A Practitioner's Perspective - BPTrends

November 2012

A BPTrends Column

A Practitioner’s Perspective Alec Sharp Senior Consultant Clariteq Systems Consulting

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What’s So Special about Your Process? This is the third Column in a series on BPM and corporate culture that began with “That Squishy Culture Stuff.” Organizational culture is frequently cited as a barrier to becoming more processoriented, but many BPM professionals don’t explicitly take it into account precisely because of that squishiness. The point of the` series is to illustrate techniques and frameworks that enable us to take a more rigorous, less squishy approach to culture, just as we have rigorous approaches to modelling and assessing business processes. We’ll never reduce the mysteries of people and organizations to the Holy Grail of the consulting world, a set of 2 x 2 matrices, but we can do a lot better than just hoping for the best. (By the way, we will manage to slip a 2 x 2 matrix into this column.) This month, we’ll look at a framework for assessing the “Strategic Discipline” or “Differentiator” of an enterprise. The framework was originally intended to describe an entire enterprise, but over the past 15 years I’ve had excellent results using it at the level of individual business processes. The connection to culture is that the differentiator of a process defines “what is good,” which is our stripped-down definition of culture. For instance, is it “good” to be consistent and efficient, or is it “good” to be innovative with your products and services? This is critical to success, because a business process will never reach maximum effectiveness unless its various participants hold a consistent set of beliefs about “what is good”. By the way, if you’re just joining us now, and haven’t read the previous two Columns, they contain some background that will help: • “That Squishy Culture Stuff” – Jan. 2012 – http://bit.ly/MqUbYd • “Disabled by Enablers, Punished by Rewards” – May 2012 – http://bit.ly/M31Bxi

1 – What is a “differentiator” or “strategic discipline?” Hands up if you’ve heard the phrase “Operational Excellence?” I knew you had. Keep those hands up if you are maybe just a little bit tired of the phrase “Operational Excellence?” Me too! There are many contenders, but Operational Excellence (“Op Ex”) gets my vote as the decade’s most over-used (and poorly understood) term in the management lexicon. Just as “Excellence” was the go-to phrase 25 years ago, and eventually came to mean, well, not very much, so it is with Op Ex. Here’s an example. A few years ago, I was consulting at an organization that professed to be striving for Operational Excellence, evidenced by the "Op Ex" banners that festooned the workplace. It seemed reasonable that the process redesign initiative I was working on should align with this goal. Seeking clarity, I asked a team of executives exactly what would be different when they achieved “Operational Excellence,” and how they would know. I was told that the goal would be met “when we have achieved excellence in our operations.” I thought he must be joking, but I didn’t let on, not wanting a nice consulting job cut short. Instead, I think I highlighted that “Op Ex” isn’t for everyone, and brought up some alternatives. Hilarity ensued, or at least some very “lively” discussions. This doesn’t mean there’s anything wrong with Op Ex, or that everyone misuses it. Quite the Copyright © 2012 Alec Sharp. All Rights Reserved.

