Tuesday 15 February 2022

Key Design Principles that makes your project success

Often managers are frightened by the phrase "process design" - it seems to them that in order to create a project, you need to be an engineer or architect, which means that you can not do without serious technical knowledge or artistic talent. Many people think that they are waiting for the real pangs of creativity, because as Edison said: "Genius is 1% inspiration and 99% sweat," and according to Hemingway, "it is easy to write - just sit down and look at a blank sheet of paper until the drops of blood appear on the forehead." Many managers have no idea how to approach process design. And most design techniques don't provide precise guidance on where to start. Their authors seem to say: "Create a new project here", and in what place and what exactly you need to do - guessing is as difficult as predicting where lightning will strike.

But you can not be afraid of anything – believe me, you will not need any special abilities to cope with the task. Process design is certainly not an ordinary task, but it can nevertheless be structured and organized. Each step in process design involves only a small number of options. Your task comes down to choosing the most suitable one. We have identified seven process design principles that need to be taken into account:

  • what operations will be performed;
  • whether and under what conditions they will be implemented;
  • who will carry them out;
  • when this will happen;
  • where they will be executed;
  • how accurately they will be executed;

what information will be used.

In designing processes at Progressive Insurance, three of these principles were used: who performs certain tasks, when they are performed, and where they happen.

The essence of designing is that you learn certain aspects of the process, make changes and get impressive results.

First, ask yourself the question: 

Will changing any of these aspects lead to an increase in the efficiency of the enterprise? However, simply asking a question will not be enough – it still needs to be answered. To do this, you will have to use your imagination and find several new ways to perform actions. This is where the traditional strategy of inventors comes in handy: try as many options as possible until you select one or more of the best. As Nobel laureate Linus Pauling said, to find a good idea is to find a lot of ideas and discard the unsuitable ones. Then you'll at least see where to start, and you won't have to tread water. You'll understand what you need to pay attention to and what questions to answer in order to design a new process.

Let's take a closer look at each of the seven principles. But we will not delve into the theory, but rather analyze them with examples. (At the same time, the first principle is which operations we will leave for last.)

Whether operations will be performed.

The principle that we will study first of all is related to the question: will operations be performed and under what conditions? Remember in the introduction that when designing processes at Andren Aerospace, all the stages of the process were divided into groups: adding value, not adding value and wasting time? That's what this principle is all about. As a rule, all processes in the organization are carried out in the usual order, which does not depend on the circumstances: first stage No. 1, then stage No. 2, followed by stage No. 3, etc. We propose to radically change the approach to work: let's leave only those operations that benefit more than they take time and money.

Here's a small example.

Suppose you received an invoice in the mail and transferred an amount less than what is indicated in it. Most companies will seek full payment, meaning you will receive another invoice for the remaining amount regardless of its size. No one seems to think that sending out invoices also costs money and sometimes costs hundreds of dollars. The management of one computer maintenance company calculated the cost of re-sending invoices and eventually changed the corresponding process in the enterprise. If the underpaid amount is less than the cost of issuing and sending the invoice, the company simply writes off this amount and saves money as a result. But no, we will not tell you what kind of company it is and how much it considers small!

Now consider the following example. In one insurance company, accident commissioners went to inspect the car in two cases: if necessary, to assess the damage and when it was necessary to make sure that the damage really occurred. Quite often, drivers turn to the company because of cracks in the windshield. In this case, it is not necessary to go to the place to assess the damage - the glass in any case must be replaced, and its cost is standard. In other words, the accident commissioner goes to the site for the sole purpose of checking whether the glass is really damaged, i.e. whether the customer is deceiving the company. But once the management decided that regular customers who have been conscientiously paying a fee for a long time and have never reported an accident are unlikely to go on the path of crimes and start with the windshield. Now, if one of these customers claims damage to the windshield, the company skips the step with the inspection of the car and without question writes him a check for a replacement.

So, in order for the new process to become more effective, you need to add an additional stage to it, at which you will decide whether to perform certain actions in a particular situation. And then you'll do what's best. This technique is especially effective if some operation is very expensive for the enterprise or takes a lot of time and abandoning it can be very profitable.

How accurate.

