agenda of the day (the consultant) 08:30–09:20 Module 1: Definition of the rough process model of the focus process The objective of this module is to create a common understanding how the required output is produced today. The main driver is to define what phases or activities are currently utilized to cultivate the input to the desired output. Geographical or organizational issues will not affect the definition because of the applied process perspective. Please note that possible shortcomings or improvement opportunities (e.g. re-engineering possibilities) are not considered at all in this module, as these issues will be addressed later on. 09:20–09:50 Module 2: Defining the most crucial performance parameters The objective of this module is to define three to five (at most six) process performance parameters that will form the backbone of the process performance. The selected parameters need to relate to time, quality and/or costs. 09:50–11:50 Module 3: Creating an impact field The impact field is a matrix that depicts the performance of the focus process in terms of the selected performance parameters. To do this the attending persons will first individually and then together consider how the performance parameters are consumed or are generated in relation to the process model (expressed as %). It is not necessary to have measured data regarding the absolute performance regarding the selected performance parameters, as the method is able to utilize the experience of the attending persons. 11:50–12:10 Support Module: Planning for Module 5 and consideration of gaining customer opinions This support module defines the attending persons (interviewees) of Module 5 (sub-process or phase specific sessions) and schedules (roughly) the forthcoming sessions on an individual level. In addition, the issue how to gain an understanding of customer opinions may be considered in this connection. 12:10–12:40 Module 4: Management’s module In this module, the management of the process will, among other issues, set parameter specific priorities and objectives that are compared to the confirmed improvement potential. How to gain an understanding of customer opinions is considered in this connection (if needed). 12:40–14:00 Break/Lunch ***Option Starts*** 14:00–18:00 Module 5: Identification of possibilities of improvement (sub-process specifically)7 The Module 5 (the basic analysis) considers, among other issues, (on a rough level) the possibilities to re-engineer and/or utilize more evolutionary approaches to improve the total process performance. It will also consider how people, technology, information and material interact to produce the desired output. This understanding provides also an input for the advanced analysis that is conducted on behalf of the consultant. The estimated time to deal with one sub-process is 45–90 min. depending on the nature of the sub-process. The required time consumption can be to some extent predicted based on the outcome of Module 3. ***Option Ends*** Day 2 08:00–12:00 Module 5: Identification of possibilities of improvement (sub-process specifically) 12:00–13:00 Break/Lunch 13:00–16:00 Module 5 continues 7
Usually Module 5 is run on Day 2. In complex and large settings, it can also be run on Day 1 in addition to on Day 2.
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The end-result is an improvement plan that contains typically 50–70 pages (A4) providing a process specific improvement yield of 100% (T Value). The plan covers the following aspects or areas: l
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The needs/demands of three crucial stakeholders (customers, employees, owners) The process capability (strategic and operational, incl. possible change resistance) The process model and the related process performance (time, quality, costs) Identification of improvement objects (problems), prioritizing, creation of preliminary improvement suggestions (incl. consideration of possible other ongoing actions) Level of the management and improvement system and related improvement proposals Commitment and motivation of key persons (! active contribution), a real deployment of actions (! implementation using mainly the PDCA logic), performance measures Synthesis, the net financial value of the actions (e.g. , £ or $), effect on the process performance, strategic weights and the roll-out plan (12 months).
It is important that the method contains built-in features that activate and motivate the key persons. One of the cornerstones of the presented method is that the persons running and managing the focus process have an active role when carrying out the data collection and basic analysis. The role of the consultant is to keep the data collection, analysis and synthesis phases on the right track and based on the findings compose the improvement plan that includes qualified recommendations and conclusions. Besides increasing the substance quality, this contributes to implementing the suggested improvement objects successfully. The data collection and analysis approach utilizes a top-down and bottom-up approach that makes active selections between sight and focus to assure the correct input for the synthesis phase. Seasoned experts or consultants should be aware that even apparently similar cases are in essence unique and do not provide any opportunity for making short cuts. The actual improvement objects identified and the proposed solutions and their impact on the business result can vary greatly even if the quality handbook or process model says that the processes are identical. A process analysis and synthesis approach based on averages or best practices does not provide any real leverage in terms of achieving and maintaining a continuous mode of high-performance process improvement. As the answer or definition of a preceding question/consideration provides the basis for the next question/consideration, it is not possible to leave out a sub-phase or change the process flow. The proper management and implementation of the method depend on how well the consultant in charge masters the required knowledge base to process improvement (briefly discussed in Chap. 2) and the process analysis and synthesis approach (discussed in this chapter) as discussed in Sect. 1.9 (Fig. 1.3). The benefits of applying such a logic in this connection are manifold. Firstly, it directs continuously the data collection and the related discussions in the
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correct direction and finishes the collection and discussion at the right time. Secondly, it adapts the data collection and discussion to the appropriate ambition level. Conducting the data collection at the wrong ambition level decreases the quality of the output and lowers the possibility to create a high-class process improvement plan that targets the correct ambition levels (the focus process and the produced output). Thirdly, it makes a substance quality control possible from the beginning, decreasing substantially the possibility for applying (unconsciously) the logic “garbage in, garbage out”. These issues, although fundamental, are very seldom considered, as the traditionally applied methods (e.g. hoshin kanri) do not contain any logic for addressing these issues in a systematic and result-oriented way. The implication of these considerations is that it is not sufficient as such to cover the issues listed in the criteria of a high-class process improvement plan (cp. e.g. Sect. 2.4.1 or this section), as the cause-and-effect chains between the different pieces of data, information and knowledge presented in the process improvement plan may be wrong, obscure or missing. The real contribution to the process improvement yield level may be zero or very low even though all issues are formally presented in the process improvement plan.
5.3
Phase 1: Initiation and Modeling
The first phase consists of three sub-phases: the initiation, modeling of the focus process and limitation of the data collection and process analysis (Table 5.1).8 Prior to Phase 1.1 there may be a preceding phase (Phase 0) where the approach is presented more thoroughly to the key persons attending the data collection (on Day 1) and basic process analysis (on Day 2). These persons should have the best or at least an adequate understanding of how the focus process operates and functions, from both a total process and sub-process perspective. The key persons should therefore represent three organizational levels, i.e. the management of the process Table 5.1 The sub-phases of the first phase of the VISTALIZER1 for Process Analysis and Synthesis approach Phase Main objective Participants Phase 1.1 Initiation to facilitate the analysis All (management and operative key persons) Phase 1.2 Definition of an adequate process model All (management and operative key persons) Phase 1.3 Scope definition; limitation of the data collection All (management and and process analysis (if needed) operative key persons)
8 Strictly speaking the phases should have a numbering starting with “2” (e.g. Phase 1.1 should be Phase 2.1.1), as these activities relate to Phase 2 of the generic process improvement process. However, the shorter notification is used throughout the chapter.
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(process owner; executives or directors), the sub-process owners (managers) and team leaders or team members. Preferably, this group of people attending Day 1 should not exceed twenty persons, as the dynamics of a larger group is inferior to a smaller one. In addition, practical obstacles related to, for example, individual schedules, the means of conveyance, hotels and the venue emerge. Applying teleconference systems may decrease some of the obstacles, but experience has shown that the quality of the phases may potentially decrease in such a case. However, modern telepresence technologies have decreased this concern substantially. Usually it is fully adequate to identify eight to fifteen persons, as this number of people is likely to provide the data collection and process analysis with the adequate input. On Day 2, the dynamics is different, as the process analysis normally utilizes a smaller and targeted group of people for each sub-process or phase.
5.3.1
Initiation of the Analysis (Phase 1.1)
To facilitate the analysis the consultant or expert in charge has to make sure that the participants understand the objectives, roles and the agenda of the day. The same information has normally also been sent to all participants in advance. An example of such an agenda is presented on page 100. The case example depicts a complex and large global process. As seen in the agenda, the practical work is divided into five modules (or sub-phases) and one supporting module corresponding to Phases 1.1–3.2 in the related process flow chart (cp. Fig. 5.3). It is worthwhile noticing that the attending persons do not have to be aware of how the method operates. From a practical point of view, this time frame is flexible and resource-efficient. It allows running Phases 1–3 in two subsequent days and makes it possible to plan the schedules of the attending people at a reasonable accuracy level. From the consultant’s point of view, these time requirements are equally attractive. This set-up makes it possible for a single consultant to deliver VISTALIZER1 Reports in a reasonably large geographical area, for example most of Europe, and stay only one night, at most two nights, in a hotel per each delivery. For those that travel a lot this is an exciting attribute and a real boon that probably has to be experienced personally to appreciate fully. The feeling of utilizing such an advanced approach to process analysis and synthesis and creating a high-class output within the time limits set is professionally a rewarding experience that is hard to beat. This provides the consultant with a substantial support to reach Maslow’s Level 5 (recall Sect. 2.2.2.2).
5.3.2
Modeling of the Focus Process (Phase 1.2)
The modeling is not done for the sake of modeling. The output of Phase 1.2 makes it possible to plan for forthcoming data collection and analysis phases. Besides, it provides a rough picture of the cash (value) generating logic the company applies.
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This means that any process model will not do. Fundamental issues when defining the appropriate process model are the chronological order, meaning/focus and the relevance of the value adding or cash generating activities. Briefly put the process model provides the outlines of the cause-and-effect chain that is at this point yet to be revealed (and improved). The VISTALIZER1 for Process Analysis and Synthesis method utilizes the principles presented in Sect. 2.2.1 to divide the company or organizational unit into comprehensive parts. Using the definition based on the impact of the process on the direct (core process) or indirect (support process) cash flow provides a straightforward way to divide the company into appropriate process categories. Principally it is also possible to model only the focus process. This is done, for instance, when analyzing a large process operating in different countries utilizing resources from different companies or units (Figs. 5.4 and 5.5).
