Business Process A NASCAR Perspective

This thought was triggered by an article in the February 2005 issue of Harvard Business Review entitled "Breakthrough Ideas for 2005". The article has a brief synopsis of 20 breakthrough ideas for 2005. One of those was subtitled "Seek Validity Not Reliability" and was written by Roger L. Martin, the dean of the Rotman School of Management at the University of Toronto and director of the AIC Institute for Corporate Citizenship.

Reliability versus Validity

In the above referenced article, the thrust was a challenge to corporations to balance the need for process-driven reliability with a quest for validity. Here is a key paragraph from the article, "Six Sigma, CRM, Sarbanes-Oxley, and most other corporate systems have one thing in common: They are reliability-oriented processes. They are intended to produce identical or consistent results under all circumstances, often by analyzing objective data from the past. For instance, a perfectly reliable poll would be able to produce the same result from ten random samples of voters. By contrast, a perfectly valid poll would be able to predict an election's winner." The article continues to illuminate the negative consequences of highly structured processes: loss of creativity/innovation. Here is a table from the article to add more clarity.

While the HBR article illustrates the negative impact of rigidly applied business processes, it does not provide a model to gauge the degree of structure to be applied for a specific business process. The purpose of this article is to provide such a model.

The NASCAR Perspective

Throughout my business education and career, I have tried to liken businesses and business processes to biological systems, thinking of organizations as organisms. Each organism has its own intellectual and physiological functions. This is the traditional model.

With this model, however, I have struggled with the questions of how much process to apply and to what functions? Instinctively, I understand that business processes are critical to success, regardless of the organization's maturity. They ensure efficiency and consistency. Unfortunately, the quest for reliable results through the application of highly structured business processes has a tendency to quash innovative thought.

I submit that "Excellent Companies" have evolved methods for balancing these competing, but essential components for success. They must sense that the traditional view of a corporation, as a "body corpus", is flawed.

The model I am proposing has an additional component: the machine. To put it in the context of NASCAR, you have the driver's attitude/ knowledge (Intellectual), the driver's physical skill/experience (Physiological) and the vehicle itself (Machine). To win at NASCAR, the driver must possess confidence in her abilities and strategy, she must have mastery of her vehicle and the vehicle must be perfectly tuned to the course.

Intellectual

Developing the confidence to win is the most challenging as it has the greatest number of variables. How does the driver feel today? Is she confident? How are her relationships? Does she have any dependencies? What does she fear? Does she buy into the strategy?

Physiological

Mastery of her vehicle is a function of training, practice, coordination and endurance. She has to be familiar with the course, with the performance characteristics of her vehicle, with the track conditions. She has to be capable of executing the strategy on the track.

Machine

Finally, if she has the right mental state and the physical prowess to achieve the strategic objectives - her car must meet the minimum acceptable performance specifications in order for her to execute the strategy successfully.

The Process Matrix The purpose of this exercise is to identify which of the three aforementioned process areas require focus or review based on the maturity of your company and the respective industry. In the traditional model, the operational (Machine) and coordinating (Physiological) processes were treated similarly with maximum structure. The new model allows for a more moderate structuring of those processes that serve to coordinate the organization. This allows for human involvement. It is the freedom to alter intellectual and physiological business processes to accommodate exceptions that produces robust strategies, intimacy with customers, design excellence, creativity, jobs with meaning, corporate social responsibility and ultimately successful companies. Here is an illustration of the process matrix.

Type I Company (new company in new industry)

This company should focus on the Physiological and Machine processes. The industry is new, so the idea was freshly conceived. Now is the time to focus on execution. However, the intellectual processes (e.g. SWOT analysis, Short Term Strategy, Long Term Strategy, etc.) should be reviewed at regular intervals to ensure that you are on course.

Type II Company (new company in mature industry)

This company should focus on the Intellectual and Physiological processes. The industry, and therefore the "Machine", has been around. The operational characteristics of this industry are widely known and perfected. Your competitive advantage will come from thinking differently and refining your company's coordination (how you control the machine).

