Building a Process Based Organization

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Managing Director, Ephesus Consulting
David Hamme is the Managing Director of Ephesus Consulting, a boutique consulting firm based out of Charlotte, North Carolina that focuses on driving game-changing initiatives for its clients. David is the creator of a pioneering approach to innovation, which is presented in his book Customer Focused Process Innovation (McGraw Hill). For its contributions to the field of Operational Excellence, Customer Focused Process Innovation received the Shingo Research and Professional Publication Award. Prior to founding Ephesus, David worked stints as a management consultant for Ernst & Young and The North Highland Company. His consulting work spans numerous areas including Strategic Planning, Process Improvement, Change Management, and Enterprise Wide Cost Reduction. Over an 20 year career, David has completed projects for over 40 clients including such recognizable names such as GE Capital, Kellogg’s, Bank of America, Wells Fargo, Family Dollar, Delhaize USA, Fifth Third Bank, Lowe’s Home Improvement, Time Warner, Sonic Automotive, and Duke Energy. In addition to his consulting career, David served as an executive in Lowe’s Home Improvement’s Installation Business Unit. As a leader of this $3B business, David oversaw the strategic planning, marketing, product management, pricing, new product development and sales functions. David received his M.B.A in Finance from Indiana University and his B.S. in Industrial Management and Electrical Engineering from Purdue University. At Indiana University, David taught undergraduate students for the Decision & Information Sciences Department. He currently offers training programs to clients including Strategic Planning, Lean & Process Management, Facilitated Sessions, Business Development, and Enterprise Cost Reduction.

Nowadays it seems every mid to large size company is getting clipped at the knees. For example, take the tech industry. Not ten years ago, the industry was dominated by household names including Intel, IBM, Microsoft, Cisco Systems, and Oracle. With the passing of years their core businesses have eroded as upstarts nabbed market share. Today, those maintaining their market position often do so only through the acquisition of their smaller rivals. Their internal growth engines are sputtering if not dead. Why? The issue is not that these tech giants don’t have the resources to compete. Nor is it that they don’t have experienced leaders and talented workforces. They simply are unable to adjust their product portfolios to seize market opportunities. Burdened by traditional corporate structures and business practices, when sparks of innovation flare up they are quickly dowsed by the corporate bureaucracy.

The prevailing managerial structure today is a hierarchical pyramid that traces its roots back to the Roman Military machine. The structure of cascading leadership was necessary to keep a large army organized and to relay directives on the battlefield even in the midst of large scale combat. The business world mimicked this structure during the industrial revolution when size and complexity required a more formalized organizational structure. While this structure performs adequately in evolutionary markets when change comes slowly, it is plagued with issues during more revolutionary periods. It is not a model well suited to fast-paced innovation. Silos between business units result in differing focuses, uncoordinated resource allocations, and political infighting as leaders seek to climb the next rung on the corporate ladder. Information flows poorly through this structure – creating a situation where leaders lack the critical knowledge to make fact based decisions. It’s not surprising established companies are commonly losing ground to smaller, more strategically nimble companies. 

Gradually, leadership teams are exploring alternatives to the status quo to address the innovation deficiency of their organizations. Undoubtedly the most promising option is a transition to a process based organization. While the traditional org structure is anchored on a command and control management style, a process-based structure is based on the concept of process management. Process management can be defined as the assignment of an owner to design, operate, and innovate an end-to-end process (or as close to an end-to-end process as possible). If the size or specific nature of the process so requires, a process may have sub process owners to oversee components that are geographically distant or require specialized skillsets. For example, a pharmaceutical R&D process may entail specialized testing of a new product. A sub process owner with the appropriate knowledge and understanding of the testing process might be assigned to oversee this segment of the process. 
In a process-based organization, the process owners replace departmental managers and many other leadership positions. Employees executing the process may report into the process owner or they may report into localize managers such as a store manager in a retail store. Regardless of where they report, their roles are designed, overseen, and adjusted by process owners. 

