There are dozens of ways to approach the development of strategy. While on a detail level there can be significant differences, most methods focus on a flow of steps as shown in Exhibit 3.1.

Figure 3.1. The Strategic Process

Each step will be examined, and a brief explanation of what it is about and why it is part of the process will be provided.

The vision and mission step is one of the most important and least understood. Referencing five different books on strategic planning can commonly yield five different explanations of what mission and vision statements are and what they are supposed to accomplish. (A scary proposition since it implies that the writers, who are supposedly experts on the subject, cannot even agree!) Simple user-friendly definitions are as follows:

The purpose and value of the vision statement is literally to ensure that everyone (particularly the leaders) in an organization has the same view of what they want the future to look like. In the movie Forrest Gump, the lead character said, “If you don’t know where you are going, you’re probably not gonna get there.” This is a perfect and straightforward way to think about why an organization needs a vision.

The purpose of the mission is simply to provide focus for current decision making and the resulting resource allocation. In other words, if an opportunity requires capital and supports what the organization is in business to do, it should be strongly considered. But if an opportunity requires capital and doesn’t support the mission, it should be weighed accordingly. The value of the mission is therefore to keep the organization focused and prevent it from trying to be all things to all people. Many organizations lose this focus and wind up with multiple number-one priorities that constantly compete with each other.

Because there is so much disagreement over what these statements are for, the whole concept of developing a vision and mission is often met with eye-rolling and skepticism. Compounding the problem is that many vision and mission statements are so vague and global that they all tend to sound the same. (In fact, Dilbert cartoonist Scott Adams has a mission statement generator on his website. It provides the reader with a generic-sounding mission full of today’s buzzwords and then gives the option of selecting “regenerate.” When this button is clicked, all of the buzzwords rearrange, but the message stays basically the same.) A standard example of a generic vision goes something like this:

Sounds great, but what does it mean? It really doesn’t shed any light on what the organization is about, what it is trying to achieve, or what will happen if it is successful. A CEO of a large health plan unveiled a new vision statement that claimed the organization would become “the premier health plan” in the area. When questioned about what the “premier” health plan meant, he commented that premier had to do with membership numbers, and that their plan membership would grow from 8 million to 15 million members within the next 5 years. Upon hearing this statement, half of the senior management team nearly passed out. It was their belief that “premier” meant a focus on refining and expanding the product line and the way service was delivered, but that growth may only increase from 8 million to 8.2 million or so in the process. Bottom line: It was clear that the management team that crafted the vision statement in this instance had completely different interpretations of its meaning, and the implications of this disagreement would be dramatic. It would obviously require a very different set of initiatives to move an organization from 8 million members to 15 million members versus the activities needed to firm up the product offering and move to 8.2 million members.

This is unfortunately not an isolated occurrence. Asking each member of an executive team individually about his or her vision of what the future will or should look like for the organization can be very instructive. Even a question as basic as, “What do you think our company’s overall sales volume should be next year?” can be met with huge differences in interpretation. One insurance company executive team was questioned on the subject of projected premium to be written in the upcoming year, and they gave answers ranging from $75 million to $425 million. Some members of the senior team were hesitant to even give a number for fear of being embarrassed by their lack of knowledge. It would obviously be difficult for this company to mount any cohesive effort to achieve its goals.

How does an organization get in a situation where the leaders don’t understand their vision? Admittedly, it sounds too fantastic to be true. But many organizations fall into the trap of planning in isolation; each functional part of the organization plans for its own department without regard to the whole. In these cases it is common for a human resources (HR) executive, for example, to know a great deal about HR and what the department is trying to accomplish, but be disconnected from what the business is trying to accomplish. Would the executive team members in charge of the support functions (e.g., HR, information technology (IT), finance) in your organization know the projections for the future and how they were determined? Would they understand the needs of your external customers? Many times the leaders of the support functions are unable to answer these questions. In fact, on occasion the managers even become hostile when asked about these issues, stating that “external customer needs have nothing to do with me because all my customers are internal.” This view leads to the mentality that they have a separate mission and vision: to be a top-flight HR department or IT department or whatever. The harm in this is that a world-class IT department, for example, may have all the latest techno-toys and wonderful expertise, but this capability doesn’t get properly translated to and utilized by the business. In other words, technology isn’t leveraged, doesn’t become a driver of organizational success, and operates in an isolated fashion. Thus the IT department comes to be viewed as a group that is distant, not focused on its internal customers, difficult to understand, not appreciative of the realities of the business, and so on; the list of common pitfalls is long.

The moral of the story is that the vision and mission shouldn’t be global statements that don’t do anything but satisfy the requirement that an organization should have a vision and mission. A good vision statement is a starting point to help the organization articulate “what it wants to be when it grows up.” In other words, if the organization typically utilizes a five-year planning horizon when developing a strategy, the vision and mission should form a framework for the company to describe in broad terms what it will look like five years hence if it is successful.

After starting with the global statement, it is critical to nail down the specific parameters of what success looks like. The leadership development organization / fraternity Alpha Phi Omega is a good example of how a global vision can be translated into precise and measurable characteristics. Their mission statement is a rather all-encompassing “To be recognized as the premier service-based leadership development organization.” But viewing their goals gives a much more precise description of what this actually means to them. It means (among other things) a membership retention rate of over 90%, 386 active chapters with 18,000 members, over 2,000 donors contributing a total of at least $175,000, a 25% increase in the volunteer base, the addition of five new international chapters, and more. The great thing about the list of goals is that it provides evidence that the organizational leadership has a clear view of what it wants the “premier” organization to look like in the future.

Microsoft had a vision statement many years ago that claimed that if it was successful, there would be “a computer on every desktop.” It was a great vision because it was short, easy to remember, and articulated precisely where they wanted to go. They modified their vision in recent years to incorporate the trends toward access and mobility versus being chained to the desktop, but retained the principles of keeping the vision short, precise, and easy to understand. The company also has a mission statement that states the reason it is in business is to “help people and businesses throughout the world realize their full potential.” This certainly can aid in resource allocation decisions; the opportunities that will better enable them to achieve this mission would get priority.

The strategic assessment step is designed to identify the critical issues that will impact your ability to get from your current state to the state outlined in the vision and mission. The assessment can be done in a variety of ways, ranging from the use of simple brainstorming to utilizing a variety of complex analytical tools.

Whatever methods are employed, the output of this step should be a list of strengths, weaknesses, opportunities, and threats (hereafter referred to as S.W.O.T.s). Strengths are those internal things that the organization is proficient in; they will better enable the organization to achieve the vision. Conversely, weaknesses are internal issues that will prevent the organization from achieving the mission and vision. Opportunities can be viewed in multiple ways. They typically involve “doing something the organization is not currently doing” that will help move it toward achieving the vision. This can be anything from acquiring a new business to providing management training to developing new products. This is a critical part of the assessment because it gives the leadership team the chance to be creative. Finally, threats are those things beyond the control of the organization that could negatively impact its ability to achieve the vision. Threats are typically viewed as external things such as potential new governmental legislation, economic downturn, weather-related catastrophes, and so on. But keep in mind that if a plan is being developed for a business unit within a larger organization, it is important to also consider threats such as hiring or budget freezes imposed by corporate, imposed pay scales that practically guarantee turnover, and the like. These issues are not external to the organization, but they are external to the business unit and can definitely make achievement of the plan more difficult.

Most strategic planning processes involve the identification of S.W.O.T.s, but for whatever reason these valuable pieces of information aren’t fully utilized. It is common to develop a list of key issues and stick them in an appendix to the plan without really doing anything with them, but S.W.O.T.s are invaluable to the remainder of the process. They are used for the development of the strategic objectives, the identification and prioritization of strategic measures, and the finalization of the strategic initiatives. Determination of key S.W.O.T.s can be done formally or informally. Both approaches are presented in the following sections.