Type III Company (mature company in new industry)

This company should focus on Intellectual and Machine processes. The industry may be new, but a mature company may need to alter its thinking to compete in this new space. It will also need to define core machine processes like production, shipping, delivery, order processing, etc. The maturity of the company is an indication that it has decent Physiological processes (e.g. sales training, employee reviews, logistics, goal setting, communications, prioritization systems, compensation systems, etc.). However, it is important that they be reviewed in light of the new pursuit.

Type IV Company (mature company in mature industry)

This company should focus on the Intellectual processes. Both the company and the industry have been around. The company clearly has operational prowess and solid coordination skills. And, it is likely that this is also true of its competitors. The area where the company can still secure competitive advantage is in differentiation, line extension, new product/service development, alternate uses for existing products/services, etc. This is the realm of Intellectual processes - designed for breakthrough thinking.

Regardless of where your company falls in the matrix (mature or new), once you identify the areas of focus, you simply apply a set of rules: if intellectual - minimum structure, if physiological - moderate structure, if machine - maximum structure. It is not complicated!

What's the Point

The point is that people perform tasks in three areas: Intellectual, Physiological and Machine. Rather than a binary approach to how much process/structure to apply - it should be graduated to maximize the potential for human creativity and innovation where appropriate. This article is intended to help you determine where to place your focus and how much structure to apply to the relevant process or processes.

Advantages Business Process Outsourcing

BPO possesses many advantages when compare to other BPO providers. The strategic location and adaptability as well as a huge pool of talented workforce are the country's primary competitive advatanges. The has many more advantages when compared to other providers of business process outosurcing.

Business Process Outsourcing or BPO is globally acknowledge to be the fastest growing industry in the world with a market that is expected to each almost $200 billion by the end of the decade. The industry has also remained stabled despite the global financial crisis. Customer contact services has the biggest share in the industry, followed by finance and accounting, and human resource services. Skills quality and competence is the primary driver why so many multinational companies prefer to outsource their non-core functions, plus the cost-effectiveness derived from entirely or almost entirely eliminating the fixed expenses of the outsources activities.

Business process outsourcing is the assignment of one or more business processes to an external usually offshore provider that specializes in the desired processes. The said process provider in turn owns, administers and manages the delegated process according to definite and measurable criteria of performance. The is internationally well known for the skills and competence of its BPO workforce.

The huge and continuously rising demand for call center services continues to lead the gigantic BPO boom in the country. The archipelago's 62% growth rate in 2006 when the industry earned $2.1 billion compared to the $1.3 billion it earned in 2004 was what has placed the country in the global BPO spotlight. It now ranks third in the world, slightly behind India, and a little more to go to reach the current BPO king, India. The 2,400 BPO workforce in 2004 increased exponentially to 200,000 Filipinos working in 120 BPO companies, most of which were call centers, in 2006. Overall, the BPO industry is expected to reach a demand of $11 billion with a workforce of 900,000 people before the start of the next decade.

Though the BPO boom was initiated by the traditional low-cost call centers, the growth was sustained by the great increase in the demand for the higher earning outsourcing services such as legal services, Web design, medical transcription, software development, animation, and shared services. The has already taken steps to elevate its large pool of highly skilled yet cost effective pool of lawyers and accountants and managers.

The government has expressed its full support to the countries BPO industry with its various significant fiscal and non fiscal incentives directed in attracting foreign direct investment on BPO companies. The government is determined to exercise all possible means to sustain this rapid growth and expansion.

Metro Manila houses the majority of the country's BPO facilities, along with Cebu and Bacolod Cities. The development however has reached other regional areas and eventually led to the establishment of BPO infrastructure in areas such as Baguio City, Cagayan de Oro, Clark (Angeles City), Dagupan City, Davao City, Dumaguete City, Lipa City, Iloilo City and Legazpi City. No wonder the has been cited as one of the top 10 choices for offshore operations.

The has definitely evolved into a global BPO leader where the most skilled and effective workforce and cutting edge technology and infrastructure can be availed without the need for a huge capital outlay. If you want to get away from the increasing cost structure of a competitive business while at the same time increasing the quality of your business processes, the is indeed the place to go.