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Practitioner’s Perspective

contrary – it’s part of a useful (and simple!) framework, and many organizations know exactly what they’re striving for with Op Ex. The problem is that the term is often used without awareness that it represents an explicit choice among three alternatives – Operational Excellence, Customer Intimacy, and Product Leadership – and successful organizations (and processes) know they can only be great at one. In other words, it can be a strategic decision to not strive for Op Ex, but who wants to strive for “Operationally Middle of the Pack?” A good way to introduce the other possibilities is to ask “what would you focus on if it wasn’t Op Ex?” My introduction to differentiators Many years ago, while consulting at a global technology company, my client suddenly asked, "Alec, do you have a current NDA?" (Non-Disclosure Agreement.) "Yes," I replied, "mine is up-todate." "Great," he said, "now I can tell you what our real strategy is." This seemed like a good idea, given that I was working on a strategic project. He ushered me into a closet-sized meeting room and laid it out for me. "We advertise that we are the product leader, but we're well aware that our main competitor’s product is technically superior to ours." You could have knocked me over with a feather. He went on to explain that it didn’t matter if the competitor’s product was superior, because “They can’t manufacture with the volume and consistency necessary to satisfy the market and stay profitable. We can." He told me “the competitor is following a Product Leadership strategy, but we’re embracing Operational Excellence.” That was the very first time I’d heard these terms, and, sensing I wasn’t keeping up with the conversation, my client helpfully recommended the recently published book that introduced these concepts, “The Discipline of Market Leaders.” (Michael Treacy and Wiersema, Fred, Addison-Wesley, 1995. Reading, MA.) The central idea During reengineering engagements, Treacy and Wiersema worked at many leading companies, and developed the insight described in the book. What they saw was that in each industry or sector there were invariably a small number of top-performing companies, the “market leaders” referenced in the book’s title. However, the market leaders were not cookie-cutter versions of one other – they were clearly different from one another, and therefore appealed to different marketplace needs and wants. In other words, they had a “strategic discipline,” or, the term I use more often, a “differentiator.” The market leaders didn’t necessarily use either term, or the specific framework developed by the authors, but each had made a clear choice to excel in one particular way, and accept that they couldn’t be great at everything. The “also-rans” had made no such choice, or tried to be great at all three. The choices were: 1. Operational Excellence. This discipline emphasizes consistent, predictable, error-free, and efficient operations. Processes will be more efficient, but less flexible in changing direction or meeting the needs of individual customers. In retail, think of Wal-Mart. One of my clients recently suggested that because all three disciplines require excellence, a more descriptive term would be Operational Efficiency. 2. Customer Intimacy tailors the delivery of products and services to the needs and processes of individual customers. In retail, think of Nordstrom. Note that the products and services offered to one customer might be the same as those offered to all other customers – it’s the engagement processes that vary. Processes will be less efficient overall, but more flexible for individual customers. 3. Product Leadership. As originally described by the authors, this stressed the development of market-leading products that competitors must imitate. The obvious example is Apple. Even more often, we find that Product Leadership manifests as the ability to rapidly introduce products and services, whether they are “market leading” or not, or rapidly change the mix of products and services. Think of Zara, a leading retailer in the “fast fashion” space. Processes will be less efficient overall, but more flexible in adapting to the needs of new offerings. This framework applied whether the industry was financial services, consumer packaged goods, hospitality, or any other sector the authors looked at. It’s one of those wonderfully clarifying ideas Copyright © 2012 Alec Sharp. All Rights Reserved.

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that seem obvious in hindsight, and the book went on to break records for how long it was at the top of the business bestseller lists. A similar point, albeit in a framework that looked at five factors not three, was made in “The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything” by Fred Crawford and Ryan Mathew. Figure 1 illustrates the three disciplines in the format we came up with to illustrate the concept – it visually conveys the idea that each differentiator is a choice to move in a specific direction.

Operational Excellence

Consistent, predictable, error-free, and efficient. More efficient, but less flexible

Rapidly introduce industry-leading offerings, or change mix.

Product Leadership

Customer Intimacy

Tailors product or service delivery to the processes of individual customers. Flexible for customer, but less efficient.

Flexible for offerings, but less efficient.

Figure 1: The “strategic differentiator” as a way to understand “what is good?”

The differentiator helps answers the question “Why choose us?” which I think is the essence of strategy: •

“Which Customers or Markets do we - or should we - serve?”

•

“What Products or Services do we - or should we - serve them with?”

