The term value flow analysis is derived from the concept of value stream mapping, which is deeply rooted in activities relating to producing and delivering a product or a service to the customer. James Womack, Daniel Jones, and Daniel Roos first formulated the value stream concept in their book entitled ‘The Machine that Changed the World”. Published in 1990, the book was considered to have launched the Lean movement, which popularized methods of systematic reduction of waste in working processes.
James Womack and Daniel Jones further took on the concept in their book entitled “Lean Thinking,” published in 1996. It defines a value stream as “the set of all specific actions required to bring a product or service through critical management tasks.” (Womak & Jones, 1996, p. 19) According to Drew Locher, the author of “Value Stream Mapping for Lean Development,” “Value stream mapping is an effective and proven tool to assess existing business processes and to re-design them based on <Lean> concepts.” (Locher, 2008, p. 1)
As related to process performance and a potential model for linking processes to organizational strategy, value flow analysis enables the categorization of KPIs through their contribution to the main stages in the value generation chain: input, process, output, and outcome. Furthermore, this distinction allows for a deeper understanding of each KPI’s contribution to the organizational objectives set, based on clear assignation to the following listing:
Input metrics are associated with the quantity or quality of the resources engaged in a particular task or operational activity. Such metrics or KPIs will be generally linked to budgets, human capital, and other tangible assets the organization brings to the production/development process. Input metrics will generally be related to achieving financial objectives, such as maintaining the company’s financial discipline, internal processes objectives like the efficient use of company resources, or people-related objectives, such as the availability of human resources for the organization.
Process metrics are affiliated with the transformation process that is involved with taking the company’s inputs and converting them into desired outputs for the organization. Process metrics commonly reflect on the activities or actions that are taken to convert inputs into organizational outputs. Process metrics will reflect on the achievement of internal processes objectives as a rule. Quality and time-based considerations will be best reflected with selecting and establishing process metrics or KPIs for the organization.
Output metrics are indicative of the results obtained with the designated inputs of the organization. Output metrics or KPIs will commonly reflect on a backward or reversed control representation of the efficiency with which the company’s resources or inputs are used to produce final products or develop end-user services.
Outcome metrics reflect the ultimate effect on the value of the organization’s production and service development processes. Outcome metrics or KPIs will frequently support top-level objectives while reinforcing the company’s overarching purpose as reflected in its strategic themes. Although not generally used with the more common Value Stream Mapping technique, outcome metrics are desirable because they allow for a more valid association with organizational objectives by organizational layers.
Documenting processes by use of the value flow analysis serves multiple purposes. The quality of process outputs and outcomes is directly related to the quantifiable amount of inputs, efficiency, and speed with which they are used in the process of their transformation. As quantifiable measures of a company’s operational performance, KPIs are therefore an effective instrument for decomposing processes by their main value creation stages:
Quantitative KPIs will stand for the measurable characteristics of the inputs that go into the value creation chain. Quantitative KPIs easily relate to an objective appreciation of the amount of inputs or resources the company uses to obtain its desired outputs and positively influence envisioned outcomes.
Time-related KPIs will be easily identifiable with the activities or actions that are undertaken as part of a process. Time-related KPIs will always be process-based, given that they are the only ones capable of accurately reflecting on the speed of the transformation process.
Qualitative KPIs will relate mainly to the outputs and outcomes in the company’s value creation chain while reflecting on the quality of results produced as part of the transformation process. Qualitative measures are still quantitative; however, they possess the additional capacity of reflecting on the quality of operations conducted.
These particular characteristics make KPIs easily responsive to the four stages in the value creation process and are also similar to the characteristics of organizational objectives, which are either quantitative (i.e., Reduce operating costs) or qualitative (i.e., Improve service quality). This, in turn, makes it easy for an organization to assign KPIs to desired business objectives in a concentrated effort of monitoring the high-level strategies or the company’s follow-through on its strategic themes.
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The Japanese economy was ruined after the Second World War. To help in the development of the economy, W. Edwards Deming educated Japanese manufacturing companies to make use of statistical quality control techniques. Deming focused on market orientation, people involvement, and advocated the Plan, Do, Check and Act (PDCA) cycle for continuous improvements. A number of Japanese manufacturers practiced his teachings and experienced quantum jumps in the quality and productivity of their products.
