The Holistic Business Model - Strategy Management Processes

In the previous Blog I developed an overview diagram of a Consumer Products Business Entity Model. In the next three BLOGs we will develop this further for the three categories of Processes starting with the Strategic Management Processes.

Process Objectives

1. Provide clear strategic direction to the business
2. Determine strategic objectives (e.g., profitability/market growth)
3. Identify and allocate resources necessary to execute business strategy
4. Measure business performance against strategic objectives
5. Promote culture of continuous change/improvement
6. Maximise market value of the business

Critical Success Factors (CSF’s)

1. Creating and sustaining an appealing proposition to target customer/markets (1,2)
2. Maximise stakeholder value (4,6)
3. Successful  management change (3,4,5)
4. Maximise return on capital (4,6)
5. Adequate resource management processes (3)

Note: the numbers in the brackets correspond to the Objective Number(s)

Key Performance Indicators (KPI’s) Linked to CSF’s

• Market share; customer surveys (A)
• Share price; employee surveys; analyst ratings (B)
• Percent completion  to schedule; improvement in affected process KPI’s (C)
• Return on equity; return on assets (D)
• Satisfaction surveys of internal customers (E)

Note: the letters in the brackets correspond to the CSF’s

Inputs

Economic factors Markets Historical performance Competitor research

Consumers Substitutes Stakeholders Management/ employees

Suppliers Prior business plans Legislation Political influences Technology

Key Activities\

Outputs

Mission statement Strategic objectives Organisational structure Policies Customer needs identified Target markets identified

Risks and sensitivities Financial projections Clear allocation of responsibilities Capital requirements Human resource/needs

Training programmes Performance reviews Competitive position statement Business plan Communications strategy

Systems

Budgeting/forecasting Executive information systems

Competitor database Project management system

Human resource management system

Classes of Transactions

Routine

Non-Routine Merger and acquisition costs Non-routine investments (e.g. capital expenditure) Third-party training contracts Executive compensation contracts Divestitures

Accounting Estimates Write-off of existing assets Provision for future costs Recognition of intangible assets

Risks Which Threaten Objectives

1. Poor communication of strategy and implementation (1,2,4)
2. Poor operating capabilities/lack of appropriate resources (3,6)
3. Inadequate coordination between resource management and core business processes (1,3)
4. Missed opportunities/unforeseen threats (new competitors)/changing customer needs (5,6)
5. Loss of focus or inability to foster change (4,5)

Note: the numbers in the brackets correspond to the Objective Number(s)

Management Responses Linked to Risks

• Formal board approval of strategy and establishment of targets and objectives through the organization to support its delivery (A)
• Competitive benchmarking, customer surveys and performance evaluation (B,D)
• Regular board review of performance against strategic plan using balanced scorecard approach (C,E)
• Monitoring and responding to external forces (D)
• Planned performance reviews; disciplined management change process (C,E)

Note: the letters in the brackets correspond to the Risks Which Threaten Objectives

Risks Which Threaten Objectives

Unclear direction Lack of employee involvement

Undefined responsibilities Consistent failure to introduce new products/lines

Weak market position Poor financial results

Performance Improvement Observations

More rigorous planning and communication Visioning or needs assessment analyses

Introduce performance management systems Balanced scorecard

Merger and acquisition assistance More detailed market and competitor research to identify improvement opportunities

The above format is a standard template that is used with all Process Types and Categories within the Holistic Business Model.

The Strategy Management Processes establishes how the business model will be executed and the expected results achieved. It takes into account the Business Process Decomposition and Activity Monitoring along with the methods used to assure Continuous Performance Improvement. It also provides a means by which the Processes are allocated and responsibilities assigned within an organisation.

Business Process Levels

I tend to categorise processes based on the APQC’s Process Classification Framework. This enables me build a hierarchy of processes by decomposing them as per the above diagram and provide a means to monitor activities and assess the impact business process improvements.

Business Process Type

This relates to the three main types of Processes denied within the Holistic Business Model i.e. Strategy Management Processes, Core Operational Processes, Functional Processes

Process Categories

Represents the highest level of process in the enterprise as defined in the Value Chain, such as Manage customer service, Supply chain, Financial organisation, and Human resources.

Process Groups

Indicates the next level of processes and represents a group of processes. Perform after sales repairs, Procurement, Accounts payable, Recruit/source, and Develop sales strategy are examples of process groups.

Processes

A series of interrelated activities that convert inputs into results (outputs); processes consume resources and require standards for repeatable performance; and processes respond to control systems that direct the quality, rate, and cost of performance.

