Construct an Optimum Governance Structure for Business Process Global Process Ownership Summit Nov....

Construct an Optimum Governance

Structure for Business Process

Global Process Ownership Summit

Nov. 18-19, 2014

Atlanta, GA

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1. Process- and Governance-related Definitions

2. Need to align organizational, performance and process hierarchies for creating effective Process Governance

3. Different types of Process Governance structures

4. Practical Guidelines for creating Process Governance

5. Steps to create optimum Process Governance structure

6. Wrap upb

Agenda

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Definitions of Governance, Process, Business Process Owner (BPO) and Performance Indicator used in this presentation.

How to model E2E Process Flows at high level (the ‘big picture’).

How to distinguish between complex and simple process flows.

Why we need to align process, organization and performance structures enabling optimum governance structure.

How to analyze and select governance structure types to select the optimum one.

What are the steps to design optimum governance structure.

What will you learn?

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Output=S

C CCCSSS

Input

time

C=Customer of Output (becomes Input)It must meet Customer’s Requirements downstream

S=Supplier of Output/Input must meet Customer Input Requirements

O

I

O O

I I

Business Requirements

Process Purpose/Objective

Performance Measurements

+ CustomerThe customer is the person, organization or system that receives an output from a process or from an activity within a process or from an external process.

+ SupplierThe supplier is the person, organization or system that provides an input to a process or to an activity within a process.

Raw Material Finished Product

Order Requested Order Shipped

Process is a sequence of activities that:

are repeatable, definable, predictable, and have measurable input(s) and output(s)

objective of which is to consistently yield expected results (performance, value)

Definitions: Process

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The E2E process scenario is a chain of functional processes cutting through functional organizations for the purpose of realizing planned performance and value across the company’s value chain.

OutputInput

Raw Materials Ordered Product is Completedusing Raw Materials

Integrationof functional processes

Definitions: E2E Process Scenario

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Available-To-Promise

Factory Warehouse

Inbound Logistics

Vendor Managed Inventory

OTC-Finished Goods-Direct Delivery

Head of Sales

Sales of Finished Goods

Consignment Sales

Sales From Stock

Sales Financial Services

Credit Mgmnt

Customer Pricing

Cust. Rebate Agreements

Head of Logistics

Internal Warehouse Managemen

t

Outbound Logistics

Transportation Planning

and Execution Outbound

RDC

Billing Services

RDC Logistics

Factory Logistics

Head of Demand and Supply Chain

Planning

Billing-External

Billing-Internal

Returns Processing

Distribution Planning

Supply Network Planning

(Sales) Demand Planning

Collections

Accounts Receivable

Head of Financial Accounting

Head of Manufacturing

Manufacturing Execution

Production Planning and

Detailed Scheduling

Quality Assurance/EMS

Head of Sourcing and Procurement

Direct Procurement

Manufacturing

Sourcing

Contract Management

Credit&Debit Memo

Sales – MTO

Safety Stock Planning?

OTC-Sales From Stock

Sales Execution(Main Process/Bus. Scenario Group-Layer 1)

Accounts Payable

General Ledger

Integrated Supply Chain Planning

Sourcing and Procurement

Period End Closing

Management and Support

Order_To-Cash ((Core Process/Business Scenario-Layer 2)

OTC-Sales from Stock-Deliver

Customer Rebate

Settlements


Factory Warehouse

Mgmnt?

