Performance-Improvement Initiatives

Transcription

1 by Eser Becer Bria Hage Matt McKea Herve Wilczyski Performace-Improvemet Iitiatives Three Best Practices for Project Success

2 Performace-Improvemet Iitiatives Three Best Practices for Project Success Today s icreasigly competitive ad fastpaced busiess eviromet costatly pushes compaies to look for opportuities for performace improvemet. As a result, it s ot uusual for compaies to have multiple projects ad iitiatives goig o at the same time. While their itet is to promote busiess survival, too may of these iitiatives produce disappoitig results; close to 40 percet fail to deliver o their promised results or get caceled outright. It does t have to be this way. There are active steps that busiess leaders ca take to esure the success of their iitiatives, each occurrig i the implemetatio phase where most problems crop up. By studyig compaies whose success rate is well above the average, we have idetified three priciples, or best practices, for project success. These priciples share the commo theme of acceleratig value capture. We believe that early ad ogoig value capture is oe of the most powerful tools available for fightig off the implemetatio demos that cause iitiatives to fouder. Large-scale corporate improvemet iitiatives are critical to compaies survival i today s competitive ad fast-movig busiess eviromet. Most improvemet iitiatives are cross-fuctioal ad require simultaeous chages to process, techology, ad orgaizatio. Cosequetly, these iitiatives represet a huge ivestmet i terms of both cost ad time, ad their complexity makes implemetatio challegig. Failure may ot be a optio to paraphrase the flight cotroller i the movie Apollo 13 but amog big corporate iitiatives it seems to be a reality. While some types of improvemet iitiatives fare better tha others, a recet survey by Booz Alle Hamilto reveals that almost all uderachieved their stated goals to some extet (see Exhibit 1). Exhibit 1 Performace Shortfall by Iitiative Type 0% Improve Product Quality Drive Globalizatio Uify Compay Orgaizatio Order-to- Cash Time Euro Compliace Icrease Reveues/ Market Share Time to Market Purchasig Costs Work Icrease Busiess Agility/ Flexibility Optimize Workig Capital Reegieer Busiess Processes Head Cout/ Icrease Productivity Operatig Costs Beefits Percetage Actual versus Pla 5% 10% 15% 20% 25% 8% 9% 10% 11% 11% 12% 14% 15% 16% 17% 20% 20% 20% 22% Note: Sample represets 66 large ad medium iitiatives Source: Study by The Coferece Board, sposored by Booz Alle Hamilto

3 Iitiative Failure ad a Road Map for Improvemet Why do the results of corporate iitiatives differ so greatly? Are poor outcomes ad abadoed projects as commo as they seem? Are there secrets to be leared from the iitiatives that are most successful? While a umber of thigs ca go wrog durig the course of a major project, most of the problems ted to crop up durig the implemetatio phase. This is o surprise: It s oe thig to kow what eeds to get doe, ad quite aother to actually do it i a orgaizatio that has people, processes, ad techology spread across multiple locatios. The challeges that arise oce a project gets goig ca produce iitiative fatigue that saps the eergy ad ethusiasm of participats. To quatify the problem: Iitiatives ca lose early a quarter of their expected value e route to completio. These losses are etirely prevetable, but too may compaies fall prey to iadequate resourcig, lack of iteral commuicatio, ad uclear executio plas. Problems also stem from orgaizatioal silos, failure to measure performace, ad poor or ucommitted leadership. If there are may reasos why some projects fail, there are also may reasos why projects succeed. Oe factor that almost every success story has i commo is that those who were a part of it looked for ways to capture value early ad ofte. There are may reasos why a iitiative would wat to demostrate early value capture. For oe thig, early evidece of success drives home the importace of the udertakig ad gets workers excited about it. Two, o orgaizatio has ulimited fiacial ad huma resources. It s the iitiative that demostrates the fastest retur that has the best chace of survivig. Ad three, focusig o early value-delivery forces the compay to implemet parts of the solutio i carefully sequeced steps whe they are ready. This allows for early real-life testig ad immediate course correctio whe ecessary. Based upo cross-idustry experiece, we have idetified several elemets commo to compaies that succeed i acceleratig value capture. These elemets ca be distilled ito three best practices: Decouplig value levers to determie the best implemetatio sequece Focusig o ed-user behaviors to speed up adoptio Maagig the implemetatio with rigor ad focus to deliver value. Best Practice #1: Decouple the value levers to determie the best implemetatio sequece. Compaies iterested i early value capture focus upo decouplig value levers. They break large iitiatives dow ito their discrete compoets usig the busiess case value levers as a guide. They do this to create a implemetatio sequece that favors implemetig solutios that quickly create value. As solutios are developed, costraits ad obstacles surroudig each lever are idetified. Examples of costraits iclude depedecies betwee the elemets of the solutio, ifrastructure capabilities, corporate policies, ad staff availability. The process of decouplig the value levers feeds a cost-beefit aalysis that pushes the issue of value to the forefrot. Implemetatio ca the be sequeced to drive value quickly. Exhibit 2 Example of Sources of Value Oly ~ 30% of the total impact was techologydepedet Source: Booz Alle Hamilto Realiged Demad/ Service Levels 10% Simple Process Chages 10% Techology- Drive Processes 30% Secod-Order Effects 3% Fuctioal Policies 17% Volume/ Scale 15% Wage/ Grade Mix 15% Techology-Depedet Total = 100%

