Busines Process Optimization

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The key takeaways are that organizations can achieve sustainable process improvement by combining project management best practices with Six Sigma methodologies to identify opportunities, develop solutions, and lead strategic change.

Japanese manufacturers like Toyota and Sony showed that companies could compete by executing first-to-market, offering superior quality products, and being the price leader simultaneously, which went against traditional business wisdom.

The top priorities facing many manufacturing companies typically focus on supply chain programs and customer demand for self-service and access to information.

Abstract

In order to secure a competitive edge in their respective industries,


organizations are seeking ways to increase efficiency and guarantee
successful execution of critical business processes. In today's global
business environment, the importance of first-to-market, customer service,
cost-competitiveness, and quality are key factors in determining an
organization's success, or undesirable failure. The purpose of this paper is
to demonstrate how organizations are able to achieve sustainable and
effective process improvement by identifying how the combination of
project management best practices with certain Six Sigma methodologies
provides the structure and discipline required to identify process
improvement opportunities, develop sustainable solutions, and lead the
organization through the strategic change process.

Introduction

It used to be said that a company could gain a competitive edge in their


industry by executing first-to-market, offering products of superior quality,
or being the price leader. The business sages of the past believed that a
company could compete in only two of these three areas. However, during
the 1970s and 1980s, Japanese manufacturers such as Toyota and Sony
turned traditional business wisdom on its ear. Historically, the product
lifecycle started when a company (typically, the market leader) brought its
new product offerings to market first. Then competitors followed by offering
similar products of higher quality; and then more companies entered the
market offering comparable quality at a lower price. The Japanese showed
that companies could, in fact, compete in all three strategies
simultaneously and become industry leaders.
Traditional business has realized that “faster”, “better”, “cheaper” are not
the only variables consumers weigh when making buying decisions.
Superior product service has become a key business process. Companies
such as General Electric, led by Jack Welch, have evolved from a product-
based company into a services company that makes high quality,
innovative products. To dominate an industry, an organization must
continually create new innovations and remain agile in order to respond
quickly to change and effectively execute any changes. They need to have
the ability to pursue strategic initiatives with confidence including alliances,
acquisitions, outsourcing, and global expansion. They also need the means
to consolidate their business during economic downturns, using cost
effective new tools for business process integration. Achieving these
outcomes first requires equipping executive management with process
controls and accurate information to make educated decisions for strategic
course corrections and realignment. Once decisions are made, these
Business Process Optimization projects require an organization to examine
and pursue opportunities to reduce costs, cycle times, while increasing
service levels or product quality.

Business Process Optimization

Defining a Business Process Optimization Project

Business process optimization initiatives depend on the competitive


environment an organization faces within their industry. For example,
customer service value chain processes are very important in the financial
services and government sectors where interaction with the customer is a
main concern. Customer friendly applications to enable the access to
information, manage finances and buy financial products are important
features for financial service providers such as banks, insurance
companies, and brokerage houses. Conversely, the top priorities facing
many manufacturing companies focus toward supply chain programs and
customer demand for self-service and access to information.
Regardless of the industry, a company's process optimization project must
identify ways to make their business processes manageable, with
formalized, actionable information about how, and how well, the process is
executing. Not unlike any other project, a business process optimization
project must define the scope of the process to eliminate confusion and set
the project boundaries. It will identify the process improvement goals such
as cycle-time reduction, customer service improvement, and/or cost
reduction, etc. It will identify the deliverables such as process maps, time
studies, systemic enhancement opportunities, to name a few. Additionally,
it will allocate the required resources including subject matter experts to
define existing process strengths, weaknesses, opportunities, and threats.
And, it will set a timetable for the development and execution of process
optimization enhancements.

