Process, Process, Process

Taking location as a given for the time being, the next most important factor in creating value in your organization are your processes.

The mission of your front line people is to create value for the customer, whether that be a service, a retail experience, product production, or on a project basis. Theoretically, they should be able to engage in their task without explicit regard for cost or for the selling price to the customer, simply following the approved processes appropriate to the goal. While the front line, being the acknowledged domain experts, may have a crucial role in designing and improving the processes, by and large during the bulk of their work, their concern should simply be focused on effectively executing the process. Whether it creates value for the enterprise is not their primary concern, if they do not create value for the customer, you will no longer have customers.

The ownership of the processes themselves, and the truth of whether or not they create value for the enterprise, is the domain of middle management, one level up from the front lines. Consider a project that delivers $3M of value to a customer who is willing to pay $2M for the solution, and which internally should cost the enterprise $1M to deliver. Other than avoiding deliberate inefficiencies and negligent behavior, the front line team should be solely focused on delivering $3M in customer value within the bounds of the approved processes. Management’s job is to assure that those processes, when properly executed, and with a margin for expected deviations, can deliver the solution for under $1M. Credit for the delivered solution goes to the front line team; credit, or blame, for making or losing money on the project goes to management.

If I were in middle management, chartered with the objective of designing and managing processes that create enterprise value, the one, single most important tool I’d want at my disposal would be process cost information provided to me by an activity-based management system (ABM). While it might be nice to know what my resource costs were (travel, materials, labor, office supplies), if I am losing money, I am no further enlightened by that information than if I’d not had it at all. What I really need to know are my process costs. Armed with that knowledge I can make effective business decisions that cannot be made from a resource-only perspective. By benchmarking against my internal targets or external industry data, I can assess whether:

- We need a quality improvement program in production, or
- a lower cost sourcing option, or
- a more effective call handling operation, or
- a more centralized logistics operation, or
- a different sales channel, or
- a process re-engineering or shared services initiative, or
- a capital investment in technology or equipment, or
- etc …

Moving up one more level to the top, to the executives who set strategy and allocate resources, if you are going to hold your mid-level management accountable for value creation, which you most certainly should, you need to give them the tools, information and infrastructure that allows them to actually focus on value creation, to actually see into their process costs and efficiencies. How are you supporting your own value-creation champions in your organization? Have you given them what they need, or are you simply supplying what information is readily available, typically limited to resource costs, and making it easy for finance to create less-than-useful management reporting packs?

Value is created, or destroyed, through processes. Make the process the center of your management focus, then build your IT infrastructure around supporting those processes, starting with ABM.