4 For example, our experiece shows that the various value-creatio levers typically cover a rage of opportuities, with IT represetig oly a part of the total savigs (see Exhibit 2). This offers a uique opportuity to sequece the implemetatio ad the elemets of the solutio that are ot IT depedet. Whe iitiatives get implemeted i steps, maagemet gais ot oly predetermied milestoes but midstream opportuities to commed employees for their achievemets. Such public recogitio builds mometum ad reiforces behaviors itegral for cotiued success. To provide a clear sese of how value capture ca be used to drive sequece, we ll use a example from the U.S. telecom idustry, kow for its rapid clock speed, meaig its preferece for fast techical iovatios. I this case, a leadig U.S.-based telecom compay was trasformig its order-to-cash process. The cotiued itroductio of a ew techology ehacemet for customer billig had redered the draft desig ustable, leadig to multiple rouds of rework. The origial approach had focused upo developig a solutio that combied techology ad process, with a itegrated implemetatio schedule. But with the rework, the schedule had goe off track, ad the project was 300 percet over budget ad was udergoig may desig iteratios just a few moths before goig live. A reevaluatio of the implemetatio sequece focused o the value levers. The problem was segmeted ito specific subprocesses ad associated IT eablers, which allowed for a staggered implemetatio i which parts of the solutio were tested ad executed idepedetly (see Exhibit 3). As a result of the resequecig, the iitiative was brought back o track ad produced some beefits quickly while other parts were still beig implemeted. The advatage of demostratig value sooer rather tha later ca be sigificat i buildig ad sustaiig Exhibit 3 Capturig Value More Quickly 2001 Origial Pla Eterprise-wide Marketig ad Sales Resequeced for Value 2002 Wave 1 Fiace & Back Office Eterprise-wide Wave 1 Marketig ad Sales Marketig ad Sales Time Wave 2 Network ad Egieerig Customer Care Wave 2 Customer Care Customer Care 2003 Itegrated desig from start Desig (IT ad process work) doe up frot Chage maagemet doe i waves requires bigger chages Wave Marketig ad Sales Stad up process desig first Desig for parts of busiess model, itegrate later Move up frot Process implemetatio Capture of beefits Chage maagemet Process Desig IT Desig Implemetatio ad Chage Maagemet Source: Booz Alle Hamilto

