Universal business process diagram

It has been a while since I wrote on this model, and it has been enhanced only so slightly during time. Below we will discuss the KPI’s that are necessary to measure the performance of these (sub)processes.

Diagram 1. Universal Business Process Diagram

Note: Support = Finance, (Fundamental)Research, Quality, Legal, IT etc.
Note: Processes = standards, guidelines, innovations, laws
Note: General Management is the third dimension overseeing it all
It is remarkable how much one can read from an organization`s Process Landscape. In some example´s I have seen, General Management was shown together with HR and Finance ´on top´ of the core process, and all other supporting processing ´below´.  To what extent that reflects the perceived importance of HR and Finance in these organizations is interesting to examine. In the model above, the Core Process is leading, all other processes are supplying-supporting, and only ´general management´one should see as in the third dimension, perpendicular to the page, integrating them all.

CORE PROCESS KPI’S

Whereas Customer Processes and Client-Distributor Processes generally are fairly industry-specific, from Marketing onwards the BPO/processes are fairly similar regardless of the underlying industry. The same can be said about the KPI´s belonging to those processes. Some may say that the KPI’s below are ‘self-evident’ but some heated discussions have proven that not all companies see things identically on this topic. Below will not follow an argumentation why each individual KPI should be taken, instead when one sees the process-‘building’, however, the logic of the identified KPI’s becomes clear to most.

The development of KPI’s starts fairly counter-intuitive: the last party in the process indicates against which criteria it can accept input from the previous process. In a way these are the ‘reverse Service Specifications’ or ‘Lastenheft’ or User Acceptance Criteria. For instance, for a car the ultimate consumer defines the model he wants to buy. ’Assembly’ then specifies how large the tires need to be to fit under it and which grip they must give to the moving vehicle. The tire department then specifies which pattern in which rubber in which diameter the tyre needs to be made off in order to fulfill the grip-criteria, etc. Once those acceptance criteria have been set, production can start and rubber can be delivered. All of these specifications are then documented for the beginning of the process, and added into the contract to ensure that the client at the end will purchase the agreed upon product. To measure the fulfillment of these acceptance criteria, we use the KPI’s. At least in theory, in practice a lot of adjustments and tinkering takes place.

In a similar way, Operations for BPO indicates it needs x in revenues to generate the desired EBIT, sales indicates that it needs y opportunities of a particular size since it will close z% of them, so Marketing needs to identify a market that is again n times larger. And then, after a while these criteria are adjusted based on the Lessons Learned, of course.

The Core Process KPI’s would then come to:

Marketing (Research)

• Number of ‘Market Opportunities’ >x EUR according to the criteria of Product/Service Development
• Number of RFI´s > x EUR existing, according to the criteria of (Pre-)Sales

Product Development

• Number of Solutions for x EUR in Market Opportunities identified by Marketing

Sales

• RFQ/RFI %(or: in how many of the identified cases are we invited to bid? The KPI for Public Relations or Pre-Sales)
• Contracts/RFQ (or ‘hit rate’) or Revenue in absolute EUR
• Deviation of Contract Profitability (EBIT or in BPO ‘OM3’) compared to Planned EBIT. (In Business Process Outsourcing (BPO), generally  ‘OM3’ is used instead of EBIT, where the account-specific costs are subtracted from revenue to isolate overhead costs which Sales and Service Delivery can not influence anyway.)

Implementation

• Client (so ‘Contracting Party’) Satisfaction about Implementation, or Upselling Revenue Without RFP
• Deviation of Actual EBIT (/OM3) compared to Contract EBIT (/OM3)

Service Delivery (Account Management)

• Client (so ‘Contracting Party’) Satisfaction, or Upselling Revenue Without RFP
• Deviation of Actual EBIT (/OM3)compared to Contract EBIT (/OM3)

 

SUPPLY FUNCTIONS

The Supply Functions KPI’s generally are fairly stable, but their importance varies by industry:

Human Resources

• Speed of filling vacancies
• Quality of candidates as measured e,g, in tenure with company after hiring
• Salary level compared to market

Purchasing

• Cost of Materials
• Responsiveness of Purchasing

Production

• Customer (so ‘End User’) Satisfaction
• Cost of Production (typically ‘OM1’ in BPO) compared to Standardized Production Cost

 

SUPPORT AND GENERAL FUNCTIONS

The Support Functions in an industry may vary greatly, below just a few examples, with no pretention or intention of being complete at all:

Finance

• Accuracy and timeliness of reports

IT

• Cost per seat or product
• Speed of Change Request implementation
• Uninterruptability of IT Services

General (‘Integral’) Management

• Actual Revenue vs. Target
• Actual EBIT vs. Target

 

When a company uses these KPI’s, they will be interrelated, and the efforts of one department will be focused on facilitating the next. No, it is no guarantee of success, but at least one will have a picture of how one can have success in the business and what each department is contributing to it.

 

 

Legend

• RFI = Request For Information = Client considers purchasing and scans the market for information
• RFQ = Request For Quotation = Client wants selected providers to provide an offer
• OM1 = Operations Margin1 = Revenue minus variable costs for the product
• OM3 = Operations Margin3 = Revenue minus attributable fixed costs for the product
• EBIT = Earnings Before Interest and Taxes, or profit