For, the process assessment is typically the most difficult to execute successfully many reasons. The first is that a typical organization has thousands upon thousands of processes. When conducting an assessment, it is impossible to analyze all of them thoroughly to determine the S.W.O.Ts of each. Another complicating factor is that many organizations are so functionally focused that few people understand the flows of the major cross-functional processes. In other words, they understand their own portion of the process, but there’s an overall lack of understanding of the entire process. This could limit the effectiveness of brainstorming key process S.W.O.T.s, because most issues identified through brainstorming will be of a functional versus cross-functional nature.

This tendency toward functional focus highlights a larger problem. The management team of an organization often doesn’t have a thorough knowledge of its company’s processes. This is obvious (and understandable) when a manager is new to the organization, but it is also likely to be a problem when a manager has achieved a senior position through consistent promotions within the same functional area. It can be a serious barrier to both assessment and ongoing decision making if the management team doesn’t have sound process understanding.

Another barrier to process assessment is that when most people think about processes in their organization, they inevitably think only about the negatives. If you ask the question, “What is the first thing that comes to mind when you think about the processes in your organization?” most people respond “They are bureaucratic,” “They need to be streamlined,” “They need serious upgrading,” and so on. Very rarely is someone’s first reaction “We have a great product development process” or something of that nature. The implication of this tendency is that an organization has to be careful that its assessment doesn’t get overloaded with weaknesses while neglecting strengths and opportunities.

Fortunately, all of these potential barriers are navigable through the formal assessment process. The first issue is the inability to thoroughly analyze thousands of processes because of time and resource constraints. The good news is that it isn’t necessary to do so. The point of the assessment is not to analyze everything; rather, it is to determine which processes have strategic significance. Two categories of processes may impact strategy: (1) those that seriously block the organization from meeting strategic goals, and (2) those that the organization does so well that leveraging their capability could take the organization to the next level. This is why the first two questions on the assessment template in the process section are as follows:

The first question can be answered by using two tools common to process analysis: the system map and the process map. System maps are ideal tools for a strategic assessment because they evaluate interactions. It has been said that the job of a manager is not to manage actions, but to manage interactions. Managing actions is micromanagement. For example, it shouldn’t be the role of the accounting manager to look over the shoulder of the accounts payable clerk to ensure that the steps of the accounts payable process are being followed, day in and day out. The job of the accounting manager should be coordination and integration of all the functions within accounting, such as accounts payable, accounts receivable, payroll, and so on. Then, as the accounting manager moves up to CFO and COO and CEO, the responsibility continues to be coordination and integration of more diverse areas. This means that by the time a manager reaches the level where he or she is devising strategy, he or she will need to have a familiarity with the large, cross-functional processes of the organization. Evaluating these interactions to determine S.W.O.T.s is ideally suited to the system map.

To understand the system map, it is instructive to begin with the basic components of the process, as illustrated in Exhibit 3.4.

Figure 3.4. System Model: Basic Components

Anyone familiar with process analysis and improvement is probably familiar with this basic chain of components. Starting in the middle, there is a box labeled P/D/C/I, which stands for Process-Department-Company-Industry. The system map is a flexible tool that can be used to evaluate the interactions of any of these units with its suppliers and customers. Processes have customers that may be internal or external. For example, the cargo shipping process for an airline would have the receiver of the freight as a customer. The admissions process for a hospital would have a combination of external (the patient) and internal (doctors, nurses) customers. Departments have customers that are often other departments. This is easily seen when you consider the support functions of an organization. Human resources or information technology, for example, have internal customers consisting by and large of the rest of the organization.

Companies obviously have the external customer group consisting of the buyers of their product(s) or service(s), but they can also view their board of directors and shareholders as customers (from a private-sector perspective) and the legislature, taxpayers, and so forth as customers (from a public-sector perspective). Industries may share the same external customer groups as the company example, although evaluation would take a broader view. (Instead of looking at what Ford customers are looking for, for example, the objective would be to determine what all auto buyers are looking for.) So the first step in building a system map is to determine what frame of reference you want to use (i.e., select a process, department, company, or industry that has a customer or supplier relationship you want to analyze).

Whatever you choose for the box in the middle, it will have certain inputs, which are the key things that must be present for the P/D/C/I to get started. For the hospital admissions process, for example, the inputs could consist of a patient, a referral from an external physician, admission forms, and so on. For an HR department, inputs may be a job applicant, request for filling an open position from the hiring department, and the like. The inputs typically come from suppliers, which could be internal or external. In the previous examples, a patient or job applicant would obviously be external, while the requests and forms would come from internal sources.

Located to the right of the P/D/C/I box are the outputs, which are defined as what is produced from the P/D/C/I. For example, the output of the shipping process would be freight arriving at its desired location. The output of a hospital would be a discharged and (hopefully) healthy patient. The output of an IT department would be (hopefully) smoothly running systems and projects completed on time and within budget. These outputs go on to the customer, which again could be internal or external.

Again, these components are not revolutionary concepts. Basic process mapping texts have discussed and explained these basic components for years. What differentiates the system map from basic process mapping tools is the remainder of the components, which focus on the interactions between the basic components. It begins with the fact that customers all have certain needs, which are referred to as specifications and expectations, or specs and expects, in Exhibit 3.5.

Figure 3.5. System Model: Customer Needs

Specs are the formal needs of the customer being analyzed. Imagine drawing up a contract between your organization and the customer in question. Specs would be the items you would expect to be part of the contract. For example, how much would the product or service cost, when it would be delivered, how long it would be guaranteed to last, and so on. Expects are the informal needs of a customer. These things would never show up on a contract, but nevertheless are important to a customer. For example, customers want to know that your organization cares about them, has sympathy when there is a problem, is polite and helpful on the phone, and so forth. These things are critical to customer satisfaction, but typically wouldn’t be part of a formal list of specifications.

The point is that to truly satisfy the customer of the P/D/C/I, the outputs must meet their formal and informal needs. Whenever the specs and expects are not met, there will be gaps, shown in Exhibit 3.6.

Figure 3.6. System Model: Gaps in Meeting Customer Needs

Gaps typically show up in terms of output and can come in any form: cost, service, speed, timeliness, friendliness, honesty, and the like. How does the organization know when it has gaps? Because customers will let you know. They provide feedback to your organization on both specs and expects to let you know how you are doing, much in the same way you provide feedback to your suppliers. These feedback loops are shown in Exhibit 3.7.

Figure 3.7. System Model: Feedback Loops

Feedback can be formal or informal. Formal feedback is typically initiated by the organization versus the customer. It is a concerted effort to proactively find out what the customers are thinking and how they feel. Examples of formal feedback would include surveys, phone interviews, and so on. Informal feedback is that which the organization is reliant upon customers to provide. This comes in the form of customer-initiated phone calls, e-mails, face-to-face discussion, and so on.

It is not advisable to rely solely on informal feedback to keep in touch with your customer base. This will put you in a prime position for over-reaction to a tiny subset of customers who have had either an extremely good or extremely bad experience with your organization. For example, think about the situation in which you would provide feedback to an airline regarding a flight you’ve recently taken. Very rarely would a passenger call an airline and say, “We took off from Houston about ten minutes late, made up most of the time in the air, and got in to Denver pretty much on schedule. The food was mediocre, and it took about ten minutes to get my bag—just wanted you to know.” This type of flight experience would never prompt someone to sit down and provide feedback to the airline, and this is the experience most customers will have. What a passenger chooses to provide feedback on is the instance in which it took 24 hours to get from Houston to Denver, the gate agents were surly and uninformative, the plane was dirty and smelly, and their bags went to London. Or, on the other hand, when they were in a hurry and left their computer in the gate area and the airline tracked them down and returned it right before their big presentation. These extreme conditions are what prompt passengers to provide feedback on their own. While it is important to understand both the wonderful and terrible experiences passengers have had, it is dangerous to make management decisions based solely on the extremes. So, if no formal feedback mechanism is in place, it should be questioned whether a new one should be developed.

