In our experience, when we ask our clients if they know if their business processes are performing as expected, they often answer: “We are not sure!”
It is relatively easy to identify flaws in production processes because they are visible. One just needs to head to the factory floor and observe it.
Business processes, on the other hand, are “hidden”. Instead of a product, information (such as a purchase requisition) travels through processes that run through various departments and employees.
To complicate this further, employees often multitask between various processes in the company, some of them informal. As a result, managers are often oblivious to the performance of specific processes.
We find that while many companies have workflows in place, they lack “controls” or “methods” to measure the effectiveness of their processes.
We call these methods “management control systems” (MCS). Without well-designed MCSs, company processes often fail to perform as well as they should.
What are the “symptoms” of a company that has deficient MCSs? Here are the warning signs:
1. Siloed management processes
It is Monday morning and top management is in a meeting. An idea emerges about streamlining the after sales service processes in the company.
Later in the week, the after sales department receives instructions, via email, to adopt the new process.
“This will never work. Management has no idea how our organisation operates,” grumbles a service agent.
Scenarios like these occur in companies around the globe.
“When a company lacks well-built MCSs, management often make decisions based on what they understand or from the feedback of a few employees instead of how the organisation actually works day to day,” says David Ruiz, Managing Director (Oil and Gas) at Renoir.
The lack of visibility between departments or an understanding of how business processes flow together can result in a disconnect between higher-level management and employees on the ground. Without an MCS that rolls up issues, management may risk losing or not benefiting from the organisational knowledge that is held at the lower levels.
How an MCS can help: The vital inputs, processing and output measures of all processes, across departments, are linked in a continuous management information flow. As a result, better decisions are made because overall needs are considered instead of just individual departmental priorities.
2. Employees do not understand how their work impacts business objectives
Having a sense of purpose is an important human motivation factor. Despite what some people may think, employees do want to know what the company’s business objectives are and how their roles can help the company meet them. This should be communicated to them often and systematically.
To do this effectively, management must deploy their business strategy throughout their organisation’s processes.
For example, it’s not enough to just increase sales reviewing revenue – that is a reactive “output” measure. We should also monitor “input” measures such as number of sales calls and “processing” measures like order processing time. Different measures usually involve different people. So, by addressing these we can directly connect the company’s strategy to the workforce.
How an MCS can help: An MCS links a company’s strategy to the daily execution activities that are the source of value and/or efficiency.
3. Too many ad hoc meetings
If your company meeting rooms are booked solid two weeks ahead of time, the problem may not be the lack of rooms but that your meetings are not achieving their intent.
In our experience, ad hoc meetings are set up to finish off something that wasn’t done correctly the first time. Perhaps the right information wasn’t available at a previous meeting. Or a vital person was not invited. Or another department had not weighed in yet. This results in inefficiencies, lost productivity and time.
How an MCS can help: The right information will always be available to the right people at the right time, allowing for quick decision making.
4. KPIs that drive wrong or no behaviours
Consider these two scenarios.
An insurance company had an incentive where agents were rewarded for selling 30 policies per month. This incentive drove the wrong type of behaviour. When agents achieved their target of 30 policies, they stopped selling more policies, and if they did, they “saved” them for the following month. The incentive was actually a disincentive!
On the other hand, a telecommunications company introduced measurements and a fully variable compensation incentive for their retail outlets. Sales grew by double digits because employees realised that the more they sold, the better the reward.
“The wrong Key Performance Indicators (KPI) may end up driving the wrong behaviours and steer employees away from business objectives. Or, they may drive change for a while only to have it drop off later,” says Ruiz.
KPIs may also end up being too much for an employee to reach. For example, a company may have a huge dashboard with 20 things that the company wants to achieve in every region. When employees look at that dashboard, they may end up wondering how their work can help achieve that.
“We don’t always know what behaviours KPIs will drive, so they must always be monitored and tweaked until they result in the desired behaviours,” Ruiz adds.
How an MCS can help: Because an MCS is linked to execution activities, the focus on correct behaviours is greatly enhanced.
5. Things are taking too long to execute
It takes longer to make correct business decisions or execute work on time when business processes are spread out over many departments and too many people. Fixing the complexity may improve process deployment, but an MCS will give you clarity on where blockages are occurring so that remedial actions can be taken.
How an MCS can help: An MCS brings transparency on process performance. This is vital when processes are complex and spread widely across an organisation.
As an organisation grows, processes grow with it. Without consciously-designed MCSs, business processes often grow complex and end up affecting an organisation’s performance.
When set up correctly, MCSs can do the following:
• Set the expectations for performance
• Describe the way things should be done
• Monitor how well things are being executed
• Measure results
• Analyse gaps
• Improve future performance
Learn more in our white paper, Priming Business Processes for Excellence.