Buoyant with this success, Japan introduced the Deming Prize in 1951; this can be considered as the first model on business excellence. As the model was introduced with the objective of helping industries to enhance competitiveness in their respective countries, several national governments and industry associations came forward and established national and regional excellence awards based on business excellence models.
In line with Deming, the US also introduced its business excellence model (BEM) in 1987, The Malcolm Baldrige National Quality Award (MBNQA). Of course, MBNQA came into existence after the Canada Award for Excellence which was introduced in 1984. In 1984, the Australian Business Excellence framework was also developed, becoming the fourth globally known quality award. The trend was followed in Europe as well and in 1988, The European Foundation for Quality Management (EFQM) was established to help the competitive position of European companies in the international marketplace. This is how the concept of the business excellence model was born and quickly got spread to various countries.
Benefits of deploying BEM in an organization
BEMs administrating bodies based on assessment bestow awards/recognitions to companies judged excellence as per the model framework. Winning such an award is considered prestigious since it enhances the brand image of an organization and its stock/share value. The organization is characterized by high-quality products, environmental and societal friendliness, and customer orientation. Employees morale gets boosted with the organization’s culture of improvement and innovation is renewed.
In turn, the practices of an award-winning organization become a benchmark for industries in that country/region. They also benefit the overall economy by facilitating the sharing of experiences and encouraging cooperation among businesses. The external feedback from the examiners provides organizations with objective information about current performance and helps identify areas of improvement. This helps organizations to analyze their present performance and strategize future road maps.
Customizing the BEM for specific sectors
In spite of the advantages and contributions of the BEMs, a range of concerns has been raised by many researchers and practitioners. Relevance and usefulness of assessing an organization (through BEM) against fixed criteria as well as the weight and insufficiency of a balanced set of results are just some of the concerns that have been cited. The most important barriers when implementing the BEMs are the lack of time, physical, and financial resources due to their generic nature.
The technologies in the last two decades have also evolved with great pace; especially now with Artificial Intelligence Machine Learning, and means of communication have greatly impacted the needs and expectations of all stakeholders, be it customers, investors, regulators, or employees. The post-pandemic era has also introduced the “new normal” which needs to be adopted quickly by organizations. Globalization, collaboration, e-commerce, stringent environment norms, extreme weathers, and ever-changing macro and microeconomic challenges are contributing to uncertainty which needs to be tackled with resilience and flexibility.
These changes have significantly impacted the business world on a long-term basis. On one hand, the world faces challenges related to economic recession and the ever-changing business environment. On the other hand, BEMs couldn’t escape the impact of the VUCA (volatility, uncertainty, complexity, and ambiguity) phenomenon that is affecting most of the globe. The literature review over the last 15 years indicates many gaps associated with the effectiveness of the EFQM model.
Authors have pointed out various shortcomings of the BEMs, but in the present context, two important gap areas are listed below:
The above shortcomings indicate a complex nature of the model and call for alignment of the model to specific industries so that it can be deployed more effectively in that industry. Research and practical implementations globally have pointed out that the customization of BEM to specific sectors may trigger improvements and help organizations to face challenges. The customization calls for tweaking the framework which may include changing the total number of criteria, criteria nomenclature, weightage, sub-criteria, and guidance points.
The model will need to be more prescriptive rather than generic. The organization has to administer the model and deploy it on a year-on-year basis to see improvements. The model also remains flexible so organizations can change/introduce guidance points based on the improvements achieved so far. The present and future needs of the business will also be an important trigger for changes in the model whereas global level models take years to get modified.
- The BEM is non-prescriptive. The generic and the one-fits-all approach has caused an issue of effective implementation of the model to a business sector. As such, the model demands adaptation to sector-specific modifications.
- Companies struggle to imbibe the model. First, the model is difficult to understand. Secondly, it is too time and resource-consuming to implement. Leaders also do not understand it fully, thereby causing a lack of commitment from them. The feedback report, which the organization receives post-assessment based on the model, is normally vague and difficult to decode. Eventually, the action plan that emerges does not bring desired improvements.