5 broad support from the orgaizatio ad esurig that the effort does ot fall off the priority list or get caceled outright. Best Practice #2: Focus o ed-user behaviors to speed up adoptio. Value creatio is set i motio by the actios of idividuals. Acceleratig value capture meas focusig o frotlie behaviors ad askig people to do thigs differetly such that greater value is created by their daily activities. Thus, the goal of all chage maagemet is to alig employee behaviors with the ewly idetified value-creatig actios, to force a permaet shift i behaviors (ad possibly culture) so that ew behaviors become the de facto way of doig busiess. The goal is to get results that edure. Ufortuately, most chage-maagemet efforts fall woefully short of this ideal. Too ofte, compaies fail to appreciate the role ad potetial impact of a properly executed chage-maagemet effort. Two pitfalls are commo: compaies fail to coect frotlie behaviors with their subsequet impact o value creatio, ad compaies mistake mere awareess of desired behavior for behavioral compliace. As a result of these discoects, the focus of chagig behavior i may corporate iitiatives ceters upo exposure, more tha o behavioral compliace. Commuicatios ad traiig are created uder a assumptio that awareess by itself is sufficiet to create value. Maagers who are adept at chagig employee behaviors fully leverage the three variables that most affect employee actios: (1) how positive (or egative) the cosequeces are, (2) how quickly those cosequeces get meted out, ad (3) how certai (or ucertai) it is that a cosequece will happe. Actios with the most immediate ad certai cosequeces (whether positive or egative) shape employee behavior more effectively ad more quickly tha those applied i the future with lower degrees of certaity (see Exhibit 4). By tailorig iteractios ad commuicatios aroud these three variables, it is possible to create eviromets ad icetives so that employees will move quickly to adopt ew valuecreatig behaviors. Successful behavior modificatio begis with uderstadig the existig barriers, icetives, ad culture from the frotlie perspective. Icetives must be tailored to each employee, i additio to beig culturally attued, if they are goig to be effective. For example, peer recogitio is a useful positive cosequece i eviromets where competitio is preset, but i other eviromets, fiacial reward might be more culturally valued. Maagers who are successful at chagig behaviors see may possible icetives ad structure their employee commuicatios to fit the eviromet they re i. These maagers use a fact-based approach employig data that accurately depicts frotlie activities ad the holdig employees resposible for their actios. A wellcoceived ad executed chage-maagemet effort does ot use the data for mere behavioral compliace. Rather it realigs performace maagemet so that moitorig ad performace reportig become oe ad the same. For example, a itegrated oil ad gas compay lauched a iitiative to dramatically icrease productio rates at a maufacturig facility. After a ew process desig was selected, a behavior aalysis Exhibit 4 Ways of Ifluecig Worker Behavior Use Positive Cosequeces to Icrease Desired Behavior Use Negative Cosequeces to Decrease Udesirable Behavior Most Impact PIC PIU Positive, Immediate, Certai Positive, Immediate, Ucertai Most Impact NIC NIU Negative, Immediate, Certai Negative, Immediate, Ucertai PFC Positive, Future, Certai NFC Negative, Future, Certai Least Impact PFU Positive, Future, Ucertai Least Impact NFU Negative, Future, Ucertai Source: Booz Alle Hamilto

6 led the project leaders to idetify their eviromet as oe aturally iclied toward competitio. That fidig was factored ito their implemetatio pla as they idetified ew value-creatig behaviors. Maufacturig teams were created i lieu of the existig idividual productio scheme, ad the teams were allowed to select their ow fact-based productio measures, cotiget o compay leadership approval. Those measures were posted i a very visible locatio, where all maufacturig cells could see daily productio figures. The rest was left to the spirit of competitio. The teams drove each other to icrease productio 60 percet i their desire to be recogized by peers as the No. 1 performers. This example uderscores the iterlockig ature of the elemets eeded to create a eviromet where employees adopt ew value-creatig behaviors. Project leaders tailored commuicatios based o ivited employee iput ad took advatage of exisitig cultural orms. Icetives resoated with employees values. Some icetives were positive, others egative, but they all shared the goal of drivig value-creatig behaviors, ad data was shared opely as part of buildig a eviromet of accoutability ad performace. Best Practice #3: Maage the implemetatio with rigor ad focus to deliver value. The size ad complexity of today s corporate iitiatives make it essetial that there be people dedicated specifically to the iitiatives ad charged with the overall resposibility for deliverig promised improvemets. After all, maagemet will still have its day job of ruig the busiess; it caot also be expected to set project bechmarks, track progress, keep staff o track, ad coordiate tasks. For that, a project maagemet office (PMO) is eeded. The challege is creatig the right kid of PMO, staffed by the right people, ad maagig the iheret risks that differet types of PMOs brig. Some corporate iitiatives ca get by with project maagers who are relatively hads-off, operatig as coaches; others eed hard-drivig taskmasters. The PMO s character will vary alog two dimesios: the amout of cotet expertise ad goverace oversight that are required (see Exhibit 5). The extremes of each dimesio pose risks. Too weak a PMO ad the daily activities become overly admiistrative ad icosequetial to impact ad value. Too demadig a PMO ad the PMO assumes resposibility for all work streams, opeig itself to the accusatio, You failed to tell me to do it, so I did t. The ideal PMO sits somewhere i the middle: cotetrich, trackig value as opposed to activity reportig, ad esurig the disciplie of the busiess case. Exhibit 5 Costructig the Right PMO Alterative Project Office Roles Potetial Loss of Lie Buy-I Extesive Large Coach Driver PMO Cotet Expertise What is the PMO s Missio? Implicit Size of PMO Potetial Margializatio Moitor Coveer Limited Weak PMO Goverace Role Strog Small Source: Booz Alle Hamilto