Managing Processes vs. Projects

It is important to differentiate processes from projects. Business processes


consist of providing worth to a customer through value-added activities,
moving work across functional area boundaries, and controlling process
standards and measuring process execution. Business processes are
typically event driven, such as the retooling and maintenance of a factory,
printing a product catalogue, the close of a billing cycle, or solving a
customer's problem in reconciling a checking account. These are activities
that are typically replicated and repeated with specific resources allocated
to a particular working group such as factory line workers or customer
service representatives, to name a few. Business processes strive for three
things: efficiency, agility, and meeting customer demands. While efficiency
seeks to cut operating and cost of capital, agility seeks to cut the time
required to develop products and services, and to respond to customer and
market demands. Customer demands focus on customer retention and
level of satisfaction.
A project, as defined by A Guide to the Project Management Body of
Knowledge (PMBOK® Guide) (PMI, 2004) is a series of activities and tasks
with a specified objective, starting and end dates, and resources (p. 4). A
project consumes money, people, and equipment for the specified time
period and defines what will be done, when to do it, and assures desired
results are obtained. The tasks of a project are unique and generally not
replicated or repeated, and once a project is scheduled, changes to the
plan are avoided to ensure schedule conformance. While business
processes strive for efficiency, agility, and meeting customer demands;
projects strive to deliver the project objective on time and within budget.
Therefore, a process optimization project is a short-term endeavor an
organization embarks upon to identify process inefficiencies, decide how to
solve those inefficiencies, and assure the optimization enhancements
achieve the desired results without negative impact to on-going operations.

Keys to Optimizing Processes

Earlier it was mentioned that executive management must be equipped


with the tools to make educated decisions to make organizational course
corrections with agility. The keys to optimizing process performance and
execution capability lie in the organizations commitment to define and
continuously assess and update its process documentation. These
documents, including process maps, input and output detail, resource
assignments, cycle times, etc., formally define the scope of the process
from initiation to delivery and serve as the “process roadmap”.
Once decisions are made, these Business Process Optimization projects
focus an organization to identify and examine opportunities to reduce costs,
cycle times, while increasing service or product quality. Unfortunately, the
vast majority of organizations continue to operate in silos, where core
business process activities must traverse the traditional functional view and
have neither an owner assigned nor measures of process execution
success. Many successful organizations such as Coor's Brewing, G.E., and
Sony, to name a few, have mature business process management
structures where primary and supporting business processes are well-
defined, assigned an owner, measured for execution success, and
scrutinized for efficiency, agility, and quality (see exhibit 1).

Exhibit 1 – Process Management


Formally defined processes and documentation provide an organization
with visualization of high-level and detailed core and supporting processes.
Maps and supporting detail documents define how the processes interact
across functions, what each the process step delivers, and how it produces
its deliverables. Process owners own the core or supporting business
process, not the individuals assigned to work the tasks within the process.
The process owner is responsible for ensuring the successful execution of
the process and works to identify process issues, root cause, and training
needs. In order for the process to continuously execute successfully,
process communications must ensure that process information flow
vertically and horizontally across the company. A process owner must be
able to monitor the external and internal flow of information. The purpose of
process communication is to ensure employees are informed of process
performance information, and to control a company's progress toward its
objectives.

Don't Compromise Quality for Efficiency

For many consumers, the quality of a product or service is as important, if


not more important than the cost of the product or service. While the focus
of many business process optimization projects is centered on optimizing
efficiencies, and reducing cycle times, businesses must continue to ensure
that business process optimization does not compromise the quality of the
product or service the process delivers. Six-Sigma methodologies can be
used to embed quality into process optimization projects. Six Sigma
originated at Motorola in the early 1980's and is a methodology for
disciplined problem solving and quality improvement. Six Sigma's goal is
the near elimination of defects from any process, product, or service,
limiting defects to just 3.4 defects per million opportunities. To ensure
organizational alignment, Six Sigma methodology requires all improvement
projects must be integrated with the goals of an organization. The DMAIC
methodology Six-Sigma (The Black Belt Memory Jogger, 2002) employs
the following activities:
 Define – a discreet phase whereby the customer needs are stated
and the processes and products to be improved are identified.
 Measure – determine the baseline and target performance of the
process, defines input and output variables of process steps, and
validates the measurement systems.
 Analyze – analysis of data to identify critical factors needed for
process execution.
 Improve – identification of improvements (process, procedural,
systemic, etc.) to optimize the outputs and eliminate and or
reduce defects and variation. Statistically validates the new
process operating conditions.
 Control – establishes the development of documents, monitors,
and assigns overall responsibility for sustaining gains made by the
implementation of process improvements.

