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The 5 Master Steps to Business Excellence – For Sustainable, Profitable Growth!

WHY BOTHER?

Business Excellence simply means being the best you can possibly be as an organization. The intent of this article is to outline what is involved if your organization decides to undertake this never-ending journey. When implemented properly, business excellence yields immense benefits to private, public and not-for-profit organisations.

However, let me issue a warning here… as a result of running my own businesses plus facilitating or advising on practical implementations for approximately 1,000 other businesses over the past 35 years, I have found that the traditional recommended implementation approaches are just not practical enough for Small to Medium Enterprises (SMEs). This overview is therefore written for any SME aspiring to excellence and is built on 3 foundations: Simplify; Integrate; Sequence.

THE 5 MASTER STEPS – Overview

Not surprisingly after some 60 years of application and testing, there is now a high degree of alignment between the nationally advocated frameworks for business excellence from around the world. But there are 3 major problems for an SME when trying to implement any one of these frameworks:

  1. Typically having 7-9 criteria for success, these frameworks are proving too complex for people to remember off by heart.
  2. There is no recommended sequence for addressing all the criteria over time.
  3. The recommended approach is to begin with a comprehensive review of the organisation’s current performance against each of the 7-9 criteria and then to address the highest priority areas for improvement – but this takes significant time and money and doesn’t involve all the employees.

We have found that a simplified framework is essential to integrate all the implementation activities. This framework is consistent with the internationally recognized frameworks but has only 5 Master Steps (instead of 7-9 evaluation criteria). We have also found that these 5 Master Steps should be implemented in a logical sequence. With Customer Focus as the overriding driver, the 5 Master Steps (all of which are prerequisites for Business Excellence) are:

  1. Shared Strategic Direction
  2. Process Design & Imnprovement
  3. Performance Measurement & Feedback
  4. Knowledge Capture & Leverage
  5. Leadership & Management of Change

1: Shared Strategic Direction

With customer focus as the all-pervasive fundamental driver, the first prerequisite for business excellence is a Shared Strategic Direction – effectively enabling every individual in the organisation to ‘pull the rope in the same direction’. The essence of strategy is to move everyone from where we are now to where we wish to be at some future point in time.

The evidence of great strategy is a clear and consistent pattern of decisions actually made by the organization as a whole!

2: Process Design & Improvement

Since all work is done through processes, it follows that Process Design & Improvement must be the second prerequisite for business excellence. In other words, Process Design & Improvement is HOW we will achieve our Shared Strategic Direction.

This Master Step usually yields the greatest net benefits for the organisation!

3: Performance Measurement & Feedback

As time goes by, of course we will want to know whether we are achieving our Shared Strategic Direction and whether our key processes which will get us there are healthy! Hence the next prerequisite for business excellence must be Performance Measurement & Feedback.

It works best when we measure Key Performance Indicators (KPIs) for a) achievement of our agreed Strategic objectives and b) for the health of our Key Processes that together make up ‘Operations’. Best practice is to limit the resultant number of KPIs to only those that are considered to be essential. This minimizes the effort required to keep them up to date and to present the information to those accountable.

4: Knowledge Capture & Leverage

Knowledge Capture & Leverage has become increasingly important over the past 40 years as organisational assets continue to become more knowledge-based and less finance-based. There are 3 compelling reasons why an SME needs to harvest its knowledge efficiently:

  1. Dramatic technological change (Internet; email etc) has enabled competitors to capture and leverage their knowledge with increasing ease.
  2. Globalisation demands that we keep on top of industry developments in order to remain competitive.
  3. Mobile Workforce - employees tend to take their knowledge with them when they leave unless we do something about it.

5: Process Design & Improvement

Finally, Leadership & Management of Change is critical because transformation towards business excellence can occur only if all your people are keen and able to participate in the changes.

Let’s now further explore each of the Master Steps in the recommended implementation sequence…

MASTER STEP #1: SHARED STRATEGIC DIRECTION

The organisation’s Strategic Plan is predicated upon having an agreed high level (1-page) Process Model for the entire business of the organisation. If any of the organisation’s Key Business Processes are sufficiently ‘broken’ to warrant being ‘process reengineered’ (ie from the ground up!) during the planning period (typically 3 years), then the organisation must incorporate these reengineering priorities in the Strategic Plan. This is because reengineering projects are so fundamental that they are strategic in their nature and impact.

This can be achieved readily via the following simple planning methodology reflecting the four ‘perspectives’ of Kaplan and Norton’s ‘Balanced Scorecard’(1).