Fig. 5.4 The general structure and flow for adding value of a global corporation (mechanical engineering industry, the technical support process with 450 employees)
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Fig. 5.5 The flow chart of the case presented in Fig. 5.4
Figure 5.4 depicts the hierarchical structure of the contributing parts regarding that specific case. Within these parts, there is furthermore an organizational hierarchy that takes the shape of a matrix organization. From a process analysis perspective this structure contains at most four organizational levels, i.e. the Vice President (the process owner) and for each contributing part (GSC, SC TS, CC, NC TS) the managers (sub-process owners), team leaders (where applicable) and team members or employees. Above the Vice President are a Group Vice President and the President & CEO. These levels are not crucial from a process analysis perspective, as the significant organizational levels are the ones ranging from the process owner to the level where the actual work is conducted. Figure 5.5 shows the corresponding process model of the case presented in Fig. 5.4. As seen in Fig. 5.5, the hierarchical structure of the contributing parts is transferred into process phases, whereas the organizational hierarchy remains. Principally, it would be possible within the time limit to list other processes (e.g. all end-to-end processes), but this should be done only if the extended modeling would likely provide benefits (relevance check). An extended process model or a more detailed model should not be done just in case or for the case of perfection. In any case, the modeling should not take more time than 1 h, preferably less than 40 min. Therefore, it is crucial to create a model that serves the purpose, not to model every aspect in detail. In complex settings, a rough process model may be predefined in Phase 0. In simpler settings, it is possible to model the whole company as shown in Fig. 5.6. The number of the sub-processes or phases of a process depends naturally on the case, but a good span is six to fourteen sub-processes. In large settings, the number of sub-processes may be in the range of 20 even if the total end-to-end process is not considered (cp. Fig. 5.5 omitting the GSC part). If the amount is five or less then it is likely that at least one or two of the sub-processes should be split
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Fig. 5.6 The process model of the whole company (precision plastic products, the tool manufacturing core process with 150 employees)
Fig. 5.7 The process model in its simplest form (HVAC equipment manufacturer, the export process with nine employees)
into phases that are more detailed. If the amount of sub-processes exceeds fourteen then it is likely that the modeling has been too detailed and some sub-processes may be grouped together without loosing sight or focus. A core process consists typically of phases or functions dealing with order management, production planning, production, shipping and invoice management. The support processes are typically processes dealing with product development, sales (may also be part of the core process), marketing, management (human resources, finance, etc.). The focus process is always divided into smaller phases, functions or sub-processes. A support process will be broken down to the subprocess level only if it is chosen to be the focus process. Figure 5.7 presents in its simplest form an example of such a case. As the modeling phase is subject to a certain time limit (30–60 min) that needs to be honored, it is important that the available time is used effectively. In some cases, the process thinking in the company may be so undeveloped that the process modeling would benefit from an increased level of understanding in this regard. Consider the case below (Pastinen 1998). Because the client company was rather unfamiliar with the various process improvement concepts, the consultant thought that he had to communicate thoroughly what process orientation is all about. To facilitate this objective he turned to his set of transparencies (Fig. 5.8).
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Fig. 5.8 A picture to visualize process orientation and the potential for improvement9
Using the transparency depicted in Fig. 5.8, the consultant showed examples of activities belonging to the core process10 (numbers 2 [order management], 4 [production planning], 5 [production] and 7[packaging]). Additionally, he could visualize what a support process is (numbers 3 [marketing and sales] and 6 [management]). The picture also shows some improvement potential that may be revealed in the process analysis. Thinking in terms of processes was a new approach for the client company. Hence, the consultant made an effort to communicate the difference between a core process and a support process. He stressed that the customer may receive a high-quality product even though the processes are not that good. This may be done by inspecting the final assembly and rejecting products not meeting the requirements. The employees and managers started to discuss what different processes belonged to the company. At first, there was a clear production orientation in the discussion. Remembering the definition of a core process (direct influence on the company’s cash flow) and the support process (indirect influence on the company’s cash flow), the attending persons all agreed that the core process had to be something more than production related functions. After a discussion lasting 15 min, the managers and employees had reached an agreement about how to depict the company in a core process and support processes. The different subprocesses belonging to the core process were labeled P1–P4 (P1 ¼ Order Management, P2 ¼ Production, P3 ¼ Packaging and Delivery, P4 ¼ Mailing of Invoice). The different support processes were labeled S1–S3 (S1 ¼ Management, such as Financial Management, Human Resource Management, etc., S2 ¼ Product Development, S3 ¼ Maintenance).11
9 This picture, a visualization of Fig. 2.1 except of the suppliers, was drawn by Harri Pakarinen and is part of the VISTALIZER1 for Consultants software. It is published with due permission of Vistalize Oy. 10 #1 ¼ the customer. 11 The number of sub-processes is usually larger. To simplify the presentation the number of different sub-processes was restricted to four. The correct sequence would have been P1 Order Management, P2 Production Planning, P3 Preparation of Production, P4 Production, P5 Packaging, P6 Delivery, and P7 Sending of the Invoice (Invoice Management). The finer a classification, the more accurate is the analysis. A too fine a classification can potentially result in a loss of sight.
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Scope Definition and Data Collection Planning (Phase 1.3)
The scope definition and the related data collection planning are done in two mutually non-exclusive areas: l l
Selection of the process to analyze Limitation of the selected process; sight (length) and focus (depth).
If the process has not been selected before and a process model containing several processes has been created, then the focus process has to be formally selected. Usually this issue relates more to smaller companies with 50 employees or less, but it can also be a sign of insufficient preparations, a changed point of view, or new information. As the current and forthcoming revenues and profits relate to the current and forthcoming performance of specific processes, it is possible to emphasize a certain part of that cash generating mechanism. Ideally, all essential processes should be subject to a high-class process analysis and synthesis on a regular basis (12–18 months). Such an approach contributes substantially to increasing and maintaining the PIY level. The research and development, marketing, sales, order-delivery and after sales processes have all their unique impact on the overall performance of the company. One possibility is to focus on the processes belonging to the core process category first because these processes affect the cash flow directly. If the core processes are functioning well, then the emphasis is moved to the support processes. The analysis of a certain process reveals in many cases weak points in other processes, even external ones, which spurs the analysis of these processes. Once the focus process has been chosen, the scope of the data collection and analysis has to be defined. The sight or length limitation deals with how many subprocesses can be covered in one run. There is no definite limitation in this regard, but practice has shown that this figure should not exceed 14. To increase this figure to 20 would require approximately one additional day (Day 3). For example, the case in Fig. 5.5 was limited to cover the sub-processes P1.1.1–P2.3 (totally fourteen sub-processes). The delivery time could potentially be increased by a few days if the number of the sub-processes exceeds the standard upper limit. A figure above fifteen sub-processes is in most cases unlikely and is probably due to an imperfect process model although large and complex processes may even have up to 30 subprocesses. The VISTALIZER1 for Process Analysis and Synthesis approach covers up to three significant organizational levels with unaffected capabilities to cover required details in the data collection, analysis and synthesis phases.12 This coverage is the focus or depth of the approach. In cases where the significant organizational levels amount to four it is usually possible to adjust the number to three significant levels by, for instance, treating the team leader level and team member level as one 12
The significant organizational levels are the ones ranging from the process owner to the level where the actual work is conducted.
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level. If the significant organizational levels amount to five, it is still feasible to group the levels from a process analysis perspective to three levels, for example, top-management (Vice President and directors), middle management (managers) and employees (team leaders and team members).13 The main restriction comes from that the key persons involved in the data collection on Day 1 should not exceed 20 as considered earlier. The core process includes everything between order receipt and reception of payment. It is possible to analyze a narrower part of this chain, but it has to be clearly articulated. One example is the analysis of the chain from order receipt to the point of shipment/delivery, but this analysis is not as customer-oriented as the former. Consider the following case description for example (Pastinen 1998). The selection of the process for analysis was done in minutes. The Managing Director of the small manufacturing company claimed that the most urgent process to improve was the core process. The employees agreed. The consultant pointed out that it was most important to concentrate on basic things first. After that, it would be possible to consider other processes. Besides, the analysis could reveal some deficits in the core process that were due to a malfunctioning support process. In such a case, the improvement efforts would naturally also consider the support process. The Managing Director argued that the mailing of the invoice (invoice management) at the end of the core process could be omitted. He said the mailing of invoices was working very well and he had not heard of any troubles regarding this matter. However, some of the employees thought that this would affect the balance of the core process. One of the employees had the feeling that there could be an improvement potential for this activity as well. This was because of the fact that approximately five customers called the company each month because of some questions about the invoice. The person receiving the calls was not the one writing the invoice. She did, however, deliver the invoice personally to the customers when delivering the things produced on a daily basis. Hence, it was natural to get “face-to-face” feedback from unsatisfied customers. However, this information never made its way to the attention of the Managing Director or to the person who wrote the invoice. One employee said that it was a waste of time and money both for the customer and the company if things were not done right in the first place. The Managing Director reconsidered his statement and found that the employees were right. Therefore, the object of the analysis was the whole core process.
5.4
Phase 2: Data Collection and Basic Definitions
The second phase, conducted on Day 1, examines the focus process with respect to the process performance parameters chosen. It forms the basis for decision-making and defines crucial aspects such as the process improvement demands (objectives) and the related monetary gain. Table 5.2 describes the structure of the second phase.
13
Top-management, middle management and team leaders attend the specific sessions on Day 1 and the team leaders and team members attend the related sessions on Day 2.