Inbound Logistics

RDC

OTC-Collect-To-Close


Outbound Logistics -

Factory

Execute-PTP for Manufacturing (Proess & Deliver)

Plan-PTP for Manufacturing Receiving

(Factory WH Inbound Logistics)

Financials->Financial Accounting

Demand Fulfillment and Execution(Main Process/Bus. Scenario Group-Layer 1)

Ext. CustomerExt. Customer

Ext. CustomerExt. Customer

Manufacturing(Core Process/Business Scenario-Layer 2)

[Inbound? and] Outbound Logistics (Factory) Inbound and Outbound Logistics (RDC)(Core Process/Business Scenario-Layer 2)

Plan-PTP – Stock Transfer

Transportation Planning

and Execution Outbound

FactoryExecute-PTP for Manufacturing

(Procure and Deliver)



OTC-Sales From Stock (Services/COD)


Demand Fulfillment and

Execution

Demand and Supply Chain

Planning

Sourcing and Procurement

Sales Execution

Financial Accounting

Legend:Organizations Examples: High Level Process Scenarios

(E2E…)

Plan-PTP for Manufacturing

OTC-Sales From Stock


Engineering Change

Management

Put-away

Operations Support

Indirect Procurement

Capacity Planning

Product Costing

Stock Transfers???

Supply Base Management

Head of Demand Fulfillment and

Execution

Execute-PTP for Manufacturing(Procure & Deliver)

Production and Quality

Plan-PTP for Manufacturing

Financials->Management Accounting (Revenue and Cost Controlling)

Cost Center Accounting

Profitability Analysis

Internal Order

Accounting

Product Cost Accounting

Project Accounting

Parallel Accounting

Enterprise Value Chain View with anE2E Process Scenarios

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Simple and Complex Process Flow examples

Executive 1

Executive 2

Manager n

Manager 2

Manager 1

Team Supervisor 1

Team Supervisor 2

Role 2

Role 3

Role 1

Role n

Role

Role

Role

Manager 2

Manager 3

Manager 1

NameTitle

NameTitle

NameTitle

NameTitle

Role

Role

Role

NameTitle

NameTitle

NameTitle

NameTitle

Manager 4

Complex Flow – Governance more complex

Simple Flow-within one Functional Dept – Governance can be ‘lite’

Liaison

NameTitle

Manager x

Senior Executive Senior Executive 2

BPO/GPO

Process Input(s)

Process Output(s)

Process Input(s)

Process Output(s)

Process Input(s)

ProcessScenario

Starts

ProcessScenario

Starts

Process Input(s)

Executive 3

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

NameTitle

Functional AutonomyLegal Autonomy

(cross countries – GPO)

Very Complex Flow – Tight Governance for functional dept, SLA/Contract for

Cross-legal entity..

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The Process Governance is about how Governance Bodies define, coordinate and control :

process work (BP Management), process performance and value management as well as give direction to the staff associated with the Business Process Ownership, BPM

along with PLM, Modeling, Six Sigma, Lean etc.

Definitions: Governance

(*) refer to Business Architecture’s Strategy/Value/Performance Maps and LSS

Governance (generic)How will the process operate (process/organization design)?How will the process be managed ? (BPM, PLM, PPIs/KPIs)

Doing what is required to assure that needed value (*) is produced by organization for the stakeholders in the most efficient and effective way

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Governance may use formal bodies such as : Business Process Owner, Global Process Owner Liaison Coordinating committees spanning multiple functional areas (KPIs) where

performance is evaluated and improvement project formulated C-level executive Control Boards where scorecards are reviewed , problem root

causes identified and high level improvement/corrective action direction is given.

Business Process Office , etc

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Governance Mechanisms : IMPERSONAL

guidelines, regulations (ex. SOX) and laws (ex. across legal entities)

roles (ex. BPO (Business Process Owner), Business Process Expert, IT Process Expert, Business Architect, IT Architect, Solution Architect, PMO, etc)

procedures and templates (meeting minutes, requirements and change management, performance records, etc)

responsibilities and accountability (incl. RACI)

PERSONAL (formal and informal)

Individuals (liaisons)

Committees,

Process Offices (CoEs) – support all aspects, standards of a ‘generic’ process including governance,

BPOs who direct, control and coordinate how processes are defined, improved, analyzed, designed and controlled

Definitions: Governance - continued

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Whether functional or cross-functional, or cross legal entity situation all process types need governance at all stages of their lifecycle (BPM, PLM) Analyze Design Build Deploy Run/Monitor

Operational Process Improvement (part of Continuous Improvement (Analyze, Design, Implement, Run/Monitor)

Because there are always issues in a cross-functional process organizations, there will always be a need for governance across E2E process scenarios

Governance cannot function in a functional silo - it interacts with other Governances

Definitions: Governance - continued

Strategic Process Change (typically a project)

Process Lifecycle needs Process Ownership and Process Governance

BPM Governance with Corporate, Performance, Value and IT Governance

Governance structure

Structure for people responsible for governing (managing and executing) the process typically lateral to and independent from process, organizational and performance structures.

