Pearson on Excellence: What could be more effective than continuous process improvement?

Great businesses have key similarities. Most have sound business strategies that clearly explain the nature and mission of their products or services, as well as how and to whom those offerings are sold. Leading companies also have particularly strong core competencies that enhance differentiation. And of course, highly successful companies execute: They deliver value quickly, reliably, and profitably.

Top organizations also know how difficult it is to keep the above capabilities in premier shape. Customer preferences and demands change. Economic climates evolve. Perhaps most daunting, growth increases complexity. Over time, the capabilities that made a company successful can get waylaid by functional silos, bureaucratic clutter, and shifting focal points.

Issues like these often spur companies to launch continuous process improvement (CPI) initiatives—programs that, over many decades, have produced billions of dollars in performance enhancements. Still, companies often expect too much from their CPI programs. They lose sight of the fact that CPI is a bottoms-up, reactive approach whose mission is to upgrade specific and often isolated business process.

But aligning process improvements with critical strategic objectives—big-picture objectives like improving the total customer experience or accelerating time to market—is beyond the scope of most CPI programs.

What’s needed in cases like these is a broader approach: a way to create positive change across all the processes that contribute to a specific value proposition. Instead of focusing your improvement energies on a particular process, you need to create a cross-functional, but mission-specific lineup of processes—a “prime value chain.”

The idea is to chart the multi-process path that enterprise transactions take to deliver value. From there, you can decide what improvements are needed to any or all processes that affect strategic goals, for example, creating perfect orders or ensuring on-time delivery.

Prime value chain in action
The most obvious advantage of a prime value chain (PVC) approach is its holistic focus: creating a better body instead of tonier abs, quads, triceps or biceps. Focusing an organization on its PVC can also help management refocus on key priorities, break down functional silos, and prioritize improvement efforts.

And once all related activities and outputs are captured, the organization may be better able to understand the relationship between execution and the operating model—how functions and processes interact; what new or revamped capabilities are required; where they should reside; and how they should be managed. Following is a real-world example of how one company garnered many of these benefits.

A large consumer products manufacturer needed to improve the efficiency and effectiveness of its product development organization. The objective was to support a 25 percent growth target while reducing total operating costs. The company’s operating environment is large and complex: myriad functions, dozens of processes, thousands of global resources, and tens of thousands of global and customized items.

The company first considered a bottoms-up effort to reduce waste across all processes in the product development operation. This approach certainly would have found local improvement opportunities with positive impact to its balance sheet. However, it was deemed inadvisable because of 1) the low likelihood of reducing costs and significantly improving product development output; and 2) the immense number of affected processes and complex interrelationships between structure, execution, the product portfolio, and customer segments.

Instead, the company opted for a PVC analysis that looked across functions and processes to help identify inefficiency at the enterprise level and determine how the company’s operating model could be optimized for increased output at lower cost.

PVC ultimately made it possible for the company to diagnose and manage product development as an ecosystem: gathering a comprehensive inventory of all activities and inputs associated with developing a new product, regardless of where those activities take place. From an initial group of 96 product-development-related processes, 11 were deemed critical to more-effectively moving new products from strategy and launch to market introduction and eventual retirement. These 11 processes would be the focus for improvement and integration efforts.

Using PVC, the company then launched a well-chosen, interrelated set of continuous improvement projects that are on track to increase total productivity by 30 percent. In this company’s case, PVC was clearly the right tonic—largely because its top priority is always to optimize the “strategic whole.”