The term feedback is common and well-understood. The next component of the system map is typically less familiar, and deals with the communication going in the other direction. This type of communication is known as feed forward, and the feed forward loops are shown in Exhibit 3.8.

Figure 3.8. Feed Forward Loops

Feed forward is the way in which you help customers manage their expectations; it is how you let them know what to expect from you. For example, if you go to Disney World and want to get in line for one of the rides, there will always be a sign there telling you how long the wait will be. If the sign says 45 minutes, then a typical customer accepts that 45 is a minimum, and at other places this may be true. However, at Disney World, 45 minutes will be the maximum. They have done studies that show that 45 would be a worst-case scenario; a sign saying 45 minutes usually means you will get on in 30 or 35. So if a customer gets in line thinking the wait is going to be 45 minutes long and winds up having to wait only 30, how would they feel? Probably quite good, happy, excited, and satisfied, because Disney set their expectations and then exceeded them.

This is the essence of what good feed forward is supposed to do: Let the customers know what is coming so they can be prepared. Think about the implications of not having good feed forward. If you don’t help customers set their expectations, they have no choice but to set their own. The danger in this is that they could set their expectations so high that, even if you do everything perfectly, you could wind up disappointing them. Imagine the Disney waiting-in-line scenario in the absence of a sign. If customers got in line for one of the rides and expected to wait 10 minutes, how would they feel when the actual wait time was 30 minutes? In all likelihood they would feel angry and upset, and this impression would stick with them for the rest of the day. The instructive point here is that the same 30-minute wait would be perceived completely differently by the customer, depending on whether good feed forward was present or not.

These are the components of the system map. As has been noted, it can be an extremely valuable tool for evaluating key relationships during the strategic assessment phase of the process. There are two common applications: (1) how a company interacts with its external customers, and (2) how key internal departments serve as customer and supplier to each other. The former application is best suited for the customer portion of the assessment, and the latter application is ideal for the process portion of the assessment. Because the first question in the process assessment section is, “What are the S.W.O.T.s surrounding key internal relationships?” the first system map example will be of an internal nature.

Not every organization will have the same internal relationships designated as key. An insurance company, for example, may consider the relationship between underwriting and claims to be critical. On the other hand, a company responsible for customizing its product offering to meet individual client needs may consider the relationship between sales and manufacturing to be vital to future success. While there will be industry-specific differences such as these, it is a given that relationships between key support functions (which could include HR, IT, Finance, Purchasing, etc.) and the core business should be analyzed via the system map. The purpose in analyzing these relationships is to determine whether the support functions truly provide support or are working for their own purposes. The following example will focus on HR, work through the development of the system map step-by-step, and describe the identification of S.W.O.T.s upon completion of the diagram.

A blank system map template is shown in Exhibit 3.9.

Figure 3.9. System Map Template

Note that the right-hand side of the map has positions labeled O1 through O8. This is typically referred to as the output side of the diagram, and it is necessary to answer a series of output questions to complete it. The left-hand side is referred to as the input side of the diagram, and there are eight additional questions (I1 through I8) to be answered to complete it as well. The designations O1 to O8 and I1 to I8 are listed on the template at the place in which the answer to the corresponding question should be written. The user will find that the learning curve for creating a system map is very steep. In other words, after you have done it once or twice, you probably will not need the questions anymore. However, they can be useful as a sort of cheat sheet while you become familiar with the tool. The relevant questions are listed as follows:

System Output Questions (O1–O8)

System Input Questions (I1–I8)

To complete an example analyzing the HR support function, the first step is to fill in the P/D/C/I box in the middle with HR. Then it is possible to begin answering the designated questions. Output question number one reads “Who is your customer?” There are many alternatives for how to answer this question, depending on what you need to know. For example, if this were a process improvement example and the objective was for an HR process team to determine how well the hiring process was working, the options for customer groups could be “hiring managers” or “applicants.” If the objective were to determine compliance with hiring regulations, the customer might be “regulators.” Because the purpose of this particular map is strategic assessment and the goal is to analyze the relationship between HR and other internal departments, the answer to this question can simply be listed as “Operations,” as shown in Exhibit 3.10.

Figure 3.10. Human Resources System Map

Questions two and three on the output side deal with customer expectations and how well they are being met. Question two reads, “What are the customer’s expectations of you?” and there is an instruction to be as specific as possible. From a facilitation perspective, it is a good idea to have representatives from both HR and operations in the room to talk through the answers to these questions and complete the system map. A good technique at this point is to ask the HR representatives to give their opinion on what the operations people need from them. After they list several items, prompt the operations people for their opinions in order to determine how accurate and complete the list is. The supplier department (HR in this case) sometimes has a skewed view of what its customer truly needs. This may be grounds for a weakness to add to the S.W.O.T. list.

When question two has been answered, there will be an agreed-upon list of customer expectations. Question three reads, “How do you think the customer would rate your level of service for each expectation?” The question is phrased in this fashion to encourage the facilitator to use a similar approach to the one described in the prior question. Ask the HR representatives to predict how the operations people would rate HR’s level of service for each requirement, using a scale of Excellent–Good–Fair–Poor. The purpose of this is twofold. First, it will help determine whether the two groups have a consistent view of the service being provided. Having HR present its view first is a good way to initiate this. Second, in most cases the supplier department is more critical of itself than the customer department is. This avoids the potential group dynamics roadblock of putting one department in the position of criticizing the other. At any rate, completing questions two and three and listing them on the map could yield something like Exhibit 3.11.

Figure 3.11. System Mapping Customer Expectations

In this particular organization, there were two ratings of “poor.” One deals with HR’s inability to fill open positions, and the other deals with inconsistent application and administration of reward and recognition systems. While it is inadvisable to make a concrete rule that every “poor” identified through system mapping will beget a weakness for the list of S.W.O.T.s, it is a good practice to question whether the “poor” items have strategic significance. In this case inconsistent application of reward and recognition could possibly lead to turnover of key personnel, so this definitely could have strategic ramifications. Looking at the other extreme, note that there is a rating of “excellent” for providing adequate training. This could also have strategic significance. If the company is looking to expand its horizons by adding a new service line or will be adding a substantial number of employees for growth purposes, it is definitely significant that HR has the capability to sufficiently get them up to speed.

The next few questions deal with communication between HR and the operating areas. Question four asks how operations provides feedback to HR to let them know (1) what their needs are, and (2) how well HR is meeting them. The real issue here is whether any formal type of feedback exists. If there are no surveys or tools of that nature administered by HR, it is incumbent upon operations to continually communicate their needs. This could lead to a communication and coordination problem. Question five asks how HR provides feed forward to operations to help them manage their expectations. (In other words, how does HR let operations know what is going on in HR that will eventually impact them.) The results for these questions are shown in Exhibit 3.12.

Figure 3.12. System Mapping Customer Communication

The feedback is indeed primarily informal in this case. It is an open question whether lack of a formal survey is a gap large enough to prompt attention from the organization. The feed forward appears to be a combination of formal and informal. Benefit briefings are definitely a formal kind of feed forward, and departmental meetings may be as well. Obviously, the objective in both the feed forward and feedback boxes is to get quality versus quantity. The facilitator should look at the entire list of issues and ask whether the mechanisms listed are sufficient to keep supplier and customer on the same page.