The advantages of this model are magnified in large, complex organizations. Gone are the bottlenecks between departments. Gone is the misalignment of resources and disconnects between departmental priorities. Even more powerful, the implementation of this model requires the investigation and documentation of the core processes in an organization. And the value of this knowledge base cannot be understated. In my experience, most leadership teams are ignorant of what occurs on the ground level on a daily basis inside their organizations. Unfortunately, it is the processes executed by ground level associates that are the prime determinant of whether a customer has a delightful experience or will shop for an alternative provider. 

To really fuel the innovation engine, the decision makers must possess a clear understanding of the ground level activities occurring every day in front of the customer. In short, the organization needs to know its capabilities. By merging this knowledge with customer insights and evaluating it against potential competitor reactions, a process-based organization is primed to make real, meaningful change. This approach is the launch pad for game-changing innovations – studying the customer, plotting market adjustments to align products to match the customer’s wants and needs, and then using the institutional knowledge of the operational capabilities of the company to design and execute initiatives to take the company to the desired strategic position. The simplicity and straightforward nature of this approach can reenergize strategic laggards and breath life into companies lacking new ideas.

Unfortunately the transition from the traditional approach to one based on processes is not a simple one. Decades of “follow the leader” mentalities have bred complacency and acceptance of the status quo. Old habits and routines are entrenched in the company’s DNA. In most instances, change comes with a price. It takes time and persistence. And like the proverbial elephant that can’t be consumed in one meal, it requires small step after small step. 

From my experience, the best way to manage such a transition is to start small, build momentum, and gradually build the supporting structures until the new practices have taken root. 

Phase 1: Start Lite
In the early phase of the transformation, the leadership team may not yet be 100% bought in or only a part of the organization may be willing to move forward. One benefit of a process-based model is that it can be implemented on a limited scale and still deliver tremendous value. To start off, the core processes of the initial business unit need to be documented. Once documented, process owners can be named to oversee these processes. Then comes the fun. The next step is to develop feedback loops to capture and make available the wants and needs of the business units’ customer base. Customers can be internal or external to the overall company. From this information, the process owners identify and design initiatives. Each initiative is forecasted to deliver value once it is executed. The complete set of these initiatives comprises the innovation portfolio for the participating areas of the company. An innovation portfolio is a collection of initiatives that can be prioritized and launched for execution. Like an investment portfolio, the values of the initiatives are adjusted over time to account for changes in the market and other factors. By doing so, the business unit can adjust its resources and focus to make sure it is always driving the greatest value for the business. 

Phase 2: Build Momentum
In the second phase, the model expands beyond a limited part of the organization. Each of the components of the solution that are in their infancy in Phase 1 are expanded and solidified. For example, the initiative management function (i.e. scoping, evaluating, prioritizing, allocating resources, and tracking initiatives) becomes more formalized. This often requires a bit of reengineering of the process as it expands to incorporate a larger scope. More importantly, the governance structure that oversees the management of the initiative management function needs to be identified, trained on the process, and engaged in the ongoing work. At this point in the transition, I find it helpful to launch a training program. Both process owners and process teams need to be educated on the basics of process improvement and how process management can be used as a managerial structure. 

Phase 3: Formalize & Institutionalize
In this final phase, the approach and structures are expanded to the rest of the company. While the basics of the approach are usually fairly well developed at this point, expanding beyond the current segment of the organization requires a good amount of training and change management. The process structure and its documentation should be further investigated and redrawn to include the full organization. The governance team adds members from the new areas and the role of the leadership team is increasingly formalized. Old practices and decision-making approaches are discarded. Change management is critical at this point to ensure adequate communication of the changes, training, and reinforcement of the new mode of operation.  

Large transformations are never easy. In fact, they are often ridiculously hard. Some employees will never grasp the new way and will leave. But others will embrace the change, opportunity and simplicity of a process based organization. The simple fact that employees have a clear view of what is occurring and where the organization is going is enough to raise morale. However the greatest benefit to a process based organization is its ability to specifically define improvement alternatives and quickly capitalize on them. 

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