How many Performance Frameworks are enough?

Establishing an approach for implementing a Business Process Management Project is dependent on the level of Sponsorship. We all want it to be driven by the board and the successful delivery the responsibility of the CEO and his Executive Team. Unfortunately in nearly all cases this does not happen. It is very hard for any level of management to envisage the complexity of the network of integrated processes developed within an organisation to achieve the Value Proposition. It is important to realise the business processes are developed and structured to support the overall vision and goals of the organisation and the outcomes of the processes determine the success or failure of the business model.

When developing a Business Process Strategy one Framework will not do. There will be a number of nested development frameworks required to describe the complexity of a living business and the level of decomposed detail.

At each level of the decomposition model a framework is used to develop and link the decomposed activity. In addition there are continuous change cycles in place to monitor and analyse the outcomes and handle the speed of change required.

The most important ingredient for a successful Business Process project is that the total organisation is on board and supports it enthusiastically. One department doing well and another failing to meet its objectives can put the whole business at at risk.

Entity Business Model - Part 2

When defining business processes there needs to be supporting documentation based on a common template. All too often processes are defined and mapped out without positioning them within the organisation and without metrics. Additionally processes should contain the risk of not achieving the objectives measures and the action required by management when targets are missed. The template detailed below is a standard way of defining a detailing business processes in a way that the management of a company will understand.

In Part 1 of this article I defined the Entity Business Model; the Process Analysis Template provides a consistent way of capture information supporting the three categories of business processes that support the Business Model.

Process Analysis Template

Process Description
A Brief description of the Process and how it’s contribution to the Value Proposition.
Process Objectives
Processes are established to serve specific customer needs. The customers may be internal customers, such as another process, or external customers. The process objective defines what value is going to be supplied to the customer. One can look at it as the whole purpose for which the organisation has put together this set of resources and activities. Process objectives need to be specific, measurable, attainable, realistic, and have a sense of time. Most organisations will have fairly similar strategic management processes. However, their core business and resource management processes may differ significantly, as they are shaped by the organisation’s strategic objectives and the related critical success factors.
Critical Success Factors (CSFs)	KPIs Linked to CSFs
Critical success factors (CSFs) are the prerequisites and areas of dependency for a process to be successful.  CSFs may be inputs, parallel or supporting activities, or aspects of a business’s philosophy or infrastructure necessary to ensure the proper delivery of the process. The CSFs relate directly to one or more of the processes objectives. They are normally limited in number.	Key performance indicators (KPIs) are quantitative measurements, both financial and non-financial, of the process’s ability to meet its objectives and of the process performance. They are usually analysed through trend analyses within a company or through benchmarking against a peer of the company or its industry. The KPIs that should be listed must be relevant to the CSFs and/or the process objectives.  The KPIs listed must have relevance to the organisation. Taken together they should provide a key set of measures for measuring process performance–achieving process objectives.
Inputs
The inputs to a process represent the elements, materials, resources, or information needed to complete the activities in the process.
Activities
The activities are those actions or sub-processes that together produce the outputs of the process.  For some processes, arrows are omitted due to the non-sequential nature of the activities.
Outputs
The outputs represent the end result of the process—the product, deliverable, information, or resource that is produced.
Systems
The systems are collections of resources designed to accomplish process objectives.  Information systems produce reports containing operational-, financial-, and compliance-related information that make it possible to run and control the process.
Classes of Transactions
The classes of transactions are data and information that are related to the process for use in one or more reports to management or third parties.  The classes of transactions, which are broken down into routine and non-routine transactions and accounting estimates, provide a link from the process to the financial statements of the client.  Every process will have one or more classes of transactions.
Risks That Threaten Objectives	Management Responses Linked to Risks
Process risks are risks that may threaten the attainment of the processes objectives. Every process has one or more risks threatening the achievement of its objectives.	Management Responses are the policies and procedures, which may or may not be put in place, that help provide assurance that the risks are reduced to an acceptable level. The controls are implemented to either, reduce, transfer, or avoid the risks associated with the process and its objectives. Management may choose to accept the risk; in this case they will not implement any specific controls. This is an acceptable response.
Other Symptoms of Poor Performance
Other symptoms of poor performance represent other evidence that may exist and that indicates the process may not be operating to its most effective level.  The items listed here should lead to performance improvement opportunities listed below.
Performance Improvement Observations
Performance improvement observations are areas for performance or process improvement.  This improvement may be achieved internally by the client or other third-party assistance.