Output question six reads, “What gaps exist between expectation and output?” The purpose of this question is to collect data whenever possible to either confirm or deny the perceptions presented and evaluated in the customer expectations box. For example, the first item operations deemed critical was to fill open positions quickly. Assume that an agreed-upon acceptable target for filling open positions might be 45 days. Operations gave HR a rating of “poor,” suggesting that they believe that HR was quite ineffective in meeting the required timeline. There are two possibilities here: (1) either HR really is deficient in meeting the accepted time frame, in which case it may be necessary to analyze the process, or (2) HR does very well in meeting the 45-day target, but for whatever reason operations has the perception that there are problems. This could be due to many factors, but the point is that fixing the process is not the best course of action here—fixing the perception is. This could be worthy of inclusion on the S.W.O.T. list.

Questions seven and eight on the output side are designed to determine what are the causes of some of the bigger gaps in the relationship between customer and supplier. Question seven reads, “Which is the most important gap to your customer?” The group should look over the list of items in the customer expectations box in the lower right-hand corner of the diagram and identify which one is causing the most pain for the customer. In other words, which gap would the customer want closed more than any other. Once this has been selected, the group should think through what internal issues might be contributing to the gap. These will be listed under output question eight. Responses from this organization are listed in Exhibit 3.13.

Figure 3.13. System Map Gap Prioritization

Filling open positions in a timely fashion was the top-priority gap according to the group. The causes for this gap are listed in output question eight. Incomplete information from managers is the top gap-causing issue listed. This is a significant finding because the information needed to fill a position generally comes from the same operations people who are unhappy with poor service from HR. In other words, the operations people could be causing their own problem in this case. The same could be said for the issue regarding lack of job descriptions. These are supposed to come from the hiring manager, and not having one could result in HR improperly screening candidates. This could obviously send the entire process back to the drawing board. A noncompetitive pay scale could result in many rejections of job offers, lengthening the process as well. All of these issues may have strategic significance, depending on their severity.

A common mistake made by first-time facilitators is thinking they must select one issue only as the answer to, “what is your most important gap?” If there are two or three issues relatively even in importance, it is permissible (and advisable) to look for gap-causing issues for each one. In the HR example, it is quite possible that looking for gap-causing issues for inconsistent reward and recognition, for example, would yield another list of critical items for the S.W.O.T. list.

The output side of the map is now complete. The questions led the group through a discussion of customer needs and how well they are being met (both perceived and actual, if the relevant data was collected), the lines of communication open between customer and P/D/C/I, the number-one problem in the key customer’s eyes, and a host of internal issues that contribute to the problem. This is already a considerable amount of potentially valuable information, but to complete the picture it is necessary to look at the input side as well.

The first question on the input side is, “What suppliers contribute to the gaps in customer service?” The purpose of this question is to select the entities external to HR that will provide products or services HR needs to satisfy the selected customer group. In the given example, suppliers may include the operating departments, corporate HR, regulators that set compliance policy, and so forth. These are illustrated in Exhibit 3.14.

Figure 3.14. System Map Suppliers

It is a good practice to list the suppliers in order of the perceived impact on the ability to meet customer expectations. This hierarchy would imply that the organization felt like operations had the most impact on HR’s ability to meet the needs of operations (which isn’t unusual), followed by corporate HR and finally regulators.

Because operations has been selected as the supplier with the most impact, the next two questions on the input list are as follows:

These questions should be answered with only operations in mind. In other words, what does HR expect or need from operations in order to provide good service to operations as a result? And how would HR rate the operations level of service (Excellent–Good–Fair–Poor) in each one of these categories.?

It is rare for one single supplier to be the determining factor in all gaps on the customer side. If corporate HR also is a significant contributor to gaps, then questions two and three should be answered again with a focus on corporate HR. The process should be repeated until all suppliers that have a significant impact on HR’s ability to deliver good service have been discussed. In the example for this organization, it was felt that the top two suppliers (operations and corporate HR) have significant impact on the ability to deliver good service, but regulators did not. Therefore, the resulting system map is shown in Exhibit 3.15, with a dividing line between those requirements needed from operations and the ones aimed at corporate HR.

Figure 3.15. System Map Supplier Gap Analysis

There are several significant findings in this portion of the map. First and foremost, operations is clearly contributing to its own problems. The failure to provide clear job requirements can directly impact the ability to fill open positions quickly, and the failure to provide adequate lead time with requests probably contributes to a perception gap that HR never gets things done on time. Both of these may be significant findings to add to the list of strategic S.W.O.T.s. With regard to the relationship to corporate HR, the fact that policy is not clear or consistent could certainly handcuff the ability of local HR departments to deliver quality service. Looking at the other extreme, the “excellent” rating for corporate expertise may lead to multiple strategic advantages.

Questions four and five on the input side revisit the communication links between suppliers and the P/D/C/I. The links between operations and HR were established on the output side, and many are simply reprinted on the map, and the links between HR and corporate HR have been added in Exhibit 3.16.

Figure 3.16. System Map Supplier Communication Links

Nothing especially significant was revealed by the communication questions in this example, although perhaps the fact that corporate and local HR meeting only once a year would be something to think about; more frequent meetings may be useful.

The next question (input question six) deals with the collection of data to confirm or deny the presence and severity of gaps on the supplier side. Just as it was on the output side, the intent here is to determine whether the gap is factual or perceptual. Things like policy changes can seem to happen all the time because they cause local people such a headache, but in reality it may not happen very often.

Question seven on the input side reads, “Which is the most important gap to you?” This is analogous to the same question on the output side, but this time HR gets to choose which of the input gaps they most want to see closed. The one selected by the HR department in the example is clear job requirements. This springs from the tendency of the hiring departments to not be specific enough when telling HR to find candidates to fill a certain position. As noted previously, this results in HR recruiting and interviewing people who are ill-suited to the position in question, causing delays in the ability to fill open positions.

The final question (input number eight) reads, “What are the causes of this gap?” The intent is to determine why, in this case, the hiring departments are not being clear in their requirements. Several potential causes for this phenomenon are listed in the now completed system map shown in Exhibit 3.17.

Figure 3.17. Complete System Map

Typically it takes around an hour with a small group to complete a system map, with potential additional work needed for data collection. When complete, it is standard to think about what key learning points need to be added to the S.W.O.T. list. For example, the list of S.W.O.T.s could be as follows:

Note that all are written in the fact plus implications of the fact format, as always. It is common to get around a half-dozen key issues from each system map discussion. Having said this, keep in mind there shouldn’t be a target number. The issues that will have an impact on the ability to achieve the vision are the ones that should be noted, whether there are two or twenty.

Recall that the purpose of the map is to assist in answering the first question from the process section of the strategic assessment template that reads, “What are the S.W.O.T.s surrounding key internal relationships?” System mapping sessions should almost always be set up to discuss the relationships between HR—Operations, IT—Operations, and Finance—Operations. These are support functions that every organization typically has and that need to be sufficiently plugged into the rest of the business to achieve any meaningful vision. After the three standard applications, it is up to the facilitator to determine which internal relationships are worthy of analyzing via system mapping sessions. It is not uncommon to spend a day or two conducting system mapping sessions to uncover the relevant internal S.W.O.T.s.

