Construct an Optimum Governance Structure for Business Process

Construct an Optimum Governance Structure for Business Process Global Process Ownership Summit Nov. 18 -19, 2014 Atlanta, GA

Agenda 1. Process- and Governance-related Definitions 2. Need to align organizational, performance and process hierarchies 3. 4. 5. 6. for creating effective Process Governance Different types of Process Governance structures Practical Guidelines for creating Process Governance Steps to create optimum Process Governance structure Wrap upb 2

What will you learn? q Definitions of Governance, Process, Business Process Owner (BPO) and Performance Indicator used in this presentation. q How to model E 2 E Process Flows at high level (the ‘big picture’). q How to distinguish between complex and simple process flows. q Why we need to align process, organization and performance structures enabling optimum governance structure. q How to analyze and select governance structure types to select the optimum one. q What are the steps to design optimum governance structure. 3

Definitions: Process is a sequence of activities that: q are repeatable, definable, predictable, and q have measurable input(s) and output(s) objective of which is to consistently yield expected results (performance, value) C=Customer of S=Supplier of Output (becomes Input) It must meet Customer’s Requirements downstream Output/Input must meet Customer Input Requirements Business Requirements Finished Product Raw Material Input Process C I S O Order Requested C Output=Purpose/ S Objective Order Shipped time + Supplier The supplier is the person, organization or system that provides an input to a process or to an activity within a process. Performance Measurements + Customer The 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. 4

Definitions: E 2 E Process Scenario The E 2 E 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. Product is Completed using Raw Materials Ordered Input Output Integration of functional processes 5

Enterprise Value Chain View with an E 2 E Process Scenarios 6

Simple and Complex Process Flow examples 7

Definitions: Governance (generic) ü How will the process operate (process/organization design)? ü How will the process be managed ? (BPM, PLM, PPIs/KPIs) ü Doing what is required to assure that needed value (*) is produced by organization for the stakeholders in the most efficient and effective way The Process Governance is about how Governance Bodies define, coordinate and control : q process work (BP Management), q process performance and value management as well as q give direction to the staff associated with the Business Process Ownership, BPM along with PLM, Modeling, Six Sigma, Lean etc. (*) refer to Business Architecture’s Strategy/Value/Performance Maps and LSS 8

Governance may use formal bodies such as : q q q 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 9

Definitions: Governance - continued q Governance Mechanisms : v 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) v PERSONAL (formal and informal) § Individuals (liaisons) § Committees, § Process Offices (Co. Es) – 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 10

Definitions: Governance - continued q 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 Strategic Process Change (typically a project) § Operational Process Improvement (part of Continuous Improvement (Analyze, Design, Implement, Run/Monitor) q Because there always issues in a cross-functional process organizations, there will always be a need for governance across E 2 E process scenarios q Governance cannot function in a functional silo - it interacts with other Governances 11

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.

Definitions – Business Process Owner (BPO) q 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. q 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. q 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 q BPO is the interface between business and IT. q All the above have bearing on governance (if BPO Governance used). 15

Performance should be decomposed along process and organizational layers 1: n Legend: typical for workflow execution and management 16

Process-Organization-Performance decompositions and alignment Process Performance Actuals Aligned Organization Not Aligned Performance X 17

Alignment of the Process and Organization with the Performance Indicators 18

Analysis of different Governance Structure Types

Order To Cash E 2 E process scenario discussion Customer and Company perspectives OTD Dept. : Sales Desk Order Entered to Delivery Created Functional Process A Dept. Outbound Mgmnt Dept. : Transportation Mgmnt Delivery Created to Order Shipped to Order Delivered Functional Process B Functional Process C Order Entered to Payment/Cash Received OTC = 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 OTC Dept. : Billing BTPDept. : AR and Collections Bill for Order request received to Invoice sent Invoice Sent to Payment for Order received Functional Process D Functional Process E 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 Company Perspective Customer Perspective

Governance Type: Liaison Manager of Sales Order Processing Performer 1 Performer 2 Manager of Warehouse Outbound Logistics Performer 3 Performer 4 PPI=Lead Time 2 Credit Checked Performer 7 Lead Time 3 Lead Time 4 Lead Time 5 Lead Time 6 Goods Picked and Packed Transportation Scheduled Transportation Executed Performer 9 8+ 9 Lead Time 7 Lead Time 8 Lead Time 9 Accounts Receivable Warehouse Outbound Logistics Delivery Created Performer 8 PPI=Lead Time PPI=Lead Sales Order Processing Customer Order Entered Performer 6 Time 4+5+6+7 Time 1+2+3 Lead Time 1 Performer 5 Manager of AR Goods Delivered to Customer Bank’s Input Processed Payment Booked Liaison –good, inexpensive governance structure for both functional and E 2 E 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 E 2 E performance indicators 21

