Achieving Long-Term Competitive Advantage through Continuous Process Optimization
Competing on Product and Process
From a strategic positioning standpoint, it's easy to look at a competitor’s end product and try to compete with them, but it's also missing a big part of the overall picture. Ability and profit margin go hand-in-hand. One reason corporations use industry benchmarks is to get a look into where they are falling behind or leading the organization. Benchmarks aren't necessarily end product related. Benchmarks are often tied to key performance indicators that measure a key process or output. These key processes are called core-competencies.
From the outset, we want to be focused on the key processes behind the product's production. According to a recent article in Harvard Business Review's October 2017 Issue (2):
"If you look at the data...how well companies execute basic tasks...Firms with strong managerial processes perform significantly better on high-level metrics such as productivity, profitability, growth, and longevity. In addition, the differences in the quality of those processes—and in performance—persist over time, suggesting that competent management is not easy to replicate."
Knowledge of what it takes to get to a successful end-product is the first step to having a core-competency focus. A core-competency focus means that we are focused on the functional way we are getting to the end product. It requires an in-depth analysis of core functionality and process with an eye towards enhancing employee satisfaction and efficiency, product creation, and customer engagement.
"You can miss the strength of competitors by looking only at their end products, in the same way you miss the strength of a tree if you look only at its leaves." (1) Strengthening the "How" of the organization is key to growth and scale, because creating repeatable processes is the only way to keep moving forward through execution.
The Startup Balancing Act - How focused should we really be on this?
As a startup, a balance needs to be struck between process understanding and just getting things done. However, too many businesses and business operators are actually executing too much and not balancing process development and strategy in their day-to-day execution. This keeps the organization locked in tactical execution which is generally not very responsive or proactive in maintaining, changing, or growing the business.
Tactical operators will generally need help defining the critical objectives and tasks to work on. Whereas a strategic operator might have trouble with execution. Together, these two types of operational styles work well together when they are in sync. Think of a rider and a horse. The horse would be strong wherever he decides to go, but the outcomes will be different depending on how he decides to get there. The rider can see where he is going more clearly, but without the horse he will be very slow getting there. Together, the rider and the horse represent the coupling of strategic vision and directed execution.
Initial Process Development - The Gate Keeper to Acting Strategically
Everything is weighted toward tactical at first but the sooner you can start getting your process down the sooner you can start to shift the focus so it’s more in balance. My general rule is that if I do something more than 2 - 3 times, I will need to at least record it next time I go through it. Using screen-casting software, it's easy to start documenting your processes as you execute them. I would recommend having a way for your team-members to capture video and audio narration. In an ideal scenario, they will also have the ability to map processes and develop the underlying narration behind the details of execution.
Organizations we help typically go through a 6-step awareness maturity of their core-competencies. Usually everyone starts at Core Aware, but they don't really have a good structure around it and there is alot of assumptions and processes in people's heads. As the core focus matures it begins to transform the underlying actions into more optimized and automated solutions. Personnel, facilities, inventory, and cash are better utilized as the organization matures.
Core Focus Maturity
- Aware - The organization knows the critical process areas that make the business work. Most of this information is not centralized and is highly operator dependent. If we couldn't talk to the operator for some reason, this information would be lost.
- Knowledgeable - The core operator follows the formal process development plan to capture routine processes. The organization has established a formal process development plan (starting with capture) and the resources are capturing their processes regularly. Outputs for this maturity level are raw process information on the key areas of their job duties. There is no documentation at this point.
- Aligned - Each of the critical processes are mapped and documented in a way that the entire team can benefit from. Outputs for this maturity level are formal process maps and narratives on the key areas of their job duties. This is comprehensive documentation that allows both an organizational and a business unit view of the core-competency focused actions.
- Measured - After processes are documented, we can start to assign timing, dependency, and resource based considerations. Anything that you can measure on the process that will help to gain insight into capacity, productivity (Work/Time), lead time, or output rates.
- Optimized - Optimization can occur across people, processes, or technology. Using metrics you can analyze bottlenecks, flow, and skill fit to optimize the overall delivery. In manufacturing this is especially important as optimized flow and resource allocation, leads to less waste, inventory reductions, better quality process, and a more repeatable, predictable delivery mechanism
- Automated - After optimization, automation opportunities will be more apparent. Technology implementation or 3rd party operators can make critical pieces of the delivery process more automated thereby reducing focus on low value tasks and increasing the ability to focus on higher value, growth oriented execution.