The second process assessment question from the template reads, “Which processes have strategic significance in terms of gaps that need to be closed?” In other words, which processes are prime candidates for strategic improvement. If you ask a typical employee what comes to mind when thinking about the processes in his or her organization, the first response will typically be negative. Common answers are things like “They are bureaucratic,” “They need streamlining,” “They don’t work,” “they take too long,” and so forth. Very rarely do people think about the positive aspects of their processes first; the natural tendency is to think about how to fill the gaps. For this reason, strategic process improvement is the most common technique for illustrating how processes can drive strategy. The idea behind strategic process improvement is to determine which of the organization’s processes are the most vital to future organizational success and ensuring that these processes are running at peak efficiency. And if they aren’t, fixing them so they are!

The Chrysler product development case presented in Chapter 1 is an excellent example of a process that would need to be targeted for strategic improvement. Successful automakers must be able to predict consumer desires and develop and deliver the models that will satisfy them. It has been referenced that the idea-to-showroom-floor cycle time prior to the AMC acquisition was five years. Chrysler obviously identified product development as one area in need of strategic improvement. Following the acquisition, Chrysler looked at how AMC executed this process and noticed significant differences. At Chrysler, product development had been managed functionally. The process at AMC was more team-based. Groups of people from different departments brought diverse expertise to the table and worked together from the beginning. This enabled each area to have a say in the decision making and help them identify potential conflicts and resolve them on the spot. Chrysler modified its process to incorporate some of AMC’s practices, and the results were dramatic. The idea-to-showroom-floor cycle time was reduced by over two years, and new products became the backbone of the Chrysler resurgence in the early 1990s. The Dodge Viper debuted in 1992, Chrysler Concorde in 1993, the redesigned Dodge Ram in 1994, the Chrysler Cirrus and Dodge Stratus in 1995—all giving the buying public something new and different to look at. The success continued with the introduction of the truly innovative PT Cruiser in 2001, which has been a strong selling model for the company ever since.

The merger that created DaimlerChrysler in 1998 intensified the focus on product development. In 2001 the company announced further process changes and improvements. The first was that the new product teams would be arranged by vehicle type versus specific model. Five classes (i.e., small vehicle, premium vehicle, family vehicle, activity vehicle, and truck) were named, giving the teams even more opportunity to share information and avoid the silo effects from the old days. A second change was the integration of purchasing specialists into the teams to make for more cost-effective buying for all vehicle lines. Further standardization across the company’s main product lines (Chrysler, Mercedes, Mitsubishi) enabled the teams to further reduce costs by leveraging economies of scale while simultaneously reducing development time.

Another excellent example of strategic process improvement comes from Domino’s Pizza. The chain began as a single store in Ypsilanti, Michigan, in 1960 and has grown into a multibillion-dollar juggernaut today. Their growth has been largely the result of process innovation. Domino’s pioneered some of the changes in its industry that we know as commonplace today. A key process in the pizza delivery business has always been the ordering process. Domino’s and its competitors obviously want to make this process as simple and painless for the consumer as possible. Many years ago, the more popular chains risked business loss because it simply took too long to process customer orders. It was common for a queue to back up on the phone, with customers being forced to wait to place orders and frequently giving up and ordering elsewhere.

Domino’s started by creating a customer database with names, addresses, and ordering history. Whenever a customer called to place an order, the Domino’s employee immediately had the information handy. This eliminated the need to ask for and write down directions. It also sped up the process time to take an order, which reduced the time customers spent in the queue waiting for the store to pick up the phone. Because most competitors have benchmarked and adopted Domino’s process, having a delivery chain ask for your phone number so they know who and where you are is now commonplace. It is easy to forget that not long ago this was a real customer headache.

So how does an organization identify the key processes during the assessment process? This is a challenging question to answer because of the aforementioned multitude of processes in most organizations. If an organization has 10,000 processes, then it is a fair bet that most people in the organization will feel that at least 9,999 of them could stand to be improved. So trying to settle on the vital few that will have the most significant strategic impact is quite a challenge. (The good news is that some of these processes may be identified in the prior system mapping exercise when evaluating key internal relationships. For example, a system mapping workshop evaluating the Sales–Manufacturing relationship may identify a key gap-causing issue as lack of communication, leading to an unsuccessful product development process.)

Fortunately, there are tools that help with the identification of processes targeted for strategic improvement. The tool listed in the template is the process map. Most people are at least somewhat familiar with basic flowcharting; documenting a step-by-step flow of how a process works. A process map, illustrated in Exhibit 3.18, adds the dimension of accountability to the standard listing of steps.

Figure 3.18. IBM Credit Process Map

What differentiates a process map from a standard flowchart is the issue of accountability. Note that there are swim lanes drawn across the map. The people or departments that are involved in the process each have their own swim lane, and each step of the process is documented in the swim lane of the department responsible for execution of that step.

This particular example comes from IBM Credit and is an excellent example of the value of looking at processes cross-functionally. As noted in Chapter 1, many organizations are highly functionally focused. The standard approach to improvement of cross-functional processes in a functionally focused organization is to have each function try to improve its own individual piece of the process. This example illustrates the fallacy of that approach.

IBM Credit is not in the business of making computers; it is in the business of financing them. The process map illustrates the steps customers have to go through to gain approval for financing after they have made the decision to buy an IBM computer. Note how many departments are involved and steps are necessary to tell a customer “yes, we’ll let you buy a computer from us.” The cycle time to complete this process was roughly six days. If you were a sales representative, what would your perspective be on this? Almost certainly you would not be pleased, since it gives the prospective customers a long time to think about their purchase and potentially change their mind. IBM Credit felt the same way, so it set out to reduce the cycle time.

The traditional approach to process improvement at the time was to have each department do its share to reduce its portion of the cycle time. So in this case, the Financing department manager would work with his or her people to improve the steps of financing, the Business Practices manager would work with his or her people to improve the steps of business practices, and so forth. The thinking was that if each area improved its portion of the process, the cycle time would be dramatically reduced.

But IBM Credit approached it another way. If you have ever seen a relay race on television, you would probably agree that there are two ways for a team to lose a race. One way is simply to not run fast enough. To be sure, only one team runs fast enough to win. But if a team loses because it doesn’t run fast enough, usually it only loses by a small margin. If a team loses a relay race by a lot, it typically is as a result of dropping the baton versus lack of speed. As IBM Credit looked at the process map, it realized that so many handoffs were built into the process that a lot of baton passing was going on. So they astutely questioned how much time was being spent actually working on the process versus passing the work back and forth. Studies revealed that out of the six days of cycle time, only about two hours of process time were being spent working on these requests. The rest of the time the requests were being handed from one person to the other or sitting in employees’ in-boxes and out-boxes.

The traditional approach to process improvement clearly would not work here. If each manager worked with the employees in the individual departments to improve the processing time of their individual link, they might shave the processing time down from two hours to ninety minutes. While this would represent a 25% decrease in process time, the cycle time would still be six days! The problem lies in the handoffs, which are cross-functional issues. Traditional functional flowcharts will not bring this type of problem to light, which highlights the benefits of this type of process map.

The instructive point from a strategic perspective is that, as noted earlier, a good manager needs to manage interactions versus actions, and this type of chart highlights the interactions. This is one of the reasons why the process map is listed as a tool for the strategic assessment. Another benefit of using the process map for assessment will be illustrated through the following example:

A critical concept for managers to be comfortable with is that of understanding process constraints. This will be illustrated by means of a simple example. The demo requires a bottle of bubble-blowing solution, two wands used to blow the bubbles, a ruler, and a flipchart with marker. Suppose five people are set up in line at the front of a room, and their job is to execute the bubble production process. Each person should be given a specific role, defined as follows:

The group should be given a five-minute time limit to begin producing bubbles. Anyone else in the room should observe as the process is executed so an accurate process map can be drawn at the end of the five-minute time period. The resulting process map is shown in Exhibit 3.19.

