Mailbag: Process Effectiveness
Yesterday I received an email regarding process effectiveness.
Matthew,
I'm curious to get your opinion. We are struggling to determine how to measure our process effectiveness. We currently measure cost-per-transaction and cycle time but neither of these seem to tell us how well are processes are helping us to meet or company goals. Any ideas?
BPM Guy - Sierra Vista, AZ
BPM Guy, great question!
Process effectiveness can be a loaded term. It tends to suggest an equation where the function of x results in y; y being an expression of effectiveness. (If I do the following 3 things, my process will be effective). Unfortunately, effectiveness itself is not a direct measure. It is merely an expression of the relationship between several direct and indirect measures and their relationship to the goals of the organization...
In a manufacturing environment, you might observe a near flawless ball-bearing production process and the production manager might proudly boast that it is extremely effective because of its ability to produce high quality bearings at low cost with an extremely low number of defects. However, if those ball bearings are produced too quickly, they may end up rusting somewhere in a warehouse. If that happens, the perfect ball-bearing production process is actually counter-effective because it does not help the organization meet its goals. It is simply tying up capital and increasing waste through over production.
It begins with the mission statement
All processes should support the mission. Otherwise, there is no point and they should be discarded. To take the student loan industry as an example, you start with the mission of the customer: "To increase my standard of living potential through the acquisition of knowledge and accreditation from a University". Based on this, the student loan company attempts to help this customer achieve their mission and creates the corrolary: "To leverage our capital resources through the origination and collection of student loan debts". These missions can then be further defined by strategy, tactics, and processes.
Defining the Process Trifecta
Every process has three basic measures: capability, cost effectiveness, and satisfaction. If the process is cost effective but does not satisfy the customer, it is waste. It if satisfies the customer but does not support the organizational goals, it is a distraction. If it supports the organization but absorbs so much cash that it interferes with other processes, it can quickly become counter-effective. All three must be met in some capacity. The exact balance is where strategy comes in. How satisfied do the customer's need to be? Are you offering a white glove service or a bare-bones commodity service? Do you have a large cash reserve or will you be relying solely on profits from existing sales? Once you have the answers to these questions, you are ready to assess your process effectiveness.
Process Effectiveness Survey To determine how effective your processes are, you need to first understand the mission of your organization by asking the following questions: Capability: Compared with others in your industry how would you describe your company:
We are the leader. When you think (product or service), you probably think of us.
We are a strong competitor. We are trying to distinguish ourselves by providing better quality, lower cost, and/or higher customer satisfaction than others in our industry.
We are up and coming. We pride ourselves on being nimble and creative. Our focus right now is in niche markets.
Cost Effective: How would you describe your revenue model:
Our revenue stream is fairly mature and complex. Our focus is on incremental revenue growth.
Our revenue stream is being eroded by new technologies, competitors, regulations, and/or suppliers. We are looking for new ways of adding revenue to our existing workstreams.
We rely primarily on income from sales. We don't have a large cash reserve and often rely on the credit market for business improvements or expansions.
Customer Satisfaction: What does your customer expect from you?
Customer satisfaction is our number one key business driver. We are a premium product or service and our customers are willing to pay extra for it. Given the choice between shareholder value and customer satisfaction, we would try to satisfy the customer even if it meant losing money on the deal.
Our customer's respect us for our reputation for quality and competitive prices. Although there are several competitors in our market providing similar levels of quality and service, our customers prefer to do business with a brand they recognize and trust.
We are a no-frills low-cost provider. Quality is important primarily because it keeps our costs low. Our customers are delighted because they get good quality products or services at a low cost. If an increase in quality created an increase in price, our customers would not necessarily be happy about it.
Now look at your processes. How well do they match up with each of the characteristics of capability, cost effectiveness, and customer satisfaction. Are your process metrics tuned into each of these characteristics? If you are a niche company focusing on lowering your costs, your processes will not be effective. Similarly, if you are a low-cost company, investing in white-glove services are going to drive your prices up.
How do you measure cost-effectiveness? Any ideas you'd like to suggest? Send your questions or suggestions and we'll try to help.