Part II of this book is about HBS’s skills and tools for managing operations. Instead of immediately going through each function, this section starts with the discussion of an overarching operations management tool called process management, which is powerful for thinking-through and optimizing any function. After process management, I discuss some key principles in managing human resources, marketing, sales, and finance that are critical but not covered by process management.
Formally, HBS defines a process as “any part of the organization that takes inputs and transforms them into outputs of greater value to the organization than the original inputs.”1 Informally, I find it useful to think of process a series of steps, supported by the appropriate tools and systems, by which work gets done.
At the functional level, a significant amount of work gets done through processes. Here are some examples of typical processes in various functions:
In all these examples, a series of steps, employing various supporting tools and systems, need to be taken to complete the work. By being able to see and understand work done as a process and to analyze key processes, ineffective and inefficient steps, policies, tools, systems, and paperwork can be identified and improved where possible. This skill is sometimes referred to as “process reengineering.”
The key tools for understanding and analyzing a process include a set of best practice principles that help question and identify inefficiencies and ineffectiveness, and a process mapping technique that makes it possible to analyze processes using those principles.
This section lists the best practice principles that I have found most useful when analyzing process efficiency and effectiveness. An efficient process is one that is low cost and fast. An effective process is one that delivers the intended outcomes. The first three practices listed here are more related to efficiency and the last two are more related to effectiveness. I start with the efficiency-related principles even though the effectiveness-related ones are more fundamental to a process because my experience has shown that the former are easier to apply and more frequently applied. I have phrased the principles in the form of questions so it is clearer how they can be applied when analyzing a process.
Are the steps in the process done right the first time?
Work should be done correctly the first time, and mechanisms should be built in to help ensure correct action. This will reduce the need for quality inspection, rework, waiting time for rework, wastage, and so on, all of which are low-value-added and increase the time and cost needed to get the process completed. checking and even correction mechanisms designed and built into the process can be very powerful in ensuring “right first time.” The spelling checker and automated spelling correction in Microsoft Word is an example. other typical examples for white-collar work are templates and checklists. Examples for manufacturing include color coding and workstations designed to prevent workers from making mistakes.
Is waiting time minimized?
Waiting time means time has passed with no value being added to the products or services that need to be produced. For a manufacturing process, waiting time will mean larger work-in-progress inventory. Inventory means the cash invested in making the inventory is not yet ready to be converted into income. Inventory also incurs interest costs because of the money invested in it. outside manufacturing waiting time means increasing the amount of time needed to complete a process. This means low efficiency and poor customer service if the waiting time affects the customer.
Is the weakest link as strong as it can be?
When I took the HBS class on operations, we were required to read a best-selling business novel called The Goal. The book was almost 400 pages long and the first 200 pages were more or less trying to illustrate a single basic point:
capacity of a process = capacity of its biggest bottleneck
A bottleneck is a factor that limits production.1 In other words the weakest link (bottleneck) of a process will limit and hence determine how much a process can produce. A simple example: say the process of publishing this business book has only two steps: writing the book by me and printing the book by my publisher. I can write a book every two years. My publisher can get any finished book printed within one month. However, even though my publisher can print in such a short time, the process is limited by my speed. I am the bottleneck. If I’m the only author on tap, the publisher can put out only one book every two years because of my speed, as illustrated in Table 6.1.
Table 6.1 Time to Market
| Step 1: writing a book (2 years) | Step 2: printing (1 month) | Published date |
| 1 January 2008 to 31 December 2009 | 1 January 2010 to 31 January 2010 | 31 January 2010 |
| 1 January 2010 to 31 December 2011 | 1 January 2012 to 31 January 2012 | 31 January 2012 |
| 1 January 2012 to 31 December 2013 | 1 January 2014 to 31 January 2014 | 31 January 2014 |
Two technical terms are useful when trying to understand the relationship between a bottleneck and the whole process:
If process capacity is the inverse of process cycle time and process cycle time is determined by bottleneck cycle time, then process capacity is determined by bottleneck cycle time.
Once this relationship is clear, then the importance of identifying, understanding, and managing bottlenecks is self-evident.
Is the process doing what it is supposed to do?