Figure 3.19. Bubble Production Process Map

There are several instructive things about this process map. For example, note that both the dipper and the blower inspect for film. The dipper wants to make sure that the wand goes to the blower with ample solution in the wand, and the blower doesn’t want to huff and puff to no avail if no bubbles are going to come out of the wand, so both have a compelling reason to check. But there is no question this is a redundant step, unnecessary to do twice.

In the real world, this sort of thing happens all the time. Two departments do exactly the same thing because either (1) one department doesn’t know the other is doing it, or (2) the second department (the “blower”) got the equivalent of a wand with no solution in it from the first department (the “dipper”) 17 years ago, so they have been checking for it ever since. Just as common and even more sad, sometimes the person who had the job before the person who had the job before the current dipper presented the person who had the job before the person who had the job before the current blower a wand with no solution in it 30 years ago, and everyone in both departments has now been checking for it ever since, even though nobody knows why anymore. This type of legacy process inefficiency is present in many organizations.

It follows that another big plus of the cross-functional process map is that it can identify repetitive efforts between departments. Note that a functional flowchart illustrating the steps in the blowing process alone would not have illustrated this redundancy, nor would a functional flowchart of the dipping process. Therefore, a leadership team must understand the big-picture cross-functional process flows within their organization; they are the only ones high enough in the organization to understand and identify areas of potential overlap.

Another important point from this demo is to note that there was no mention of objectives given to the group prior to the beginning of the process. This was intentional. In almost every case, the process operators will assume that the objective is to produce and record big bubbles. The blower and dipper go slowly to try and create big bubbles, but even then it is obvious that the catcher cannot catch them all. Out of every ten bubbles to come out of the wand, the catcher is lucky to catch one or two of them. Imagine how the process would change if, after a few minutes, the facilitator mentioned that in prior groups there has never been an instance where less than 20 bubbles were recorded on the flipchart. All of a sudden the dipper and blower would speed up because they are not worrying about bubble size, and it would become even more evident that the catcher could not keep up; bubbles would be hitting the floor all over the place.

This phenomenon has far-reaching implications. An important point is that even though the names of the departments in the process (and even the steps executed) would be identical whether the objectives were bubble volume or bubble size, the behavior of the process operators would be very different. This illustrates how important it is that everyone who has responsibilities for execution of a cross-functional process understands the whole process instead of just their portion of it. So the job of management is to manage the overall process, not to try to optimize each part of it. This means that management cannot reinforce and reward functional behavior at the expense of process behavior.

A more important point is the determination of which processes have strategic significance. Suppose the bubble example was revisited and you went department by department, trying to determine the capacity of each. For example, start with dipping and look at it in isolation. In other words, instead of considering the entire process, assume you are in the dipping business, and all you are responsible for is what is shown in Exhibit 3.20.

Figure 3.20. Dipping Process

Think about the capacity of the dipping process. In other words, if the dipper never had to wait for the blower, how many bubbles could be blown from all the solution that could be dipped out of the bottle in, say, one minute? Assume that the latest in bubble-dipping data collection technology helped establish that the correct number was 150 bubbles per minute.

Now assume that the second company is in the bubble-blowing business. As such, all this organization is responsible for is the steps in Exhibit 3.21.

Figure 3.21. Bubble-Blowing Process

The assumption to be made this time is that the blower never has to wait on the dipper. In other words, the wand is always positioned, full of solution, and ready for the blower to begin. To understand capacity, the question that must be asked is how many bubbles could be blown in one minute (without hyperventilating!). Assume that the latest in bubble-blowing data collection technology helped establish that the correct number was 225 bubbles per minute.

The third company is in the catching business. The catching process is illustrated in Exhibit 3.22.

Figure 3.22. Bubble-Catching Process

The assumption to make in this instance is that there are always bubbles in the air for the catcher to pick from, so there is never a need to wait for the dipper and blower. Further assume that there is no delay time waiting for the measurer on the back end; the bubble is measured instantaneously and the process is repeated. So how many bubbles could be caught and presented in one minute? It would realistically take about five seconds to do each one, so the capacity would be around twelve per minute.

The fourth company is in the measuring business, following the process shown in Exhibit 3.23.

Figure 3.23. Bubble-Measuring Process

The assumptions in this step are critical. Assume that the measurer does not have to wait for the catcher. Recall that the objective at the beginning of the exercise was to look at the capacity of each department in isolation. Therefore, the question is how many bubbles could be measured without the constraint of having to catch them first. So if there was always a bubble sitting on the wand waiting to be measured, it could probably be measured in less than two seconds, so the capacity for a minute would be around 45 bubbles.

The last company is in the recording business, following the process shown in Exhibit 3.24.

Figure 3.24. Bubble-Recording Process

The assumption here is that someone is calling out numbers continuously, or at least as fast as the recorder can write them down. Assuming that one number per second is recorded, the recording capacity will be 60 bubbles per minute.

The capacity for each department within the process is summarized as follows:

This data show the capacity of each department in isolation. Because these departments are linked cross-functionally in the process, however, this isn’t a realistic way to look at it. Taking the big-picture view of the process, it is evident that the overall capacity is really only 12 bubbles. It doesn’t matter how many can be dipped or how many can be blown; all that matters is how many can be caught. If you actually conduct the demo, it will be obvious that this is the case. Bubbles will be hitting the floor because the catcher can’t keep up, and the measurer and recorder will be idle for much of the time waiting for the catch. Therefore, catching is known as the constraint.

It is a common saying that a chain is only as strong as its weakest link. This is analogous to saying that a process is only as productive as its constraint. An important corollary is that to increase the strength of the chain, it is only necessary to strengthen the weakest link. Increasing process performance is therefore accomplished by zeroing in on and improving the constraint. It follows that if the objective of the bubble production process is to increase volume, any meaningful solution has to be targeted toward the catch. This means that automating the bubble blowing won’t help. It means that adding resources to dipping won’t help. And it even means that a common sense solution like eliminating the duplicate inspection being conducted by both dipping and blowing won’t help. Think about it: It is very likely that a typical organization would view the cross-functional map and realize it had two departments doing exactly the same thing. So they would in turn form a team between dipping and blowing, determine how to alter the process so the inspection would only be done once, train everyone in the new procedure, and the capacity would still be 12 bubbles. So the supposed improvement would add no value to the process whatsoever. In fact, it may damage profitability, because now dipping and blowing will be able to go even faster, resulting in wasted solution while more bubbles hit the floor because catching cannot keep up.

These kinds of common sense solutions are perfect illustrations of how many organizations go about process improvement exactly backward from the way they should. Many functionally focused organizations ask each department manager to submit a performance plan each year that describes what they will do to improve their part of the organization. In other words, the dipping department manager submits what he or she will do to improve the dipping process, the catching department manager submits what he or she will do to improve the catching process, and so forth. Companies often require action items, budget dollars, and great volumes of detail to substantiate the activities. The thinking appears to be that if each of five departments improves its performance 10%, the overall organization will get 50% better. But the bubbles example illustrates the fallacy of this thinking. In reality, improving the performance of each of five departments by 10% only improves performance by 10%. Catching is the only area in which improvement is meaningful, and in the other four out of five departments, time and resources are being consumed to no purpose.

The bubbles illustration was included to demonstrate a critical concept regarding how to determine which processes have strategic significance because of gaps. Your organization probably has 10,000 or more processes, but the good news is that you don’t have to improve all of them. The ones with the strategic significance are the catchers, or constraints. It follows that one responsibility of the leadership team when it comes to process assessment is to identify and manage the processes that are the constraints in their organization.