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Table 5.2 The sub-phases of the second phase of the VISTALIZER1 for Process Analysis and Synthesis approach Phase Main objective Participants Phase 2.1 Determination of the process performance All (management and parameters (analysis parameters) operative key persons) Phase 2.2 Creation of the impact field All (management and Definition of the impact field supplements operative key persons) The Support Module End of Day 1 (operative key persons) Phase 2.3 Giving priority to the analysis parameters Management Phase 2.4 Calculation of Criterion 1 The consultant/expert Calculation of the reliability of the impact field Phase 2.5 Definition of the customers taking part in the Management satisfaction inquiry (option) and planning for the inquiry, if not conducted in the Support Module (the inquiry is conducted in Phase 3.3) Phase 2.6 Objectives of the parameters Management Evaluation of the monetary gains with respect to the set objectives Derivation of performance criteria End of Day 1 (management)
5.4.1
Determination of the Process Performance Parameters (Phase 2.1)
The definition of the term “process performance parameter”, or from a process analysis point of view “analysis parameter”, is presented below. An analysis parameter (shortened parameter) is a quantity or a derivative of it, which depicts the performance of a process (Pastinen 1998).
To depict the performance of the processes versatile and appropriate parameters should be chosen. The chosen parameters should be by nature cause parameters of desired effect parameters related to increasing the satisfaction of customers, employees and owners. These cause parameters are, of course, effect parameters if the parameters are considered from a root cause perspective. From an end-result perspective, they can be seen as cause parameters in this connection. A necessary and sufficient parameter spread is achieved by choosing at least one parameter from each main category, i.e. time, quality and costs (money). Success in terms of these three parameters is the basis for success in the market. The main issue when choosing the parameters is to concretize the very essence of the process performance in three to five essential parameters (Fig. 5.9). The question posed in this connection is: “What are the vital few process performance parameters the process has to excel in?”.
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Fig. 5.9 The vital few parameters are chosen from the trivial many to form the spine of the (future) high-performance process14
The difference between performance measurement criteria15 and analysis parameters is that the performance measurement criteria generate measured facts (performance measures), whereas the analysis parameters can be based on, and generate, measured facts, estimates, and even future performance. Understanding this key difference is crucial to comprehending the potential and the quality of the method in a larger context.16 Of course, in certain settings and in certain phases of the considered process analysis and synthesis method, the analysis parameters may be equivalent to the performance measurement criteria. This is the case, if the company applies a high-class process-oriented performance measurement system, and the analysis parameters or the related values are not used in a future context. A differentiation in terms of time, quality and costs is no longer the key to success. Nowadays companies have to master all three aspects. The formula for success would be, roughly speaking, high-quality products (services) produced by high-performance processes, which produce the desired output using considerably less money and time than before. As the improvement activities are supposed to increase in a systematic and result-oriented way both the ambition level of the processes and the produced output, a specially designed dynamics is required to deal with this issue from a total process improvement perspective. One major part of this dynamics is the selection of the appropriate analysis parameters or process performance parameters. The parameters used for the analysis are case specific although a fairly limited set of parameters are suitable and crucial for cases operating at the same ambition level. The parameters reflect the current areas of importance, which are derived from the management’s and key persons’ intuition, the competitive situation, future performance needs and customer demands. The analysis is executable even if only one parameter is chosen although this solution is not optimal. In such a setting, it is much harder to detect contradictory 14
This picture was drawn by Harri Pakarinen. It is published with due permission of Vistalize Oy. Performance measures are the actual values of the performance measurement criteria. 16 Most (all) of the LPPI analysis methods require measured facts to be operational. 15
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measures, essential improvement objects and define the total financial outcome. The optimal solution includes one to two parameters from all three main parameter groups. For example, it is possible to choose one parameter relating to quality, two parameters relating to time and one parameter relating to costs. The three types of main parameters closely influence one another. Usually the improvement of two parameters results in an improvement of the third. It is therefore hard to exclude more than one parameter group. For example, if a process produces many defects, it will increase costs and the time required to redo the work. In the same way, decreasing costs and time by finding better (simpler) ways of doing the work, for instance, by eliminating unnecessary phases may increase quality, as the opportunities for failures to occur may have decreased. A faster process affects positively also the inventory levels and the response ability. These issues translate into cost savings and possibilities to earn more money. In companies with a rather undeveloped improvement culture Phase 2.1 may cause some discussions. It is important to reach a common understanding of what constitutes a parameter and what it means in practice. Because the focus process usually cuts across different functions and sub-processes, people may comprehend the meaning of a parameter in different ways. This makes the analysis somewhat more difficult, as the communication between the attending parties suffers. Such a miscommunication causes unnecessary troubles and time losses in future phases of the data collection and analysis, as issues need to be repeated and checked more than otherwise required. Basing the perceptions on inadequate initial data may potentially result in a biased data collection that is detected and corrected no sooner than in the analysis phase (Day 2). The VISTALIZER1 for Process Analysis and Synthesis approach has a built-in logic for detecting intentionally or unintentionally biased data and information. The creation of a high-class process improvement plan is constantly subject to the dilemma of “garbage in, garbage out”. It is always better to prevent problems from arising in the first place than correcting problems afterwards, as no substance quality control can be fully foolproof in this respect. The good news is that the bias detecting capability of the method is reasonably high. It is based on a crosscheck between the impact field (Phase 2.2.) and the issues considered in Phase 3 of the method, i.e. where the data of the impact field is cultivated into information. The impact field allocation has to be verified to a reasonable degree, i.e. the %-allocations have to be assigned a meaning in correspondence with the weight (made in Phase 3.1). If the mismatch between these issues is too big then the difference has to be analyzed. The options in such a case are to make the required corrections or accept the difference with a motivation. Unintentional bias due to misunderstanding is detected even if all attending persons (management and the operative key persons) would have misunderstood some issue. This is a potential pitfall especially in cases where the focus process is new or still at the planning phase. The choice of parameters directs the analysis heavily and provides the expert or consultant in charge with important hints how to proceed with the phases and what to consider more thoroughly. Attention should be paid to choosing parameters that are crucial for the business. Another selection criterion is that the analysis parameters should be relatively easy to quantify in monetary terms. The ambition levels of the
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focus process and the produced output determine the ambition level of the process analysis and synthesis and the related output (VISTALIZER1 Report). It is therefore not possible at this stage to determine what the appropriate ambition levels are. 5.4.1.1
Time Analysis Parameters
The analysis parameters are, as stated before, case specific. Because of their process-orientation, they are adaptable to a wide range of processes and different cases. The time parameter can have different implications. In terms of the VISTALIZER1 for Process Analysis and Synthesis method, the focus is on the time consumed by the different sub-processes. Possible parameters include: The delivery time The lead time Non value-adding time The delivery certainty Time-to-market time Design-develop time The total cycle time.
l l l l l l l
Certain time parameters related to the core process whereas others relate to a support process (Fig. 5.10). For instance, the design-develop cycle tracks the performance of a support process (the R&D process), but the delivery time depicts the performance of the core process (order-delivery process). Furthermore, the total cycle time and non value-adding time track the performance of both types of processes, albeit in a different manner. The total cycle time tracks both types of processes in a “support process þ core process” setting whereas non value-adding time may track either process type or both types of processes.
Need Expressed
Solution Prepared
Time-To-Market
Product Available
Order Received
Order Handled
Product Invoice Delivered Written
Payment Received
Delivery Time Total Cycle Time
Fig. 5.10 Examples of possible time parameters17
17
This picture was drawn by Harri Pakarinen. It is published with due permission of Vistalize Oy.
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The analysis parameters should be chosen according to the time criteria considered most crucial for the success of the process and in the end the company. If a parameter reflects an end-result, then such a parameter has to be converted to a process parameter that can be allocated throughout the focus process in a consistent and easily understandable way. For instance, to convert the delivery certainty parameter into a process parameter it has to be defined as “the problems affecting the delivery certainty”. The selection of an appropriate time parameter is rather easy although there may be some difficulties, as the following case description will point out (Pastinen 1998). The Managing Director of the small manufacturing company said it would be important to consider delivery certainty as the time factor. A manager argued that it would also be important to consider the delivery time. An employee suggested the use of non-valueadding time. The consultant said that because of the fact that no measured information existed of any of the three alternatives, it would be wise to pick one parameter that reflected the other two parameters as well. The employees and managers discussed which time parameter to choose for approximately 10 min. However, they could not make up their minds, so they asked the consultant for advice. The consultant said he would willingly provide the group with advice, but stressed that it was the responsibility of the group to arrive at a common decision. Therefore, the advice should be interpreted more as a clue. The consultant said that a good choice would be delivery time because its definition would be rather clear. Additional advantages included the possibility to quantify the parameter in an easy manner and the possibility to integrate the two other parameters in the delivery time. The integration meant that non-value-adding time was already included in the delivery time. Hence, the non-value-adding time would be revealed when considering the improvement potential of specific sub-processes or functions. Delivery certainty is indirectly related to the delivery time, but it may be hard to quantify it later on. This is because no measured information was available in this respect and a sub-process specific deployment of it would not be an easy task to do. Decreasing the delivery time by removing obstacles and continuous problems would also decrease variation and improve predictability. In addition, the issue of how to define delivery certainty in practical terms may not be straightforward. Some employees argued that it is not easy to define what delivery certainty is. There was no problem understanding that a 100% delivery certainty meant that every product was sent on time to the customer. What about when the product was actually received and accepted by the customer? Such a perspective would be more customer oriented than basing the definition on the point of time when the product has been dispatched. Additionally, what does an 80% certainty level mean? Does it mean that 20% of the products did not arrive on time? If so, how should the delivery certainty be treated if the product arrived 1 min, 1 h, 1 day, 1 week or 1 month too late? If an 1-h slip was allowed, the dilemma would still exist. In some cases, the measure would not be fair. There was a good understanding about the delivery time in the company. Furthermore, the employees had an accurate view about the time spent in different sub-processes. The employees and the management considered the different views. The Managing Director proposed the use of delivery time as the time related analysis parameter. The rest of the attendants agreed.