Sample Process Template

The example below is extracted from a standard Shipping Business Entity Diagram.

Establish & Monitor Network
This process pulls together routes, port facilities (e.g. bunkering, terminal, stevedoring) and vessels.
Process Objectives
1.    Enable delivery of shipping services to customers 2.    Set up an effective network
Critical Success Factors (CSFs)		KPIs Linked to CSFs
·       Efficient delivery of service supply. (1,2)		·      Turnaround times.
·      Enhanced quality of service to customers. (1,2)		·         Customer surveys.
Inputs
·      Network strategy (routes & ports) ·      Existing arrangements	·      Competitor action ·      New and emerging markets		·      Market research & analysis ·      Historical trade routes ·      Existing alliances
Activities
The activities are those actions or sub-processes that together produce the outputs of the process.  For some processes, arrows are omitted due to the non-sequential nature of the activities.
Outputs
·       Bunker, terminal, stevedoring agreements ·       New or modified alliances	·       Acquisition or development of terminal and stevedore companies ·       Network timetable		·       Fleet capacity and equipment requirement
Systems
·       Procurement	·       Network scheduling
Classes of Transactions
Routine ·       None	Non-Routine ·       Acquisition or development of terminal and stevedore companies.		Accounting Estimates ·       None
Risks That Threaten Objectives		Management Responses Linked to Risks
a)    Competitor action (1) b)   Regulatory control (1,2) c)    Non-compliance with agreements  (1) d)   Efficient use of network (1) e)   On-time performance (1)		Þ    Monitor market and respond to competitor action. (a ) Þ    Monitor and lobby regulatory authorities. (b) Þ    Monitor own and others’ compliance. (c) Þ    Load factor, contribution (d) Þ  Number of delays (e)
Other Symptoms of Poor Performance
·      Deterioration in service supply	·      Deterioration in quality of service to customers.		·      Empty / light legs of voyage ·      Increased repositioning costs
Performance Improvement Observations
·      Acquire or establish terminal/ stevedore companies	·      Renegotiate contract terms		·      Alliances

Note:

A numbering sequence is used to link objectives to CSF’s and each CSF has an associated KPI. Also Risks that threaten the objectives are linked to the corresponding objective and the mitigation of the risk is associated with each individual risk.

Entity Business Model - Part 1

The entity-level business model is used to describe the inter-linking activities carried out within a business entity, the external business drivers and stakeholders that bear upon the entity and the business relationships with persons outside the entity.

The Entity-Level Business Model is the starting point for business modeling (Holistic Business Model).  It is a framework for developing a standardised business models from which a skeleton value chain can be developed (Value Chain Analysis)

External Business Drivers and Stakeholders

External Business Drives and Stakeholders are those outside factors, pressures etc. that can prevent an entity from attaining its objectives. One of the ways to classify such external forces follows:

·         General environment

o   Political / legal

o   Macroeconomics

o   Technological

o   Demographic

o   Socio-cultural

·         Competitive environment

o   Competitors

o   New entrants

o   Substitute products

o   Buyers

o   Suppliers

·         Operating environment

o   Markets

o   Customers

o   Competitiveness

o   Trade regulations

o   Economics

Markets

Markets are the segments of an industry that are applicable to the entity.  When analysing Markets we may

·         Identify the entity’s significant market segments;

·         Obtain an understanding of how the products and services are positioned within the market segments;

·         Obtain an understanding of the relationship between an entity’s market segments and its business objectives and strategies.

Business Processes

A business process is a structured set of activities within an entity, designed to produce a specified output. A business process emphasises how work is performed rather than what is done. It is also structuring of work activities across time and place to transform inputs, such as information, materials and resources, to outputs, such as the products or services for customers or other users. Processes are usually linked with the outputs of one process being the inputs of another process.