One technique for accomplishing this is to use process maps to diagram work flows from a big-picture perspective. The facilitator should think about the main work flows within the organization. For example, a hotel might view its work flow as shown in Exhibit 3.25.

Figure 3.25. Hotel Work Flow

The recommended process for constraint identification in this case would be to get people together from each area and create a high-level cross-functional process map that illustrates swim lanes and handoffs just like the IBM Credit and bubbles examples did. So the hotel would have reservations agents, front desk personnel (to provide feedback on both check-in and check-out), dining room staff, and housekeepers to cover the five main areas from left to right.

It is important when conducting the mapping session that the facilitator not let the group get bogged down with too much detail. A good practice is to have each group describe its own process in a maximum of five steps. Sticking to this maximum enables the map to be drawn in a reasonably short period of time and will be useful for promoting discussion.

The purpose of mapping the process on such a high level is twofold. First, the objective is to try to identify constraints. This is generally much easier to do with the entire process in view. Brainstorming process problems (even with a cross-functional group of people) without the entire process in view tends to result in each functional area identifying problems within their area versus between areas. The other benefit of cross-functional mapping in this fashion is education. Typically even at this high level, there will be participants in the group who are not aware of how the other departments execute their portion of the process. A sample process map resulting from this exercise is shown in Exhibit 3.26.

Figure 3.26. Insurance Process Flow

The next step after completing the map is to discuss as a group where the problems arise. Looking at the entire map provides a better perspective on which problems are the most significant. This particular organization provides insurance to corporations as opposed to individuals, and the policy issuance step is a major headache. The information coming from underwriting is rarely complete, requiring investigative work prior to policy issuance. This means that at times coverage is actually bound with pricing based on incomplete information, giving rise to the possibility of unforeseen losses. Another potential problem spot was the selective use of risk engineering to do the risk analysis. There were no hard-and-fast guidelines to help underwriting determine when the specialized expertise was necessary. This caused the situation to evolve to a point where risk engineering was used if there was time for it, but skipped if there was not. This obviously is not the best criteria for making the determination of whether the analysis should be done. Some of the potential S.W.O.T.s resulting from this particular mapping session could therefore be:

Note that the first issue is broker-related and does not spring from any particular step on the flowchart. But it is common when discussing the cross-functional flow to have issues arise that impact the process that may not be specifically diagrammed. It is important to capture these issues when they arise, so this one is added to the list.

Diverse organizations may need to look at more than one cross-functional flow to enable a discussion of the key process constraints, but this shouldn’t be an overly time-consuming part of the assessment. Remember that the important point when facilitating a mapping session is to surface key issues; it is not to create a technically perfect flowchart. Sometimes groups get bogged down trying to ensure they have the proper steps to the letter and that they haven’t left out even the most minute detail. It is important to differentiate this exercise from a traditional improvement team–style process analysis. The map in this case is simply to open up a discussion of the key issues, so trying to be technically perfect is not an objective.

Identifying key process gaps is certainly important, but it is only one aspect of determining which processes have strategic significance. There also needs to be thought given to the positive side. In other words, what is the organization so good at that thought needs to be given to how to best capitalize on the capability? This gives rise to the next question on the template, which reads, “Which processes have strategic significance in terms of strengths and capabilities to be leveraged?” There are basically three different types of process-leveraging techniques to be considered: process extension, market extension, and enterprise creation.

Process extension deals with thinking about the different links on the value chain. Consider the diagram in Exhibit 3.27.

Figure 3.27. Process Extension

The diagram shows that each entity—supplier, your organization, and customer—has a series of process steps for which it is responsible. Process extension means thinking about ways to change the defined areas to assume more control over the process. In other words, it involves taking over one of the links in the chain from a customer or supplier because your organization can do it better. So the new flow could appear as shown in Exhibit 3.28.

Figure 3.28. Process Extension

This diagram shows the instance where your organization assumed responsibility for something that used to be the customer’s responsibility. It must be noted that this should not be viewed as a confrontational situation, or that your company is taking something away from your customers. Instead, it should be viewed as taking control of a process link because you have the capability to do it better and create a win-win situation.

A few examples might be useful in illustrating how process extension can work. A well-known company in the Midwest was responsible for building and delivering customized large machines to a Fortune 500 client base. The machines were expensive and complicated to build, and the 50,000-foot view of the process is illustrated in Exhibit 3.29.

Figure 3.29. Machine-Build Process Extension Example: Before

So the process was really very simple: Suppliers would ensure that the relevant materials were available, and the machine-build organization would clarify the expectations of the customer, manufacture needed parts, assemble the machines, and ship to the customer. When a machine arrived on the customer site, the customer would unpack it, set it up, and start using it in their factories.

It seems straightforward, but there was a major recurring process problem: Customers would routinely damage the machine when setting it up. Because they were using technicians and maintenance people who had little experience with the new machines, it resulted in higher warranty claims, lower customer satisfaction, and endless finger-pointing between the customer and the machine-build representatives over whose fault it was that the machine wasn’t functioning as advertised. More often than not, the machine-build company had to send a representative to the customer site to patch up both the machine and the relationship.

The solution was a classic case of process extension. The company decided to send a technician with the machine to each customer site. The technician would lead the efforts to unpack and set up the machine to get it ready for use. In other words, they changed the process boundaries as shown in Exhibit 3.30.

Figure 3.30. Machine-Build Process Extension Example: After

The benefits of the new process were numerous. Travel and personnel cost remained relatively flat, since most jobs required a technician to visit a customer site eventually anyway (and in the old process the visits were usually longer while the technician diagnosed and fixed all the problems). The solution was viewed as a big plus by the customer. Because the machine was ready to use faster, the technician could demonstrate features, answer questions, and spend more time with the customer in a non-confrontational manner. This resulted in large gains in customer satisfaction, and increased the productivity of the machine so the customer could justify the expense more quickly.

A second example of process extension comes from Enterprise Rent-a-Car. If you were to ask a group of people who the biggest rental car company is, the answer will inevitably be Hertz. And who is number two? Avis. Continuing with this line of questioning will get people to list National, Budget, Alamo, Thrifty, Dollar, and so on. Most people will list six or seven companies before they think of Enterprise, if they think of Enterprise at all. But Enterprise took over as the largest car rental agency in the country several years ago and has remained so, with a 35.5% market share in 2004.

Why has Enterprise been so successful? Because they extended the boundaries of the car rental process. Before Enterprise, most car rental locations could be found at airports. To be sure, this is a time when people frequently need cars. But Enterprise reasoned that there were times when people would need a rental car other than when they were at an airport. This usually happens when their own automobile has been wrecked or is in the shop, which also happens to be the one time when they cannot go pick up a rental car. So Enterprise came up with the common sense solution of going to pick the customer up. This enabled them to access an entirely different customer segment with different sets of needs than the traveler segment that was always fought over by the industry. Enterprise set up relationships with large auto dealers, insurance companies, and automotive repair companies to help ensure that any vehicle rented at an off-airport location would be an Enterprise vehicle. They made things easier for the customers not only by picking them up, but also by dealing with the insurance aspect of car rental so customers wouldn’t need to. And they have created and dominated a market in such a way that now the airport-focused organizations like Hertz realize the potential and are trying to play catch-up.

Just to be clear: The Enterprise example really shows two instances of process extension. The first deals with the transfer of vehicle from car rental company to renter. Enterprise assumed control of this link from the customer by going to pick the customer up. The second illustration of process extension is in the insurance portion of the process. The customer used to have to deal with this, but Enterprise assumed control over it. Note that in both instances win-win situations were created. Enterprise benefited in the first case because the access to a huge new customer segment drove sales, and the customer benefited because of the improved ease of finding transportation. The insurance portion of the deal was easier for Enterprise to negotiate and navigate because they have experience and the muscle that comes with large volumes of business, and the customer was relieved of dealing with a headache in a time when they are often distraught to begin with.