5.4.1.2
Quality Analysis Parameters
The quality parameters track the performance of the focus process implying that no product oriented quality criterion qualifies as an analysis parameter. Possible quality-oriented analysis parameters include:
5.4 Phase 2: Data Collection and Basic Definitions l l l
l l l l
l l l
115
Non-conformance to standards (defects, not doing things right the first time) Cost of quality18 Environmental influence (use of energy, use of toxic substances, formation of exhausts, etc.) Customer satisfaction and employee satisfaction Safety hazards Level of innovation Level of (information) technology (the level of the ERP/IT system, level of automation) Level of change resistance Level of bureaucracy (functional barriers) Level of stress.
Non-conformance to standards is a good parameter for which obtaining measured data may be difficult in many cases, as the defects of the total focus process are seldom measured. The measurement is usually restricted to some part of the process, for example, the manufacturing phases. As it turns out in the next section, it is possible to utilize subjective evaluations of the parameters. For instance, when a core process is considered different sub-processes may have different kinds of defects. The order management sub-process has different kinds of standards than the manufacturing sub-process, but both can be evaluated with the same parameter and can even be weighed accordingly. This parameter can also be utilized in the context of non-conformance to the current or future ambition level. The cost of quality is a powerful measure, which is perfectly suited to a process oriented analysis approach like the one presented in this chapter. Using this parameter, however, requires some preparatory work and a thorough understanding of the concept in order to be applicable. The parameter is better suited for application if the process analysis and synthesis phases are conducted on a higher ambition level than the basic level (Level I). The environmental influence of the company’s processes is becoming increasingly important due to customer requirements, new legislation and global awareness. In many businesses, the “green” values are a factor affecting competitiveness in a global perspective. From a process improvement perspective, this translates into lowering the energy consumed by the processes and minimizing their polluting effects. Customer evaluations of the process performance are in principle appropriate in all sectors although care should be taken when utilizing this parameter in this connection. The customer satisfaction is, generally speaking, the end-result of the process performance and replacing a cause parameter with an effect parameter results in a closed loop that requires careful attention. The use of this parameter may potentially increase considerably the length of the root cause analysis, which in turn calls for more time and effort to find the real root causes. Considering the voice of 18
This is actually a cost parameter and could be grouped under that main parameter as well. It reflects the monetary implications of not making things right the first time.
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the customers at the duly designed place later on provides a better result. Benefits of doing so include far less work and pitfalls that increase risks. Many organizations in the service sector build the service quality as the delivery of the service progresses. In these cases, the potential problem may not be that big. Keeping the causeand-effect chains as “clean” as possible is nevertheless an issue that needs constant attention. It is also possible to evaluate the quality of the focus process in terms of employee satisfaction and safety hazards. Whether these are good parameters is questionable. In my opinion, I would consider using these parameters in cases with an evident low level of employee satisfaction or many safety hazard issues that need special attention. Otherwise, I would prefer another quality parameter that is more directly linked to the produced output. The regarded method considers these issues anyway, as the people and their well-being, among other people related issues, are one of the four process components that are considered in the analysis phase (Phase 3) when identifying improvement objects affecting positively the focus process performance. By targeting the level of innovation, technology, change resistance, bureaucracy (functional barriers) and stress, it is possible to select a fast track to an ambition level upgrade. These options provide a very powerful set of analysis parameters that targets special issues that may hinder the company or process from flourishing. A selection of one of these parameters will put that issue in the focus in the analysis phase. This provides further insights how the interaction of people, technology, information and material could be improved for the benefit of getting the best improvement leverage to that specific process analysis quality parameter and the other parameters as well. In case of planning, for instance, an ERP system or an upgrade of the current system, this approach is very attractive. It reveals mission critical issues not targeted by traditional process models and analysis approaches used to plan ERP/IT system implementations (“as-is, to-be” models). In demanding change initiatives the selection of one to three quality parameters focusing on the level of change resistance, bureaucracy or stress, puts major negative process performance parameters in the spotlight for the benefit of being able later on to focus on positive process performance parameters such as, for example, innovativeness. The choice of an appropriate analysis parameter with respect to the quality dimension depends on the company’s performance level and possibility to use measured information. The case description below illustrates this (Pastinen 1998). The Managing Director of the small manufacturing company said that it would be appropriate to choose the cost of quality as a parameter. The managers and employees agreed. The consultant knew that there was no measured information to rely on so he asked the group how they perceived the cost of quality. The group answered unanimously that the cost of quality is the reclamation cost. The company had calculated this figure and it was approximately 0.5% of the revenue. The consultant agreed that cost of quality is reclamation cost as well, but that the concept contained other aspects too. He argued that the cost of quality contains: l
The internal failure cost: the cost to redo a defective product before it is delivered to the customer
5.4 Phase 2: Data Collection and Basic Definitions l
l l
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The external failure cost: the cost to make good a defective product after it has been sent to the customer The appraisal cost: the cost incurred to discover the condition of the product or process The prevention cost: the cost necessary to keep failure and appraisal costs to a minimum.
The consultant argued that in the case of the client company a quality cost of 0.5% would be almost impossible. The group agreed and said that the cost of quality using a broader definition would cause the quality cost to be considerably higher. In addition, the deployment of the cost of quality based on reclamation costs would be a difficult task. Later on, the consultant said, it would be possible to measure the cost of quality. However, it would require some time and would go beyond the scope of this analysis. The group agreed to consider another alternative. After a while, one of the employees suggested the use of defects. A defect was something “not going as it should”. Hence, the failures of the manufacturing sub-process would be different from those of the order management, but all failures could be grouped under the same parameter. The other group members thought that it would be a reasonable parameter. The parameter “not going as it should” was renamed to “non-conformance to standards”. The Managing Director concluded that this parameter also contained some elements used in the definition of cost of quality. The consultant added that the use of “nonconformance to standards” would be appropriate because everyone agreed on its definition and that it could be utilized in an environment where no measured information was available. Furthermore, the parameter had a strong process orientation and could therefore be deployed with respect to the different sub-processes.
5.4.1.3
Cost Analysis Parameters
When cost related analysis parameters are concerned, there are basically three approaches to consider. Appropriate parameters regarding the data collection and the related process analysis are variable costs,19 fixed costs20 and total costs (variable costs þ fixed costs). Sometimes it is justifiable to consider both variable and fixed costs and to make a weighing to stress their relative importance (Sect. 5.5.3 considers this). This weighing is also used as a means of really choosing crucial parameters, as the case below reveals (Pastinen 1998). The opinion of the Managing Director was that the group should choose two cost-oriented analysis parameters: variable and fixed costs. To communicate the meaning of costs the consultant explained what the two types of costs included. In addition, the Managing Director provided the group with concrete examples from the own company. A common understanding was soon reached and both parameters were chosen. However, the fixed costs were later omitted (in Phase 2.3). When the Managing Director was to prioritize the different analysis parameters, the fixed costs received no attention at all. The company could do very little to influence the amount of fixed costs. The absolute amount was not so big compared to the variable costs. This reflection excluded fixed costs
19
Expenses that change in proportion to the activity of the process. Expenses that do not change in proportion to the activity of the process.
20
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from the list of crucial performance parameters. Consequently, the selected parameters were delivery time (time), non-conformance to standards (quality) and variable costs (money).
5.4.1.4
Examples of Chosen Analysis Parameters
Table 5.3 lists examples of chosen analysis parameters in different industries and companies. As seen in Table 5.3, the parameters chosen are relatively similar despite the industry sector or size of the company or process.
5.4.2
Creation of the Impact Field (Phase 2.2)
The impact field is defined in the following manner (Pastinen 1998). The impact field is a matrix that depicts the performance of the process in terms of the chosen analysis parameters. The size of the impact field depends on the number of subprocesses or phases (m) and the number of analysis parameters chosen (n). The impact field is consequently an m n matrix.
The creation of the impact field is based on either measured performance or estimates made by the key persons familiar with the focus process. Usually the basis is a combination of both measured information and estimates. The main dilemma using measured data or information is that the data or information provided by the IT (ERP) systems is not useful or valuable enough from a process analysis point of view. One major pitfall when collecting process data is to utilize such data that is easily accessible, but not actually relevant (needed). This fundamental flaw may blur thinking and thus decrease the possibility to create a high-class process improvement plan, despite that the considered issues are formally correct and presented in the plan. There is no guarantee that the quality of the data or information received by the IT system would be sufficient. IT systems provide potentially a total illusion by providing data that can be seemingly accurately allocated. Such an illusory allocation implements the principle of having the wrong data allocated correctly. In such a case, it is far better to have the right data allocated approximately right (roughly right). Depending of the process analysis objective and the case, the data collection time frame can represent any time period, i.e. historic, present or future time. The norm is to utilize a historic time frame ranging 6–12 months backwards. The present time is used, for instance, if the focus process has recently change so much or is rather novel so that historical data is not available or it would provide a wrong picture of the process performance. Future time is utilized if the VISTALIZER1 for Process Analysis and Synthesis method is used for designing a non-existent process that has to operate under certain process performance requirements.