Governance Type: E 2 E Process centric flat organization structure with a wide span of control may have a BPO who reports to a VP BPO Manager A Dept. : Sales Desk Manager B Dept. Outbound Management Order Entered to Delivery Created to Order Shipped Functional Process A Functional Process B Director or VP Order To Cash Manager C Dept. : Transportation Management Order Shipped to Order Delivered Manager D Dept. : Billing Requested to Invoice sent Functional Process C Functional Process D Manager E Dept. : AR and Collections Invoice Sent to Payment received Functional Process E Process Governance needs only 3 layers of organizational hierarchy – execution is closer to CEO and to Operational as well as Business Strategies 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 E 2 E must be broken into OTD and BTC thus OTC BPO. Department goals and priorities relate to cross functional E 2 E 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. Company Perspective Customer Perspective

Governance Type: Liaison flat organization structure with wide span of control may have ‘lite’ BPO Director of Order to Cash Manager A Dept. : Sales Desk Manager B Liaison Dept. Outbound Management Order Entered to Delivery Created to Order Shipped Functional Process A Functional Process B Director of Financial Accounting Manager C Dept. : Transportation Management Order Shipped to Order Delivered Manager D Dept. : Billing Requested to Invoice sent Functional Process C Functional Process D Manager E Dept. : AR and Collections Invoice Sent to Payment received Functional Process E Process Governance needs only 2 layers of organizational hierarchy – execution is closer to CEO and to Operational as well as Business Strategies Company Perspective Customer Perspective

Governance Type: Coordinating Committee CEO CFO Coordinating Committee COO VP Sales Execution VP Financial Accountin g VP Logistics Director of Sales Order Processing Director Of Warehousing Director Transportati on Services Director of Financial Accounting Manager of Sales Desk Manager of Outbound Logistics Manager of Transportatio n Mgt Manager AR Dept. : Sales Desk Dept. : Outbound Management Order Entered to Delivery Created to Order Shipped Functional Process A Functional Process B Dept. : Transportation Management Order Shipped to Order Delivered Dept. : Billing Order Shipped to Invoice sent Functional Process C Functional Process D Director Collections Manager Collections Execution Dept. : AR and Collections Invoice Sent to Payment received Functional Process E Coordinating Committee - satisfactory solution for E 2 E processes. Good with both company and customer perspective – depends how we define E 2 E 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 24

Governance: up the hierarchy CEO CFO COO VP Sales Execution VP Financial Accountin g VP Logistics Director of Sales Order Processing Director Of Warehousing Director Transportati on Services Director of Financial Accounting Manager of Sales Desk Manager of Outbound Logistics Manager of Transportatio n Mgt Manager AR Dept. : Sales Desk Dept. : Outbound Management Order Entered to Delivery Created to Order Shipped Functional Process A Functional Process B Dept. : Transportation Management Order Shipped to Order Delivered Dept. : Billing Order Shipped to Invoice sent Functional Process C Functional Process D Director Collections Manager Collections Execution Dept. : AR and Collections Invoice Sent to Payment received Functional Process E 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. 25

Governance: Business Process Owner (BPO) CEO BPO (w liaison feature) COO VP Sales Execution CFO VP Financial Accountin g VP Logistics Director of Sales Order Processing Director Of Warehousing Director Transportati on Services Director of Financial Accounting Manager of Sales Desk Manager of Outbound Logistics Manager of Transportatio n Mgt Manager AR Dept. : Sales Desk Dept. : Outbound Management Order Entered to Delivery Created to Order Shipped Functional Process A Functional Process B Dept. : Transportation Management Order Shipped to Order Delivered Dept. : Billing Order Shipped to Invoice sent Functional Process C Functional Process D Director Collections Manager Collections Execution Dept. : AR and Collections Invoice Sent to Payment received Functional Process E 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. 26

Other Governance Types ‘Shared Services’/Process Unit q Shared Services Process Unit (operating unit): most services focused on internal organizations – these in turn focus externally, q there maybe one or many services provided, operates one or more processes on behalf of other operating units, q 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) q Personal may include technical, managerial and executive committees q May cause significant disruption to existing organizational structure Process Organization with focus on Products (or on Sales Channel, etc. ) q q One E 2 E 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 q Costly, potentially complex transformation 27

Global Process Office/Chief Process Office (or Business Process Office) q 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) q Global Process Board should be created for large, global organizations q 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 28

Steps to design optimum Process Governance Maximum Alignment of Process, Performance and Organization is a key prerequisite for it q Using Process Models and Process Objectives (Outputs) design and map Process Performance Perspective: homogenous or non-homogenous q Based on Process Objectives identify performance indicators - Which KPIs/PPIs are needed and how structured? q Create Process and Performance structure model according to chosen Perspective, Process and Performance Structures q Perform top down PI decomposition and align with process, organization layer by layer. q 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 q 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) q Select personal and impersonal governance mechanisms, secure approvals, train 29

Wrap up (1) q 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 E 2 E 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 30

Wrap-up (2) - Conclusions q Liaison and informal personal governance are least expensive and suitable for organizations with lower maturity q Impersonal governance is needed by each type of governance. q Best results come from combination of personal and impersonal mechanisms. q 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) q Each type of organization and process need governance for the process and business to succeed. q E 2 E Process-centric (Process Unit) requires significant organizational change and cost but brings substantial benefits when implemented. 31

Wrap up (3) – Other conclusions q Keep functional process within one functional/silo department q 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. q 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. 32