7 Exhibit 6 Taskig for Specific Results: Faster Time to Reveue, Fewer Defects, ad X% Cost Reductio Compay Leadership Cash back to the busiess Source: Booz Alle Hamilto Features of Successful Programs Program Office Busiess Uits Provide people + projects Assets Frot Lie The PMO is i a uique positio as the lichpi i project executio, ad it assumes the resposibility of deliverig desired results (see Exhibit 6). As is ofte the case, this process of turig a implemetatio pla ito reality is delicate, ad o pla proceeds without pitfalls or maages to avoid sigificat obstacles. A effective PMO focuses o those areas that are the most difficult to maage ad that have the greatest impact o project timeliess ad value: poits of work stream itegratio, poits of value creatio, ad desig ehacemets. This approach to PMO maagemet is value-focused ad forward-lookig ad hece is far differet tha simply overseeig a project pla ad trackig activities. Aother critical role played by successful PMOs is that of hoest broker. Amog other thigs, this meas actively egotiatig trade-offs betwee system customizatio ad process modificatios, with a eye toward value delivery. To balace competig ad coflictig project priorities, the PMO must be impartial toward all elemets of the solutio. I additio, to successfully assume a hoest broker role, bestpractice PMOs alig with either the project sposors or busiess lies. Istead, they remai focused o value creatio ad look at productivity before they look at activities. Whatever the precise missio of the PMO, a key resposibility is measurig project beefits ad eforcig the disciplie of the busiess case. The PMO eeds to track value capture ad to separate savigs ito buckets of hard savigs ad soft savigs, which meas the office must kow where the savigs are comig from at every poit i the project. It must also be prepared to recommed chages i priorities, i sequecig, ad i solutio desig i order to propel additioal value capture. This resposibility presupposes, too, that the PMO uderstads how log differet pieces of the project will take ad is comfortable challegig departmetal work plas. For example, a large oil ad gas compay deployed a cotet-rich PMO to drive the implemetatio of a purchase-to-pay solutio worldwide. I additio to edorsig best practices Nos. 1 ad 2, the PMO tracked the realized savigs rigorously, cotrastig hard cash with cost avoidace ad softer savigs, such as freeig up time without implicatios for head-cout reductio. As a result, the project gaied tremedous respect withi the orgaizatio, where the traditio had bee to declare victory too soo ad lose sight of completig implemetatios. I the past, that tedecy had frustrated executives, who had withdraw support after failig to see promised bottom-lie beefits. Best Practices i Actio: Utility Case Study Compaies that follow the best practices for value acceleratio ca ejoy excellet results ad dimiish the potetial for project derailmet or failure. I the followig case study, each of the best practices is highlighted to show the impact it had o makig the project succeed. I 2005, a Midwester utility idetified its purchaseto-pay (P2P) process as a cadidate for cost reductio after lauchig a comprehesive review of its busiessad corporate-services areas. The utility s purchase-topay iitiative was desiged to optimize the ed-to-ed procuremet process for all items, from office supplies to lie trucks. The review cofirmed that icosistet busiess practices ad fragmeted legacy systems a result, i part, of the utility s havig grow through

8 acquisitio were wastig tes of millios of dollars each year. Leadership fuded a iitiative to optimize the P2P process ad move toward firstquartile performace. As the opportuity for improvemet was assessed, a comprehesive busiess case was developed that idetified cost-savig areas ad the specific value levers that would deliver them. The opportuities broke dow as follows: Icreasig compliace with established cotracts (potetial cost savigs of 47 percet) Drivig disciplie i the spot buy process (15 percet) Providig better access to sped data (15 percet) Cotiuig to streamlie ad automate processes (13 percet) Capturig beefits from cotract terms (10 percet). The compay approached the implemetatio of a itegrated process/system/orgaizatio solutio followig the three best practices outlies above. Best Practice #1: Decouple the value levers. The origial structure of the busiess case was built aroud best practice No. 1, decouplig the value levers. By decouplig the levers, the compay prioritized solutios with a bias for immediate actio. Oe example of this ivolved the disciplie of oe-time spot buys. The process by which Purchasig competitively bid purchases was ot fully depedet upo techology, so it was possible to roll out a updated spot buy process ad begi capturig the beefits of that chage prior to eablig the full system. Aother example of decouplig the value levers ivolved the use of the corporate procuremet card. By rewritig corporate policies regardig who could possess a card, the compay was able to icrease the umber of cards issued (ad therefore the orderig volume) withi a buyig chael. The obstacle to value was the existig compay policy, ad a simple policy revisio led to a less costly orderig chael. Value was created through cost avoidace. Best Practice #2: Focus o value-drivig behaviors. As the iitiative lauched ad gathered steam, supply chai maagers traveled to 30 locatios to lay out the ratioale for the ew P2P process. These site visits ad supportig literature wet a log way toward buildig iitiative awareess, but the amout they could accomplish was limited, especially at a compay where field maagers were accustomed to operatig autoomously. Supply chai maagers therefore also focused o behaviors by providig icetives for compliace with the ew procuremet processes. For istace, they promised 1 percet cash back to ay utility plats that used a procuremet card istead of a costlier system of purchase orders. Aother example of chagig ed-user behavior ivolved data ad competitio. Give the size of the orgaizatio 14,000 people i 250 locatios ad departmets figurig out who was complyig with the ew processes, ad who was t, preseted a challege. To meet this challege, the IT departmet extracted data from several differet legacy systems. Oce they had the data, the project leaders did three thigs that embodied best practice No. 2. First, they distributed the data across the eterprise to geerate visibility ad create healthy competitio amog busiess uits. Secod, they used the data to idetify the locatios that were performig best or showig the most improvemet. Seior leadership recogized the accomplishmets of those locatios with s, phoe calls, ad persoal visits. Third, project leaders used the data to idetify ocompliat locatios, aalyze who was resposible, ad idetify what eeded to chage. This led to mitigatio actios, such as icreased commuicatios ad remedial traiig. I this case, the icetives took a variety of forms depedig upo locatio, leadership, ad specifics. The compay made full use of all of the behaviorchage variables (positive ad egative cosequeces, immediate ad future, ad certai ad ucertai), ad they did so with the express itetio of motivatig behaviors that created value, as opposed to destroyig it.

