What is most important in corporate performance management? Is it sales or financial performance? The answer is neither! Sales and financial performance are like rearview mirrors in an automobile that show you where you have been. Process excellence is like the set of automobile headlights that shows where you are headed. In companies where sales performance or financial performance is bad, quite often process performance is the root cause of failures, and the reverse is true also. If sales performance or financial performance is very good, often you can trace this success back to process excellence. In this article, I will outline 10 ways process excellence impacts corporate performance management (CPM).Process excellence can be as simple as efficiency and effectiveness in processes. To quote the late management guru Peter F. Drucker, "Efficiency is doing things right; effectiveness is doing the right things." In a service process such as a help desk, for example, process efficiency may be a measurement of how long it took for someone to resolve the issue from the time a trouble ticket was opened. Process effectiveness would be how well the problem was solved and/or customer satisfaction measurements. While outlining the 10 ways process excellence impacts CPM, you can clearly see the role of process efficiency and effectiveness measurements.
1. Innovation Processes. Innovation and creativity in companies are considered to be spontaneous and not subject to the process approach. Nothing could be farther from the truth. Organizations that have harnessed their employees' creativity and innovation quite often have very clearly articulated formal processes or well-understood informal ones. Methodologies such as the Phase Gate Methodology take many ideas from research and development (R&D) through a brainstorming stage to product development to manufacturing and provide formal process frameworks for innovation and new product development. Here the efficiency measures would be how many new ideas flowed from R&D to successful product development and how fast? Effectiveness measures would be how successful these were at satisfying the sales and financial performance goals of the company. The Apple iPod is an excellent example of how a single product could shift the sales and financial performance of the company. Innovation processes in a company address the question, what happens if an employee or a group of employees has a new idea for a product or a service? Is there a formal way for these creative ideas to be considered, analyzed and good ones tried out? Innovation processes are the key determinant of future CPM. They establish far in advance what the sales and financial performance of a company is going to be. (See Figure 1.)
Figure 1: Processes Impact Business Performance Management
2. Product Development and Manufacturing Processes. IKEA, the global retailer, considers how to ship a product across continents even before they decide whether to carry it in their stores worldwide. The ability to ship a product easily is a key requirement for them to sell one. The product needs to be easily packed in compact, rectangular boxes that can be stacked in shipping containers to be sent worldwide in cargo ships.
Design for manufacturability is a key process in the semiconductor industry. Design for serviceability is a main consideration when designing automobiles or large consumer products such as washers and dryers. These impact the sales and financial performance of companies for many years to come. Product development and manufacturing process efficiency measures are critical in chip design. You are in a race to the finish line with your competitor at any time because Moore's law states that the number of transistors in a chip and, hence, its capabilities and speed double every year. Semiconductor effectiveness measures could be the manufacturability or yield of the product. In consumer products, the initial quality and serviceability needs to be designed during the product development process. These translate to better reliability and customer satisfaction and affect sales performance directly. Repair costs during the warranty period and product recall costs could significantly affect the financial performance of a company if not enough attention is paid to the product development and manufacturing processes at the time a product is designed. These processes can affect the sales and financial performance of the company adversely if enough attention is not paid to them during the product development and manufacture setup processes.
3. Marketing Processes. The four P's of marketing: price, product, place (distribution strategy) and promotion lead to many marketing processes such as brand building, competitive positioning, advertising and channel development during the introduction of a new product or subsequent modifications or releases. All of these processes affect sales performance and the financial performance of the company for a long time to come. Efficiency metrics would measure the time taken for these processes to be performed, while effectiveness metrics are measured by methods such as testing advertising recall using surveys, customer or prospect focus groups, etc. Marketing processes are performed repeatedly. They can be the redesign of a logo, new boxes in which the product is shipped or the general positioning of the company. Intel just switched from their "Intel Inside" positioning to "Leap Ahead" to coincide with the many new markets they want to enter, i.e., mobile phones and small handheld computers. Billions of dollars are spent on marketing processes, and they are subject to efficiency and effectiveness measurements as much as other processes within the company.
4. Sales Processes. Lead generation processes using direct mail, telemarketing efforts and direct sales processes are all sales processes that influence sales performance directly. Channel and partnership development are other such processes. Studies have shown that it costs more to acquire a new customer than to sell more to an existing customer. Sales processes should include systematic follow-up and need assessments with existing customers. Efficiency measures pertain to new leads generated, old leads followed up and time taken for these activities. Effectiveness metrics compare sales generated per lead in currency terms and number of leads that resulted in a sale compared to total number of leads generated. Sales force automation software solutions provide a number of these capabilities already in addition to the ability to present these process metrics in dashboards.
