Business Process Reengineering - A simple approach

Everyone always hears about Business Process Reengineering, but what does it mean? In a nutshell, it is the process of reengineering your business so that it can be more effective in processing transactions with the right amount of resources.

Sound simple? Unfortunately too many businesses have been bogged down in these reengineering projects that often all they have to show for it at the end is a lot of effort, much money spent, and little quality improvement. This does not have to be the case.

In the following example, we will cover a simple business process that everyone should familiar with, renewing your driver's license. I have yet to meet anyone who doesn't feel that they spend too much time in line, and that there has to be a better way.

This business process is a generic example, and not based upon any particular DMV. We are simulating how many renewal applications can the DMV handle on a daily basis.

There are 6 steps involved each with varying process times and 6 departments.

We initially start out with 6 workers, one in each department. And we simulate an inter-arrival time of customers looking to renew their drivers license to be 1 every 30 seconds.

When we run the simulation, we will see that only 59.86 or roughly 60 renewals are processed per hour in the entire day. In order to improve customer service the business objective is to at least double the amount of transactions to be processed.

So how do we achieve this? Do we add resources at every department, how do we know when we are hitting diminishing returns?

The best way is to simulate the process and see what the model tells you. After running a simulation we see that the department utilization is as follows:

Time-Weighted Average Resource Utilization
No Workers Added

Department	Sim #1
Application Review	24.94
Cashier	49.88
Eye Exam	66.51
Issuance	49.88
Photography	33.26
Violation Review	99.77

We see that the Violation Review Department is running utilized at 99.77%. We see this as an opportunity to add an additional worker and rerun the simulation.

This time the simulation tells us that we are now doing about 89.64 renewal applications per hour and that the bottleneck has moved out of the violation review department, and into the Eye Exam department.

Time-Weighted Average Resource Utilization
After 1 Worker Added to Violation Review Department

Department	Sim #1	Sim #2
Application Review	24.94	37.35
Cashier	49.88	74.70
Eye Exam	66.51	99.60
Issuance	49.88	74.70
Photography	33.26	49.80
Violation Review	99.77	74.70

Now if we add another resource in the Eye Exam department and run the simulation we see we now are processing 119.32 applications per hour achieving our business objective goal of doubling our applications processed per hour and only adding 2 more workers.

Time-Weighted Average Resource Utilization
After 1 Worker Added to Eye Exam Department

Department	Sim #1	Sim #2	Sim #3
Application Review	24.94	37.35	49.72
Cashier	49.88	74.70	99.43
Eye Exam	66.51	99.60	66.29
Issuance	49.88	74.70	99.43
Photography	33.26	49.80	66.29
Violation Review	99.77	74.70	99.43

So can we do better? If you look at the following Report on Renewal Applications you can see the diminshing returns we get as we add more resources.

Therefore to get more process improvement we need to look at the process times for each function and see if we can optimize those, just adding bodies is not going to improve the process. To see an overview of the entire process, click on the following link: DMV Process Overview

As you can see from this quick example, business process reengineering can be a powerful tool to help you optimize your business process.

If you would like to explore how you could gain efficiencies through modeling your business processes, please contact Hawaii Business Consulting for a free assessment at (808) 224-0470.

Leadership and Self Deception

A friend of mine recently sent me a copy of "Leadership and Self Deception" by The Arbinger Institute. Even though it is not a very thick book; I being short on time, and always skeptical of yet another touchy feely book, I was slow to engage it.



But once I did, it was very insightful in analyzing and attacking how to break out of the vicious cycle where organizations tend to enter a downward spiral.

In my previous article regarding "How to Beat Back Bureaucracy", I touched upon how organizations once they get engaged in a political process how difficult it is for them to change. And that typically an organization will continue to become more political because it is too difficult and risky for people to change.

In this book it talks about what is necessary for leaders to break that vicious circle. The key message of the book is simply this: Self-betrayal leads to self-deception; which causes you not to focus on results.