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Business (or Global) Process Owner – The BPO/GPO is the central point of contact for a specific business process with an end-to-end responsibility for the entire BPM & PLM to ensure best-performing process.

BPO is assigned by the board with decision and budget powers independent from functional priorities to control and optimize the business process continuously and reinforce process thinking.

BPO’s key responsibilities are: deriving process goals and objectives from strategy, driving improvement projects and continuous improvements, reinforcing process thinking, establishing performance measurement system, managing requirements, fixing process gaps, etc

BPO is the interface between business and IT.

All the above have bearing on governance (if BPO Governance used).

Definitions – Business Process Owner (BPO)

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1:n

Legend: typical for workflowexecution and management

Performance should be decomposed along process and organizational layers

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Process

Organization

Performance X

Not Aligned

Performance Actuals

Aligned

Process-Organization-Performance decompositions and alignment

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Alignment of the Process and Organization with the Performance Indicators

Analysis of different Governance Structure Types

Order To Cash E2E process scenario discussion -Customer and Company perspectives

Order Entered to Delivery Created

Functional Process A

Delivery Created to Order Shipped

Functional Process B

Order Shipped to Order Delivered

Functional Process C

Bill for Order request received to Invoice sent

Functional Process D

Invoice Sent toPayment for Order received

Functional Process E

Dept.: Sales Desk Dept. Outbound Mgmnt Dept.: Transportation Mgmnt

Dept.: Billing Dept.: AR and Collections

OTC

OTD

CompanyPerspective

CustomerPerspective

BTP

Order Entered to Payment/Cash ReceivedOTC = A+B+C+D+E (non-homogenous I/O)useful for the total lead time of OTC

Order Entered to Order Delivered- OTD = A+B+C(serves assessment of customer expectation)

Bill to Payment for Bill received – BTP=D+E(important for working capital assessment)

OTC=OTD+BTP

Good choice for governing is OTD and then BTP as both are homogenous. First from the customer satisfaction perspective, the second from the company’s objective perspective.

OTC performance can be shown as a combination of OTD and BTP

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Manager of Sales Order Processing

Performer 1 Performer 2 Performer 3

PPI=Lead Time1+2+3

Lead Time 1 Lead Time 2 Lead Time 3

Sales Order Processing

Customer Order Entered Credit Checked Delivery Created

Manager of Warehouse

Outbound Logistics

Performer 4 Performer 5 Performer 6 Performer 7

PPI=Lead Time4+5+6+7

Lead Time 4 Lead Time 5 Lead Time 6 Lead Time 7

Warehouse Outbound Logistics

Goods Picked and Packed

Transportation Scheduled

Transportation Executed

Goods Delivered to Customer

Manager of AR

Performer 8 Performer 9

PPI=Lead Time 8+ 9

Lead Time 8 Lead Time 9

Accounts Receivable

Bank’s Input Processed

Payment Booked

Liaison –good, inexpensive governance structure for both functional and E2E processes. Aligned well with performance and organization structures. Good with company perspective – quicker performance problem resolution and performance improvements identification (hands-on), does not change organizational structure.cost of liaison, possible conflicts between peer managers, more difficult to maintain responsibility for E2E performance indicators

Liaison

Governance Type: Liaison

Governance Type: E2E Process centricflat organization structure with a wide span of controlmay have a BPO who reports to a VP