Process Elements (Activities)

Indicates key events performed when executing a process. Examples of activities include Receive customer requests, Resolve customer complaints, and Negotiate purchasing contracts.

Building a Holistic Business Model

In a previous BLOG I described an Entity Business Model that forms the basis of a Holistic Business Model. I will share with you in this BLOG a sample Model and also discuss how the APQC Process Classification Framework (PCF) can be utilised as a benchmark for developing a Business Process Framework.

Entity Business Model (Holistic Business Model)

The Holistic Model is based on a Consumer Products Business Entity. The importance of the Holistic Business is that it describes 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.

It is aligned to Porters Value Chain by dividing the process into three Categories:

1. Strategic Processes - 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. In other words establishes the Value Proposition that impacts the internal and external resources and the way the Organisation will support them in continuous increase in value.
2. Core Business Processes  - 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. The Core Processes are the Value Creation activities driving the profitability and provides the key measures that monitor the achievement of the Value Proposition
3. Resource Management Processes - Are business processes that provide appropriate resources to the other business processes supporting them in achieving the Value Proposition through efficient and effective Resource Management.

APQC PCF

The APQC framework provides a cross-functional business processes reference model to assess and make  comparisons of organisational performance within and among different organisations. The Operating processes are aligned to the Core Business Process in the Holistic Business Model and the Management and Support Services form the basis of the Resource Management Processes.

The Process Framework is built on a Process Element Numbering Scheme:

Level 1 Category - Represents the highest level of process in the enterprise, such as Manage customer service, Supply chain, Financial organisation, and Human resources. (1.0 Develop Vision and Strategy (10002))

Level 2 Process Group - Indicates the next level of processes and represents a group of processes. Perform after sales repairs, Procurement, Accounts payable, Recruit/source, and Develop sales strategy are examples of process groups. (1.1 Define the business concept and long-term vision (10014))

Level 3 Process - A series of interrelated activities that convert inputs into results (outputs); processes consume resources and require standards for repeatable performance; and processes respond to control systems that direct the quality, rate, and cost of performance. (1.1.1 Assess the external environment (10017))

Level 4 Activity - Indicates key events performed when executing a process. Examples of activities include Receive customer requests, Resolve customer complaints, and Negotiate purchasing contracts. (1.1.1.1 Analyze and evaluate competition (10021))

Level 5 Task - represent the next level of hierarchical decomposition after activities. Tasks are generally much more fine grained and may vary widely across industries. (12.2.3.1.1 Identify project requirements and objectives (11117))

The PCF identifies each process element using a unique 5-digit reference number following the name of the process element [i.e., (10002), (10014), (10017), (10021), (11117)]. This number always refer to the conceptual definition of the process element. The actual process elements and actual definition may change, but conceptually the decomposition will remain consistent considering the entire scope of the PCF. A new 5-digit number will be assigned to a process element if its definition substantially changes.

There are a number of Industry Models available as free downloads either in PDF of Excel format that provide a reference model when developing the Business Process Architecture.

• Aerospace & Defense
• Automotive
• Banking
• Broadcasting
• Consumer Electronics
• Consumer Products
• Education
• Electric Utilities
• Healthcare Payer
• Petroleum Downstream
• Petroleum Upstream
• Pharmaceutical
• Retail
• Telecommunications

Building Foundation for a Business Architecture

The Holistic Model provides a framework that takes into Account the External factors and Stakeholders that impact the Business Model. It also provides a framework for measuring the performance of the key end-to-end processes by requiring the following information for each of the high level process:

1. Process Objectives
2. Critical Success Factors (CSF’s) for each of the process objectives
3. KPI’s Linked to CSF’s
4. Inputs to Key Activities and Process Elements
5. Key Activities
6. Outputs of the end result of the process­
7. Systems which are collections of resources designed to accomplish process objectives
8. Classes of transactions (data and information) that are related to the process
9. Processes risks which may threaten the attainment of the processes objectives
10. Policies and procedures that help provide assurance that the risks are reduced to an acceptable level
11. Other symptoms of poor performance that represent evidence that may exist indicating the process may not be operating to its most effective level.  
12. Performance improvement Observations which are areas for performance or process improvement

In conjunction with this modeling technique the APQC model provides a structured method for developing processes and managing changes in the state of the processes from As-Is to To-Be and future enhancements through the BPI process. Both these frameworks can be used in the Case for Change and provide a format that can be maintained through the BPI project. It also provides a standard that can be used to track improvements over time as the BPI project runs through several cycles.