July 17, 2018
There are organisations which struggle to thrive and stay relevant in their respective fields while there are others which excel in their own industries. In a setting wherein globalisation is rampant, the environment is dynamic, and the competition is high, organisations need the right strategy to succeed and stay profitable. But how do they do this in a fast-changing environment? What do these successful businesses have in common? It might not be clear in one look but the organisations that keep on winning are those who continuously improve and adapt to trends and changes swiftly.
The ability to be agile is important for companies to stay relevant to their customers and to stand out from their competition. Successful businesses have agility as one of the pillars of their business strategy.. In this blog, we will understand how these companies apply different techniques to stay lean and agile.
Standardisation and harmonisation are often interchanged when talking about business processes. However, these two offer different functions as analytical techniques. Standardisation means making uniform business processes across totally different divisions or business locations. This technique is done with the expectation of meeting certain cost reduction and performance objectives. On the other hand, harmonisation is a technique which looks at the variation between process standards and set bounds to the degree of their variation. This means that harmonisation is a trade-off between having too many and too few standards for a process.
Why do successful businesses make sure that harmonisation is being done well for continuous improvement? They rely on the fact that harmonisation paves way to lowering the cost of business process maintenance because of the smaller number of process variants as it increases the agility towards process changes. While at it, harmonisation also make sure that the organisation continues to attend to the requirements of every division as it will only increase the cost if these requirements are ignored.
Harmonisation is the solution for implementing standards for different process requirements. It avoids one-size fits all approach and avoid inconsistencies in the standards. Harmonisation is important to successful businesses as it gives senior management more control over their processes in the long run. When done properly, both standardisation and harmonisation would greatly improve process performance, lower the costs for process maintenance, and give the management more control over the operations of the business therefore paving its way to excellence and success.
Business processes are made up of sequence of tasks performed by a particular role in the organisation. It is important for management to check if these tasks are clear performer and if these tasks are still relevant to the process based on its objectives. To identify which ones are performer and which are not, successful businesses conduct value analysis on the tasks that make up the business processes.
We classify the tasks into three: Customer Value-Adding (CVA), Business Value-Adding (BVA), and Non Value-Adding (NVA) tasks. CVAs are the tasks that adds value to the processes that directly affects customer satisfaction. We can identify CVAs by checking if the customers are willing to pay for the task when asked to. BVAs on the other hand are those which do not directly add value to the customer but adds value to the business operations. Example tasks within a process are tasks that enable compliance to laws, policies and regulation. Lastly, NVAs are tasks which are not relevant anymore because it does not add value to the customer neither to the business.
After carefully analysing task values, successful businesses continue to improve by creating and adding more value to the tasks that directly impacts the customers and the business itself by eliminating non value-adding tasks. The tasks being done in a process should be monitored from time to time to increase CVAs to emphasize customer focus and deliver higher value to the customers.
Activity Based Cost analysis
The measurement of success of a business may not only be reliable to profitability but cost leadership can bring an organisation to a whole new different level. Successful businesses conduct process cost analysis to identify and closely monitor the cost being incurred on executing each process. This evaluation opens an opportunity to redesign the process and to reduce cost.
When evaluating the cost of a process, we consider two kinds of costs which are Role Cost and Overhead cost. Role Cost is the labor cost of doing a certain task and the overhead cost refers to the ongoing expense related to operating the task or activity. Rent, accounting fees, and taxes are some examples of overhead cost. The cost of a certain activity can be calculated by translating the role cost and overhead cost into minutes and multiplying it by the minutes it takes for the activity to complete. What successful businesses do is after executing the value analysis for the costs of the different CVAs, BVAs and NVAs by calculating the annual process execution of each, they remove the cost from NVAs through eliminating this activity. Therefore, the organisation can save by putting away the wasted cost or can increase the allocation of resources to the more deserving Customer Value-adding or Business Value-adding activities. This translates to a cost-efficient and cost-effective process and opens more opportunities for the process of the business to improve and succeed.
Activity Time Analysis
Another way for successful businesses to save cost on their processes is by evaluating the time spent on the processes and cutting off the delay times.
We take note of two categories:
1. Execution Time which is the required time for a single activity to complete.
2. Delay Time which is the time lag associated with the task in a process. It can be caused by either the unavailability of a third party (can be a person or a system) or because the activity is not being prioritised.
Businesses can check on two opportunities for improvement, one for the time spent on an activity and one for the time spent on a process. Just like the cost evaluation, we identify how much time is spent on CVAs, BVAs and NVAs. The lesser the time spent on NVAs, the better since time spent on NVAs are wasted time therefore wasted resources too. Successful businesses take note of this and even evaluate the whole Process Cycle Time in a year to check on the bigger picture.
All businesses aim for efficient and effective overall management. Businesses with efficient processes utilise the lowest amount of inputs to create the greatest amount of output.
We suggest using the Process Cycle Efficiency (PCE) measurement to evaluate the efficiency of a process. The higher PCE as represented by a number, the more efficient the process becomes. The PCE is calculated using Execution time divided by the cycle time to arrive at the percentage efficiency.
Successful businesses take out the delay time to make their Process Cycle Efficiency score high. If you want to become 100% efficient, you have to remove all of the delay time.
As reference, a 25% efficiency or above is an acceptable score for non-manufacturing business.
These five techniques presented above can help businesses succeed in driving continuous business improvement, competing in this dynamic environment and gaining a competitive advantage and stay relevant for your customers.