•

“What differentiates us?” or, “why choose us?” or “what’s good about us?” Application to Business Processes

Assume that your customers could select among several competing processes – what would make them select your alternative? Is it because your process is more cost-effective, more flexible, more convenient, or what? The first response is usually “All of those—we can and must do it all!” In fact, you can’t, and great companies have figured that out. Before you design a business process, you must decide what will differentiate your process from the alternatives, whether or not those alternatives actually exist. Having chosen the differentiator that is appropriate for the customers you need to appeal to doesn’t mean you ignore the other two. You need to strive to excel in all three, as far as possible, but you will always hit a point where further improvement on one will negatively impact another. If an organization doesn’t know what discipline they are focusing on, process design will be a painful exercise. Because they have different unstated goals, improvement suggestions that appeal to some people will be opposed by others, and discussions will go back and forth endlessly. Or, conflict will be avoided because everything sounds like a good idea, but the new process will be unsuccessful – it will have no overall “style” and will be in conflict with itself. Organizations that have decided up front what will differentiate their process will be have a wonderfully clear signpost for decision-making. By explicitly choosing the differentiator or “improvement dimension” an organization will avoid making the automatic (and frequently incorrect) assumption that the goal is to be faster, cheaper, and more efficient (Op Ex) when that might not be the appropriate choice for the customers and markets your process serves. At the risk of being flamed, I’ll observe that I’ve seen this mistaken assumption most commonly among people with a Six Sigma or Lean background. Copyright © 2012 Alec Sharp. All Rights Reserved.

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Generalizing, there are three common patterns when the differentiator isn’t correctly addressed: 1. Lack of focus on one differentiator leads to lower or mediocre performance 2. Focus on the wrong differentiator leads to customer alienation 3. Inconsistent or conflicting differentiators leads to a stressed workforce, and therefore suboptimal processes We’ll look at specific examples a little later.

2 – Objections and questions – the usual suspects I’d be surprised if objections and questions weren’t arising by now, so let’s look at the ones I hear most often: “But we have to be great at everything!” The most common objection goes something like this: “But we can’t ignore the other two! Being Op Ex sounds great, but we also have to provide the right products and good customer service!” And that’s precisely the point stressed by Treacy and Wiersema – you can’t be great at one, and terrible at the other two. You have to be great at one, and really good at the other two – like “quality,” being “really good” or at least “at industry par” is the price of entry in modern business, but only one can be your primary strength. Figure 2 is the sort of illustration we often use to get this across, sometimes even putting a 1 – 10 scale on each vector.

Figure 2: Graphic illustration of “great at one, good at the other two”

“We're customer-focused, so we must be Customer Intimacy” That would be a logical conclusion, but it fails on closer inspection. All three differentiators are customer-focused, because each represents what your customer wants most in dealing with your process. Yes, I know what you’re thinking – “our customers want everything” – but experience shows that customers really do choose the option that matches the differentiator most important to them. “Why choose us? Because they have to!” This is a tempting response for processes that serve internal customers, or for processes operated by government agencies. In those cases, there are no competing alternatives, so why bother striving for a particular differentiator? The answer is first that your project will suffer all the same tensions as any other project if there is no clear differentiator stated. Otherwise, what will you use as a signpost to guide the decision between competing improvement suggestions? Besides, there might be no competing alternatives for your service at the moment, but that can change almost overnight – governments and corporations alike are outsourcing services to a degree unimaginable ten or even five years ago. While working on a recruiting process some years ago I was given the “because they have to” answer, and had a lot of difficulty getting the group aligned on the most appropriate differentiator for their organization. As it turned out, it was Copyright © 2012 Alec Sharp. All Rights Reserved.