The process looks like this:

1. In the book "Self-betrayal" is defined as An act contrary to what you feel you should do for another is an act of self-betrayal


2. You justify your betrayal by assigning blame to the other party. The only reason that you are not doing what you know to be right is because of what the other party did.


3. Unfortunately for everyone the person receiving this blame begins to start their process of self-betrayal;blame assignment; and justification

For example lets take a real-world example.

You manage a large department, you know that your employees deserve more money and you feel that you should do something about it. Unfortunately if you were to do something about it, it could play against you politically within your organization, and perhaps cost you money that would have been paid to you. You commit the act of self-betrayal by passing over getting your employees more money and you assign the blame to the employees. If they were only more efficient, more effective, etc. etc. you would do this, but since in your mind they are not you feel justified in not making any changes.

And what is the result?

The employees who are not making any money, realize that they could do more work for the company, but they choose not to because they justify that if they were getting better paid they would be willing to do more work.

And the vicious cycle begins.

The key steps in resolving this issue, is that business leaders at the top of the organization have to realize that this is occurring and take steps to change its culture.

Specifically:

1. Don't worry about being perfect, just strive to do better;


2. Don't look for how others are not doing things correctly strive to make sure your interactions don't fall into this vicious cycle;


3. Don't give up when you realize that you are prone to assigning blame, start small and be persistent to change your viewpoint;


4. Don't deny when you get caught in that cycle. Apologize, and move on. Try not to repeat the same mistake.

Summary:

The stories in the book make it much more of a compelling and fun read than I can do justice in this article. If you find it to be interest just follow the link to Amazon.

Conceptual Commercial Bank: A case study on Internet product delivery process improvement

Executive Summary:

Conceptual Commercial Bank (CCB) is a fictitious large commercial bank based upon information gathered from several large corporate banks. Given the confidentiality and proprietary nature of such information none of the financial information or the process flows discussed in this case study directly correlates to any one specific bank, rather it is an amalgam of public and private information from all the banks.

CCB’s eBusiness Unit is facing challenges on how to quickly deliver new Internet based commercial bank products to its current customer set as well as expanding its customer base. Customers do not feel they are getting as much Internet product as they would like, and the business units feel that the deployment process takes too long and is too expensive.

The purpose of this case study is to analyze the current Internet product delivery process being implemented at CCB and how things could be improved to provide more Internet product for customers quickly while generating more revenues for CCB.

History:

CCB’s eBusiness Unit is responsible for developing and implementing CCB’s Internet financial services products and e-commerce solutions. This group works with the individual lines of business (LOBs) to develop and deliver Internet based solutions to meet the LOBs’ needs.

Due to the immaturity of the Internet space, there are high costs involved with deploying Internet solutions to customers. There are high costs for Internet technologies that are needed to deliver Internet solutions and the high cost of skilled resources has increased operating expenses significantly year over year.

Revenues from Internet products are increasing, although not as quickly as operating expenses. This is due to the slow adoption rate of current customers to new Internet products. It requires them to implement changes within their current business process, which takes time. Overall, customer feedback has been positive regarding their desire for Internet products, but how many products and what kinds are not clear.

Reported losses before restructuring-related items of $179 million in 2004, compared to $141 million in 2003 and $78 million in 2002. Net losses of $143 million in 2003 and $94 million in 2002 included restructuring-related items of $2 million ($3 million pretax) and $16 million ($28 million pretax), respectively. See Table 1.



Strategic Objective

The strategic objective of the eBusiness unit is to Internet enable as many products as possible to form a competitive advantage in selling commercial banking products.

Each line of business (LOB) is responsible for working with their customers to solicit new trends and needs within the market. Given that many of the products currently available to their customers are non-Internet based, the LOBs’ need to think through the consequences of cannibalizing current revenue streams in exchange for new Internet based product solutions.

