George would like to thank Scot MacGillvray from Palladium Group, Inc. for his helpful input to this column.

Every corporation looks to establish competitive differentiation. Through an intentional focus on key processes, corporations are able to differentiate themselves within their marketplaces. Process management is the method to select and amplify the key processes that form a corporation's competitive advantage.

Before moving forward, let's recap some concepts. The three capabilities that are essential for companies to be successful in the execution of their strategy are visibility, leverage and responsiveness. A strategy execution model to build these capabilities includes strategy management, key process management (modeling and analytics), resource allocation and human capital and IT readiness as shown in Figure 1.

Figure 1: Strategy Execution Model


The last few monthly columns have focused on strategy management and its key components: strategy maps, scorecards and initiatives. In this column and the next, I will focus on key process management, which provides a critical and powerful link between strategy management and operations. In fact, though all three components of the strategy execution model are important, our research suggests that effective key process management creates the single greatest impact on performance. The numbers show that for 36 percent of the firms we surveyed, key process management had a dramatic impact on their performance compared to 19 percent for strategy management and 17 percent for resource management.1

What is key process management? First, we must define a key process. In order to operate a business, an organization must successfully execute hundreds of processes each day - including meeting payroll, counting inventory and shipping products. While essential to the operation of the business, most of these processes do not directly drive the enterprise to carry out its strategy. Only a few critical processes are strategic. By focusing on these crucial few processes, an organization can greatly enhance its chances to successfully execute its strategy.

In order to determine your key processes, a common practice is to start with a strategy map - a one-page hypothesis about how an organization will successfully execute its strategy. A strategy map is organized around strategic business themes, which typically include some version of growth through innovation, demand through customer partnerships and operational excellence.

The strategic themes and ultimately the definition of the key processes will be guided by how you articulate your customer value proposition and the expected financial outcomes from that market positioning. For example, if your value proposition is "we offer the lowest price," you will likely have an emphasized theme focused on operational excellence, and you could have key processes that are focused on cost control. On the other hand, if your value proposition is "we provide high-end service," then the themes would be more heavily focused on customer partnerships, and the key processes would include those that cultivate the high-end experience for the customer.

Let's run through a quick example. LoPrice Airline's differentiated customer value proposition centers on providing the lowest fares possible. Figure 2 shows a strategic theme from the LoPrice strategy map - ground turnaround - an operational excellence theme that makes logical sense given the overall focus and value proposition of the airline.2 The map depicts management's belief that by improving ground crew alignment, they would accelerate ground turnaround, which would result in fewer airplanes and, in turn, enable them to offer lower prices and attract and retain more customers. Improved customer retention would then enhance aircraft utilization, which would increase LoPrice's return on net assets. So, from the broader LoPrice strategy map, we have focused on a single theme that has allowed us to identify an internal process objective - fast ground turnaround.


 Figure 2: LoPrice Airline Strategic Theme - Ground Turnaround


Although this is a simplified example, it clearly shows how you can leverage a theme from the broader strategy map and begin to build a logical bridge to the detailed operational activities within key processes. This case also shows that intentional process management can put the right organizational focus on those select business processes that will have the greatest impact in ultimately delivering the promise of the strategy.

In this column, I focused on the critical first step in key process management: mapping your strategy and organizing your performance modeling efforts by strategic themes. In next month's column, I will refer back to the LoPrice case study and take a deeper dive into modeling the key drivers of your business. I will also review putting the right performance measurement systems and change programs in place to enable moving your organization to more effectively execute its strategy.3  

References:

  1. The Balanced Scorecard Collaborative. Survey of BSCol Online Community. Palladium/Cognos: March 2006.
  2. Robert Kaplan and David Norton. "Strategy Maps." Strategic Finance, March 2005.
  3. David Norton. "Making Strategy Execution a Competitive Advantage." Palladium/Cognos: June 2006. 

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