The Strategic Plan is developed from the top down using a 1-page graphical format – headed by the organisation’s long term, customer-oriented Vision statement.

The Finance Objective is first identified, consistent with the organisation’s Vision for the planning period.

The Customer Objective(s) come next since customers are the source of the organisation’s revenue that governs ‘Finance’ success. Customer Objectives usually address what Products / Services (new or existing) are destined for what Markets (existing or new).

The Process Objective comes next since the Key Business (value-adding) Processes deliver the organisation’s goods or services to its Customers. All that needs to be done here in this simplified approach for SMEs is to identify the agreed highest priority Key Business Processes that must be reengineered (from scratch) over the planning period. By reengineering only 1-2 such processes per annum, excessive change management challenges can be avoided, while at the same time ensuring that no Key Business Process is ever allowed to get more than about 7 years out of date. Best practice suggests that every Key Business Process should be reengineered once every 7 years for competitive advantage!

Finally, the People & Infrastructure Objectives are formulated to enable the organisation’s processes to be brilliant. People and infrastructure (eg IT infrastructure; factory or office accommodation) form the foundation of the Strategic Plan. This final ‘People & Infrastructure’ perspective can be used to address anything strategic which does not fall within one of the other three perspectives above it in the 1-page Strategic Plan.

There are several important features of this simple, direct approach to developing the organisation’s 1-page (graphical) Strategic Plan:

  1. The ‘Finance’ perspective is at the top because financial performance is the ultimate lag indicator for the organisation. If ‘Finance’ is not healthy, the organisation cannot invest properly in any of the other three perspectives.
  2. The arrows connecting the Objectives are pivotal to the logical ’cause and effect’ flow of the diagram – from the bottom (causes) to the top (effects). The lower layers of the diagram are thus prerequisites for the organisation to achieve the ‘Finance’ Objective(s) and hence the overall Vision.
  3. If the Strategic Plan is to be easy for all employees to memorise (to enable day-to-day decision-making!) and keep current via monthly monitoring and review, it should contain no more than 7 (total) Objectives.
  4. Every Objective should be about fundamental change – not about the status quo. For example, no Objective should begin with the words: “Continue to… “
  5. Every ‘layer’ should contain at least 1 Objective so that the overall Strategic Plan has no logical omissions. For example, a Strategic Plan with 5 ‘Finance’ Objectives but no Objectives in any of the other 3 layers cannot be implemented readily. Such a Strategic Plan would be na├»ve – akin to “an emperor without any clothes”.
  6. The ‘bullet points’ for the ‘Process’ layer simply reflect the top priority Level 1 process reengineering candidates from the organisation’s agreed 1-page Process Model! To avoid over-burdening the organisation, a maximum of 1-2 process reengineering projects should be planned and executed per annum for a 3-year planning period. Ideally, every Key Business Process should be reengineered every 7 years to prevent it getting out of date.
  7. Every Objective must be measurable via at least one (and preferably only one) KPI which should be monitored regularly to track progressive achievement of that Objective.
  8. For each Objective, typically 6-8 Actions should be formulated and scheduled to achieve that Objective in full by the end of the planning period. Individuals should be assigned to lead (ie project-manage) each Action and an Objective Manager should also be assigned to report regularly on overall progress of the Actions and on the respective ‘achievement’ KPI.
  9. For a large SME organisation, the same language and format should be used for ‘cascading’ the corporate Strategic Plan to all Divisions, Departments etc. This greatly simplifies the process of ensuring strategic alignment and getting employee buy-in to the overall shared strategic direction.

MASTER STEP #2: PROCESS DESIGN & IMPROVEMENT

Why is Process Design & Improvement such an important part of business excellence?

It all starts with a simple and comprehensive definition of a “process”… a sequence of activities that converts some form of input into some form of output for some customer (internal or external). Given this broad definition, it follows that all work is therefore done through processes.

Furthermore, it follows that every organisation doing work is already executing a vast range of processes.

An organisation’s current processes may be described in a variety of ways. For example, some processes may be well designed – others poorly designed. Some may be well documented, and others poorly documented. Still others may be totally ad-hoc, whereas others may be carefully orchestrated. The point is that if any organisation wishes to be excellent, then it must first agree on what are its most important processes. Next it must ensure that these key processes are designed properly and then improved in order to be as healthy as possible.

In summary, proactive Process Design & Improvement is a critical competency for any organisation aspiring to business excellence. An organisation can “get by” without proactive and professional Process Design & Improvement tools and techniques (most do!), but it will never be excellent.