Delivery Created toOrder Shipped


Order Shipped toOrder Delivered


Dept.: Sales Desk

Dept. Outbound Management

Dept.: Transportation Management

Billing Requested toInvoice sent


Invoice Sent toPayment received



ManagerA

ManagerB

ManagerC

ManagerD

ManagerE

Director or VP Order To

Cash

Process Governance needs only 3 layers of organizational hierarchy – execution is closer to CEO and to Operational as well as Business Strategies

CompanyPerspective

CustomerPerspective

Process Centric governance (ex. OTC) – Very good long term choice. Transformation includes changes to organizational structure – this generates people resistance. Costly. Governance closely aligned with other structures. Customer perspective works as well but E2E must be broken into OTD and BTC thus OTC BPO. Department goals and priorities relate to cross functional E2E process scenario objectives.Perfect process-centric enterprise governance type, wide span of control flattens the Organizational Structure, formal and minimum personal governance needed (governance topic added to manager’s job description), cost effective, ease of maintaining responsibility and accountability, low cost, rare in real life (normally we have a combo of this and personal governance) If process large in scope and complex, a BPO may be appointed.

BPO

Governance Type: Liaisonflat organization structure with wide span of controlmay have ‘lite’ BPO







Dept.: Sales Desk

Dept. Outbound Management


Billing Requested toInvoice sent





ManagerA

ManagerB

LiaisonManager

CManager

DManager

E

Director of Order to

Cash

Process Governance needs only 2 layers of organizational hierarchy – execution is closer to CEO and to Operational as well as Business Strategies

CompanyPerspective

CustomerPerspective

Director of Financial

Accounting

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Coordinating Committee - satisfactory solution for E2E processes. Good with both company and customer perspective – depends how we define E2E processes, does not flatten organizational structure, requires both personal and impersonal mechanisms, cost of coordinating committee (senior execs), conflicts, more difficult to maintain responsibility, it cannot be easily disentangled from day-to-day management. No one person has responsibility for the entire process, decisions in functional department may actually worsen the performance of the process

Governance Type: Coordinating Committee







Dept.: Sales Desk

Dept.: Outbound Management


Order Shipped toInvoice sent





Manager of Sales Desk

Manager of Outbound Logistics

Manager ofTransportatio

n MgtManager AR

Manager Collections Execution

CEO

Director of Sales Order Processing

DirectorOf

Warehousing

DirectorTransportation Services


Accounting

DirectorCollections

VP Sales Execution

VP Logistics

CFO

VP Financial Accountin

g

COOCoordinating Committee

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Governance: up the hierarchy







Dept.: Sales Desk











n MgtManager AR


CEO


DirectorOf

Warehousing



Accounting

DirectorCollections

VP Sales Execution

VP Logistics

CFO


g

COO

Referral up the Hierarchy – not a good choice – CEO or COO becomes issues arbiter, unpopular among senior execs and expensive, diverts attention of a high level executive who is facing customers, board and the financial markets, reflects poorly on subordinates’ ability to manage their responsibilities.Adding Coordinating Committee between COO and CFO is a partial solution as it is expensive and ‘slow’ – too high in the hierarchy.. Coordinating Committee at VP level is a better solution as it allows quicker decision making at lower layers.

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BPO – very good choice. Needs strong empowerment/mandate to be successful (budget, resources, authority, etc). Has responsibility for the entire process. Decisions in the functional department may actually worsen the performance of the process. Largely autonomous. BPO reports high in the hierarchy to secure needed empowerment and authority. Focused on process and does not manage (or co-manage) people of the functional departments. Has liaison-like relationships but is independent. Should have staff if process scope large and complex.