Internet Product Delivery Processes

The challenge is that the uptake on new Internet product varies greatly based upon customer type. Large corporate customers tend to need specific products for specific needs. They have large treasury departments that have specific individuals to handle specific transactions: Foreign Exchange, Cash Management, etc. In middle-market and smaller organizations these functions tend to roll up under a small group of people. They prefer to have suites of products available to them to manage their complete relationship with the bank.

In order to address both needs, CCB formed the CCB Internet portal to serve their customers. This way both large corporate and middle-market customers can see their applications all in one location. This provides a consistent user interface for their end customers, and a consistent security and deployment mechanism for rolling out applications.


The end customer interacts with the portal in the following way:

1. They access CCB’s Internet portal;
2. Depending on what application they are accessing they are validated using different security measures;
3. The user is asked to authenticate depending on the security mechanism required;
4. The portal builds the customers information from LDAP (an internal database) and displays the look and feel depending on the type of customer;
5. The user interacts with the portal to get access to the applications it needs off of the shared application servers.



New Customer Idea

During this phase, customers may provide feedback on products and services that they would like to utilize from the bank. This input is generally routed to LOB’s customer sales representatives. New idea generation rate averages 5 recommendations per month.

Business Group Review

Capacity: 20 projects; depending on size and complexity

Given that there are multiple business areas, each area looks at new product development within their own budget constraints and determines what products would give them the greatest competitive advantage or what do they need to do in order to retain key customers.

Many projects are not implemented right away due to the fact that it may not be possible to begin work in the current budget cycle. Other projects are already funded and to start new work would mean sacrificing of other projects already underway. These projects are sometimes brought back into the queue in the next budget planning process.

Proof of Concept

Capacity: 5 projects; depending on size and complexity

If the business feels that there is enough potential in moving forward, it engages the system IT areas to start to build out a proof of concept. This proof of concept can be done internally or sometimes in conjunction with external vendors.

This is often done very quickly to test out the idea before the senior management review meeting. It also allows the IT and business teams to better size the amount of time and effort required to deliver this product.

Things get rejected at this point when IT identifies a showstopper from a systems end that will impede the ability for the product to get to market.

Senior Management Review

Capacity: 5 projects

Senior management meets and reviews new proposed business cases for additional projects. This process typically happens during budget planning cycles, but can occur off-cycle if there is enough business justification.

Most projects get rejected at this point due to the following reasons:

1. Not enough data to determine if the projects will generate real return;
2. Competing internal and system needs that cannot afford to free up resources;
3. Other business cases are more compelling and require the same resources.

Gather Detailed Requirements

Capacity: 2 projects

Given the size and complexity of the projects, the number of resources required to implement this phase can greatly vary. Compounding this challenge is that there is an internal strategy group that works as a liaison between the Systems and Business areas. This strategy group tries to marshal the requirements back and forth between the areas which slows the process down. Elimination or reduction of the utilization of this group would greatly enhance the ability for the system’s areas to handle more projects.

Build Internet Product

Capacity: 10 projects; dependent on complexity

This is where the development process begins to build to the business requirements. This takes a lot of coordination amongst resources and across groups. The more complicated the project the more complicated the communication flows. This can lead to miscommunications, turf battles, and stalling of the project. If the cost and time overruns are too extreme, management may choose to stop the project.

QA/Product Release

Capacity: 4 projects; dependent on complexity

CCB is moving to an automated form of QA testing, but currently relies extensively on resources from both the business and IT areas to help do the final QA testing.

During this time a select group of customers are invited to test the product and provide feedback… Too much negative feedback or instability in the application can cause the project to be stopped.

Deliver product to Customers

At this point the product becomes generally available to customers, and it is a factor of the salespeople to sell their customers on it.

If the process has worked successfully the products that are coming out will meet the consumers needs. However with the long lag times, and the rapidly changing Internet landscape those products may not be what the customers want today, which causes the process to be kicked off yet again.

Process Improvement

In order to determine the optimum process improvements, the overall process was entered into the Process Model software, and statistics were collected for the operation.