Business excellence initiatives and tools have been designed as having a generic approach and are ever-evolving. Such tools, although helpful in bringing improvements, have been met with challenges in implementation. One way to tap the full potential of these initiatives is customization for specific organizations. Since BEMs are meant to bring agility and flexibility in an organization, these should be flexible to change and imbibe to cater to different geography, cultures, sectors, and industries.
Some say when you fail to plan, then you plan to fail. This is the reason why you should establish a solid strategic planning process for your company. But strategic planning won’t succeed without the right data. Data gathering may sound simple, but you should not underestimate it. Why does it matter and how should you gather your company’s performance data?
Performance monitoring is a systematic process taken by the management in order to track the company’s performance and drive results and continuous growth. Performance monitoring could also send signals to top management which part of their business operations are failing or working below expectancy. This process plays an important part in the strategic planning initiative.
In order to successfully monitor company performance, the management should be able to gather corporate performance data swimmingly.
Data gathering in general should start with KPI activation. This KPI activation consists of four different steps: meeting with the data custodians, securing the activation budget, designing the data gathering template, and communicating the template to the data custodians. KPI activation is a step that allows management to develop infrastructure for capturing and managing data.
After KPI activation is done, the next step is the ongoing data gathering process. This is where the management or the performance management team sends the KPI data gathering notification to the KPI custodians and receives the data relevant to performance monitoring. For this step, it is imperative for the performance management team to gathers and centralize the relevant data before checking the data quality.
After sending the KPI data gathering notification, the management or the performance management team could also send the KPI custodians a reminder via email to make sure the data custodians prepare the data needed.
Once the relevant data is gathered, the performance team should check the quality of the data before calculating the KPI results and analyzing the data. The quality of the data should be checked based on multiple dimensions. The main dimensions are Accuracy, Completeness, Consistency, Conformity, Timeliness, and Uniqueness. In reality, the performance management team may find the relevant data does not meet those requirements/quality. When the data does not meet a certain quality, it is preferred for the top management or the performance management team to clarify the data to the data custodians.
Data analysis is a set of processes of examining, transforming, and modeling data to generate relevant business insights that can be used in the decision-making process. In analyzing KPI results, the performance team should use analytics.
The final step of data gathering is to generate a performance report. In this phase, data custodians, the report generator, and the strategy performance team are collectively responsible for compiling all performance results, business insights, and analysis in a certain format for the decision-makers.
In conclusion, a solid data gathering enables decision-makers to set the right company’s objectives for the next period. A solid data-gathering process will help the performance management team provide the performance report required by the top management faster, making the top management adjust the company’s strategy and objectives properly. If you want to learn more about how you could establish a solid data gathering process, sign up for The KPI Institute’s Certified KPI Professional and Practitioner course.
What makes partnerships successful? Collaboration is the process of shared creation. Two or more individuals with complementary skills interact to create a shared understanding that none had previously possessed or could have come to on their own.
Collaboration creates a shared meaning about a process, a product, or an effect. The true medium of collaboration is other people. Real innovation comes from this social matrix, according to Michael Schrage, author of Shared Minds: The New Technologies of Collaboration.
In today’s world economy, many companies are struggling to maintain quality while functioning with fewer resources. The economic and social issues can become real barriers to innovation, quality improvement, and successful services for today’s businesses. One way to combat the economic and social environment is by creating new and improved partnerships to use resources and share expertise to provide better services.
When two or more organizations are considering a partnership, the first question should be: Do the organizations involved have similar values that allow the partnership to function in a synergist way? It needs to remain positive and productive through both successes and challenges.
Second, ask: Does the partnership enhance our collective value proposition to the client? Will the client truly benefit? If the partnership doesn’t provide tangible value to the client, then the premise of the relationship should be revisited.
The third question is: Will each partnering organization be strengthened through knowledge transfer or capacity building within their entity?
Successful business alliances or collaborations begin by understanding how to create effective, productive partnerships. In partnerships, two or more entities or people come together for mutual benefit. Often, organizations spend much of their time assessing the financial terms of a partnership. While the financial aspect of partnerships is important, truly successful partnerships include understanding the need to manage the partnership in human terms (Cockerell, 2008).
In a 1994 Harvard Business Review article, Rosabeth Moss Kanter outlines eight elements that are needed for partnerships to succeed:
– Both partners bring value and strength to the alliance. They are not trying to mask weaknesses.