BPO Project Management Methodology

Business Process Optimization projects follow the same method as defined


by the Project Management Institute. Project management is accomplished
through the use of the process group such as: initiating, planning,
executing, controlling, and closing. As stated in the Project Management
Institute's (PMI®) A Guide to the Project Management Body of Knowledge
(PMBOK® Guide) 2000 edition, “these process groups are linked by the
results they produce- the result of one often becomes an input to another.”
 Initiating-authorizing the project or phase is part of scope
management
 Planning—defining and refining objectives and selecting the best
of the alternative courses of action to attain the objectives that the
project was undertaken to address.
 Executing- coordinating people and other resources to carry out
the plan.
 Controlling- ensuring that the project objectives are met by
monitoring and measuring progress regularly to identify variances
from plan to plan so that corrective action can be taken when
necessary.
 Closing- formalizing acceptance of the project or phase and
bringing it to an orderly end.
The rest of this paper identifies how Integrated Project Management
Company combines project management best-practices with certain six-
sigma methodologies to provide the structure and leadership required to
identify process improvement opportunities, develop sustainable solutions,
and lead the organization through the strategic change process.

Combining Six Sigma and Project Management Best


Practices in the Initiating and Planning Process Groups

Defining and Planning for a BPO Project

“Our plans miscarry because they have no aim. When a man does not
know what harbor he is making for, no wind is the right wind.” – Seneca
(4BC – AD 65)
One of the single, most critical activities to ensure the success of a project,
whether it be in the development of a software application, drug compound,
or optimizing a key business process, is the clear and concise definition of
project objectives, goals and milestones in the projects planning phase.
The purpose of the project must support the organization's vision and
mission statements and require the support and commitment of top
management. Business process optimization projects should contain a
section in the charter that defines the specific business process to improve.
This formal definition of the process optimization scope eliminates any
confusion and formally defines the subject boundaries. Additionally, it
assists in the identification of the final product deliverable. For example, a
fulfillment organization receives customer complaints on low order fill rates.
The customer places an order for a quantity of 100 for a particular item,
and receives only a quantity of 90. The project objective, in the example,
would be “to optimize the warehouse picking process to ensure an increase
in the fill rate on customer orders from 90% to 98% by 4th Quarter 200X”.
The process scope has been narrowed specifically to the picking process
and provides the basis for the process goal.
Six Sigma is a data driven problem solving methodology that requires the
formal definition of performance standards. When planning for a process
optimization project, specific Six-Sigma tools and activities are used to
characterize customer needs, and processes to be improved. These tools
include the mapping of the high-level process in its current state,
identification of the processes existing performance measures (i.e., pick
time, product staging time) and a process financial analysis (i.e., resource
cost, overhead). Specifically, Six-Sigma seeks to identify the Costs of Poor
Quality (COPQ). COPQ includes costs of rework, rejects, inspection,
testing, and in the case of our fulfillment example, the cost of customer
complaints. While a process optimization project's benefit can be measured
financially (hard) or non-financially (soft) most business cases are based on
the hard benefits. In our example, the soft benefit of “improved customer
satisfaction” should not be ignored.
Speaking of the “customer”, Six-Sigma projects take the time to understand
the needs of the customer. The project team must understand how the
process problem links to the eventual customer. Six-Sigma employs ‘Voice
of the Customer’ (VOC) research to gain this important insight. There are
many different methods to researching the customer's voice. These
include, but are not limited to the following:
- Customer Complaint database- generally this is an acceptable place to
start if the organization formally tracks issues.
- Direct Contact- if allowed, considers phone call surveys, focus groups,
interviews at the point of provision.
- In-Direct Contact- includes mail surveys, feedback cards, market research
and competitor analysis.
- Become the Customer- order from your own distribution center; buy your
own brand products, set up a new account with your own financial
institution.
Another effective tool to use in a process optimization project is the SIPOC
High Level Process Mapping tool. The acronym SIPOC stands for
Suppliers, Inputs, Process, Outputs, Customer. It is a simple, yet effective
tool to align the project team and all stakeholders as to the core process
within the scope of the project. It is important to note that it is too early in
the project to detail the existing process (that comes later in the Measure
Phase). The following is an example of a SIPOC High Level Process Map
(Exhibit 2):

Exhibit 2- SIPOC
The general approach to the SIPOC process identification includes the
following steps:
1. Start with a simple definition of the in-scope process
2. Identify key steps of the process (expand these at the bottom of the
SIPOC diagram)
3. Have the team identify the major inputs and outputs of the process
4. Have the team identify key suppliers of the inputs, and customer for each
output

Similar to any other project, a business process optimization project


requires the formal identification of a project team with clear structure, roles
and responsibilities. Use the SIPOC High Level Process Map to ensure all
process stakeholders are represented on the core project team.
Remember, the Initiating and Planning Phase of a business process
optimization project starts by formally identifying the process problem, not
with the identification of a process solution. Six-Sigma tools such as the
SIPOC, COPQ, and VOC help the project team identify the potential
issues, process scope and essential process representatives, before the
organization invests substantial time and money in the initiative.