Table 2 shows the baseline statistics for the process. The inputs to the system are assumed to be 5 new ideas per month fed into the system over a 4 year time period.



Improve Quality

From looking at Figure 2 we see that some projects get stopped in the build or QA phase of the project. The primary reasons are that the projects selected had high variability in customer acceptance, or tended to be trendy in what the market wanted for the short-term, but by the time the product would be delivered it was no longer required by the customers.

By implementing more stringent criteria early in the project selection process, it will help increase the quality of the product ideas and reduce the rejection rate of the project once the project has begun. This is very important do to the fact that any rejection after the bottleneck “Gather detailed requirements” is very expensive.

Table 3, shows the improvements in the quality process. The rejection rate for the “Build internet product” and the “QA pilot release” activities were decreased to 0%. This leads to 4 more products being released - an additional project per year.



Improve Capacity

From Table 2 we observe that the biggest buildup is before the “Gather detailed requirements” activity. The “Gather detailed requirements” activity actually encompasses many sub-activities and three resources. In order to improve the process we need to be able to increase the capacity of the bottleneck. The reason that there is such a small capacity is that in order to solicit requirements, the system group needs to work through the strategy group to communicate with the business. This only leads to indirect and inefficient communications between the business and the systems groups.

By cutting out the strategy group and redeploying those resources into the systems groups, the business can directly work with the system areas, which will increase the communication flows and increase the capacity of handling more projects.

The capacity of the bottleneck was increased from 2 to 6 projects per month. Table 4 shows the improvements. The number of finished Internet products dramatically increased by 200%, releasing 18 projects over a 4-year period. Time to market decreased from 24 months to 15.6 months. Also note that the % utilization of the last two activities increased, because the bottleneck is now releasing more projects each month.



Improve Flow time

Areas in which we could improve flow times are in the “Gather detailed requirements” and “Build Internet product” activities. These two activities take 72% of the 14.5 months of theoretical flow time. But breaking the overall project into smaller phases (one could visualize this as breaking down the batch sizes) we would be able to increase the flow time through both the requirements and the building phase.

Requirements would be less per phase, which would take shorter time to gather and ultimately would speed up the building process.

Table 5 shows the improvements when the flow times are reduced to 3 months for the “Gather detailed requirements” and “Build Internet product” activities. The number of Internet products dramatically increased by over 200%, releasing 22 projects over a 4-year period. In addition the time to market decreased from 24 months to 14 and the theoretical flow time is now 10 months.



Total Improvement (All three improvements implemented)

By improving quality control, decreasing the theoretical flow time and increasing the capacity at bottlenecks, CCB will be able to increase product releases to 30 products over 4 years, or about 7.5 products per year. (Table 6) Just as important, average cycle time is as close to average value-add time as possible. This greatly streamlines the operation and keeps products from being obsolete by the time they reach the market.

Table 7 compares and contrasts the impact of the changes individually as well as implementing all of them together.





Conclusion

The biggest challenge in implementing some of these improvements is that it requires major organizational changes to be effective. While some things such as better quality controls can be implemented without any pushback, removal of the strategy group and closer linkages with the business and system areas will disrupt the political status quo. In order to make changes along these lines support of senior management will be necessary.

But by implementing these improvements CCB will greatly increase its speed in which it delivers new Internet product to market. Infrastructure components (fixed costs) represent 80% of operating expense where project development (variable costs) represents only 20%. By speeding up the process of delivering Internet product CCB will be able to reduce operating expenses and improves the bottom line contribution of the eBusiness unit on a per product basis. This will greatly increase CCB’s competitive advantage in this market by being able to respond to their customer needs quickly, which will allow them to generate revenues to better fund other Internet product ideas.

The Soren Principle - How to attract and retain your top talent

Why does it seem to be so difficult for many companies to attract and retain top talent? What happens within an organization that causes some people to want to stay and others to leave?