The principle "how precisely certain actions should be performed" is in many ways similar to the previous one – "whether operations will be performed". Even if a step is necessary, think about it: maybe it can be performed not as carefully or not as fully as it was done before. It's hard to believe, but sometimes by paying less attention to work, you can save a lot of time and money. On the other hand, in order to get the maximum result, some actions should be approached more thoroughly.

In most clinics, patients receive a treatment bill that lists all costs. This list can span multiple pages. Some of the items in the bill are really important, for example, the cost of staying in the ward, payment for medical services. But most of it is a small expense, such as used wipes, taken pills, etc. Pareto's law states that such minor details usually make up 80% of the items listed and only 20% are really important for the patient. But in this case, Pareto is a big optimist! As far as hospitals are concerned, its 80/20 rule becomes the 95/5 rule. To write into the bill everything to the smallest detail is a lot of work for medical staff, but the patient himself in this bill, as a rule, does not understand anything. In addition, the data for compiling the invoice does not appear by itself. They still need to be collected, and this is the responsibility of the nurses. Collecting data takes up a significant part of their working time, and in fact nurses could devote these hours to patients. The management of one of the clinics made a bold decision to abandon such accuracy when compiling invoices. Now positions worth less than $ 25 are simply not included in the bill, although they used to make up most of it. Instead, the average cost of wipes, pills and other medicines is added to the bill based on the daily cost of a hospital stay. What happened? Patients did not spend more napkins, although they are not taken into account, and nurses freed up more time to work with patients. At the same time, the processing of medical personnel decreased by 37%.

At a luxury property insurance company, managers have concluded that by calculating the cost of an insurance policy with maximum accuracy, they only complicate the lives of their busy clients. Those have to report a lot of information about their real estate so that the company's employees can accurately calculate the insurance risks and, accordingly, the size of the insurance premium. The company's management decided that such accuracy is too expensive for customers, because they are very busy people, and it is better to calculate the risks and costs with less accuracy. Now customers are not asked a lot of questions, and they really appreciate it. Of course, the risks are not calculated as carefully as before, but the company compensates for this by taking a little more for its services. Customers, as it turned out, do not mind this at all - the owners of luxury housing willingly agree to pay for convenience and the opportunity to save time. And currently, this insurance company occupies a leading position in its market segment.

The company Amerin Guaranty (now it is part of the company Radian), deliberately reducing the accuracy of its work, made a real revolution in the mortgage insurance market. Payment of insurance is a prerequisite for mortgage lending, because if something happens to the buyer of real estate, the bank will be able to return the remaining amount on the mortgage loan. Traditionally, the insurance process was as follows: the insurance agent studied in detail the information about the borrower and the terms of the loan and based on these data calculated the cost of insurance. But Amerin Guaranty realized that bank employees were already doing the same work when deciding whether to issue a loan to this person, and there is no point in counting everything all over again. Now the company Amerin Guaranty simply takes information from the bank and on its basis calculates the cost of insurance. In other companies engaged in mortgage insurance, in the event of an insured event, a complex analysis of the outstanding loan amount is usually carried out, which allows you to accurately determine the amount of the insurance payment. Amerin Guaranty came to the conclusion that the average amount of outstanding loan (per year) does not change much, although it may vary for each client, and it is this average value that they will pay regardless of the real figures, which will allow not to engage in complex analysis to calculate the insurance payment. For banks, the amount of payment for a particular client is not so important, for them the amount of payments as a whole for all insured events matters, and this figure has not changed with the transition to a new method of calculation. By reducing the accuracy of both customer insurance and the calculation of insurance benefits, Amerin Guaranty has significantly accelerated both processes and reduced costs, which has reduced the cost of insurance. In just a couple of years, Amerin Guaranty has turned from a small firm into a successful company worth $ 2 billion with a mortgage insurance market share of 6% and confidently holds its position, despite such strong competitors as GE and MGIC.