Formalizing Process Documentation - Now We're Cooking
Introducing your organization to a formal core-focus will allow team building. Common objectives will be defined through these discussions and the contributions towards those objectives will be better understood by all team members. As execution happens, the team can start to learn best practices and techniques for capturing and disseminating their core processes. Technology solutions that help the entire team or just individual groups will be easier to evaluate, implement, and gain successful adoption, because everyone is aware of the why behind the decision. Problems arising from technological limitations are seen in light of the overall objective and are therefore put in the right frame and trade-off perspective. Overall, once the team knows what they are doing, what is expected of them from downstream teams, and what to expect from upstream teams, everything works in a more cohesive and accountable way. The focus then is on continuous improvement and optimization of the system.
Achieve Organizational Alignment
The ability to gain more efficiency is just the beginning. Once the execution teams are aligned with their core contribution, they will be better aligned with management overall. This is how to create a more cohesive organization from the ground up. The leaders are then responsible for driving vision and growth rather than trying to manage inefficient or unreliable processes. The teams have real performance metrics that can drive individual members to uncovering or unlocking breakthroughs in processing speed.
Focus on Flow and Optimization
The focus on flow and optimization will make the organization easier and faster for the teams to work together in. Eliminating waste, pro-actively cleaning and maintaining areas and equipment, analyzing customer interactions, and organizing delivery assets will all make the overall execution more seamless. As improvements and implemented, the energy of the team increases exponentially. As impediments and waste are removed from the system, the processes become faster and more automatic and are easier to teach to new team members. Expectations are aligned and met and mistakes become opportunities for improvement rather than the status quo. Growth and development are passed on to all new hires and the system self-perpetuates once established and maintained.
Getting Started with Your Team
To start this process have a 15 minute meeting with your team to delegate the task of identifying their core delivery areas and associated processes. Give them examples of what you mean through a rough analysis of the company's highest value activities. Try to have every part of the organization represented at this initial meeting. What's important is to focus on what is being done, how many people are doing it, and how much of an effort is this task (Full-time Employee [FTE] hours). Meet again for 1 hour and review the output from the first meeting. During this second meeting, the goal is to have an end-to-end view of the high-level processes. By this point, there should be owners defined, FTE hours assigned per task, and the upstream and downstream dependencies. You can follow products or service delivery all the way through the major steps of the process.
Once you have a complete end-to-end view at a high-level, then it is leadership and management’s job to decide the critical path for each area to focus on. This can be done top-down or collaboratively with the goal of identifying the 20% of tasks that are essential to business operations. This 20% is the starting point for all process maturity progressio By this point, the organization is beginning to move from aware to knowledgeable. It's important for leadership to continue to lead with structure throughout this process. How does the end result look from our 1st meeting with the orgainzation's mangers? How should our team-members go about capturing. documenting, reviewing, finalizing, and updating their processes?
In a boot strapped organization, capture can be done simply with a pen and paper. It's important to have some central site setup where capture is stored, otherwise it's almost as bad as having the information still in someone's head. In a more robust organization, you can use software like the Camtasia Screen Recorder. Having a way to record audio and their screen allows the user to easily capture their processes and store in a centrally accessible location. From video, we can get screen shots, details from the audio overlay, and specific actions that will all be used in creating the full process documentation. The worst case scenario is your organization never makes it past this capture stage and I would say at that point you are in the top 75th Percentile of Companies. Capture is not one size fits all; for some activities capture might involve interviewing sales people, ghosting calls for understanding, filming actual product processing, pulling time records, and collaborating with 3rd party vendors and resources to get an understanding of the operational timing and dependencies.
I like the ease of use of the Google Docs and Lucid Chart integration. Starting with a high-level outline in Google Docs and reviewing that with team, allows for the high-level process maps to be created in Lucid Charts. These High-level Processes can then be defined at a sub-process level and the associated narrative can be captured in Docs. So the Marketing Organization might have as it's high-level process:
Example: Marketing High-Level
- Campaign Development
- Ad Management
- Content Generation
- Customer Insight
Then it can break each of these processes into sub-processes. Using campaign development as an example:
- Campaign Development
- Keyword Analysis
- Content Generation and Ad Strategy
- Budget Analysis
- Ad Procurement Process
- Ad Selection
- Ad Approval
- Ad Purchase
The list above is not all inclusive, but you get a good idea that sub-processes might be 2 - 3 levels deep.
Once you hit the execution level (usually 3 - 4 levels deep) switch from bullets to a step-by-step narrative view. This will allow for links to external content, resources, and intricate process detail to be captured.