Combining Six Sigma and Project Management Best


Practices in the Execution of a BPO Project

Measuring and Analyzing Current Process Performance

During the execution phase of a BPO project, the project manager is


focusing on executing the process optimization plan. These integral
activities include the development of individual and team competencies
though the use of various team building exercises, reward and recognition
systems and locating team member in the same physical area, to name a
few. The project manager is also focusing efforts to ensure the process
optimization plan is being carried out through regularly scheduled status
meetings to exchange information about the project. During the execution
phase, team efforts are focused in the identification of measurements to
determine the effectiveness and efficiency of the process. Developing
process measures are critical for a process optimization project and must
identify and capture data on key performance indicators to determine
process effectiveness and efficiency. Process effectiveness measures a
customer's quantifiable service or product specifications. Additionally, a
process optimization project must track key performance indicators that
reflect the internal efficiency of the process. In general, the following steps
are completed to measure the performance of a business process:
1. Develop a data collection plan for the process
2. Identify process efficiency data collection sources
3. Identify process effectiveness data collection sources (primarily
customers of the service or product)
4. Collect efficiency and effectiveness data to determine process
performance baseline measurements

Six-Sigma employs Process Diagrams as an effective tool to define and


illustrate discreet process steps, and their specific metrics for process
efficiency. Process Diagrams start out as a high level (Macro) illustration of
the key process steps (Exhibit 3 – PROCESS DIAGRAM) and in its
advanced format, depicts supplier and customer relationships. Additional
level of process details are captured in the Mini level and further process
break out in the Micro diagram. Additionally, the added benefits of the
process diagram include its use to promote an understanding of the key
business process across the supporting functional areas, use as a tool for
training purposes, and may be used later in the project as the basis for
identifying process improvements. A high level process map may include
the overall process cycle time, days to completion metrics for each process
step, and performance indicators such as cycle/throughput time, resource
utilization, rework/reprocess, defect rates, waste, Work in Process (WIP)
queues, and customer satisfaction.

Exhibit 3- Process Diagram


The next step in a process optimization project aims to identify those critical
factors that enable or hinder process execution success. Six-Sigma defines
this as the Analyze phase whereby the project team seeks to understand
the process and its root causes for process inhibitors. One tool that assists
the project team to analyze the current process is the use of a SWOT
(Strengths, Weaknesses, Opportunities, Threats) analysis. During this
exercise, the team, using the mapped current process, identifies process
strengths, and weaknesses. Process strengths are defined as those
attributes of the process that enable the process to meet its determined
objective. Process weaknesses are defined as those process attributes that
have a negative effect or hinder the successful execution. While strengths
and weaknesses focus on internal factors that impact a process;
opportunities and threats identify external factors that impact upon the
process. The exhibit (Exhibit 4) below provides examples of process
strengths, weaknesses, opportunities, and threats.