In some cases, it is better, on the contrary, to increase the accuracy of the work. Let's go back to Progressive Insurance and explore this question with its example. Progressive Insurance began its activity in the auto insurance market with a very risky venture - it offered insurance to drivers who, for some reason (place of residence, a large number of accidents in the past, etc.) were denied insurance by other companies. Usually, insurance companies deal with such unreliable drivers as follows: they divide them into groups according to the degree of risk, calculate the cost of insurance for each group and hope for the best. Progressive Insurance decided that this issue requires a more subtle approach, and divided customers into more categories than was practiced in other companies. Now, turning to the company, a young person does not immediately fall into an increased risk group: to begin with, the insurance agent assesses the level of his education, insurance history, occupation and other factors and only after that calculates the cost of insurance. Of course, such an accurate assessment costs the company more, but it justifies itself and ultimately pays off completely. Young people who are offered expensive insurance on the basis of high risks go to competitors, as they insure them at a lower, that is, in fact, at a lower price. But customers with a good insurance history in Progressive Insurance are offered a lower cost of insurance, and therefore they willingly resort to the services of the company. Payments for insured events are the main item of expenditure of any insurance company. And the main indicator of efficiency is the so-called combined indicator (the ratio of payments on claims + other costs of the company and insurance fees received from customers). 


And here the company Progressive Insurance holds the absolute primacy. Most insurance companies have a combined figure greater than one, in other words, they incur losses from their insurance activities, which they compensate by using customer money as an investment. Progressive Insurance has a combined score between 0.85 and 0.95. This means that the company does not incur losses, but, on the contrary, receives a profit from insurance, while investment income for it is an additional bonus. By increasing the accuracy of calculating the cost of insurance, the company protected itself from losses when insuring drivers with a high degree of risk and received significant advantages when insuring drivers with a low degree of risk.

What information will be used.

Any company has a huge amount of all kinds of data, but employees do not always know what information they need to work effectively. Often, when planning, they rely on outdated data or, conversely, the results of forecasts for the future, and sometimes even on someone's subjective opinion. If you find a way to make better use of the available data, you will get many options for improving the efficiency of processes in the enterprise. Take, for example, a sales forecast. On its basis, the management of most companies makes important and expensive decisions related to the order of materials, the preparation of a production schedule, etc. If the forecast turns out to be erroneous - and often it happens - then all subsequent actions will be unsuccessful. And vice versa: with an accurate forecast, all decisions made on its basis will be correct.

Managers at General Mills, which produces popular Cheerios breakfast cereals and other food products, have long plotted production based on sales forecasts, although they almost never came true.

These forecasts were based on orders made by wholesale buyers.

Orders were delivered to General Mills distribution centers, where the goods were collected before being sent to stores. But after a while, the distribution centers received already real orders from retail stores, and a request for the corresponding volume of products was sent to the enterprise. As a result, the company's warehouses constantly had a surplus of some goods and a shortage of others. The management, as best it could, tried to solve this problem: small batches of missing goods were launched into production, products were transported from one distribution center to another. All this took a lot of money and effort, and in the end, the management decided to use real, rather than predictive, data when planning production. Now orders from stores are sent directly to the enterprise, bypassing distribution centers. The production department receives real data on customer requests and on the number of goods in distribution centers, so the department can draw up a production schedule that meets the real needs of the market, and not wait for the distribution centers to send the order. As a result, the volume of warehouse stocks decreased by 25%, and the cases when the goods are not in stock have become two times less. This situation seems incredible, because it is believed that the lower the level of stocks, the more often certain goods are not available. But by rebuilding its process on the basis of a new approach to information support of production, General Mills was able to achieve this goal, as well as increase its revenues.

Some manufacturers of consumer goods bring their products to the buyer's warehouse, and some carry out the so-called direct delivery to the store. In one company that produces a large assortment of goods, the delivery process was as follows. A small amount of each item of goods was loaded into the van. Upon arrival at the store, the driver looked at what was missing on the shelves, took out the necessary goods from the car, drew up a waybill, gave it to the store manager for signature and sent it to the office for payment. The whole process took place with many delays, in addition, a huge number of different goods had to be in the car. It was assumed that the driver could not find out what the store needed until he saw it himself. But this problem was solved. Now the company receives detailed information about sales in the store, and its employees know exactly what ends, and what else is on the shelves. Based on this data, they collect the corresponding number of missing goods for each store, glue the invoice to each parcel with tape and load everything into the van in the sequence in which they will then unload. The driver can only bring the parcel to the store and go on. So, using in its process detailed information about sales, the company was able to increase the efficiency of drivers and significantly reduce the volume of goods transported.