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Table 5.3 Examples of chosen analysis parameters in different businesses Chosen analysis parameters Industry sector Focus process Size category Process type Process size Output l Time: Lead time (calendar time); The purchase order process Telecom Part of the core process 50,000þ non-productive time l Quality: quality defects 50 employees employees l Costs: – Purchase orders (deals) l Time: response time to deliver an The technical support process Mechanical Support process; see Figs. 5.4, action plan; total delivery time; engineering 5.5 unproductive time 20,000þ l Quality: quality defects 450 employees employees l Costs: operations costs Advice (action) l Time: lead time, problems Mechanical The sales engineering process engineering Part of the core process affecting the delivery certainty l Quality: quality defects; 10,000þ 350 employees employees Agreements unproductive time (waste of time) l Costs: operations costs l Time: lead times of the first and The deployment and IT services implementation process second half of the process 10,000þ l Quality: quality defects Support process employees 2,000 employees (according to l Costs: man hours of the first and need; the persons are working second half of the process full-time in the core process) A process change l Time: lead times (the initial part of Telecom operator The customer support process the process and the total process) 5,000þ Support process l Quality: quality defects (such employees 500 employees things/issues that are not done Advice/Action right the first time) l Costs: total costs l Time: lead time; delivery certainty Precision plastic The tool manufacturing process products Core process; see Fig. 5.6 (“the problems causing delays”); 1,000þ 150 employees unproductive time l Quality: quality defects (frequency employees Tools of such things/issues that are not done right the first time) l Costs: variable costs l Time: lead time (calendar time); Technical The negotiation process documentation Support process non-productive time l Quality: quality defects services 10 employees l Costs: – 250þ employees Delivery agreements l Time: lead time (calendar time) HVAC21 equipment The export process manufacturer Support process; see Fig. 5.7 and working time l Quality: quality defects 50þ employees 9 employees l Costs: variable costs Partners and business deals
21
Heating, ventilating, and air conditioning.
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The analysis requires that the parameter value is allocated among the sub-processes with an accuracy of about five to ten percentage points depending on the number of included sub-processes. If, on the other hand, the company has access to high-quality measured data/information, then the allocated values will, naturally, be based on this data/information. The company is able to track changes in the impact field on a very short notice with a well-functioning performance measurement system. It also provides a good basis for comparing two analyses made in subsequent years. Consequently, the two analyses could provide the firm with complementary and valuable information about the success of the improvement efforts on the process level in addition to the follow-up provided in Phase 1 of the generic HPPI process (recall Chap. 4). As a result, the coordination of forthcoming efforts is facilitated. The values of the impact field are all expressed in percentage points. The percentage points (100%) relating to specific analysis parameters are allocated among the sub-processes (phases) based on how the sub-processes (phases) “consume” the percentage points in question. Sometimes it is necessary to conduct an even allocation of the parameter, i.e. all sub-processes receive the equal weight. This may happen in a situation where the considered parameter is hard to quantify and allocate, or there are no (concrete) observations regarding the issues. This issue relates almost completely to the quality analysis parameters, for example, if a nonautomated process is the object of automation initiatives (raise of a non-existing automation level) or if the innovativeness of a R&D process is to be improved. Figure 5.11 illustrates how the impact field is created in a simple case. The figure below depicts a simplified core process with four phases (P1–P4) that together with the three analysis parameters forms a 4 3 matrix. The time
Fig. 5.11 A simple example of the allocation of percentage points to the impact field22 22
This picture was drawn by Harri Pakarinen. It is published with due permission of Vistalize Oy.
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parameter in this example depicts the delivery time, which is ten working days. This time is then allocated between the phases. For example, Phase P3 consumes 40% of this time. The same kind of allocation is made for the rest of the parameters. It is important that the impact field reflects the relationships between the phases in a proper way. For instance, if Phase P4 would have been final inspection, where most of the defects are detected, then the percentage points should preferably be allocated to the phase that caused them. Of course, the performance of the final inspection may also be low, which means that a defective or malfunctioning output is delivered to the customers. When the final inspection is performing well then the attention is moved to the previous sub-processes. Eventually, when the “next (sub)process is my customer” principle is implemented, the final inspection can potentially be dismissed as unnecessary. The allocation is revised (verified) in Phase 3 of the VISTALIZER1 for Process Analysis and Synthesis method. Any major shortages in this regard are detected and fixed before entering the synthesis phase (Phase 4). The old or incorrect value of a parameter allocation is placed in brackets and a new value is allocated to reflect the revised situation as shown in the impact field examples later on in Sect. 5.4.2.2. Sometimes it is possible that the process model, not only the parameter allocation, has to be revised and corrected to reflect the actual situation. Depending on the magnitude of changes required, it is possible that Phase 1 and Phase 2 have to be rerun. Such a case is very rare and amounts to below one percentage of the cases although minor reallocations of the parameter values occur in every second case. The technique of creating the impact field is also worth considering, as the approach chosen will increase the quality of the data collection and keep the allocation phase on the right track, also in terms of the time spent on the allocation. The creation of the impact field is by far the most time consuming phase on Day 1. The mere allocation enhances as such the process improvement culture, as it creates by nature a spirit of involving doing. Depending on the size of the process, the amount of people attending, and the focus process knowledge of the attending people, different techniques should be applied to assure a high-class output of this phase. The following two options are possible if there is no adequate measured data available: 1. The attending persons create an own impact field according to the best knowledge and insights. The results are presented to the group. After discussing pros and cons of having a certain allocation, the group agrees on the most suitable allocation. 2. Small (cross-functional) teams of two to five persons are appointed. Each team creates in consensus an impact field presented to the other teams. The teams, as in the former approach, discuss the allocations and agree on the most suitable allocation. The first approach is used in smaller processes where the attending persons have a fairly good understanding of the whole process. Knowledge shortages are corrected in the joint discussions where different views are considered and harnessed to the point of reaching a reasonable level of consensus. In conflicting cases with two opposing views on a specific allocation, there is the possibility to use the average
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allocation as a tiebreaker. The process owner (director) has also the option to use his or her right to the final word. The second approach is used in larger settings where individual persons may not have a clear picture of the total focus process. This may be either due to a limited functional perspective or to a limited process perspective. The latter emerges in a situation where the overall performance of a larger process is analyzed, for instance, the total process consists of a number of parallel processes that cumulatively form the overall process performance. An example of such a case is a sales process that consists of segment specific sales processes. The total sales process performance is the cumulative performance of the segment specific sales processes that, in addition, may have a different impact on the overall performance.23 To overcome this situation it is beneficial to form cross-functional teams. With this set-up, the logic is the same as the one used in the first approach. The difference is that the knowledge base rests on the team’s cumulative knowledge instead of an individual’s knowledge. This set-up makes it possible to deal with very large processes without losing sight or focus.
5.4.2.1
The Supplements of the Impact Field
Phase 2.2 of the analysis includes also the supplements of the impact field. The supplements are the notification of the absolute values of the analysis parameters and the reliability evaluation (Fig. 5.12).
Fig. 5.12 The supplements of the impact field24
23
If this is the case then the influence of the segment specific impact field allocations is simply weighed according to the priority judged appropriate. 24 This picture was drawn by Harri Pakarinen. It is published with due permission of Vistalize Oy.
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The absolute values of the parameters are recorded at face value. If the company cannot provide the absolute value (e.g. number of defects detected), this field will be marked with a question mark. The reliability of the impact field is evaluated according to what the basis is for allocating the percentage points. The reliability can be categorized into three classes: 1. Allocation based on measured information (MI). 2. A reliable estimation (RE). 3. A subjective estimation (SE). The reliability of the impact field of a specific analysis parameter is at the MI level, if the absolute value of the parameter is known and at least 70% of the allocation is based on measured information. The value of the MI level lies in the range of 0.7–1.0 (70–100%) which depicts how many percentage points are actually allocated on a factual basis. The reliability of the impact field of a specific analysis parameter is at the RE level, if the absolute value of the parameter is known and at least 30% of the allocation is based on correctly measured information or a comparable factual basis. The value of the RE level lies in the range of 0.3–0.7 (30–70%). The reliability of the impact field of a specific analysis parameter is at the SE level, if the absolute value of the parameter is known and at least 10% of the allocation is based on correctly measured information or another comparable factual basis such as the attending persons’ profound practical knowledge of the focus process. If the absolute value is unknown, or the percentage points, which are allocated based on measurements, are below 10%, then the value of the SE index is zero. The value of the SE level lies in the range of 0.0–0.3 (0–30%). Using these criteria, it is possible to evaluate the overall reliability of the impact field. In order to do this, the relative importance of the analysis parameters must be known (defined in the next sub-phase). The calculation of the reliability of the impact field is made formally in Phase 2.4. Based on the reliability index it is possible to calculate the level of tacit knowledge used in the allocation field (100% minus the reliability index). This score does not reveal the quality of the tacit knowledge although a rough categorization can be made based on the experience of the attending persons (low, medium, high).