– The partnership must be important to each person or entity and meet long-term goals. There must be a solid business reason for the partnership.
– Partners recognize the interdependence of the relationship. If partners try to maintain their independence, the partnership will not succeed.
– Everyone has to invest in the partnership by providing resources, expertise, or other tangible signs of commitment to the partnership.
– The partners must be willing to share information to make the alliance work.
– Partners develop linkages so that they can operate smoothly together.
– The alliance becomes a part of the formal structure of the two organizations and extends beyond the people who put the partnership together.
– Partners maintain their integrity and work in honorable ways to maintain trust.
These eight characteristics form the foundation for successful alliances, partnerships, and collaborations.
What makes PESTEL and Porter’s Fiver Forces work?
Every company operates in a macro-environment that is composed of main components:
- Political factors: Political policies are made up of various factors that affect the economy. Some of these include tax policy, fiscal policy, and the political climate.
- Economic conditions: The general economic climate includes various factors that affect the country’s growth and development, such as the interest rates, exchange rates, and unemployment rate. These conditions can also affect consumer confidence and spending.
- Sociocultural forces: The cultural forces that influence demand for goods and services vary depending on the region and the population’s size and age. For instance, the growing trend toward a healthy lifestyle can affect spending on health clubs and equipment.
- Technological factors: These factors have the potential to affect society and its various industries. They include the pace at which technological change occurs and the multiple institutions involved in its creation.
- Environmental forces: Various environmental factors such as climate change and weather can affect various industries, including farming, energy production, and insurance. These factors have a significant impact on other industries as well.
- Legal and regulatory factors: These factors are often linked to the regulations and laws that companies have to follow in order to operate. Some of these include labor laws, antitrust regulations, and occupational safety regulations.
How to use the PESTEL Analysis
These components have the potential to affect the firm’s competitive advantage and the overall business environment. An analysis of these components is often referred to as PESTEL analysis.
Since macro-economic factors can affect different industries to different degrees, managers must keep tracking which of these factors have the most strategically relevant impact on their companies.
For example, anti-smoking laws and increasing cultural stigma attached to cigarettes have significantly reduced the profitability of the cigarette industry. As a result, cigarette companies are forced to rethink their business models.
Another example is when companies that compete for a slice of the fast-growing fitness and food processing markets have to keep monitoring the changes in the environment and the habits of their consumers. The environment of a company is often the most significant strategy-shaping influence.
So, companies need to assess their macro-environment factors to avoid any changes that could affect their operations and strategies.
Implementing the Porter’s Five Forces
Similar to the macro-environment, companies should keep tracking the industry-specific micro-environment, and this can be done through Porter’s Five Forces. The five forces are the competitive forces that shape an industry, and they are never the same for different industries. Understanding these forces can help identify the root causes of market volatility. The competitive forces that companies within an industry face are often linked to five sources:
So, companies should conduct PESTEL and Porter Five Forces analysis continuously to keep monitoring the changes in the macro- and the micro-environment and keep identifying the best course of action to reach its vision. Afterwards, they can build on that using SWOT analysis. SWOT analysis alone cannot formulate a strategy as it’s considered a reactive tool that helps organizations come up with a list of additional strategic objectives. These objectives prepare the organization against the various threats and opportunities that they might face in the future.
The KPI Institute designed the Certified Strategy and Business Planning Professional to help professionals and business understand and use strategy planning concepts, scan their environments, and formulate functional, structural and strategic approaches. If you’d like to get your certification, sign up here.
- Competition from existing competitors – similar products: There are many forms of rivalry among existing competitors. These include price discounting, new product launches, and service improvements.
- Competition from newcomers – similar products: New entrants can create new capacity and gain market share at the expense of prices and costs. They can also leverage existing capabilities to create new opportunities.
- Competition from substitute products or services: A substitute performs the same function as an industry’s product by a different method. For instance, video conferencing is often a substitute for travel, plastic substitutes aluminum, and email substitutes express mail.
- Bargaining power of suppliers: The powerful suppliers can squeeze more of the value out of their customers by charging higher prices or limiting the quality of their services.
- Bargaining power of buyers: They can capture more value by pushing down prices and demanding better service, resulting in industry participants being outplayed by their competitors.