You could already see the operation of this principle in the claims processing process at Progressive Insurance, but that was just the tip of the iceberg. There are many other ways to use the principle when designing a process: to move some step forward or backward in time, to simultaneously perform those actions that previously went one after another, or even to completely change the order of actions.

The management of the main city hospital in New York decided to perform more heart surgeries. To do this, the clinic had enough qualified doctors and medical equipment, but few patients were brought to it. The reason was that the attending physician sending the patient to the clinic for too long could not get a response to the request for the possibility of accepting the patient for surgery. Sometimes it took up to nine hours, and when the answer came, the patient was most often already in another hospital. When studying the problem, the reason for the delay was found immediately: the specialists of the clinic responded to the request of the attending physician only when a place in the ward was already ready for the patient. It's as if the doctor, after obtaining consent, could take the patient to a clinic in a split second, where there would be no beds for it. But, if you take into account the Manhattan traffic jams, it is clear that the patient took quite a long time to travel. In the new process, the attending physician, turning to the clinic, receives immediate consent to accept the patient. As a result, there are significantly more patients in the Department of Cardiovascular Surgery.

In addition, when studying the process, it turned out that before the operation, patients are in the hospital for an average of two and a half days. This is a very expensive pleasure for the clinic, because before the operation, patients pay for their stay in the ward at the lowest base rate, whereas after the operation, when patients require increased attention of medical staff, the price increases. More importantly, for the patients themselves, the need to be in the hospital for extra days is a completely unnecessary waste of money and time, as well as the risk of catching an infection. As it turned out, almost all of these two and a half days, patients eat, sleep and wait, that is, in other words, they perform actions that do not affect the final result. The only important thing is to take tests and get information about the operation and its consequences. But some of this can be done even before hospitalization, and the tests that must be taken upon arrival at the hospital take no more than an hour. After the introduction of the new process, almost 40% of heart surgeries began to be done on the same day when the patient goes to the hospital, which saves him money and maintains health.

The principle when can work even in the fashion industry, where competition is very tough and it all depends on the ability to catch seasonal fashion trends. Zara is great, Zara is cool, Zara is one of the fastest growing clothing companies in the world, and besides, one of the most profitable. Zara brand stores are in all European countries, they are beginning to appear in the UNITED STATES and in Asia. Many explain the success of the company by the incredible flair of its management, because the most relevant models are always launched into production, at the best price and at the right time.

But Zara's secret weapon is not a crowd of the world's best designers working from dawn to dusk. And the company does not track all the Internet forums about fashionable clothes. The success of this brand is based on the features of the production process, which, on the one hand, do not represent anything special, but on the other hand, provide the company with high efficiency. Most clothing manufacturers, for obvious reasons, sew most of their products in Asian factories: labor there is much cheaper. But Zara acts differently. All Zara clothes are produced in Europe, and in small batches. Of course, the company's production costs are much higher than those of competitors.

But the management of Zara is not worried about this. Competitors need a lot of time to launch a new model. The decision on what to produce is made a few months before the start of the season. But the gods of the fashion industry are very fickle – that's the main problem with this approach. With the onset of the new season, models created a few months ago may not appeal to buyers at all. As for Zara, it's the opposite: more than 80% of products are put into production after the start of the season. In its early days, Zara sold only small batches of clothes of different styles. After that, it becomes clear what exactly will be sold and what will not. When the season ends, the company has to sell at a discount not so many models, and the sale prices are not as low as those of competitors. That's how Zara's management applied the principle when restructured the product development process: the decision on what to produce is made after a trial sale of small batches of new models on the market.


When designing a new process, the responsible executor usually changes. Therefore, it is important to know who, and what work, and how he interacts with others. Many make a serious mistake, adjusting the process to a certain person, and not to the real needs of the enterprise. It is very easy to fall into such a trap. Who should be responsible for inventory management? Of course, Harry, because he's been in charge of warehouses for years, so why would we look for someone else? Maybe Harry is really right for the job, or maybe he's just not good for anything else. In any case, when designing the process, you willy-nilly proceed from what Harry can do and what he cannot. But you need to look at the big picture and strive for the overall efficiency of the enterprise. Be prepared for the fact that at one of the stages of the process you will have to change the performers. You don't have to build a new process in such a way as to provide work for this or that employee. In this case, there can be no favorites, no exceptions.