Exhibit 4
Another Six-Sigma tool is a Pareto analysis to help identify the most
common categories or reasons for process failure. Pareto charts are simply
frequency plots where the most frequent results are placed in order from
the left side of the chart to the right. The chart also plots, as a line, the
cumulative frequency from the left of the chart. Be certain to have an ample
sample size of data in each Pareto chart as this will ensure that the chart
results are meaningful. Below (Exhibit 5) is an example of a Pareto chart
used to analyze the root causes of process missed milestones in a retail
organization's Product Category Line Review Process.
Exhibit 5 – Pareto Chart Example
Once the project team has identified what the most frequent reasons for
process delay or failure, the team may choose to utilize the “5 Whys” to
investigate the reasons for a specific failure or delay to find a problem's root
cause. The “5 Why's” is a simple yet effective technique to investigate the
results from the Pareto Analysis in more detail. Taking from the Pareto
Analysis, the project team will question “why” the cross-reference
spreadsheet was not completed or finalized on time. Below is an example
of the “5 Why's” using the cross reference example:
Problem: Cross Reference Spreadsheet was not completed or finalized on
time.
Why #1- Category Manager used the wrong version and had to rework the
spreadsheet.
Why #2- Category Manager did not allocate the needed 2 week time frame
to prepare the final version
Why #3- Divisional Vice-President did not communicate a final deadline
date to the Category Manager
Why #4- Product manufacturer had provided incorrect SKU number for
input into the spreadsheet
Why #5- Product manufacturer was not provided a deadline date for SKU
submittal.
The key to a process optimization project lies in the ability of the project
team to identify process inefficiencies and causes of failure. Process
Mapping, SWOT Analysis, Pareto Analysis, and the 5 Whys are examples
of tools that the BPO project team can utilize to identify and understand the
root cause of process inefficiencies or failure. Other effective tools for
organizing the team's thoughts include the Fishbone (Ishikawa) diagram
that identifies root causes and their effect on the remainder of the process.
Utilization of these tools by the project team greatly increases the chances
of identifying effective solutions to ensure process execution success.

Improving Process Performance

After the project team identifies process inefficiencies and causes of failure,
the focus of the team effort is on the identification, development and
implementation planning of the most viable solutions. If the process is to be
re-engineered, the project team may choose to map a desired state
process map. Mapping the desired state process is a very useful tool that
allows the team to visualize the optimized process and ensure all process
weaknesses and threats are amply mitigated while sustaining process
strengths, and implementing process opportunities. The project team may
optimize the process in several different areas including the identification of
systemic enhancements such as software applications, reports or email
reminders that enable improved process communications or a direct impact
on process performance. Or, a simple reworking of process roles and
responsibilities may eliminate the need for rework or process redundancies.
The BPO project team may elect to capture these systemic, procedural, or
responsibility changes directly on the desired state process map.

Combining Six Sigma and Project Management Best


Practices in the Control of a BPO Project

Controlling Key Business Process

Following the development and testing of systemic, procedural, or


responsibility enhancements, the BPO project team efforts should focus on
ensuring the solutions are implemented and measured for their
effectiveness. The team must identify measures to be tracked after the
desired state process is deployed. This activity includes the identification of
who is responsible for collecting and analyzing the process data, and
reporting process efficiencies and effectiveness to the entire organization in
the form of process dashboards or status reports. Six-Sigma projects
typically employ Statistical Process Control charts that track the stability
and variation of a particular process. A typical Statistical Process Control
chart tracks the performance of a process over time and shows control
limits which the results will lie between if the process is “in-control”. Use of
any Statistical Process Control chart requires regular updating and review
to ensure their relevance. This ensures that process performance doesn't
decline again.
Process change control is another key that ensures continued alignment
with an organization's strategic goals; processes are enabled by
technological change, not hindered, and that the appropriate organizational
structure is in place to provide resources to support the business process.
As documented in the Six Sigma Black Belt Guide (2001), a classical
model for managing the change process has three phases; Unfreezing,
Movement, Refreezing. Once a process change is identified and ready for
deployment, the “Unfreezing” of existing behavior patterns must be
addressed. Typically, most work groups are resistant to change and this
must be dealt with. People or practices must then be moved (“Movement”)
to the process change either by training or technology. Once, process
resources have acquired the necessary skills, and technology is in place,
the process is then “Refrozen” to ensure the process or department is
aligned for organizational effectiveness. One effective technique used to
facilitate the transition from existing processes to the new process is the
use of a formal “White Paper Fair” where all functional areas impacted by
the process changes have an opportunity to visualize the process
enhancements.

Summary

Organizations are able to achieve sustainable and effective process


improvement by combining project management best practices with certain
Six Sigma methodologies. The ability to combine these proven
methodologies provides the structure and discipline required to identify
process improvement opportunities, develop sustainable solutions, and
lead the organization through the strategic change process. Use of these
integrated techniques allows business processes to be efficient, agile, and
meet the organization's customer demands. In today's challenging, global
economy it is essential for organizations to combine the disciplines of
Project Management, Six-Sigma, and business process optimization to
realize process gains that ensure “faster”, “better”, “cheaper” for their
products or services, while maintaining a high level of quality in the
marketplace.

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