Process Management in The Boardroom
Blog: Mark McGregor's Process Performance Blog
The success of CEOs like Sam Walton (WalMart), Fred West (federal Express), Herb Kelleher (Southwest Airlines) and Jack Welch (GE) has been pretty amazing. They have delivered some outstanding results for their shareholders. Unlike many CEOs they have delivered this through customer understanding rather than pure financial and risk- based management approaches. The result is not only that costs are kept under control for enhanced productivity, but also that sales revenues have grown impressively above the norm.
In the current climate there is much focus on Process of Business Process and the how and why it is needed in order to improve and transform business. For the most part, however, the responsibility for doing the work and delivering the results has been delegated down the organization, or in some cases outsourced altogether.
There is no doubt that a well-managed process- centric company is more agile, more able to keep costs under control and to better understand the value of any investment it might make. But are such companies in a better position to deliver real growth? My contention is that, in the final analysis, revenue growth will deliver the ultimate long-term returns that investors seek, while also providing the security of employment that employees want. To merely utilize Business Process Management (BPM) in any form purely as a strategy for cost or risk reduction is to squander the real competitive advantages that it can bring.
It is also pertinent to ask at this stage if boards of directors really believe that, when outsourcing under the label BPO (Business Process Outsourcing), they are really outsourcing processes? A quick scan through the financial and business press will reveal many deals, but in reality these firms are just outsourcing departments or functions based on the traditional structure. Indeed, for many organizations outsourcing processes is probably impossible. Why? Because few organizations have actually mapped their business processes – and, if they don’t know what or where the processes are in the organization, then how can they be outsourced?
On the other hand, if process-centric management enables greater agility and better financial control, then you can see the value in making use of techniques in this area. Presumably all can agree that revenue growth is key to long-term financial success. That is the truth emphasized by the customer-centricity of the CEOs mentioned above; each attributes much of his success to an intimate relationship with and understanding of customer needs.
Perhaps it seems that the combination of customers and process equates with increased revenue. Certainly these two factors have a major bearing, but studying successful organizations brings out another two factors as well – those of culture and organization itself. It appears that the equation for long-term success looks more like:
Customer Knowledge + Customer-Centric Processes + Culture of Service + Customer-Oriented Organization = Superior Profitable Revenue Growth
The business model looked at in this way shows that it is not a responsibility to be delegated or outsourced. This equation should be managed from and by the CEO and the board of directors.
Outsourcing of non-care activity has a valuable part to play in serving customers and investors efficiently; all customers want to know that they are getting products and services at the best possible price. But customers do not expect the responsibility for serving them to be outsourced.
Process Management can, of course, be delegated within an organization. Indeed, in some ways this leads to far better execution; the further down the organization you go the better people are able to address any inefficiency. But again customers expect management to take the ultimate responsibility for ensuring that all parts of the organization operate as single coordinated units. Process Management that uses the customer as key focus and customer-related metrics as the key measures tends to simplify organizations, leading to lower costs and better service. The customer benefit is clear, meaning that supplier and customer are more likely to continue to do business in the future (and with customers more likely to tell others about the supplier’s virtues).
Customer knowledge is not about surveys and second-hand evidence; it is about meeting customers to understand their real problems and needs – and then using this knowledge to develop products and services. It is about creating an intimate relationship in which customers are truly valued.
Directors need to answer a question or two. You may be a top-tier member of numerous frequent flier and hotel guest programmes, but how valued do you really feel? When did you last meet with or talk to the executives of those companies? It is not enough to go spouting words and putting out gold loyalty cards. Customers appreciate suppliers that provide the most important commodity of all – someone’s time and a listening ear that responds with action.
The CEOs mentioned at the start are each reported to spend upwards of 30% of their time meeting with and talking to customers. The rest of their customer input comes not from management, but from the front-line staff who deal with customers everyday; these staff are such a valuable source of information, but are usually treated as just some kind of blunt instrument.
A culture of service appears to be sadly lacking in the Western business world these days. There is so much focus on numbers that staff have forgotten how to serve. Yet companies like Tesco and Virgin stand out, not only for their financial success, but also because these results have come about through a deep-rooted culture of serving customers well. This trait is evident in many Asian companies. As a customer, how fast will you choose to move your spend to organizations that do understand service?
The culture of service also touches on the issue of delegation. While you can’t delegate the overall responsibility for customers, you can at least empower staff to resolve customer issues at the point of impact, without the need to refer to management. You can ensure that staff work with processes that are designed to enable them to serve customers better. And you can change reward structures so that staff are better rewarded for serving customers than for hitting purely financial targets or other non-customer relevant KPIs (Key Performance Indicators).
A culture of service is also far easier to achieve if you take the time to change your organization chart from a functional hierarchy to one that is organized along process lines. This will enable your teams to support customers better.
The combination of these changes is what enabled those four celebrated CEOs – Sam, Fred, Herb and Jack – to grow more successful organizations than others in the same market. But these Americans are not alone, for as noted Virgin’s Richard Branson and Tesco’s Terry Leahy share many of these beliefs. The list could also feature leaders like Sergey Brin and Larry Page of Google, Bill Gates of Microsoft, and Andy Grove of Intel – and there are several others. All are examples of what can be achieved if the responsibility for business and process management begins in the boardroom and is married to successful customer outcomes throughout the business.