After asking the question "Who should be entrusted with this task?", management usually comes to the decision to appoint a special manager who will monitor each step of the process. In most organizations, managers are responsible for a particular area of work, but it is rare that they regularly communicate with the heads of other departments responsible for other areas. Each department has its own tasks, and its employees do not care what everyone else is doing, what has already been done before them or what will be done after that the project is successfully completed. Traditional organization is a set of so-called functional "shafts", i.e. vertical structures built on narrow segments of the process. A special manager gets access to all the "mines", he takes from each everything necessary to perform the process and coordinates the work of the units so that the process as a whole goes faster and more efficiently. When one person is responsible for all stages of the process, there is no need to transfer cases from department to department and the errors associated with this disappear.

In one phone company, when a customer reported damage to a line, three employees were involved: one talking on the phone, another diagnosing the problem, and a third correcting it. Now only one specialist receives a call, determines the malfunction and eliminates it using a computer program. If the computer cannot fix the problem, the specialist sends a technician to the scene of the accident. The share of cases when the problem was eliminated during a telephone conversation with a client increased to 74%, and earlier it was 0.5% - i.e. such cases became almost 150 times more.

At Shell Lubricants, prior to the introduction of new processes, orders typically went from specialist to specialist and could go through up to seven departments along the way. Now the company has a person who is responsible for the execution of the order from the moment of its receipt to the moment of sending and issuing an invoice. As a result, order processing times were reduced by 60%, costs were reduced by 40%, and customer satisfaction doubled.

The appointment of a special manager is an excellent solution in cases where the operations performed during the process are not particularly complex and one person is able to control them. If the manager cannot solve the problem himself, he turns to employees of the appropriate specialization. But this is not the case when there are complex steps in the process that require experience to control. One person can't do it here. Suppose an organization appoints a special manager to be responsible for the product development process. It turns out that he must supervise the work of designers and engineers, conduct marketing research, assess costs and draw conclusions about the economic efficiency of the production of a new product. In such complex cases, there is a great alternative to a special manager – a special team.

It faces the same tasks as a special manager, but several employees of different profiles are involved in solving them. They act in concert as a unit. Such a special team can be imagined as a special manager with several heads. 

But how is the team different from the usual group of managers who transfer affairs to each other? 

First, all its members have one common goal. Employees' tasks may be different, but nevertheless, team members focus on the process as a whole, rather than on its sections, and they strive to bring closer and improve the final result, and not just fulfill their duties. Second, team members are more aware of what happens at different stages of the process, they know the responsibilities of their colleagues, and they understand how their actions align with those of others. They share information with each other and therefore have a more complete picture of the process. Finally, team members are usually in one place. In other words, they work together, their actions are coordinated, and interests do not intersect, and as a result, productivity increases almost in the same way as when one special manager takes over the case.

Schneider National, headquartered in Green Bay, Wisconsin, is the largest carrier in the United States. One of the main end-to-end processes in the company is the so-called "search for new customers". The purpose of this process is, in fact, to increase revenue, but it involves not only employees of the sales department, but also many other employees. Previously, the process began as follows: the client sent a request for transportation with a description of all additional conditions. When calculating the cost of delivery, specialists from various departments were involved in the work: the pricing department, the contracting department and the accounting department.

The request moved from department to department, and the wait for a response dragged on for a long time. But in this case, due to the many complex calculations that require special knowledge, one special manager would hardly be able to manage the entire process. Schneider National did the opposite: several teams are now engaged in calculating the cost of delivery. And for each type of customers - for owners of retail stores, for manufacturers, etc. - a separate team has been created. Previously, it took the company about 30 days to determine the exact cost of delivery and inform it to the client. Once a new process is implemented, it takes no more than two days – i.e. less than any other transport company. As a result, the number of orders that go to the company has increased by 70%, and customers do not even think about going to competitors.

And here's how the new process was implemented in one of the branches of the company Trane, which produces air conditioners. Previously, each order in turn went through the customer service department, the product development department, the design department, the production planning department, etc. All this happened with long delays, and employees often quarreled: no one wanted to take on extra work. The company's management decided to create a special team, which included representatives of each department. The team now tracks the execution of the order from start to finish. Work is done almost 70% faster. And in business, speed means a lot. Thanks to the increased speed of order fulfillment, Trane reduced the amount of inventory in warehouses, which led to significant savings. In addition, now the company's customers can also store fewer goods in warehouses, because they do not have to wait long for Trane to deliver a new batch. And if the orders are executed quickly, then the payment does not keep you waiting. Money from buyers sometimes comes even before payment is made on suppliers' bills.