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too late – three weeks later, the recruiting process was outsourced, and the people I was working with were suddenly scrambling for other positions in the company. “Do all our processes have the same differentiator?” This gets at one of the realizations I eventually came to after a few years of applying the framework – the differentiator idea works really well at the level of individual processes, and all an enterprise’s process most definitely do not have to align to the same differentiator. For instance, in a high tech company the processes in their product development area stressed Product Leadership, which is no surprise. In their human resources processes, however, the goal was Customer Intimacy, which was necessary to attract and retain scarce technical resources. Customer Support processes were Op Ex. Similarly, in a world famous chef’s restaurant, Product Leadership is the goal in menu development, but the kitchen works in an Op Ex mode, stressing constant, unwavering discipline in replicating the chef’s vision. “What if we need multiple differentiators for the same process?” If excellence in multiple differentiators is a strategic necessity, perhaps because the enterprise deals with different market segments, sophisticated organizations establish entirely separate versions of the same process, each working towards a different strategic discipline. They will have a separate point of entry, and separate staff and facilities, to ensure that work in one doesn’t interfere with work in another. In banking, for instance, the average customer deals with Op Ex versions of the retail banking processes, doing their banking online or at ATMs. High net worth individuals, on the other hand, have their own Customer Intimacy versions of the processes, and the banker will frequently come to them. “Is it forever?” Over the long haul, the differentiator can change in response to market conditions, or to the natural life cycle of a product or service. For instance, a company we referred to earlier was the Product Leader in their early days, then shifted to Operational Excellence as the market grew and matured. Currently, I suspect they are shifting to a Customer Intimacy model to ensure their participation in emerging market spaces. This does not mean that the differentiator should be changed often, which is why I started with “over the long haul.” Poorly considered or knee-jerk changes in focus can’t be executed well and usually have negative consequences. This will be illustrated in at least one of the examples we’ll look at now.

3 – Some examples and lessons Each of these is actually more involved than I can get into here, so I’ll try to just the high (or low) points. I’ve tried to anonymize them, because most are a bit negative, but these are often the most instructive. As they say, “Good judgment comes from experience, but experience comes from bad judgment.” Let’s be like Bismarck, who said “Fools learn from experience. I prefer to learn from the experience of others.” Understanding why a project was going nowhere A national health care organization embarked on a complete reengineering of its central “deliver clinical care” process, only to realize after several months that the effort had stalled. All that was moving was large amounts of money to the major consulting firm leading the project! We were called in to determine what caused the complete lack of progress. In a facilitated workshop, we first tried to establish the goals of the reengineering exercise. It was immediately apparent that there were none, other than the usual “excellence.” After explaining the three disciplines, there was unanimous agreement that the organization’s historical focus was Product Leadership. When looking to the future, however, exactly half the team felt the new concentration should be Op Ex – provide standard health care as consistently and cost-effectively as possible. The other half felt it should be Customer Intimacy—provide the most flexible, personalized health care for each individual group and member within the group. (It was

Copyright © 2012 Alec Sharp. All Rights Reserved.

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interesting that each used the same rationale for change – market pressures, the commoditization of health care, and regulatory oversight.) Suddenly, like a light being switched on, it was obvious to everyone why the project was stalled – no overriding goals. As we say in the consulting business, “Sometimes you earn your money on the first day.” They then recounted what the last several months had been like – every proposed feature of the new process yielded endless discussion and a high degree of conflict, but never a decision. This is when it got interesting. Someone in the session excused himself to brief the executive sponsor of the program, and when she heard what we’d uncovered, she immediately called the consulting firm and directed them to “get your people out of here by noon.” Harsh, but appropriate – it really was unconscionable of the firm to charge what they did for as long as they did without clarifying the program’s goals. We learned some years later that the health care organization returned to its roots, and was very successfully embracing Product Leadership, developing programs that attracted exactly the type of customers they wanted. A footnote – this was the first time I ever used the framework on a consulting engagement, having only read the book the night before on the plane. That partly explains why I became such a fan – when you read a book one day, and very successfully apply what you learned the next day, it must be a very good book indeed! The other two examples are shorter. Overcoming resistance to change by showing that the market demanded a shift A laboratory providing specialized services prided itself on integrating their operations into the customer’s operations, and reacting as needed. Without knowing the term, they were following a Customer Intimacy mode. When a client came to them with a problem, the response was to assign a dedicated team to the customer’s issue, and effectively become part of the customer’s operation while the issue was investigated and resolved. However, dramatic changes in the marketplace and the regulatory environment required an equally dramatic shift to an Op Ex mode. This was resisted intensely by both scientific and administrative staff – “doing what it takes for the customer” was an intrinsic part of their culture, and was backed up by training, ubiquitous posters, and performance evaluations. In a series of sessions with staff we demonstrated the differentiator framework, and why changes in the environment demanded the shift to Op Ex. They quickly got on board, even though they weren’t thrilled, because it was better than the alternative – the lab would go out of business, and they’d all be out of a job. This example highlights two common problems: 1. Conflict between the Customer Intimacy proponent’s desire to “do what it takes” for the Customer, and the Op Ex proponent’s desire to “drive down costs through consistency and efficiency.” This helps explain why Six Sigma, Lean, and, predictably, Lean Sigma (a totally meaningless term) thrive in some environments, and are rejected in others. 2. Many organizations adopt approaches that can best be described as Customer Intimacy in an attempt to “paper over” operational weaknesses in their processes. It’s extremely common to think that a customer wants the personal treatment of Customer Intimacy, or the cool offerings of Product Leadership, but careful research shows they really want Op Ex – predictable, efficient service. In the preceding laboratory example, staff pointed out (pointedly!) that they were constantly given encouragement that could only be interpreted as emphasizing Customer Intimacy, so this Op Ex direction seemed to have come from nowhere. Earning my everlasting admiration, the Managing Director stood up and said “We were wrong.” He went on to explain that every avenue of investigation revealed the same thing – the client appreciated all the fuss and attention, but in the new environment what they really wanted was (you guessed it) “predictable, efficient service.” Choosing a differentiator that misaligns with Customer desires This one can be summarized as "Blow $100M on stuff the customer doesn’t want." Copyright © 2012 Alec Sharp. All Rights Reserved.