Strategic Management Process

The strategic management process is the process that:

·         develops the entity’s mission,

·         defines the entity’s business objectives,

·         identifies the business risks that threaten attainment of the business objectives,

·         manages the business risks by establishing business processes, and monitors progress toward meeting the business objectives.

When we analyse the Strategic Management Process we may include of how management (including the Board of directors, as appropriate):

·         sets the overall direction for the entity;

·         monitor the external environment and asses the strategic implications of potential opportunities and threats;

·         monitors the extent to which strategies have been implemented; understand the strategies and capabilities of the significant competitors; analyses the entity’s strengths and weaknesses;

·         allocates resources, including capital, people and facilities to the business processes;

·         aligns its strategic business objectives with the process objectives.

Resource Management Processes

Resource management processes are business processes that provide appropriate resources to the other business processes.

Core Business Processes

Core business processes are the processes that develop, produce, sell, and distribute an entity’s products and services. These processes do not follow traditional organisational or functional lines, but reflect the grouping of related business activities.

Alliances / Relationships with Suppliers

Alliances are the types of relationships with third parties that entities in the industry may establish to:

·         Attain business objectives,

·         Expand business opportunities

·         Reduce or transfer business risk.

When analysing Relationships with Suppliers we may

·         Identify an entity’s significant suppliers;

·         Obtain an understanding of an entity’s relationship with its suppliers;

·         Obtain an understanding of relationship between an entity’s significant suppliers and its business objectives and strategies.

Products and Services

Products and Services are the significant products and services typically offered by entities within the industry.  When analysing Products and Services we may obtain:

·         An understanding of the entity’s significant products and services;

·         An understanding of the stage that significant products and services have reached in their life cycle;

·         An understanding of the relationship between an entity’s significant products and services and its business objectives and strategies.

Customers

Customers are the significant types of consumers within the markets in the industry that entities may choose to focus on.  When analysing customers we may:

·         Identify an entity’s significant customers;

·         Obtain an understanding of the relationship between an entity’s significant customers and ts business objectives and strategies.

The Business Process Model

Business Processes are developed to execute the Business Model ensuring a profitable delivery of the Value Proposition that is repeatable and scalable. The Business Process Model is a de-composition of the Value Chain aligned specifically to an organisations business. The Business’s Value Chain identifies the key value creating activities or functions. Value Chains are a powerfull analytical tool for understanding the cost structure and value creation of Participants in any Industry. It provides a framework to build integrated end-to-end processes and an understanding of how both core and functional processes interact with each other. It also provides a structured framework for developing metrics used to monitor the businesses performance and for analyzing, and taking action, on the impact that non-performing processes have on the business.

The Value Chain based on Michael Porter’s Model divides the Process into two categories:

1.  Primary Activities
2. Support Activities

The Value Chain disaggregates the business entity, identifies strategic activities and supports analysis of business economics and cost behavior and helps identify potential sources of differentiation. Each functional area in the Value Chain is decomposed; identifying structural and executional costs that support’s cost modeling and unit cost analysis. From the function decomposition of the key activities, detailed processes are developed and integrated within the Business Model.

Note: The term ‘Value Chain’ was used by Michael Porter in his book "Competitive Advantage: Creating and Sustaining superior Performance" (1985). 

The Resource Model

The Resource Model defines the Key Resources needed to deliver the customer value proposition and profit Model consistently. The alignment of the resources within the Business Model is an important factor in driving a predictable business, re-assuring external partners (Customers, Suppliers and Investors) that their investment is protected.

Internally within a business the Resource Model is an important link in defining the roles and responsibilities of the key process owners. It provides a transparent communication channel allowing consistent execution of responsibilities and the means of analyzing the performance of the process owners and external partners. In addition it provides a mechanism to increase flexibility within an organisation to react to changes quickly with minimum disruption to the normal daily flow business activity.

The resources model is further expanded into a more detailed model providing, as a by-product, an effective communications channel through the business supply chain. Aligned to the Value proposition a Statement of Direction is developed as a part of defining the Business Strategy along with Goals and Objectives which can be decomposed to the lower levels in the business model ensuring all human resources have clearly defined roles and responsibilities. This can be measured in conjunction with the effective management of detailed business processes and tasks, assigned to the process owners.