The Elephant in BPM's Room: Unhealthy Performance Management Policies
By Forrest W. Breyfogle III | Jul 28, 2009
The economic crisis was caused, in part, by fundamental business process management (BPM) issues that led to some destructive behaviors and left companies with very poor resistance to economic stresses. Yet little attention seems to be given to these elephant-in-the-room issues.
In discussions of the causes of our current economic and financial troubles, many commentators have focused on greed as a major factor that led to severe unintended consequences. Others -- bloggers from the Harvard Business Review (HBR), for example -- have placed the blame for the crisis on the failings of our business schools.
It seems to me that many of our present difficulties can be traced to failures in overall enterprise governance systems. The economic crisis was caused, in part, by fundamental business process management (BPM) issues that led to some destructive behaviors and left companies with very poor resistance to economic stresses. Yet little attention seems to be given to these elephant-in-the-room issues.
Take, for example, Lean and Lean Six Sigma projects. These are often reported to produce improvements in processes. However, these efforts typically occur in silos, and the benefits are not necessarily realized at the big-picture executive level.
The popularity of Lean and Lean Six Sigma efforts in recent years doesn't seem to have done much to help companies stave off financial crises in economic hard times. A good example is Delphi, which has won accolades for its Lean efforts (including the Shingo Prize for Operational Excellence) but continues to have serious financial problems. Indeed, when economic times get challenging, Lean and Six Sigma programs are often targeted as part of cost-reduction efforts, and Black Belt and Master Black Belt practitioners who have been working on process improvement find themselves laid off.
At Lean conferences, presenters often talk about the need for all company associates to work on organizational improvement. Associates should continually identify and seek to reduce waste, including overproduction, waiting, transportation, inventory, overprocessing, motion, and defects, they point out. Now, there's no doubt that these efforts can produce significant benefits. But it's discouraging to hear Lean practitioners at these same conferences, after describing how much operational waste was reduced in their organization, reporting that executive management nevertheless decided to close their facility. If these programs were doing such a great job of reducing waste, why would executive management want to close them down?
Too often, organizations adopt a hunt-for-areas-to-improve approach that results in siloed efforts and fail to give adequate emphasis to improving the true theory-of-constraints (TOC) bottleneck. For example, if manufacturing has the ability to produce significantly more products than are currently in demand, process improvement efforts should focus on enhancing the sales process (the system constraint). When Lean Six Sigma deployments evolve into a hunt for projects to execute, steering committee members may end up pounding their chests in Tarzan-like fashion and proclaiming that they saved $150 million through project completions -- but executives in the big-picture world can't seem to find the money.
This compartmentalized approach and its effects on a company's financial success can be graphically described by an analogy with furniture refinishing. If you're refinishing a table, you can spend a lot of effort on polishing the tabletop (let's say, a Lean kaizen event), sanding a leg (a total quality management [TQM] project), and staining the sides (a Lean Six Sigma project). But when you're done, your table won't necessarily look good.
What's needed is a system for assessing the business as a whole and then targeting high-potential improvement projects. You want to use a rough, 60-grit sandpaper first, over the whole table, and then use papers with a finer grit over time.
Keep in mind that Lean Six Sigma and other
improvement techniques are not a business system. They can be effective
tools; however, they're more powerful when used within a business system
framework that speeds progress toward the 3 Rs of business -- doing the
right things, doing them right, and doing them at the right time.
Weaknesses in Lean and Six Sigma practices are not the only BPM failings that have left companies vulnerable to economic stresses. Here are a few more:
• Organization scorecard metrics created through examination of the org chart. These measures are often siloed relative to the big picture and will have to be changed in the event of a reorganization.
• Strategic planning practices and metrics that result from strategies created in an executive retreat. These are often opinion-based, with no formal blending of enterprise analytics with innovation in their creation. Also, strategic wordings can lead to differences of opinion and interpretation as to how the organizational focus should be cascaded and executed throughout the organization (for example, through a strategic management methodology such as hoshin kanri).
• The balanced scorecard practice of selecting metrics after strategy creation. This can produce very subjective, short-lived measurements. In addition, these metrics are a function of leadership and economic-environmental changes.
• Traditional metric reporting. This usually relies on tables of numbers, pie charts, or stacked bar charts, all of which lack a predictive component. Basing your decision-making on these tools is like driving a car by looking only in the rear view mirror and can lead to very detrimental behaviors.
• Variance-to-metric goals that can lead to game-playing with the numbers as well as behaviors that can be destructive for the business when examined as a whole.
• Red-yellow-green scorecards that often generate a lot of resource-draining firefighting. With this approach, any resolutions are typically not long-lasting.
• Sarbanes-Oxley and other organizational controls that can be very expensive and often fail to prevent significant problems from occurring in the future.
Executives need to start addressing these issues and improving their management systems to ensure healthy policy integration for scorecards, strategic planning, business improvement efforts, and control; to eliminate game-playing with the numbers; and to benefit the business as a whole.
One business system that addresses the issues and accomplishes these objectives is the Integrated Enterprise Excellence (IEE) system. In IEE, strategy is not Step One but Step Five in a nine-step process. IEE is a reinvention of traditional business management governance systems, utilizing the tools of Lean and Six Sigma in the execution of its nine-step business management road map.
In Six Sigma and Lean Six Sigma deployments, project execution follows a Define-Measure-Analyze-Improve-Control (DMAIC) road map. However, in IEE there are two DMAIC road maps -- enterprise process DMAIC and project DMAIC -- where both Lean and Six Sigma tools are utilized.
Enterprise process DMAIC (E-DMAIC) provides a corporate performance management governance system with a no-nonsense integration of scorecards that provide predictive assessments; analytically/innovatively determined strategies; business improvement efforts that impact big-picture metrics; and business controls, which include business risk assessments. With the E-DMAIC system, silo thinking and metrics are avoided because the organization chart is subordinate to the value chain, which describes what, functionally, the organization does and how it will be predictively measured at the 30,000-foot level.
Project DMAIC (P-DMAIC) provides an improvement-project road map in which Lean and Six Sigma tools are integrated so that the best tool is used at the right time.
In the overall IEE system, the Improve phase of the E-DMAIC road map (as determined in the Analyze phase) pulls for design and improvement projects that benefit the business metrics as a whole. Process improvement projects that follow the P-DMAIC execution road map will then financially benefit the business as whole upon their completion.
Chief performance officers can use this methodology in their BPM systems. The E-DMAIC system provides the framework for:
Implementation of Edwards Deming methodologies
• Malcolm Baldrige National Quality Award initiatives
• Shingo Prize initiatives
• ISO-9000 certification
IEE provides a way to remove the elephant issues from BPM without generating a lot of pain and anxiety for the workforce.