None of the above can take place unless the organisation identifies its key processes as part of strategic planning and deployment (Master Step # 1). And it is here that we can learn from those around the world who have already been down this path. They have found that it is much easier if we separate the key processes that deliver products or services to external customers from those key processes that service the internal customers (ie our own employees).

They have also found it helps to have the resultant high level ‘process model’ of the organisation’s key repetitive processes depicted on a single page. Once we have agreed on our repetitive Key Business Processes and our repetitive Key Support Processes, it makes sense to allocate overall responsibility for maintaining the health of each to a designated (senior) Process Manager. That person will be vitally interested in setting and monitoring the KPIs which will validate the process health on an on-going basis.

Once the process health metrics are available, it is a simple matter for the Process Manager to decide if the process needs fundamental redesign or just process improvement off the current base. The Process Manager then sponsors the necessary Process Improvement project(s) as required to fix the key process.

The simple truth is that processes can be improved dramatically by the people who work within them. Indeed, a well-targeted process improvement program usually yields a much greater return on investment than any other type of investment.

The benefits are often huge (ie Benefit to Cost ratio > 10) because most targeted processes have tended to evolve in an ad-hoc manner over many years – without the benefit of any formal methodology for design or for process improvement. For years, people working in such processes have been working exclusively IN the system (of processes) and not ON the system (of processes). In effect, they have become victims of an intransigent ‘ad hoc’ work system in which the process outputs and outcomes exhibit rampant and random variation. In a modern world of rapidly changing customer requirements, this is no longer acceptable to any organisation intent on performing as well as it possibly can.

So, people can achieve remarkable things with respect to their processes – if only we give them the chance and the ‘on the job’ tools and training to do so. An organisation literally cannot afford to ignore this stuff because its best competitors will be doing it!

Let’s now take a look at how best to improve any repetitive process in the simplest and most direct way possible…

Process Improvement Methodology

Approximately 90 years ago, Walter Shewhart invented today’s most popular methodology for improving processes. This methodology continues to be the most efficient and effective one for process improvement teams around the globe. This methodology can be applied to any process that is repetitive. It is important to note that it should not be applied to any process that is non-repetitive (ie occurs only once – eg “Reorganise the business within the next 3 months”). In the latter cases, the ubiquitous Project Management methodology is the most appropriate one to use.

A huge handicap for the majority of OECD organisations is that they are not sufficiently aware of the power of the world standard Process Improvement methodology, and hence apply Project Management by default to every problem in the organisation – including those problems that relate to repetitive processes! The sad reality is that for the average employee, approximately 95% of their work involves repetitive processes, and so application of Project Management to solving these problems is grossly sub-optimal!

The big difference is that Project Management is a linear technique (involving Gantt / Bar Charts, precedences etc), whereas Process Improvement is a circular, iterative technique aimed at getting permanent process improvements with the minimum possible effort. The methodology involves simple, structured techniques to get quickly to the root causes of the process problems. The methodology also ensures that the root causes of the ‘disease’ of process variation are fixed permanently before the Process Improvement Team undertaking the project is disbanded.

In order to raise organisational performance over time in either small steps or big steps, metaphorically speaking we need two ingredients:

  1. A ‘Wheel of Progress’ capable of being pushed up the hill of business performance improvement (by the nominated Process Improvement Team) one notch at a time against the ‘gravity’ of resistance to change!
  2. A Wedge (properly referred to as “Quality Assurance” or QA for short) which constitutes everything the organisation must do to make absolutely certain that this newly-improved process will never again be done the old way. In other words, the Wheel of Progress will never be allowed to roll back down the hill. Note: This means that QA must include the minimum necessary documentation, training, measurement, celebration. Any more than the minimum necessary would of course add waste to the new process. The team must not disband until it has arranged all the necessary QA, encompassing Documentation; Training; Measurement; Celebration.

Clearly, ‘Wheel without Wedge’ is a sub-optimal way to go, as is ‘Wedge without Wheel’. Unfortunately, many western countries have far too many organisations at both ends of this spectrum. Only the few (< 4%) best performing organisations have the Wheel and Wedge working in total harmony – and understand their mutual dependency. Colloquially put, the idea behind Process Design & Improvement is to “Go up a notch – and whack the wedge in to sustain the improvement”! In this context, participating in QA for ‘their’ processes is everybody’s job (including a CEO) and cannot be delegated to some central person “responsible for QA”.