BPO has transcended from being mere means of cost savings in transaction-intensive, back office business processes to being a very adaptive and strong approach to the realization of a wide array of strategic and tactical claims.

General BPO Benefits

1. Speed to Market - BPO quickly hastens the process of getting fully operational allowing a startup business to be fully stable in weeks rather than months through the use of state-of-the-art capabilities. 2. Competitive Capabilities - established businesses can evolve their current processes into globally competitive capabilities. 3. Cost Savings - BPO dramatically lowers the cost of processes through the elimination of fixed costs. 4. Growth stimulus - BPO can be utilized as a learning tool to get acquainted with the latest, unique and competent capabilities. 5. Revenue - higher quality capabilities brought about by BPO can cause great increase in a company's income generation capacity.

BPO is now generally considered as an edge to having that unique competitive advantage. With non-core processes being done by the external provider that is specialized in the said activities, the company is able to focus more on its core processes. In the case of human resource outsourcing, HR functions such as payroll and benefits, recruitment, and personnel evaluation are passed on to an outsourcer that specializes in human resource management (HRM) and who will keep the company abreast of constant change in the field of HRM.

The is deemed to have a stable grip in its place as a global leader of BPO. The country is in a very good position to accommodate outsourcing demands with its outstanding pool of superior yet cost-effective workforce and its excellent telecommunications software and infrastructure.

Business Process Improvement Calculating the Labor Cost

Have you ever wondered what a business process costs an organization or what the largest cost to a company building a product is anyway? It is usually either labor or materials, depending on the type of business, and over the decades we have seen a shift where overhead is consuming a bigger slice of the "product cost" pie.

While this article discusses business processes, and not product creation, labor is still a big cost component. So knowing how much labor a process consumes will help you better understand the cost. This article provides the basic steps on how to calculate the labor cost of a business process, which include:

1. List the process activities and times.
2. Identify the annual volume.
3. Determine the FTE number to use.
4. Determine the salary and employee benefit rate to use.

Here is more detail on each of these steps. I will use developing a product quote as the example.

First, you have to know the process time for the business process in question. Determine this by identifying how long each step in the process takes and total the actual time consumed by the activities. So, let us assume that it takes 46.0 minutes for each quote. Translated into hours, this equates to.8 hours (rounded up) to produce each quote.

Second, multiply the time from step 1 by the annual volume. Let us assume that we produce 3,200 product quotes a year. In our example, multiply the.8 hours (labor per quote) by 3,200 quotes (volume). This equals 2,560 hours spent on the quote process in a year (annual labor hours).

Third, decide what full-time equivalent (FTE) number you should use in your calculation. While the definition of FTE varies by business, it generally means the total number of hours an employee can be paid for in a work year. If an employee works 40 hours a week, then one FTE equates to 2,080 hours in a year (52 weeks x 40 hours per week). Of course employees may have holidays, vacation, and sick time available to them. To arrive at the right labor calculation to use, subtract the number of hours your company grants your employees for vacation, sick, and paid holidays.

In our example, I use 1,880 hours as the standard labor hours. I arrived at this number by subtracting 80 hours vacation, 40 hours sick time, and 10 days (or 80 hours) of paid holidays from the starting point of 2,080 hours in a year.

Once you know the FTE number to use, divide the answer in step 2 by the FTE number. In our example, divide 2,560 (total annual hours spent on the quote process) by 1,880 hours (FTE number) and you get 1.36 FTE. This means that the quote process consumes a little over one employee and almost 1-1/2 employees. Using the FTE concept enables you to account for percentages of an employee's time spent on a business process.

Fourth, multiply the employee salary by the FTE number. For simplicity, assume the work of creating a product quote is completed by one type of employee - entry level clerks. If they earn $30,000 a year, multiply $30,000 by 1.36 (FTEs) to arrive at $40,800, the labor-only cost for the process.

Of course, most employees receive benefits, so you have to add your organization's employee benefit rate (often referred to as "EB rate") to the employee's salary to arrive at the final labor cost for the business process.

If you have many different types of employees involved in a business process and they all earn different salaries, you will find it helpful to build a spreadsheet to perform the calculation.