When processes are first established, they are usually quite effective in serving their intended purpose. However, over time, processes can become ineffective if they are not updated to keep abreast of changes inside and outside the company. Reasons for failure to update could include inertia, inability to see the need for change, inability to make a change, or resistance to the changes in power bases that would result from changing the process.
One key example of ineffective process I have seen in a number of clients and HBS case studies is the outdated sales resource allocation process. This problem is vividly described in the Harvard Business Review article “The New Science of Sales Force Productivity,” where the authors used a fictitious sales manager, Bob, to summarize the issue of the old process that is used by many companies in allocating their salespeople’s time:2
Bob Brody leaned back in his chair, frowning. Corporate wanted another 8% increase in sales. . . . Ah for the good old days, when he could just announce a 10% target, spread it like peanut butter over all his territories, and then count on the sales reps (to use their personal relationships) for each region or product line to deliver. . . . Today, the purchasing departments of Bob’s customers used algorithms to choose vendors for routine buys; pure economics often trumped personal relationships. . . . Bob was overwhelmed.
Here’s a real-life though somewhat disguised example of the same problem. One of my clients, a property investment firm (call it Company P) generates revenues from rental income from its shopping malls. Company P’s share price was depressed due to below-market revenue growth. The consulting project found that the sales process was becoming ineffective:
The consulting project recommended some key changes, including a process for identifying and marketing to overseas target tenants and involvement of the finance department in approval and monitoring of complex rental deals.
Is authorization appropriate?
Many processes require authorization. For example, a payment process in finance may require signatures from the department manager applying for the payment, the finance manager approving the payment, and the finance director for signing the checks. Such checks and balances are necessary for risk management. However, a process that requires authorization by people who do not have the appropriate qualifications can result in ineffectiveness or sometimes inefficiency. It is important to question and challenge each authorization on the grounds of need and effectiveness. For example, I was consulting for one of the biggest state-owned banks in China. The bank had a bad debt problem and wanted to improve its loan approval process. After some analysis, we discovered that the loan approval committee consisted of a large number of people who were very senior at the bank but who were not trained in risk management. To make it worse, many of them tried to avoid these meetings or put them low on their priority list. As a result, it was very time-consuming to schedule loan approval meetings (which of course added to the lead time for loan approval) and the decisions taken at these meetings were often suboptimal. By redefining the composition of the loan approval committee, the bank was able to not only improve the quality of the decisions but also reduce the time for loan approval (thereby improving customer service) as it became easier to schedule loan approval meetings.
Process mapping is an important tool for visualizing, understanding, and improving a process. It has two key components:
Usually two maps are drawn for each process—one before process reengineering (or process improvement), and one after. Best practice principles are applied to each step depicted in the before map to understand how the process can be improved. People sometimes refer to the analysis of key components as “off-map analysis” or “key analysis,” and I find these terms useful even though they are not official.
Process maps come in three general types. The choice depends on the process involved. It is easiest to illustrate process mapping by examples.
Expanding on the earlier example about my capacity for writing and publishing books, Figure 6.1 illustrates mapping that process.
Though some professional standards for flowchart shapes, such as a rectangle for a process step and an inverted triangle for inventory, have been established, I have never felt it necessary to follow any of them strictly. The key is to clearly define and be consistent in your own usage.
Process improvement can be done by applying the best practice principles to this map and starting from the most time-consuming step. These are some of the key “best practice” questions to ask:
Figure 6.1 Process Map for a Book
For processes where a lot of different parties (people or departments) are involved, the format illustrated in Figure 6.2 can be used.
Figure 6.2 Multi-Party Process Map
This format can highlight any inefficiency due to multiple parties’ involvement, such as excessive authorization and review, handoffs back and forth leading to waiting time and rework, and so on. This example is a simple one, with few parties involved. I have seen processes where so many parties are involved with so many handoffs that arrows were running all over the page. This usually indicates significant opportunities for improvement.
A black and white space map is most useful to highlight low- and non-value-added waiting time, rework time, and other delays in the process. It is also useful for identifying bottlenecks and inefficiencies. Focusing on rework review in the book publishing process produces the map shown in Figure 6.3.