5.4.2.2
Examples of Impact Fields
The tables below present examples of impact fields. The examples correspond to the cases presented in Figs. 5.5–5.7. The impact field in Table 5.4 is the final consensus result of five teams each of which constituted of three to six cross-functional team members representing also different geographical areas. The Table 5.5 presents the supplements of the impact field. Table 5.5 reveals that the level of measured data is low. Despite this every second, defect and cent will be in the matrix, as the allocation requires that 100% of
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Table 5.4 The impact field of the example in Figure 5.5 (mechanical technical support process with 450 employees)25 Parameter P1 P1 P1 P1 P1 P1 P1 P2 P2 P2 1.1 1.2 1.3 2.1 2.2 2.3 3 1.1 1.2 1.3 Response time 14 20 12 – – – – 9 28 17 Total delivery time 2 5 2 5 6 2 3 2 5 3 Unproductive time 2 10 1 8 4 2 1 3 9 1 Quality defects 8 10 5 8 7 3 4 4 5 1 Operations costs 3 7 4 5 2 1 3 1 6 2
Table 5.5 The supplements to the impact field in Table 5.4 Parameter Value Response time ? Total delivery time ? Unproductive time ? Quality defects ? Operations costs 34 MEUR Reliability index: 12% Tacit knowledge: 88% (quality level P1: low; P2: medium)
engineering industry, the P2 2.1 – 12 21 18 15
P2 2.2 – 25 21(11) 15(9) 24
P2 2.3 – 18 10(20) 6(12) 21
P2 3 – 11 7 4 8
Reliability26 (%) 15 10 5 10 20
the parameters are allocated throughout the process. This allocation utilizes in any case the best available knowledge and insights. It might in some cases even be so that the real-life usability of this allocation, despite the fact that the reliability of the parameters is low, is better than the allocation made base on measured data, as the quality of the measurement can be low (incomplete, biased, or even wrong). A low reliability index does not as such communicate a low usability level of the collected data. It only communicates the nature of the allocation. It indicates that the company should improve its performance measurement system to obtain measured high-quality data in this respect. One valuable aspect is in any case the fact that both the management and the operative key persons have committed themselves to the result of the allocation, as this is a group decision that has been reached via discussions, pondering and the support of the performance measurement system (if applicable). The impact field presented in Table 5.6 represents a typical case where the performance of business critical performance criteria, such as the lead time, delivery certainty and variable costs, are known to some degree even on the sub-process level. However, the parameters affecting strongly these issues, such as the problems causing delays or unproductive time are not measured or known at the sub-process level. Table 5.7 presents the supplements of the impact field presented in Table 5.6. Smaller companies and processes tend to have a considerably better reliability level than larger ones as seen in Table 5.8. One reason for this is that in larger settings it is in most cases not possible for an individual to master or have detailed insights of 25 The values are percentage points. The values in the brackets are the initial values allocated that have been changed according to the verification (substance quality control) conducted in Phase 3. 26 The reliability score was not zero because the key persons possessed an extensive practical understanding of the critical parts of the process.
5.4 Phase 2: Data Collection and Basic Definitions Table 5.6 The impact field of the example in Figure 5.6 manufacturing core process with 150 employees) Parameter P1 P2 P3.1 P3.2 P3.3 P3.4 Lead time (%) 30 0 5 0 5 20 Delivery certainty (“the 20 0 10 0 0 25 problems causing delays”) (%) Unproductive time (%) 20 0 15 0 5 20 Quality defects (%) 30 5 10 0 0 20 Variable costs (%) 20 0 20 0 5 15
125 (precision plastic products, the tool P3.5 P3.6 P3.7 P3.8 P4 P5 P6 0 3 20 7 0 10 0 0 5 20 10 5 5 0
0 0 5
0 5 5
30 20 10
Table 5.7 The supplements to the impact field in Table 5.6 Parameter Value Lead time 10 weeks Delivery certainty (“the problems causing delays”) Delivery certainty 78% Unproductive time ? Quality defects ? Variable costs MEUR 7,2 Reliability Index: 27% Tacit knowledge: 73% (quality level: medium)
0 5 5
0 0 5
10 0 5 0 10 0
Reliability (%) 30 20 20 20 40
the whole process, whereas this is more or less the norm in smaller companies. The IT or ERP system cannot usually compensate this deficit. In addition, the informal coffee break discussions in smaller companies promote the informal information flow and learning. In larger companies, it may even be so that Phase 1 of the process analysis and synthesis is the first occasion where people meet face-to-face. The temptation to base the analysis on what data and information are readily available, instead of what is actually needed, is an imminent pitfall that is easily avoided. The percentage point allocation, the techniques used to do the allocation, the utilization of the best or at least a sufficient (tacit) knowledge base to conduct the allocation, and the attainment of a widespread consensus of the correctness of the allocations, assure that the VISTALIZER1 for Process Analysis and Synthesis approach is up to the task even in demanding settings.
5.4.3
Giving Priority to the Analysis Parameters (Phase 2.3)
The main task of assigning priority to the analysis parameters is that it coordinates the improvement efforts. The relative importance of the analysis parameters is defined based on the allocation of 100 percentage points between the analysis parameters. This offers an attractive way to earmark such improvement objects that have the best leverage and effect on a specific analysis parameter. As a result, such an improvement object receives more weight in the synthesis phase and is therefore more likely to be implemented. Criterion 3, which we will consider more thoroughly in Phase 4, communicates this explicitly.
50 25 50
Reliability (%) 50
28
Heating, ventilating, and air conditioning. The values are percentage points. The values in the brackets are the initial values allocated that have been changed according to the substance quality control conducted in Phase 3.
27
Table 5.8 The impact field of the example in Figure 5.6 (HVAC27 equipment manufacturer, the export process with nine employees)28 Parameter P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 Value Lead time 20 7 8 7 2 5 10 16 10 15 6–12 months (calendar time) Working time 9(11) 6(8) 9 5 9 5 4(8) 19(15) 12(10) 22(20) 9 person years Quality defects 18(20) 10 5 3 5 7 7(10) 18(15) 9(7) 18 ? Variable costs 7 5 5 5 14(13) 4(5) 10 30 10 10 2 MEUR (0.6 MEUR marketing budget) Reliability index: 46% Tacit knowledge: 54% (quality level: high)
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Table 5.9 An example of the relative importance of the analysis parameters (mechanical engineering industry, the technical support process with 450 employees) Priority Parameter Priority Parameter Priority (external (management)29 (customers) (internal customers) (%) customers) (%) Response time 30% (40%) Response time 39 36 Total delivery time 20% (27%) Unproductive time 15% Total delivery time 29 41 Quality defects 25% (33%) Operations costs 10% Quality defects 32 23 The customer input presented in the table is received in Phase 3.3
To give priority to the analysis parameters both the voice of the customer and the voice of the management (the process owner) are considered. The customers’ comprehension of the relative importance of the related parameters provides support for the management when deciding the relative importance of the analysis parameters. The management is free to make any allocation despite the voice of the customers. This distinction is important because the customers do not manage the company. It is the duty of the management to make an appropriate judgment regarding important success factors, now and in the future. It is worth noticing that the customer satisfaction inquiry is optional. In some cases, it is not possible or even worthwhile conducting one. Phase 3.3 collects formally this input. The process owner (management) then makes his or her own judgments in the light of this information. As seen in the Table 5.9, it is also possible to conduct an internal customer satisfaction inquiry, if such information is relevant. The use of a customer satisfaction inquiry may reveal interesting aspects relating to the importance of different analysis criteria. Consider the case below (Pastinen 1998). The Managing Director of the small manufacturing company emphasized the importance of being cost effective (60%). Hence, the cost parameter received much attention whereas the quality (20%) and time factors (20%) received considerably less attention. However, the customers stressed the parameters in a different way (time 30%, quality 50% and price [costs] 20%). This was because the Managing Director negotiated the deals with the customers. When negotiating, everyone expected the product to be 100% defect free and that it would be delivered on time.30 Consequently, the only object of discussion was the price. The MD concluded that this was a main issue because the customers always demanded lower prices, not better products or deliveries that are more accurate. However, the customers were highly satisfied with the cost effectiveness of the company, but less
29
The value in brackets communicates the share, if the unproductive time and operations costs are cleared from the allocation. In so doing, it is possible to conduct a like-for-like comparison with the allocation made by the customers. 30 Of course, the Managing Director would not say that for your money “you get a defective product and it is only delivered on occasion.”
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satisfied with the delivery certainty and the quality of the output. In fact, the company had the lowest prices, but only mediocre quality and delivery certainty. This caused difficulties on the part of the customers because their quality level and delivery certainty sank due to defective products and uncertain deliveries. After considering the voice of the customers, the MD reconsidered his statements and adjusted the weighing to be more in accordance with the customers’ assumptions.
5.4.4
Calculation of Criterion 1 and the Reliability Index of the Impact Field (Phase 2.4)
Criterion 1 tells which sub-process contains most likely the greatest improvement potential. It does not indicate which sub-process to focus on, but provides insight into which it could be. The reliability index of the impact field, on the other hand, indicates how big a share of the percentage points relating the impact field is derived quantitatively based on measured information. Figure 5.13 describes how to calculate Criterion 1. The calculation, the logic of which resembles that used by the QFD approach, is a simple cross-calculation between the analysis parameters and the relative importance of the parameters. There is, however, a fundamental difference compared with the QFD approach. The QFD approach uses points, not percentages, which makes it much harder to give priorities in a true sense to the aspects of choice. The logic of the QFD approach makes it possible in theory and practice to assign the highest or lowest value to all considered aspects. Changing the score from 9 points to 3 points does not affect the interdependencies of other issues at all. Changing a value from 30% to 20% results in ten percentage points that have to be allocated somewhere else.
Fig. 5.13 The calculation of Criterion 1
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Criterion 1 16 % 14 % 12 % 10 % 8% 6% 4% 2% 0% P1.1.1 P1.1.2 P1.1.3 P1.2.1 P1.2.2 P1.2.3
P1.3
P2.1.1 P2.1.2 P2.1.3 P2.2.1 P2.2.2 P2.2.3
P2.3
Fig. 5.14 The Criterion 1 value of the example presented in Fig. 5.5 and Tables 5.4 and 5.5 (mechanical engineering industry, the technical support process with 450 employees)
In the example of Fig. 5.13, the Phase P3 has the greatest influence on the performance of the company in terms of the chosen analysis parameters. This, however, does not imply that this sub-process is the one that requires most attention. Criterion 1 does not recognize the factual improvement potential, which is the key to focusing the improvement efforts. This improvement potential is identified in the third phase of the analysis and synthesis. Figure 5.14 presents an example of Criterion 1. Criterion 1 provides a useful help when the expert or consultant is planning for Day 2 (Phases 3.1 and 3.2). The result is already available in the Support Module that is placed between Phase 2.2 and Phase 2.3. This means that it is possible to evaluate likely time consumptions of the different phases and align resources accordingly. Figure 5.14 shows that P1.2.3 and P1.3 will not likely consume more than 30 min whereas the three “tops” P1.1.1–P1.1.3, P2.1.1–P2.1.3 and P2.2.1–P2.2.3 require much time (2.5–3 h for each top of three sub-processes). This suggests also that due to the length of the focus process it will probably take 1.5 day to conduct Phase 3, not 1 day. Usually this information is available for the first time at this point. In such a case, it is usually possible to allocate the additional time need of half a day on Day 1 after finalizing Phase 2. Such a reserve should always be planned for because it provides the necessary flexibility to complete the Phases 1.1–3.2 in 2 days. In order to calculate the reliability of the impact field two pieces of information are needed: l l
MI, RE, SE values (recall Sect. 5.4.2.1) The relative importance of the analysis parameters (Sect. 5.4.3/Phase 2.3).