Estimating process time and its associated cost is the fourth step to improving the effectiveness, efficiency, and adaptability of your business processes.

Project Manage a Business Process Improvement Project

Project management books abound, but you will not find one that addresses how to project manage a business process improvement (BPI) project. This article focuses on closing that gap.

In one sense, a BPI project is the same as any other project - you create a project plan to help keep you on track just as you always do to guarantee a successful implementation of a new or improved business process. The content though is different and it helps to define the project management phases around the 10 steps to BPI. The 10 steps, outlined here, create the bulk of the work breakdown structure (WBS) activities.

1. Create the process inventory: identifying and prioritizing the process list
2. Establish the process foundation: identifying the scope and process boundaries
3. Draw the process map: flowcharting and documenting the business process
4. Estimate process time and cost: estimating the process and cycle times, and calculating the process costs
5. Validate the process map and time estimates: gaining buy-in to the process activities and the time required for each step
6. Apply improvement techniques: improving the business process by using a series of techniques like eliminating bureaucracy
7. Create internal controls, tools, and metrics: error-proofing the process by identifying where a mistake can occur and how to avoid it, creating tools to help automate a step in the process and simplify an employee's job, and developing metrics so that you understand if the business process delivers what customers want from the process
8. Test and rework: creating the test plan to validate that the process and tools work as expected and adapting them as required
9. Implement change: generating an impact analysis to highlight the changes that have to occur; a communication plan to let the appropriate customers, clients, and employees become aware of the change; and a training plan to make sure that employees understand the new process
10. Develop continuous improvement plan: deciding how often to revisit customer needs, internal controls, metrics, or other foundational information

When creating a project plan, three phases that work well for a BPI project includes:

• The Design phase: This phase focuses on the definition and improvement of the business process and it includes steps 1 through 6 and part of step 7.
• The Development phase: In this phase, the main focus is on creating the tools (part of step 7) and conducting the testing on the process and tools (step 8). In this part of the project plan, list any tools identified during the design phase and estimate how long you think it will take to create them. If a report, for example, is identified as an activity, you have to include sub tasks like defining the report specifications, gaining agreement on the report design, and developing the report. While the design phase remains somewhat static from project to project, the development phase varies widely and estimating the time becomes more difficult because you do not know ahead of time what tools the project team may identify during the first phase.
• The Implementation phase: This phase includes rolling out the new process to the organization (step 9), and identifying how to accomplish continuous improvement (step 10).

Like with any other project plan, you can use the concept of tracks within each of the phases to further organize the work. The implementation phase, for example, could include a change management track that lists the changes that have to occur in order for the new process to work; a communication track that outlines the communication strategy you will use, to let the appropriate employees know about the process changes; and a training track that defines how to train affected employees.

In addition to including the 10 steps in the project plan, also include other normal project tasks like team formation, budget definition, sponsor or management communication, and creating an executive summary.

Managing a BPI project requires you to be more active than a conventional project manager on a large project. In a normal project, the project manager's main responsibility is to orchestrate the work. In BPI, the project manager:

• Is also the leader, or facilitator, of the work and you are the person who leads the project team through each of the 10 steps.
• Owns responsibility for the administrative tasks like translating the hand-drawn process map into a tool such as Microsoft Visio and creating the process documentation.
• Manages the team dynamics, anticipates problems, and diffuses team member concerns when a proposed process change may impact their job.

You can use project software, like Microsoft Office Project, to create the project plan, or for simple BPI efforts, you can simply use a spreadsheet. Include the same information in the spreadsheet that you would include in a software application, including the task name, duration, start/finish dates, predecessors, and resource names. Of course one downside to using a spreadsheet is that you have to calculate the duration for each task and its associated start/finish dates. Another downside is the inability to use a Gantt chart to show planned vs. actual timelines as the project progresses, and the Gantt chart is a good tool to use, to show progress in a graphical way. However, for simple BPI projects, a spreadsheet works fine.

The best part about creating a project plan for a BPI project is that you can use the framework over and over again because of the similarity of BPI projects. While you will have to adjust the time estimates depending on the complexity of the business process chosen, the activities and tasks remain the same.