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Being great at one differentiator doesn’t guarantee success if it isn’t what your customer wants, as an auto insurer discovered after investing almost $100M in new systems and processes to become a Product Leader. Great, except that wasn’t what their customers wanted. Policyholders wanted affordable, government-mandated, easily understand and purchased insurance coverage, which further demanded simplicity and limited choice – a clear example of Operational Excellence. This debacle ensued from a situation many of you have (unfortunately) experienced a new executive tries to put his or her stamp on the enterprise, even though it doesn't suit the culture and strengths of the organization, or the desires of its customers. In the example we just looked at, a new VP with a Product Leadership background in the high tech sector was brought in to a conservative insurer whose strength was Op Ex. A complete cultural mismatch, but all the board saw was the track record of cost savings. I'm currently shaking my head at a similar situation – an Op Ex CIO with a strong track record has been hired into a different industry, and into an IT organization that reflects the company's values through its emphasis on Product Leadership. The new CIO, predictably, is busily replicating his previous success by dismantling successful programs (e.g., Business Process Management and Data Management) and outsourcing everything he can. Choosing a differentiator that misaligns with Employee desires This one can be summarized as "Get it wrong, lose the company." The unquestioned global leader in an emerging technology enjoyed spectacular growth while the market grew from 100s of millions of dollars to billions. Not only had they largely defined a new market, but they stayed on top of it through the efforts of their core asset, the engineering staff that developed solutions and capabilities that competitors couldn't keep up with. It was classic Product Leadership. As the market rapidly matured, consolidated, and standardized, though, a different approach was necessary. Executive leadership correctly determined that a shift to Op Ex was called for, which was another classic - the shift from PL to Op Ex as an industry matures. They perceived this as a natural evolution, which it was, but didn't anticipate that their staff would perceive it as a fundamental betrayal of the company's culture and values. Whoops. There isn't space to go into the details, but staff felt this as "imposing a factory mindset" on what was "a craft organization" (actual quotes.) The reaction was so negative that operations ground to a halt and in the end the company was broken up and sold off in pieces. I can't prove it, but from experience (there's that word again!) in similar situations, I'm certain this outcome could have been avoided if management: •

Knew the differentiator framework and saw what a fundamental shift they were undertaking;