These two pieces of information are then factored according to the principle shown in Table 5.10. For instance, the reliability index of the time parameter is calculated by multiplying the value of the reliability class (MI = 1) with the relative importance of the time parameter (30%). Consequently, the sum is 30%. The other parameters can be calculated in a similar fashion. All these sums are then
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Table 5.10 An example of the calculation of the reliability of the impact field Parameter Reliability class Value Reliability (%) Reliability index contribution Time MI 1 30 30% (1 * 30%) Quality SE 0 40 0% (0 * 40%) Money (Costs) RE 0.5 30 15% (0.5 * 30%) Reliability index: 45% Tacit knowledge level: 55% (high)
added together and this total number indicates the reliability of the whole impact field, referred to as the Reliability Index of the impact field. The level of the tacit knowledge is then 100% minus the reliability index classified in three categories (low, medium, high) to depict the rough quality level of that knowledge. Sometimes it may be motivated to highlight the high or low ends of the tacit knowledge level. In such a case, it is possible to add a “very low” or “very high” notation to the classification categories. The reliability index provides information regarding the nature of the impact field. If the reliability index is zero, all percentage points of the impact field are fully based on pure evaluations and consequently they may not depict the actual situation, especially if the tacit knowledge level is low. Evaluations based on a profound empirical experience score reasonably low in terms of the reliability index, but high in terms of the tacit knowledge level. A low reliability index score in combination with a low tacit knowledge quality level indicates that there is no supporting performance measurement system in place, and that the key persons are not familiar with the focus process due to, for example, recent organizational changes prior to the analysis. The analysis is functioning perfectly well, even if the reliability index is zero, but the results are likely to be biased to some extent, especially if the quality level of the tacit knowledge is low. A situation where both scores are on a low level is, however, rare and indicates more likely a complete failure in selecting the right persons to attend the data collection phase. A missing or malfunctioning performance measurement system should therefore be compensated with experienced persons that would raise the tacit knowledge to a high quality level. The reliability index may be low and the tacit knowledge level low in the special case when the analysis and synthesis approach is used in future time, i.e. as a planning tool for designing a non-existent process. On many occasions when the analysis is done for the first time, the reliability index is low. However, after one year there may already be a performance measurement system in place, which increases the reliability index. Once again, it is worthwhile noticing that the reliability index is not the same as usability of the collected data. The reliability index only communicates the nature of the impact field allocation.
5.4.5
Planning for the External Analysis (Phase 2.5)
The optional external analysis takes the shape of a customer satisfaction inquiry that is in practical terms conducted in Phase 3.3, if it is decided that such an inquiry
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would provide added-value. The inquiry provides a possibility to consider the voice of the customers as an input to the synthesis phase. The customer input is not disclosed to the management before the management has made its initial definitions and allocations. The customer input must not bias the data collection and analysis, as all issues are considered from a total perspective in the synthesis phase. If this would be the case, then the synthesis phase could be selfbiased because some representatives belonging to the stakeholder group “customers” have potentially influenced one other stakeholder that should represent the owners. This could in principle result in a synthesis that is biased towards satisfying the customers on the expense of the owners. This will eventually lead to a negative spin for all stakeholders. If there are concerns that the customers and the management are going in different directions, then this issue will be sorted out in Phase 4.1. The output of the inquiry provides a rough understanding of the position of the process with respect to the absolute and relative performance of the process. The absolute performance of the process means that the customers evaluate how well the process is performing in terms of the analysis parameters (or their derivatives). The relative performance, on the other hand, tells where the process stands compared with the corresponding processes of the competitors. It is possible for the process (company) to be better than the competitors (relative performance good), but the customers may require even better performance (absolute performance worse than the relative performance) in order to be delighted (or more satisfied). Conversely, the process (company) may perform “well” (absolute performance good), but the competitors are performing at the same time “very well” or even “excellently” (relative performance of the own process is bad). This kind of information gives valuable information considering the direction of the customer requirements. The inquiry contains also an open-ended question, which may provide the expert or consultant with information regarding the quality of the client company’s processes and output (products and services). The questions asked in the inquiry should be carefully considered in advance. In general, the customers are not interested in what the variable and fixed costs of the process or company are. They are interested in the price of the product or service. This means that the questions are adapted to the customer’s point of view. The customer satisfaction inquiry is basically based on two questions the latter of which is divided into three sub-questions: 1. One open-ended (qualitative) question concerning the customer’s opinion about the focus process and its output. 2. Three numeric (quantitative) questions: (a) The issues the customer would like the company to focus on or pay attention to regarding the focus process. This is communicated by sharing 100% between the defined customer critical parameters related to time, quality and price (costs). These are not necessarily exactly same as those chosen before (Phase 2.1) and used when modeling the impact field in Phase 2.2. (b) Performance evaluation of the focus process regarding the customer critical parameters using the scale: 0 (poor), 1 (passable), 2 (satisfactory), 3 (good), 4 (very good) or 5 (excellent).
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(c) Gathering experience how other companies or the industry sector in general performs regarding the considered process and the related critical customer parameters defined in (2a) and providing a comparable output delivered by the focus process. The customer’s opinions are communicated by the same grade used in (2b). The statements are translated into operative terms, which can be utilized in the analysis and synthesis phases. Finally, a summary of the results is made to depict the opinion of the customers. A normal and sufficient response rate ranges from 30 to 60% delivered within one week. The extent of the inquiry is one page (A4) including the questions, the space for the answers and return information. The general constraints of this type of customer satisfaction inquiry should be understood so that the correct conclusions can be drawn. Potential pitfalls include, for instance, the completeness of the responses (low or one-sided response rate), imperfections related to the interviewee (wrong person, inadequate understanding and motivation), historical burdens not related to the focus process but some other process related to the company, and the specific situation when the inquiry is being answered (haste, stress) and expectations. The customers are so used to bad performance in some industries that the general expectation levels are too low to provide any substantial momentum that could be useful when improving the focus process. In such a setting, a satisfactory performance may be deemed far better than it rightfully should. This may potentially bias the thinking of the management and prevent the company from realizing its true potential. Even if the obstacles discussed above are overcome, it may still be hard for the customers to make an appropriate judgment because of lack of information and understanding. The inquiry itself can also be cumbersome. The inquiry has to be reasonably plain and short (one page). It has to focus on a vital few questions the answers of which would be useful when improving the focus process. Customers are often interested in the output of the focus process, how fast, easily and timely the output can be delivered and what is the price/quality ratio. The perceived experience or the quality of the sub-processes delivering the final output may be critical in the service sector. Such process internal parameters are in product businesses usually more or less unusable or irrelevant. For instance, a defect-free product may be the result of a thorough final inspection, where many defects are detected and many products discarded. From the customers’ point of view, the quality may be satisfying, even excellent. However, this approach influences inevitably the price of the product and perhaps even the delivery time. Hence, the quality parameter gets little attention whereas the price and time aspects receive lots of attention. In a similar way, the defect rate of the company may be zero, but the processes are not streamlined. Hence, there may be unnecessary steps that consume time and money. The questions directed to the customer should therefore be carefully chosen to fit the needs of the analysis phase. The temptation may be great at this stage to utilize previously conducted customer satisfaction surveys. This is not advisable, as there is seldom a sufficient match between what is readily available and what is actually needed.
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The customers’ voice should provide guidance, but it should not be decisive. The customer sample does not have to be exhaustive. In many cases, a few key customers will suffice to provide the needed information. How large this number would be is a case specific question. In a business-to-business setting, the magnitude is counted in tens of customers rather than hundreds or even thousands. Some companies have only five to ten customers, sometimes even less. Companies operating in the consumer market have naturally a much larger end-customer base. Some of these companies deliver the produced physical output to a more limited number of wholesale businesses that may form the focus group for the inquiry in addition to or instead of a sample group of end-customers. Attention should be paid to the customer satisfaction inquiry approaches used to collect the data successfully. The data should preferably be collected by telephone, if the sample is small. In so doing, it is possible to dig deeper into the concerns of the customers. However, it may be hard to get in contact with the interviewee (vacations, illness, meetings, business trip, etc.), so the inquiry has to be done using e-mail (the default solution) or some other appropriate means of communication. This is also the case when the sample is larger or global because interviewing hundreds or even tens of persons (in different time zones) will consume scarce resources the output of which may not be attractive enough to verify the effort. Choosing not to conduct the customer satisfaction inquiry is not that big a deal, as the VISTALIZER1 for Process Analysis and Synthesis method will anyway consider the satisfaction of customers by identifying the best overall objects of time, quality and cost improvement. The related consideration logic utilizes the concepts and the substance presented briefly in Sect. 2.2.2.1.
