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Archive of posts tagged strategic alignment

The Value Creation Machine

The book “Die Wertschöpfungsmaschine” (a suitable English title would be “The Value Creation Machine”) deals with the question of how value creation can be optimally organized. The authors see process and organizational structures that do not fit the strategy as the biggest obstacle for companies to give their best.

Andreas Suter, Stefan Vorbach and Doris Wild-Weitlaner (2019): Die Wertschöpfungsmaschine (available in German only)

Without grey theories the book introduces into a new, but already often used approach, how one tailors processes and organization to the business strategy. The focus is on the roles and responsibilities in the company from the perspective of value creation. The arguments are conclusive, comprehensible and very practical on the basis of numerous case studies from industry and service sectors.

The key idea is the focus on the internal and external interfaces to customers and suppliers. Processes and organizational units should be controlled consistently by means of simple client-supplier relationships. The simpler and clearer the interfaces are, the more value can be increased for the customer, operational complexity reduced, idle times and expensive overhead structures for planning, coordination and monitoring eliminated. In addition, the matrix organization can be avoided.

Originally, the “value creation machine” was developed at Graz University of Technology in the 1990s and first published as a book in 2004. If one compares the first publication with the one now available, it is easy to see how it has been further developed and extended to include important subject areas such as “innovation management”, “process cost management” and “digitisation”. The service character of many businesses has also been massively expanded.

Survey on Process Management: Process Performance Measurement

By focusing measurement on processes rather than functions, alignment and common focus across separate organizational units can be achieved (Hammer, 2007). This article discusses the concept of process performance measurement of the process management survey. Details on the survey (research design, sample, etc.) can be found here.

Implementing measures and taking corrective actions are operating precepts of process management (Melan, 1989). The results of the survey show that the concept of process performance measurement is partly established by organizations (see figures below). More than 40% of the surveyed firms state that process performance measurement is not implemented in the firm.

The item “Performance indicators are specified for our organization’s business processes” was rated by the firms in the sample as follows:

  • 42,67%: Disagree
  • 27,33%: Neither agree nor disagree
  • 30,00%: Agree

Performance indicators are specified for our organization’s business processes.

Performance indicators are specified for our organization’s business processes.

Process performance indicators have to be derived from the process objectives which themselves have to be derived from business objectives. The results of the survey reveal that most of the firms which defined process performance indicators derived these indicators from enterprise goals and/or customer requirements. The item “Process performance indicators are derived from enterprise goals and/or from (internal) customer requirements” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 10,00%: Disagree
  • 22,00%: Neither agree nor disagree
  • 42,67%: Agree

Process performance indicators are derived from enterprise goals and/or from (internal) customer requirements

Process performance indicators are derived from enterprise goals and/or from (internal) customer requirements.

Process performance measurement only makes sense if performance indicators are calculated from process performance data which is collected continuously. Most firms which defined process performance indicators also continuously collect performance data. The item “Process performance data is continuously collected” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 14,00%: Disagree
  • 18,00%: Neither agree nor disagree
  • 42,67%: Agree

Process performance data is continuously collected.

Process performance data is continuously collected.

Measuring process performance without reacting on poor performance stresses resources, but does not lead to any improvements. Most firms which defined process performance indicators also initiate improvement actions if process performance is poor. The item “Improvement actions are actually initiated if poor process performance is encountered” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 9,33%: Disagree
  • 24,67%: Neither agree nor disagree
  • 40,67%: Agree

Improvement actions are actually initiated if poor process performance is encountered.

Improvement actions are actually initiated if poor process performance is encountered.

Process workers who know the performance of the business process are able to timely react on bad performance. Most organizations which defined process performance indicators also make the data available to process performers. The item “Process metrics are periodically presented to process performers (for e.g. awareness and motivation)” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 18,00%: Disagree
  • 22,00%: Neither agree nor disagree
  • 34,67%: Agree

Process metrics are periodically presented to process performers (for e.g. awareness and motivation).

Process metrics are periodically presented to process performers (for e.g. awareness and motivation).

Process benchmarking uses business processes as comparison units and aims to identify best operating practices (Delpachitra and Beal, 2002). The results of the survey reveal that process benchmarking is infrequently used by organizations. The item “Process benchmarking (for several processes) is carried out in the organization” was rated by the firms in the sample as follows:

  • 25,68%: No process performance indicators defined
  • 37,84%: Disagree
  • 29,73%: Neither agree nor disagree
  • 6,76%: Agree

Process benchmarking (for several processes) is carried out in the organization.

Process benchmarking (for several processes) is carried out in the organization.

Activity based costing captures costs horizontally in line with business processes (Hinterhuber, 1995). The results of the study reveal that activity based costing is rarely used by organizations. The item “Activity-based costing is comprehensively applied in the organization.” was rated by the firms in the sample as follows:

  • 25,50%: No process performance indicators defined
  • 45,64%: Disagree
  • 21,48%: Neither agree nor disagree
  • 7,38%: Agree

Activity-based costing is comprehensively applied in the organization.

Activity-based costing is comprehensively applied in the organization.