So, if we are clear on QA and its purpose, what then is a “Quality Management System” (QMS)? A Quality Management System is the term used to describe the aggregated QA effort across all the organisation’s processes! It makes sense to have some degree of standardisation in the way QA is done by each individual process improvement team or work group. It is for this reason that the world’s Standards Associations entered the arena decades ago to suggest how a QMS might best be developed. For example, in Australia and New Zealand, the latest version of the QMS standard is known as AS/NZS ISO 9001:2008. Like most of these standards world-wide, it focuses more on the standardised documentation aspects of QA rather than on the equally important training, measurement and celebration aspects.

The Wheel of Progress (PDCA Cycle) has 4 quadrants and is based on common sense. That is the reason why it is so successful and widespread. It goes like this:

  1. If you want to design or improve a process, you need to Plan it!
  2. Then you need to Do it – ie execute the Plan – but as an experiment, not full scale – because your Plan might be deficient in some way.
  3. Next, you need to Check (by measuring ‘before’ versus ‘after’ the experiment) to see if the experiment was successful.
  4. Finally, if the Check proves to be positive, you make a note to Act to ‘wedge’ the variable(s) you changed in the experiment. Then you may go again to the Plan quadrant of the PDCA Cycle in order to make further improvements (if considered necessary). On the other hand, if the experiment fails, you bypass the Act quadrant altogether (apart from capturing any learnings) and begin the next cycle in the Plan quadrant.

The idea is to go round this PDCA cycle one or more times until you have made some major improvements to the target process. Then when you think you have gone far enough (or the available time has run out), you finish the Project by ‘wedging’ all the improvements you noted along the way. In practice, going round the PDCA cycle once only is sufficient to improve the process significantly!

Developing the Plan is best done by a full-time team of the process participants. After all, can we afford to have a critical process remain broken while we undertake an extended part-time planning effort? Orchestration of part-time team planning efforts also sends the wrong message to employees about how important process design and improvement efforts really are to the organisation’s well-being.

Facilitation skills (preferably available in-house) are also necessary to help each team stay focused on the task and also to help with team dynamics.

These PDCA + QA techniques are so simple that everyone at any level of the organisation can participate – even a CEO.

The pivotal role of technology in process improvement demands that a technology scan be undertaken by the team at an early stage during the Plan quadrant. While business needs normally drive the application of information technology, knowledge of the current state of the art of information technology can also enable a team to find exciting new ways of improving the target process!

As the Project Sponsor, it is the Process Manager’s responsibility to ensure that an appropriate Project Brief is prepared for each Process Improvement Project. Time spent in clarifying the Project Brief is well spent because it helps the team avoid wasting any of their precious time. By following the PDCA Cycle, the team can also begin its work immediately (not so if they were to attempt to use the sub-optimal Project Management methodology!).

This raises the obvious question of what process performance targets should be set in the Project Brief for the improvement? Perhaps surprisingly, the answer is not always “cost reduction!”

Cycle Time Reduction – the main target for process improvement!

Reducing cycle time is the key to what the world refers to as Lean Thinking – pioneered by Toyota in its pursuit of business excellence. Cycle time is always measured in calendar time (not work time) because calendar time is what the external customer cares about! The customer is not interested in how many shifts we work or whether we have rostered days off!

The world’s manufacturers have long since recognised that cycle time is of the essence in manufacturing (hence “Just-In-Time” or JIT programs!). The world’s leading service sector organisations have also recognised that the same is true of their endeavours. After all, some 60-85% of service sector business costs are in employee salaries, and the only ‘currency’ for all these employees is the time they make available to the organisation to execute its processes!

The advantages in targeting process cycle time as the prime variable to get under control become evident once we realise that the penalties of poor processes are wasted time of one form or another! If we are to apply our time at work to maximum effect, ie creating value for our external customers, we need to minimise the cycle times of all our key processes!

A separate discussion paper entitled “Cost Time Profiling” (available on request) presents a method for quantifying the combined time and cost impacts of process improvements in a service organisation. As they say in the classics: “Time is Money!”

As a result of thousands of Cost Time Profiling projects conducted and documented by the Westinghouse corporation over the past 50 years, we now know that in a service organisation if we can reduce the cycle time by 50% on average (readily achievable!), the costs automatically reduce by some 10-15% on average. The employees will have fun doing so, provided of course that they are not laid off as a result of their efforts. This is a far better way to reduce costs than by cutting the budget or head count by 10-15% (which does zip for process capability)!

So, with cycle time reduction as the prime target of Process Design & Improvement efforts, the customer wins (they get the right goods or services quicker) and the organisation wins (it does it cheaper) and the employees win (because they have fun making the improvements and they no longer have to live with poor, outdated processes). Everybody wins!