Process Documentation Technology Overview
The following is a list of some helpful applications that can help your team and organization streamline your process development and automation efforts. The sources listed below are our favorites for now and there are new comers all the time to this space. We evaluate process documentation software based on the following 3 variables:
1. Total Cost of Implementation - I want the total cost of implementation to not be too crazy, afterall we are just keeping an active repository of reference material. This shouldn't be a cost prohibitive solution in any way especially in maintaining the product licenses once you buy and deploy the software.
2. Ability to Scale in the Future - Does the licensing metric allow me to scale services effectively? Is the information easily accessible and secure between internal and external teams. Can I export my data into other tools if I do decide to switch providers?
3. Ability for Rapid Adoption by the Team - Can my team figure out the software without a ton of training or experience. This software needs to be pretty intuitive to use - Process Work is going to be challenging enough for your team without a cumbersome technology to learn.
Lucid Charts - A more enhanced version of Microsoft's Visio, Lucid Charts are great for visually mapping the process and linking it to detailed narration. Used at the higher levels to define main processes and allow the user to easily see the end-to-end execution as well as the upstream and downstream implications for other teams. Lucid Charts has a great integration with Google Docs so you'll see that you'll be able to easily embed processes into documents and 2-way link the two together. All integrated documents have the ability to be automatically updated as changes are made to either the diagrams or the narrative.
Google Docs - Part of the basic Gsuite of Apps, Docs is used to capture the narrative and ultimately show the entire process from high-level to the execution level. Docs can be setup to be shared in and outside of specific teams, and all diagrams are able to be embedded in the narrative version. The final Google Docs version is the one source of truth for the organization's processes as every level of detail is represented. Lucid chart diagrams that are updated in the Lucid Chart tool can be automatically updated to the latest version in Google Docs.
*Also, Lucid Chart just released the ability to integrate with 0365 Docs, so if you are already using Microsoft you might just consider check that out. Find out more at Microsoft Integrations with Lucid Chart.
Where to Focus
Focus on the 20% of what is crucial to your success. Then develop and refine process for those key activities over the next 3 months. Review the progress with your team and compare notes and outputs on the process documentation exercises. Use this meeting to get a pulse on each team-members overall experience and morale. Discuss what's going well and what's challenging for the individual teams and let the leaders all discuss solutions and paths forward.
Integrate Your Processes Between Teams
Once we can see the end-to-end connection between the tasks starting to take form, setup a meeting with your teams to discuss progress and show them the overall process. Find a way to discuss and brainstorm dependencies, ways to make things speed up, and where potential risk areas are.
Define Relevant Metrics and Setup Measurement System
Next have breakout sessions with your team to define metrics relevant to the process. With the processes known and the metrics defined, have the team-members complete the documentation around the 20% core processes. Over the next few weeks analyze the base-lines for the metrics you defined.
Getting the end-to-end measurement system in place allows for you to uncover the critical path and know the true time it takes to process one unit of output. With this basic understanding, streamlined flow and process optimization can come next.
As a management team, in addition to the hard numbers behind how much effort and how long something takes determine qualitatively: What are the underlying causes of output variability? Identify all obstacles, impediments, bottlenecks, or other types of efficiency differences that might explain variation in output performance.
Understanding how the energy is working for or against the team is a key focal point for management. Direct feedback on what the team is thinking at each step is required to get a more complete and accurate picture. Make timing notes in the areas where it's applicable and try to understand at each critical point, how long does the process time take, how long is the initial lead time from upstream processes, and what are all the dependencies and potential bottlenecks to consider at each stage.
Optimization and Automation
Optimization and automation, the next steps after the measurement systems are in place, are about freeing up energy for the team and allowing the organization to spend it's time focused on growth and scale. The team-members who take part in this development are in a natural growth oriented position because not only do they know their area, they have ownership of it at the execution level and can help evaluate skill-set match and teach new team-members as the company grows. These people can work themselves out of their current job through transferring their knowledge down and taking on more opportunity to learn more, grow, and scale the business' execution.
From there the cycle repeats and continues to refine itself over time. Doing this effectively in your organization will take time a patience, but the incremental and then exponential gains in productivity and team morale will be worth the effort in the long-run. Process excellence and the subsequent ability to move quickly to scale up or down are both keys to being a nimble and agile organization.
- by Raffaella Sadun, Nicholas Bloom, John Van Reenen
- Harvard Business Review September-October 2017 issue