5. Product Delivery and Installation Processes. Product delivery processes have become more important because of online businesses. Online businesses tend to be newer and technologically savvier, and their internal systems are integrated to a greater extent, even with third-party drop ship suppliers' internal computer systems. These make their delivery and installation processes highly efficient, effective and less expensive. Many of them provide automatic tracking of packages by linking with delivery services (such as UPS and FedEx) through the Internet. Installation processes for products such as refrigerators, washers and dryers are often outsourced to local service providers. If you buy a refrigerator from Sears and they send out a third-party contractor for the installation, as far as you are concerned, it is still Sears you are dealing with. Efficient and effective performance of these processes determines sales and financial performance.
6. Financial Processes. Financial processes, especially billing processes and accounts receivables management, impact both sales and financial performance. For example, errors in your phone bill lead to customer dissatisfaction and money wasted on fixing the errors. Production and dispatch of bills on time enables efficient and effective collection processes. In this process, the percentage of bills printed and dispatched in a timely manner is the efficiency metric worth considering. Effectiveness metrics may deal with collection of money against the bills dispatched. When speeded up even by a day, accounts receivables processes earn companies interest because of earlier collections. One would think that an accounts payables process may need to be delayed as much as possible because it involves paying out money to suppliers. Not so! Taking advantage of cash discounts for quicker payments could save the company money by paying suppliers invoices earlier. Process measurement and management in the finance function offers the potential for significant savings.
7. After-Sales Service and Support Processes. After-sales service and support processes impact sales performance as well as financial performance, especially when the purchase of a product or a service involves a lot of after-sales service and support - such as automobiles or insurance products! The efficiency and effectiveness with which these services are scheduled, delivered and successfully implemented have a profound impact on future repeat and referral sales. Support processes have significant impact on customer satisfaction or dissatisfaction and impact sales and financial performance.
8. Compliance Processes. Compliance processes (such as Sarbanes-Oxley, BASEL II and The Fair Credit Act), information privacy processes (such as HIPAA), taxation processes and governmental laws and regulations dealing with human resources (HR) issues all have profound impacts on an organization. Failure to comply with these processes on time (efficiency) and meeting all standards of the law and ethics (effectiveness) could have significant impacts on the company's financial performance. Public perception of organizations that violate these laws and regulations has the potential to significantly affect sales and even completely bankrupt a company if customers boycott them. Compliance processes have become so important that even companies not headquartered in the U.S. or European Union may still need to comply with many of them, if they do business in these countries, are suppliers to businesses in these countries or if they are listed in the stock exchanges in these countries. Process excellence in compliance processes may not be a nice-to-have but a must-have! Not doing so has very adverse consequences on overall business performance.
9. Human Resource Processes. A variety of HR processes such as hiring, firing, retirement, benefits administration and HR compliance and how they are executed have profound impact on the sales and financial performance of companies. How efficiently and effectively HR processes are executed affects almost every function within a company.
10. Outsourcing. Outsourcing is a fact of life, no matter what the function is within a company - whether design, manufacturing, HR, financial functions or service and support. Third-party service providers supply almost every functional process as an outsourced service. You may be placing your valuable intellectual property, prospects and customers in the hands of outsourcing service providers. Third-party service providers may not have the same urgency in dealing with your prospects and customers as you do. Monitoring, measurement and analysis of efficiency and effectiveness in outsourced business processes are a must. Outsourcing contracts often have clauses for service level agreements, but they may be meaningless and unenforceable, if the efficiency and effectiveness measures they may represent are not measured, reported and analyzed periodically.
Process excellence impacts CPM in significant ways. Process excellence or the lack of it is often the root cause of good or bad sales and financial performance of a company. Systematic analysis of all processes in your organization, whether it is a for profit or nonprofit, whether you offer products or services, helps you identify the level of impact the processes have on your overall business performance. Efficiency and effectiveness measures help you monitor process performance and fine-tune them. In the context of outsourcing of processes, process excellence takes on another level of urgency that can be mitigated with proper measurement, analysis and improvement.
Nari Kannan is the CEO of Ajira. He can be reached at email@example.com or at (925) 487-1768.
This article originally appeared in DM Review.
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