It should be noted that cycle time is drastically affected by organisation structure. The ideal structure has each senior executive / manager directly responsible for all the people necessary to execute one or more agreed Key Processes ‘from end to end’. Naturally, this cannot be done unless there is senior team prior agreement as to what are the Key Processes of the business. An excessive number of vertical reporting layers in the structure will also have a dramatic adverse impact on overall cycle time for the end customer. This is the main reason why world class organisations tend to be very ‘flat’.

MASTER STEP #3: PERFORMANCE MEASUREMENT & FEEDBACK

There is a familiar old saying that: “You get what you measure”. In pursuing business excellence, we need to measure only two categories of performance:

  1. How well we are changing the business (via our Strategic Plan)
  2. How well we are running the business (via all our Key Processes)

As part of Master Step #1, you will already have specified at least one (and preferably only one) Key Performance Indicator (KPI) for each of your 7 or less Strategic Objectives. Also as part of Master Step #1, you will have specified at least one (and preferably only one) KPI to measure the ongoing health of each Key Business Process and each Key Support Process of your organisation’s 1-page Process Model.

No other KPIs are necessary! Performance against these KPIs must be updated each month and reported in a highly visible (graphical!) format to those accountable. These days, you should have an easy-to- use software-driven Executive Information System (EIS) fed by your Objective Owners and your Process Managers and capable of updating and presenting these KPI data every month.

MASTER STEP #4: KNOWLEDGE CAPTURE & LEVERAGE

Since all work is done through processes, it follows that the knowledge that needs to be captured and leveraged across the organisation must be related to processes. This realisation enables clear priorities to be set for an organisation’s knowledge management initiatives.

The first cut involves determining which of the Key Processes in your process model require knowledge to be captured and shared the most in order to outperform the competition, or to ‘do more with less’. Having prioritized the Key Processes in this manner, you can then dig inside each one and identify exactly where and what knowledge capture and sharing is most critical. These are the initiatives to work on first.

Today’s graphic support tools (eg SmartDraw) readily enable knowledge flows to be linked directly to process flows.

MASTER STEP #5: LEADERSHIP & MANAGEMENT OF CHANGE

By the time you get to this final Master Step #5, your people will already have become adept at leading and managing change. However, you will need to be aware of two key aspects…

Impact of Leadership Styles

The collective impact of the leadership styles of individual managers needs to be raised as an issue worthy of considerable attention when seeking to institutionalise business excellence.

If we wish to have employee behaviours which are attuned to Process Design & Improvement, we need to ensure that the primary weighting of our collective leadership styles is more towards humble Coaches and Enablers rather than ego-centric Directors and Heroes. Coaches and Enablers tend to embrace team activity as required for effective process improvement projects, whereas Directors and Heroes tend to prefer employees to do as they are told (Directors) or to step aside (Heroes).

In his seminal study of “Good to Great” transition companies in the United States, Prof Jim Collins(2) confirmed that this same humble leadership style is particularly needed at the very top (CEO) of the organisation – paradoxically combined with an iron-hard will to get the right things done, no matter what.

Impact on organizational culture

Using these 5 Master Steps to business excellence, the resultant culture of the organisation (= the way things are done around here!) will reflect the following transitions:

FROM / TO

Win-Lose / Win-Win

Do it my way / Teamwork

Blame the people / Blame the process

Treat the symptoms / Treat the root causes

Suppress feelings / Express feelings

Save face / Learn

Conflict / Collaboration

Barriers / Problem solving

Undiscussables / Discussables

Aggression & submission / Assertiveness

Fancy footwork / Directly observable data

Assumption & inference / Effective communication

Unempowered people / Empowered people

EPILOGUE

Far too few SMEs are pursuing business excellence! Although hard data is scarce, it has been estimated that only some 4% of all SMEs throughout OECD countries have a well structured approach to business excellence and hence are reaping the net benefits.

It is my hope that by encoding a proven consulting methodology into a comprehensive self-help website and making the details available at very low cost, we can at least double the number of participating SMEs within 5 years. This would have a significant impact on the national productivity of your country.

But even if you don’t care about the national interest, you owe it to yourself and your own organisation to pursue excellence. Not to do so will severely handicap your competitive positioning and potential for sustainable, profitable growth.

Your feedback would be most welcome!

References

  1. Kaplan, Robert S; Norton, David P The strategy-focused organization. Boston, Massachusetts, Harvard Business School Press, 2001
  2. Collins, Jim Good to Great: Why some companies make the leap… and others don’t Collins, USA, 2001

Dr Mark Rehn

Tel +61 1300 665 771