A few points to note on this map:
Figure 6.3 Black and White Space Map
As discussed, best practice principles are applied to the process maps to help identify areas for improvement. It is worth noting that best practice principles are applied not only after the “before” map is fully drawn, but also during the research and the drawing of the maps. For example, if there seem to be a lot of complaints about a certain step in the process, then special attention should be paid to verify (with other interviews or analysis steps) and highlight this issue in the “before” map.
Besides best practice principles, benchmarking similar processes within the company or at other companies is also a powerful tool. Benchmarking can help identify issues, stimulate creative solutions, and convince the organization of the need for change. This is especially useful if an organization is facing a new challenge and does not know how to adapt or create a new process to respond. A major liquor client of mine spent millions of dollars a few years ago to benchmark strategy-planning processes of leading companies around the world. The key reason was the CEO’s decision that the company’s top-down strategic planning process, whereby each business unit was given a target to be met, was no longer sufficient as the differences and the level of competition of the different markets increased. He needed to understand how leading companies did their strategy planning in order to design a new process and to convince his organization of the validity and need for the change.
An analogy for process reengineering is plastic surgery. There are usually two maps: before and after the surgery. To decide what to do in the surgery, classic universal beauty standards are available to assess the “before face”: wrinkle-free skin, straight nose, and the like. But sometimes, perhaps because the patient cannot describe what the new face should look like, then benchmarks like “the lips of movie star Angelina Jolie” will be used. Finally, some analysis may need to be done in addition to the exterior of the face, for example, bone or muscle structure of the face, or levels of blood pressure, as part of the surgery. Such analysis will be analogous to the “off-map analysis” to be discussed in the next section.
Process mapping is an important tool for visualizing and defining the steps in the process. However, often, more in-depth analysis needs to be done on certain steps of the process. The analysis focuses on understanding and resolving any issue found in the process map. The analysis often results in recommendations for tools, systems, or automation.
Figure 6.4 shows an example of simple analysis: understanding the relative severity of different causes of inefficiency. Using the book example in the basic map section, the bottleneck is the step “writing the text.” To determine how to reduce the time needed, off-map analysis can be done to dive into this step of the process.
More in-depth analysis can be done on each of the items, such as what is taking up so much research time. Solutions such as outsourcing or automation can then be identified to reduce the time.
Figure 6.4 Bar Chart for Simple Analysis
Sometimes, when you have enough data, more advanced analysis can be done. A very good example was given in the Harvard Business Review article “The New Science of Sales Force Productivity.”4 Michael Pilot, then president of a unit of General Electric, was trying to solve the sort of client prioritization process problem highlighted by the fictitious Bob mentioned earlier on:
Problem Pilot faced: “The company’s field sales managers even manually classified all the names in the division’s database as either high priority or low priority . . . (relying) on telephone books . . . newspapers . . . signs on trucks as they went by or signs on buildings . . . (Pilot) knew that GE Commercial Finance had to ‘put some science into it.’ ”
To improve the account prioritization process: “Pilot asked his field managers to create a list of . . . criteria that they believed would correlate with the customer’s likelihood of doing business with GE. He took the 14 features they came up with, ran regression equations against the database of transactions and identified six criteria that had high correlations. If a prospective customer tested well on those six criteria . . . the probability that it would do business with GE is high.”
Improvement: Pilot said, “We found that the top 30% of prospective customers were three times more likely to do a deal with us than the bottom 70% . . . yet only about half of them were previously classified as high priority by sales managers.”
The data sources for process maps and analysis are very similar to the data sources for strategy study discussed in Part III of this book. Here, it is enough to highlight some of the key points:
Notes
1. Ann E. Grey and Leonard James, “Process Fundamentals,” Harvard Business Review (September 2007).
2. Dianne Ledingham, Mark Kovac, and Heidi Locke Simon, “The New Science of Sales Force Productivity,” Harvard Business Review (September 2006); quote on p. 1 of article.
3. Critical path is the process or the sequence of steps that determine the process time. For example, in the book writing example, there may be other activities like payments and meetings. But these activities are not on the “critical path” as they do not affect the process time.
4. Dianne Ledingham, Mark Kovac, and Heidi Locke Simon, “The New Science of Sales Force Productivity,” Harvard Business Review (September 2006); quotes in this section are from p. 2 of the article.