Governance: Business Process Owner (BPO)







Dept.: Sales Desk











n MgtManager AR


CEO


DirectorOf

Warehousing



Accounting

DirectorCollections

VP Sales Execution

VP Logistics

CFO


g

COO

BPO(w liaison feature)

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‘Shared Services’/Process Unit Shared Services Process Unit (operating unit): most services focused on internal

organizations – these in turn focus externally, there maybe one or many services provided, operates one or more processes on

behalf of other operating units, Impersonal mechanisms (committee, liaison) must be created to link shared services

with each process operated by shared services and may include SLAs, contracts, pricing plans contracts (for external companies)

Personal may include technical, managerial and executive committees May cause significant disruption to existing organizational structure

Process Organization with focus on Products (or on Sales Channel, etc.) One E2E process multiplied by a number of products (or sales channels) Some functions can be multiplied per product or moved to ‘shared services’ Requires coordinating unit for each process operating structure Transforming into Process Organization requires new organizational structure and

new governance Costly, potentially complex transformation

Other Governance Types

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Global Process Office/Chief Process Office (or Business Process Office) The best place for process governance is not “under” any of high level areas such as

COO, CFO and so forth but governance which works side by side with these areas. Here, Position with formal mechanisms and substantial mandates is Chief Global Process Officer (and Office)

Global Process Board should be created for large, global organizations Putting Chief Process Office® under COO, CFO, or CIO/CTO is a bad idea. Each

functional area has own goals and priorities confined to their ‘silo’ and not business related

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Using Process Models and Process Objectives (Outputs) design and map Process Performance Perspective: homogenous or non-homogenous

Based on Process Objectives identify performance indicators - Which KPIs/PPIs are needed and how structured?

Create Process and Performance structure model according to chosen Perspective, Process and Performance Structures

Perform top down PI decomposition and align with process, organization layer by layer.

Any structural performance indicator gaps? Do related KPIs/PPIs decompose down to ALL lower level managers’ KPIs/PPIs? If not, introduce interim KPIs or PPIs so all layers of management have at least one KPI or PPI for which each layer is responsible for

Test and correct alignment between process, organization and performance structure. Identify weak spots which require ‘heavy’ governance mechanisms (ex. Organizational change, ex. Credit check attached to SOP and not isolated from it) Process with Performance is first and then with Organization (but other sequence is also possible.) Changes to performance structure, additional indicators or even changes to organization may be needed. Better the alignment easier to design optimum governance (cost, communications, collaboration)

Select personal and impersonal governance mechanisms, secure approvals, train

Steps to design optimum Process GovernanceMaximum Alignment of Process, Performance and Organization is a key prerequisite for it

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Wrap up (1)

Governance offers

Undisturbed process execution, management and continuous improvement

Various mechanisms which can be personal and impersonal, formal or informal

Powerful ‘heavy’ governance options (incl. organizational change for E2E process-centric) which are more difficult and expensive, but offer more benefits down the road

Effective and low cost governance through multiple ‘light governance’

mechanisms (liaison, informal, impersonal without changing organizational structure

Increased necessity, cost and complexity of governance when process scope grows

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Wrap-up (2) - Conclusions

Liaison and informal personal governance are least expensive and suitable for organizations with lower maturity

Impersonal governance is needed by each type of governance.

Best results come from combination of personal and impersonal mechanisms.

Shared Services organization (external) needs strong governance between itself and internal organization. It is a very effective and popular type of governance. Requires both strong personal and impersonal governance setup (incl. contracts, SLAs, multiple types of committees)

Each type of organization and process need governance for the process and business to succeed.

E2E Process-centric (Process Unit) requires significant organizational change and cost but brings substantial benefits when implemented.

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Wrap up (3) – Other conclusions

Keep functional process within one functional/silo department

Process Organization and Process Units are effective when organization is mature and has funds for complex transformations including organizational, otherwise use ‘lite’ methods like informal, liaison, committees.

After such transformation execution, performance monitoring, improvement , change can be accomplished easier, faster and cost effectively.

Effective governance can be difficult to design, expensive to roll out and encounter people resistance but it is absolutely necessary to achieve successful process operations and continuous improvement.

Construct an Optimum Governance Structure for Business Process Global Process Ownership Summit Nov....

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