But in some cases, it is impossible to create a special team.

Take, for example, organizations where employees work separately from each other most of the time, as is the case in medical institutions. In clinics, patients with serious diseases are usually treated by several doctors of different specializations. It is impossible to call them a team: each of the specialists is focused on his field, they may not even meet once for the entire time of treatment. But due to the fact that doctors working with the patient almost do not communicate with each other, many problems can arise: the simultaneous appointment of incompatible drugs, inconsistent treatment, inability to answer basic questions such as: "When can I go home?", Inefficient spending of medications. Therefore, in many clinics, a new medical specialty has now appeared - a hospitalist. This is a doctor whose tasks include managing the process of providing medical care and coordinating the actions of the attending physicians for each patient. The hospitalist monitors all medical procedures, draws up a schedule, checks whether it is possible to take the medications prescribed by different doctors at the same time, and gives the patient explanations on any incomprehensible issues. A hospitalist is an example of what we call a special manager: he coordinates the work of all participants in the process and thereby significantly increases its overall efficiency. A dedicated manager can be useful where specialists work on complex tasks independently of each other, for example, in the technical support service or in the department for the installation of computer systems.

But the principle of "who" can be approached from the other side.

Are the employee's qualification requirements optimal for the position? Maybe a less experienced employee will cope with these tasks or, conversely, you should increase your requirements? In some hospitals, the duties of nurses, determining which patients need urgent medical care, are now performed by doctors. Of course, labor costs have increased, but the doctor can more accurately assess the patient's condition, and, if necessary, provide first aid, which has a very good effect on the efficiency of the process as a whole. However, Duke Power did the opposite: now the decisions that previously could only be made by engineers in the office are made by technicians arriving at the scene of the accident. The company's management came to the conclusion that the technicians have enough knowledge and experience for this, but the work is significantly accelerated, and engineers can focus on more complex tasks that only they can do.

Where is.

A well-known saying among realtors applies to the design of processes: "The main thing when choosing real estate is a place, a place and once again a place." Often, management lacks the imagination to figure out where else to do the work. Outsourcing and hiring workers in other countries are now gaining popularity, but most likely, you will not need such drastic measures to significantly improve the process in the enterprise.

One major auto parts manufacturer used to apply a simple principle: when creating samples of new parts, all the equipment necessary for this was produced at the same plant.

This decision looked quite logical, because the equipment did not have to be transported from the manufacturing plant to the plant where it was supposed to be used. But the reality was different. More often than not, when new parts were put into production, the machines that produced the rigging were already occupied, and it was necessary to wait until they were released. The new process was designed so that the tooling was produced in a separate factory, which is located nearby and has all the necessary equipment. Now new tooling, although it has to be transported from factory to plant, appears much faster, and as a result, the production of spare parts themselves has also accelerated. After the introduction of the new process, the time to create samples of new parts was reduced by 85%, and the company had a huge advantage over competitors when receiving orders for the release of new products. That's how powerful the process approach is in action! Looking at things in a narrow context, you can come to one conclusion, but if you take a closer plan, the conclusions will be completely different.

Any major automaker has warehouses where a huge number of spare parts are stored, which can be ordered by dealers. It is easy to imagine that these warehouses are impressive structures. For warehouse workers, assembling parts in accordance with the order is not an easy task, they have to go a long way and spend a lot of time. Automakers have tried to solve this problem many times: in some companies, workers were given bicycles, and in some places they even created special robots to collect orders. But all attempts did not lead to anything. Meanwhile, the management of one auto industry company approached this issue from the other side: it decided to change the place where the worker chose a spare part.

Now it is not the person who goes to the desired part, but the part goes to him. Most of the spare parts in the warehouse of this company are stored in containers that are delivered to the conveyor belt. The warehouse worker simply enters the code of the goods into the computer, and the conveyor comes into motion. When the tape stops, the worker pulls out what they need and moves on to the next item in the order. As a result, he spends time only forming an order (an action that adds value), rather than running around the warehouse looking for the right part (an action that does not add value). In addition, the employee can not just wait until the conveyor delivers the spare part, but at the same time remove parts from the conveyor for other orders.