9 Best Practice #3: Implemet with rigor. This P2P iitiative was aided by a PMO that uderstood which parts of the project eeded to get doe whe, ad by whom sometimes over the objectios of idividual departmets. From the begiig, the PMO focused o fidig the iitiative s most proximate sources of value ad maaged the iitiative with rigor, accordig to best practice No. 3. It eforced the busiess case with disciplie, addig to the project s savigs; i some cases, it also served as a gatekeeper for the itegrity of systems ad process redesigs. For example, postdesig chages ca be costly ad labor itesive, ad they ca slow value realizatio. This PMO assessed each system/process ehacemet with a eye to log-term orgaizatioal impact ad value realizatio. It rejected ehacemets that slowed value capture. The results have bee dramatic. The utility s costcuttig iitiative is a year ahead of schedule ad the project has achieved cost-eutral status 12 moths after implemetatio ad prior to the go-live of the IT system s ehacemets (see Exhibit 7). Coclusio Big projects are ot goig away. Nor are they goig to get easier; the most importat corporate iitiatives require simultaeous chages to the orgaizatio, processes, ad techology. A awful lot ca go wrog, ad ofte a awful lot does. Leaders have to be realistic about progress, savvy about motivatig workers, ad decisive i their course correctios. To be sure, acceleratig value capture is o guaratee of corporate iitiative success. But it is a good start ad a smart way of operatig i a world i which iitiatives compete for resources. The three best practices for acceleratig value capture highlighted i this article are either revolutioary or complex. But by applyig them, compaies ca dramatically icrease their chaces of success ad avert fiascos lurkig aroud every corer. Exhibit 7 Whe Results Exceed Expectatios 100% P2P Busiess Case Trackig Percetage of Busiess Case Savigs 80% 60% 40% 20% 0% Achieve Cost-Neutral Status Actual Savigs ~6 Moths Acceleratio Origial Cost-Neutral Projectio Savigs Projectio: Origial Busiess Case 20% Year 12 Moths Year Time Year Source: Booz Alle Hamilto Also cotributig to this piece was Stuart Flemig.

10 What Booz Alle Brigs Booz Alle Hamilto has bee at the forefrot of maagemet cosultig for busiesses ad govermets for more tha 90 years. Providig cosultig services i strategy, operatios, orgaizatio ad chage, ad iformatio techology, Booz Alle is the oe firm that helps cliets solve their toughest problems, workig by their side to help them achieve their missios. Booz Alle is committed to deliverig results that edure. With 19,000 employees o six cotiets, the firm geerates aual sales of $4 billio. Booz Alle has bee recogized as a cosultat ad a employer of choice. I 2007, for the third cosecutive year, Fortue magazie amed Booz Alle oe of The 100 Best Compaies to Work For, ad for the past eight years, Workig Mother has raked the firm amog its 100 Best Compaies for Workig Mothers. To lear more about the firm, visit the Booz Alle Web site at To lear more about the best ideas i busiess, visit the Web site for strategy+busiess, a quarterly joural sposored by Booz Alle. Cotact Iformatio: ATLANTA HOUSTON Bria Hage Seior Associate [email protected] Matt McKea Vice Presidet [email protected] Herve Wilczyski Pricipal [email protected] Eser Becer Associate [email protected] Dowloadable digital versios of this article ad other Booz Alle Hamilto publicatios are available from

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