5.4.6
Setting the Objectives and Evaluation of the Preliminary Monetary Gains (Phase 2.6)
The final part of the second phase considers the setting of the objectives with respect to the analysis parameters, and the evaluation of the related monetary gains, if the objectives are reached. Usually the period considered is 12 months from the implementation start. These gains are cleared from interplay to avoid having unjustified gains. The parameter specific objectives relate to the whole focus process and are set by the process owner (management). To set the objectives the process owner may consider financial business needs and forthcoming performance needs. The financial outcome should be based on the two fundamental ways of making more profits: selling more (higher volume or/and higher prices) and using less money in a total perspective. Even sustaining the current market position requires substantial improvement efforts in many businesses. These two basic ways of making more money result in different incarnations explaining the reasons for increasing the profits. These include issues related to, for example, increased customer and
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employee satisfaction, a more cost-effective process (lower quality costs) and a more attractive brand (attracting customers, high-class personnel and investors). It is also possible to distinguish process internal and external gains. This may be attractive especially when improving a support process the effect of which is to some extent realized in the support process, but largely in another process. Allocating the total costs to the support process without the proper allocation of the related process external gains would produce unjustified financial figures in Phase 4.2 when calculating the net present value of the initiatives. Phase 2.6 provides the process analysis and synthesis with three mission critical issues: Management commitment The link between the process performance improvement and the financial outcome An indication of what kind of improvement efforts are preferred (re-engineering and/or kaizen).
l l
l
Transferring the process improvement objectives into financial gains has a great positive impact on the management commitment, as at this point the management will understand at the latest the power of the approach although some signs may show already in Phases 2.1 and 2.2. Money talk is a universal language that all executives understand despite culture, business or geographical location. The link between the process performance improvement and the financial outcome is needed when the actual improvement potentials are analyzed in the different sub-processes of the focus process (Day 2). Without this link, it would not be possible to evaluate the financial outcome of the sub-process specific improvement objects and related improvement efforts, as the persons needed in Phase 3 are not capable or in the position to make such an evaluation. This problem is overcome by identifying the parameter specific improvement potential and linking this potential to the basis defined by the management (process owner). As a result, the financial outcome presented in the VISTALIZER1 Report has a high-level of credibility, as the outcome is actually based on the definitions made by the management and the operative key persons. The difference in opinions between the management and the operative key persons can furthermore be quantified from both a performance and financial perspective.31 If there are incongruities between these values, then these issues will be sorted out in Phase 4.1 before the actual synthesis. The objectives set by the management indicate also what kinds of process improvement efforts are sought-after or preferred. The VISTALIZER1 for Process Analysis and Synthesis method considers both re-engineering (radical) and kaizen (incremental) type of improvements regardless of the ambition level of the focus process, the improvement efforts or the produced output. Relatively modest objectives will turn the consideration towards kaizen type of improvement efforts with The last section in Chap. 3 of the VISTALIZER1 Report presents this issue.
31
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135
likely less investments needs, but a potentially lower level of improvement potential and risk. Relatively ambitious objectives turn the analysis logic of Phase 3 towards more fundamental changes with potentially higher investment needs and risks. The management should not set the objectives too low so that an increase of the working pace would be enough to reach the objective. This will reduce the challenge of adopting new ways of thinking and new approaches of doing the work. The result of doing the work in the same way, only faster, will lead inevitably in the long run to frustration and a decreased employee satisfaction. On the other hand, the management must not set the objectives too high. This will reduce employee motivation because they may feel that there is no way of reaching such high objectives. Unless radical change is sought, the best way to proceed in this respect is to use intermediate targets, which are set on an annual basis. New targets are set when the company has reached the higher objectives. The cumulative effect of such an approach may result in impressive improvements on a, for example, 3-year basis. In Phase 2.6 of the VISTALIZER1 for Process Analysis and Synthesis approach, the signs of the objectives should represent improvements. A cut in time or costs will result in a negative sign. The quality parameter, on the other hand, may be represented in theory with a positive or a negative sign depending on the meaning of the analysis parameter. The quality parameter is usually defined as “quality defects” resulting in a minus sign if improved. If the chosen quality parameter represents score points relating to a standardized customer or employee satisfaction survey, then the sign would be positive (for example, the overall score up 20%). Based on the increased cash flow (increased gross and net margin), it is possible to calculate the present value of the cash flow. The present value is the discounted value of future cash flows.32 After all, a dollar today is worth more than a dollar tomorrow. This is the first basic principle of finance (Brealey and Myers 1988). The expected payoffs are discounted by the rate of return offered by comparable investment alternatives to calculate the present value. This rate of return is often referred to as the discount rate, hurdle rate or opportunity cost of capital. It is called opportunity cost because it is the return foregone by investing in a project or an improvement initiative rather than investing in securities. The second basic principle of finance says that a safe dollar is worth more than a risky one (Brealey and Myers 1988). Most investors avoid risk when they can do so without sacrificing return. However, the concepts of present value and the opportunity cost of capital still make sense for risky investments. It is still proper to discount the payoff by the rate of return offered by a comparable investment. In that case, one has to think of expected payoffs and the expected rates of return on other investments. According to Brealey and Myers, managers do not need to know anything about the personal likes or dislikes of their shareholders, nor should they involve their
32
The time period considered is usually 3 years although other time frames are naturally also possible.
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Table 5.11 The objectives and the estimation of the related monetary gains regarding the example presented in Figure 5.5 and Table 5.4 (mechanical engineering industry, the technical support process with 450 employees) Parameter Objective Value Follow-up performance (12 months) (%) (12 months) ( ) measurement criteria Response time 50 4,500,000 Fulfillment degrees of proposed and Total delivery time 10 9,000,000 confirmed actions to improve Unproductive time 15 8,000,000 the analysis parameters Quality defects 20 1,000,000 Operations costs 0 0 Discount rate: 8% 22,500,000 Time period: 3 years
own (Brealey and Myers 1988). Their task is to maximize net present value (the present value minus required investments). Management must be able to analyze a decision from the shareholder’s point of view, if it is to strike a proper balance between their interests and those of customers, employees and society at large. The net present value calculation tells them how much a particular decision helps or hinders stockholders’ or the owners’ interests. The reasons for the increased cash flow should be clearly stated to provide an empirical basis for the cash flow. In addition, appropriate performance measures should be selected to track the success of the improvement efforts as seen in the example presented in Table 5.11. This provides a cause-and-effect chain to the chosen process performance or analysis parameters (time, quality and costs) and the financial gain. The monetary values of the improvements in Table 5.11 are the estimated yearly values of the increased performance level. The gains are thus based on both being more attractive to the market (possibility to get new customers, keeping the old customers, getting the customers to buy more) and being internally more effective and efficient. The financial gain does not include possible investments, as these are yet to be considered in Phases 3 and 4. The management definitions made regarding the case presented in Fig. 5.6 and Tables 5.6 and 5.7 are shown in Table 5.12. A cut of 25% regarding the variable costs equals 1,800,000 , but as the parameters have to be cleared from interplay, the management decided to allocate directly only 300,000 (Table 5.12). The total gain equals 1,220,000 and this is the figure the management is confident with. The essence is to base the financial calculations on such figures the management feels comfortable with. The synthesis will otherwise suffer, as the management will not simply believe in the total net present value of the specified time period. This tends to decrease the communicated financial gain somewhat, but the credibility gain in the eyes of the management more than pays off for this. After all, this dilemma is a happy problem. The management definitions made regarding the case presented in Fig. 5.7 and Table 5.8 are shown in Table 5.13. The follow-up performance measurement criteria are traditionally the same as the analysis parameters that are subject to improvements (cp. the example in Table 5.12). This approach is in many cases not advisable due to two critical issues:
5.4 Phase 2: Data Collection and Basic Definitions
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Table 5.12 The objectives and the estimation of the related monetary gains regarding the example presented in Figure 5.6 and Table 5.6 (precision plastic products, the tool manufacturing core process with 150 employees) Parameter Objective Value Follow-up performance (12 months) (%) (12 months) ( ) measurement criteria Lead time 50 500,000 Lead time 77.3 (the delivery certainty 170,000 Delivery certainty (from Delivery certainty the previous year was the ERP system) (“the problems 78% ! next year it causing delays”) should be 95%) Unproductive time 80 200,000 To be defined later (the measurement logic and method have to be defined) Quality defects 50 50,000 To be defined later (the measurement logic and method have to be defined) Variable costs 25 300,000 Variable costs (from the books) Discount rate: 10% 1,220,000 Time period: 3 years
Table 5.13 The objectives and the estimation of the related monetary gains regarding the example presented in Figure 5.7 and Table 5.8 (HVAC33 equipment manufacturer, the export process with nine employees) Parameter Objective Value Follow-up performance (12 months) (%) (12 months) ( ) measurement criteria Lead time 20 100,000 Fulfillment degrees of proposed and (calendar time) confirmed actions to improve Working time 20 50,000 the analysis parameters Quality defects 50 50,000 Variable costs 10 200,000 Discount rate: 5.0% 400,000 Time period: 3 years
Such parameters relate in this connection to effects It may take time and a lot of resources to realize an appropriate performance measurement system that would provide the requested information, especially if the reliability index is low.
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A better alternative is to utilize the fulfillment degrees of proposed and confirmed improvement actions as the primary follow-up performance measurement criteria. The benefit from this approach is that the criteria used relate to causes providing thus a better and often faster picture of how the improvement efforts are progressing. This fulfillment degree is easily defined, if the improvement efforts are
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Heating, ventilating, and air conditioning.
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5 Process Analysis and Synthesis
implemented using the PDCA logic. In this framework, the proposed and confirmed improvement object is usually an effect the causes of which are analyzed in more detail in the Plan phase of said logic using, for example, th