A workflow doesn't have to happen in one place.

When you decide to centralize or decentralize, you change the place where you do the work. Perhaps it will be better to produce products at one plant and then transport them to regional warehouses or send them to customers, or maybe in your case it is more expedient to produce goods in several regions in order to be closer to the final consumer and serve him better. Be sure to think about all possible options – each of them has its advantages and disadvantages. Most companies have great difficulties in solving this issue, and the bosses often do not know where to stop - first they centralize the process, and later decide that full decentralization is still better. For example, management decides to purchase materials centrally, i.e. for all departments at once, which allows you to better control procurement and receive decent discounts from suppliers. But then, in keeping with the saying "It's good where we're not," managers begin to feel that by giving each department the right to purchase materials on their own, they will provide them with greater flexibility and speed in their work. Often, the decision to centralize or decentralize is made for the enterprise as a whole, although it would be better to find a suitable option for each process. If the management does not pay enough attention to this issue, the company is deprived of the opportunity to use all the advantages of work processes.

At some enterprises, for example, HP, a successful solution was found to this seemingly unsolvable problem. Centralization and decentralization of processes coexist perfectly, and the company benefits both through discounts from suppliers and due to the flexibility and speed of decentralized operations. Here's a good example. HP printers are sold all over the world, and their design is the same and does not depend on the place of sale, therefore, it is better to produce them in one place. But, on the other hand, the printer needs to be connected to the mains, and in different countries different voltages are used, and, in addition, each buyer needs instructions in his native language. HP has made the following decision: all printers are now produced in one factory, then they are delivered to the countries where they will be sold, and there in the box they put the appropriate power cable and user manual, after which the packaging is sealed.

What operations.

We learned six of the seven process design principles: whether and under what conditions operations would be performed; how accurately they will be executed, what information is needed for this, when and where it will happen. The most important question – what operations to perform – we left at the end, because the answer to it covers all six design principles that we learned earlier. What exactly you will do is the most important aspect of the new process. You are faced with the question for which you came to develop new processes – what do you need to do to give the client what you want? By answering this question, you will understand what actions need to be included in the process in the first place.

In most cases, the new process consists of the same value-adding activities as the old one. After all, you don't want to remove those operations that benefit customers and for which they are willing to pay money. But perhaps there will be a few additional actions in the new process that add value. Remember, for example, how Progressive Insurance introduced a new step into the process, namely, dividing customers into additional categories in order to more accurately determine insurance risks. Other insurance companies for all men under the age of 25 calculate the cost of insurance at the same rate. And in Progressive Insurance, this group of customers was divided into categories, and the calculation of insurance risks became much more accurate than that of competitors. 


However, progressive Insurance management went even further. Employees of the company now do not just calculate the insurance amount on the basis of detailed data about the client - they also report how much it will cost him insurance from other companies, even if competitors are cheaper. This has a double effect. First, potential customers are grateful for this information, and they begin to trust Progressive Insurance, because no other insurance company does this. And the trust of customers is not easy to earn, and although it cannot be valued in value terms, it is nevertheless a key advantage of the company in relation to competitors. Secondly, for men who fall into the group with high insurance risk, the company's employees calculate the appropriate cost of insurance, and then suggest that they contact another insurance company where they can insure cheaper.

The result? Progressive Insurance is now used mainly by those drivers who almost never get into an accident, because the policy costs them less than in any other company, and drivers with a high degree of risk go to competitors. The company wins anyway.

As you consider the components of a new process, you may decide to abandon some of them altogether. Eliminating steps from the process that neither you nor your customers need is easy. But what you really need to work on are actions that do not add value, but ensure the normal operation of the company. Clients do not care about these steps, and they, of course, do not want to pay for them. Remember when we talked about Andren Aerospace in the introduction? Before the processes in it were rebuilt, employees of different departments of the company, sometimes, six times checked the solvency of the same client. Of course, during the processing of the order, the client did not become noticeably poorer or richer, so why check his financial condition five more times? In the new process, Andren Aerospace studies the solvency of the client only once when an order comes from him.