The Soren Principle is defined as "Your top talent will stay in a company as long as they can beat back the bureaucracy and effect change. As soon as that becomes impossible it is time for them to move on."

What I have found to be the motivators for people to stay or change jobs is based on four questions that they ask themselves:

1. Culture - Do they like the people they work for, work with them, and report to them.
2. Impact - Do they feel like they are making a difference doing the job they do.
3. Career Growth - Do they feel that they are learning new things and have more to learn.
4. Money - Last but not least, this is what compensates for when they don't have 1-3 and it helps pay the bills!

If you can provide people with

4 out of 4: These people will go out of their way to do the right thing for the company. They will be eager to refer people to come work at your company.

3 out of 4: While realizing that nothing is perfect they will typically stick it out within a company.

2 out of 4: They are already on the fence and contemplating looking elsewhere.

1 out of 4: They are doing their job search on the job. They are not interested in their work, and it will be difficult to motivate them.

0 out of 4: These people are so disgruntled that they are only there because they can't find something else... yet!

You need to listen to what they really want to do

The first question I ask people during an interview is "What is your dream job?" This often takes the candidate by shock and sometimes confusion because they feel that they have to answer the question in the context of how it relates to the position that they are currently interviewing for.

But I tell them no, I am interested as an employer to know what is your ideal job. That way I can align opportunities that match your interests. I have always found that employees that are staffed on jobs based by their aspiration and not current job title tend to be more effective and innovative than those doing it for the paycheck. You would be surprised by what you learn about people by just asking that simple question.

Make sure you lead people and not just manage them

As an employer you are constantly being silently evaluated by those that work for you. They are making assessments as to whether it is in their best interest to stay on board. Many managers tend to treat people (some not intentionally) like pawns on a chess board. They are tools to achieve the bigger corporate agenda. Often these managers fail to have any ability to inspire their people, or rally them to cause other than "We need to do it, because the guys at the top said so."

Remember:

"People follow bosses because they have to, people follow leaders because they choose to."

What would you rather be viewed as?

Have integrity in everything you do

Nothing amputates an employee's spirit faster than when they see their bosses doing things they know is wrong. The "Do as I say, and not as I do." management approach has been responsible for destroying many a company's workforce.

Once you break trust it is very difficult to reestablish it.

Compensation is not all about money

Every person has a different need that makes them happy. You have to understand what is that motivator in your employees. It requires work, time, and energy to truly listen, solicit, and encourage your employees to share with you what they want, but the rewards are unlimited.

If your employees see that you are willing to go that extra step for them, most return the favor by going an extra mile for you.

But it takes time to establish trust and for people to view you as being different than all those other managers they had in the past.

Communication and Feedback is critical

I once worked for a boss that said he truly encouraged disagreement because he felt that it allowed people to communicate and that he had an open door policy to anyone who wanted to give him feedback.

What it turned out that he meant was that he encouraged disagreement as long as it did not run counter to anything he said. And by asking him questions directly he did not like to be challenged, so his open door policy meant that anyone that did not agree with him could leave.

Don't make that mistake; if you encourage feedback take the good with the bad. You are going to have some that just come in and complain about everything, but it will also enable those to give you critical feedback that will allow you to make adjustments to your organization.

Make your work place fun

Fun does not have to cost a lot of money. I have always had a philosophy of "Work hard, play hard". As a manager you try to find ways to recognize and reward your employees in ways that encourage others to contribute.

I can remember many days where teams that I managed after achieving a major milestone, would take off early on a Friday to do a team outing. It allowed people to detox and unwind. It provided an informal atmosphere where people could feel comfortable venting their concerns without feeling like it was a formal meeting.

We are looking for a few good people!

Hawaii Business Consulting is growing, and we are looking for good people in sales, business, and technology. If you like an entrepreneurial environment, having multiple responsibilities, and having fun while delivering value with integrity you may be interested in working for Hawaii Business Consulting.

Please forward your resume and cover letter to hr@hawaiibcllc.com