•

Communicated the situation, and the need for change, in a factual, blame-free, and compelling manner. (Those are the three elements of another framework I use, which will of course be the subject of a future Column.) Not recognizing the natural inclination of participants in an end-to-end process

You’ve surely seen this. A cross-functional process includes participating functions that have different – how to put it? – “world views.” More to the point, they have differing perceptions of “what is good” which can often be explained in terms of differentiators. Figure 3 illustrates a generic example in which Sales, Engineering, and Finance are, respectively, oriented to Customer Intimacy, Product Leadership, and Op Ex. In one case, process change was difficult because of the differing cultural inclinations among the functions. We got past this barrier by first acknowledging each group’s preference (per Figure 3) and then illustrating that what was needed across the process was Op Ex. (Surprise! Finance wins!) The company was competing in the low-cost commodity space within their industry, and customers made clear they really wanted a Copyright © 2012 Alec Sharp. All Rights Reserved.

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low-cost and low-touch process. This isn’t to say that Sales and Engineering were thrilled, but this helped bring them around.

Figure 3: Natural inclination by functions towards a particular differentiator

Really? You might either find these examples unbelievable, or conclude that consulting is a very easy business indeed. I'll only deal with the former. I’ve seen it time and again – conflict and misunderstanding result if the overall direction (differentiator) isn’t explicitly stated. Once the idea of the differentiator is introduced, it’s a real “aha” moment, and disagreements and cultural biases are suddenly put in context. What was formerly seen in “us and them” terms, or as squishy stuff, becomes quite a bit more reasoned and pragmatic.

Wrap-up Think about a process you work with. Does it have a clear differentiator? If so, is it appropriate for current conditions, or should a new focus be established? Has “Op Ex” (or a general focus on efficiency) been adopted when a different direction would be more appropriate? Can conflict that you might have chalked up to “organizational bias” or “culture” be more easily understood in terms of differentiators. In many situations, I’ve used the differentiator framework in many ways: to uncover the root cause of organizational conflict, explain why a documented “best practice” turned out to be a “worst practice” when implemented, align the participants in an end-to-end process, and others. Whether or not you care to think about this in terms of organization culture, this has proven over the years to be an extremely useful framework when assessing and designing business processes. An assignment for you Let’s close with an assignment that will require you to revisit an earlier column. Sneaky, eh? On page 4 of “That Squishy Culture Stuff” – Jan. 2012 – http://bit.ly/MqUbYd I covered the OCAI framework, a 2 x 2 matrix describing four different cultures. See if you can decide which differentiator each culture would be naturally inclined toward, and which culture might struggle to settle on any differentiator. Send me a note if you have any thoughts.

Where is he now? These days, I’m not always sure where I am. From September through to the Christmas break I’ll average about three days per month at home, traveling the rest of the time. It can get a bit tiring, but it beats the alternative! As I’ve noted before, this is a great time to be in the business of helping organizations become process-oriented. I’ve just wrapped up three weeks in Europe, first in lovely Copenhagen to deliver a seminar on (you guessed it) business processes for a global pharmaceutical company, and then running workshops in London before returning to Vancouver for a couple of days. Now I’m in Utah for hands-on process identification, modeling and analysis. Perhaps we’ll cross paths before the end of 2012 at one of these upcoming events: Copyright © 2012 Alec Sharp. All Rights Reserved.

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I’ll be at the Business Process Forum in Ft. Lauderdale, FL Oct 28-Nov 02 2012. http://bit.ly/i8YGLS I’ll be delivering a workshop on “Concept Modelling for Business and Process Analysts” and a track session on “Modelling Failure – How Process Modelling Goes Wrong, and What to Do About It.”

•

Software Education will again be hosting our two-day workshop “Advanced Business Process Management – Aligning Process Work with Strategic, Organizational, and Cultural Factors.” Wellington – Nov. 12-13. Auckland – Nov. 19-20. http://bit.ly/vJUlzH Don’t miss it - it got rave reviews on the last two tours. Hope to see you there – or at an airport somewhere! From the Trenches Alec Sharp

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