Employees of the US Air Force, like employees of any other organization, need to be constantly trained and trained. Previously, in order to enroll in courses, they had to go through a complex and rather ridiculous process. Initially, a person interested in learning had to get the approval of their immediate supervisor. After that, the request was sent to the base commander. If he successfully passed this obstacle, then the next point was the chief of the base commander. Then the request had to be signed by the secretary.

What's wrong with that? 


The thing is that the whole process took about 40 days, and training usually required immediately, and it was completely impossible to do. Upon closer inspection, it turned out that neither the base commander nor the top brass had ever rejected a request for training; that is, if the head of the group gave the go-ahead, then the final agreement became a matter of resolved. It turned out that you can do without the signature of the base commander, it is enough just to transfer the necessary information to him. Numerous approvals were excluded from the new process, and as a result, the processing time for applications was reduced from 40 days to one.

The Massachusetts Institute of Technology and Harvard University are located in the same city – in Cambridge, Massachusetts. Students of these educational institutions can attend lectures here and there. Previously, the management of the educational institution determined the number of hours for a student of another university, and at the end of the semester he was sent an invoice for the appropriate amount. But when studying the process, it turned out that the difference between the amounts on the accounts of the two universities is less than the cost of compiling them. Now students, as before, attend lectures at both educational institutions, but the statement of accounts from the process has disappeared.

Recently, the VMI (vendor-managed inventory) inventory management model has become quite widespread. It is also directly related to the principle of what operations. A supplier operating on this model takes responsibility for managing inventory in its customers' warehouses (sometimes it even manages the goods of its competitors). Thanks to this, the manufacturer constantly monitors the movement of its products in the warehouse and can make up for the lack of certain goods in time. Of course, the process of fulfilling orders becomes several steps longer, because in this case the supplier not only fulfills the order, but also forms it himself. However, taking on this work, the supplier allows the buyer to save a lot of time and effort, so the buyer is more willing to take the products of this particular supplier and sometimes even at higher prices. In addition, knowing exactly the number of goods in the warehouses of its customers, the manufacturer can produce only what is really in demand, so the right items are always present in its range. As a result, it receives a benefit that easily covers all the costs of inventory management.

Most airlines at airports have self-check-in kiosks that completely replace the front desk employee. In other words, the airlines removed one step from the process and added one step to the customer process, but in this case it benefited both parties. Customers can check in faster and don't have to stand in line, and check-in is cheaper for the airline.

Note that each of the above examples of the application of the principle of which operations is associated with the action of at least one more principle. When designing a process, it is not necessary to clearly distinguish between all seven principles. Moreover, this will be a mistake, because the principles do not work separately, but in close conjunction. The same goal can be achieved in different ways. When the U.S. Air Force designed the process for issuing training permits, the following principles were involved: who should approve the application and whether someone would approve it. In restructuring the billing process between MIT and Harvard University, it was decided whether it would be done at all. 

A manufacturer that decides to switch to a buyer-side inventory management (VMI) model is making changes to the "what operations" principle. However, it would not have been able to take full advantage of the new process if it had not changed the principle of "what information should be used". In addition, the supplier also applied the principle of "where" in the design of the process (the decision about what will lie on the shelves of the store is now made not in the store, but in the warehouse), and in addition to it the principle of "when" (now the decision is made before loading the van, and not upon the driver's arrival at the store). A new process often differs from the old one not by one, but by several principles, and there is nothing wrong with that. We do not set you the task of strictly following our model and applying the principles separately, our goal is to make you think.

So now you know the seven principles of process design. When creating new processes, it is not necessary to have great talent, but you will have to strain your imagination and creativity, as well as turn on business intuition and at the same time do not forget about common sense.

Keep in mind: 

Restructuring processes may increase costs in some areas of production, but as a result, you will benefit from other areas. Remember how the production cost of Production at Zara has increased. But now Zara produces less of such clothes, which have to be sold at the end of the season for a pittance, so the profitability of the company as a whole is higher than that of competitors.

Let's be clear about something right away. The design principles we describe do not guarantee that you will create successful processes. They simply show from which side to approach this task. You will have to work through each step for a long time before you can turn the concept of rapid growth into a description of a new process. But that's not what scares managers the most. The most difficult thing for them is to accept a new idea, because it involves big changes. If you overcome your fear of the unknown and decide to dive, then our seven design principles will help you.

No comments:

Post a Comment