Another process extension example comes from General Electric. GE does pretty much everything, from making appliances and jet engines to providing insurance and loans. One of their best-known divisions is the appliance division. Many years ago, GE made the appliances and sold them through a network of small, medium, and large distributors. The large ones had no problem keeping the entire GE product line stocked, on the shelves, and in full view of potential customers, but the smaller distributors were having a problem. The inventory carrying costs of the full product line were too high to justify keeping everything in inventory on site. As a result, these distributors were only stocking certain appliances, causing GE to lose potential sales.

The process extension solution: GE took over inventory management from the small distributors. They set up central warehouses in large cities and agreed to let the smaller distributors order right out of the central stock, conditioned upon the agreement that the distributors keep the full GE product in sight for prospects to view. In this way, GE added inventory carrying cost versus the old system of passing it on to the distributors sooner, but this was more than offset by the additional sales brought in by increased exposure of the product lines. And distributors benefited from reduced carrying cost and increased sales potential. Again, this qualifies as a win-win solution. (Actually, since the customer also benefited from easier access to more products, this was a win-win-win solution!)

A final process extension example is an internal one, meant to show that there are many different applications of this line of thinking. A common internal customer–supplier relationship is that between IT and the rest of operations. This is an interesting example because, as was noted in the system mapping section, support functions often have the same groups serving as both customer and supplier to their portion of the organization. This relationship is illustrated in Exhibit 3.31.

Figure 3.31. Internal Process Extension: IT Project Requests

It is commonplace in most organizations for operational areas to make project requests of IT. Upon receiving the request, IT ranks it relative to other priorities, then eventually develops and delivers the finished product or service for the requesting area to use. This process seems so simple, but in most organizations there are significant recurring problems. Often IT and operations do not speak the same language; IT doesn’t understand the true problems operations faces, and operations has no idea what technology is available or what is or is not possible. The result is often unmet expectations; operations makes a request that IT cannot possibly deliver on, and then IT is perceived as aloof and uncaring when they do not deliver.

This is a potential example of process extension because miscommunication usually begins when IT receives the request. There is typically some sort of form for the requesting department to fill out that specifies exactly what IT is being asked to do. This form requires operations to fill in a lot of details that are critical to IT, but that operations may not truly understand the significance of. And even if operations does understand the significance, they often do not understand the technical details well enough to complete the form properly. This starts a negative chain reaction. IT gets an incomplete or misleading form, so they misunderstand the importance or relevance of the project. This can cause critical projects to be improperly prioritized and force them to wait in the queue while less important projects are completed. Even more seriously, it results in completed projects that do not meet customer expectations because of misunderstanding from the beginning.

The process extension solution, then, is simply to expand IT’s responsibility within the process as shown in Exhibit 3.32.

Figure 3.32. Internal Process Extension: IT Project Requests

By assuming control of the documentation step in the process, IT can solve a lot of problems. First, sitting with the operations person making the project request enables IT to understand exactly what is being requested. This obviously can help set realistic expectations for the operating group making the request (in other words, it can provide good feed forward, discussed in the system map section). Second, IT can ensure that all the technical details of filling out the request form are attended to, saving time and potential rework later in the process. Finally, it can break down barriers between departments resulting from lack of communication and create more of a team atmosphere. This almost certainly would lead to a higher level of customer satisfaction. Once again, process extension results in a win-win situation for the organization: less rework, lower cost, better results, increased productivity, and higher satisfaction level.

In terms of strategic assessment, it is recommended that a facilitator conduct a brainstorming session specifically to try to identify process extension applications. The best way to conduct this exercise is to describe what process extension is, provide several examples, and then give the participants a chance to think about possible company examples. From a technique perspective, it is important to have a session focused solely on process extension. If any other techniques are mixed in, it will dilute the focus on this type of process leveraging opportunity.

The second type of process leveraging technique is known as market extension. This involves attaining a high level of process proficiency in a certain segment in a market, then using the proficiency to attack another segment within the market. A classic example of this technique is Progressive Insurance. For many years, Progressive was known as a company that catered to the high-risk driver; if you were a Progressive customer, it was a fair bet that you had more than a few blemishes on your driving record. The entire auto insurance market could be represented as shown in Exhibit 3.33.

Figure 3.33. Market Extension: Automobile Insurance Example

Progressive specialized in the high risk, segment. The instructive fact is that there is not as much traffic (no pun intended) in this segment. The only way to achieve long-term profitability is to maintain excellent process performance in underwriting, policy issuance, claims, and so on. Progressive’s process performance was so good that they began to build reserves at a rate that gave them the capability to take on the giants of the industry in the medium-risk segment. And again, the proficiency in the key processes generated significant returns. (Note: Progressive is also a good example of process extension. In addition to the excellence in traditional insurance functions, they have extended their control over process links to include brokering. Indeed, a whole series of advertisements was built around the theme, “We may not have the lowest price, but we can tell you who does.”.)

Another example of market extension comes from Nypro. The company specializes in injection molding and has been in business for over 50 years. Up until about the mid-1980s, the company was known as a player in the low-precision injection molding market, making toys and so forth. An aggressive approach to process improvement upgraded the company’s ability to produce higher-precision injection molding products, enabling them to attack new market segments such as medical devices and computer chips. This transformed the company from $65 million in sales in the mid-1980s to over $700 million in 2005.

Again, the best technique for discovering potential market extension opportunities during strategic assessment is to describe the technique, provide the participants with a few examples, then ask for potential company applications. It is common when brainstorming potential examples to hear items that are technically more process extension than market extension. The facilitator should keep in mind that if a good idea surfaces under the “wrong” technique, the most important thing is simply to add it to the list anyway. As in the rest of the assessment, the objective is to identify all of the key S.W.O.T.s, not to develop a technically perfect list of market extension possibilities.

The final form of process leveraging technique is also the most aggressive. It is called enterprise creation. Enterprise creation is using the capabilities of a process to drive an entire new business or strategic direction for the organization. A classic example of this is H&R Block. The organization is best known for providing income tax preparation services. It only takes a moment of thought to realize that managing the work flow in a tax prep firm would be a tremendous challenge. The volume of work builds up to a tidal wave approaching the April 15 filing deadline, then drops off severely. The only way to manage this shifting level is to recruit, hire, and train employees in the “H&R Block way,” bring them in to help process the avalanche of work, and then let them go.

The company developed a very high proficiency level in the recruiting, hiring, and training processes. So much so, in fact, that it enabled them to use the proficiency to drive strategic direction. Proficiency in these particular processes paved the way to doing them for others. Since these three processes are the cornerstones of what a temp agency would do, H&R Block opened temp service agencies throughout the country. Therefore, the process excellence enabled them to create an entirely new profit center.

Another excellent example of enterprise creation comes from L.L. Bean. The company is known for its sales of outdoor wear, primarily through its catalogs. This method of transaction necessitated that the company become proficient at call center processes. The company added centers in 1985, 1988, 1997, and 2004. The expertise in this area grew to the point that the management team realized that selling this capacity to other businesses could create an additional revenue stream. This is part of the reason the company has grown into a billion-dollar enterprise.

Ideas for enterprise creation are not restricted to the private sector. When brainstorming potential applications for a state Department of Management several years ago, an idea came up concerning the new state recycling contract. One of the existing responsibilities of the Department at the time was to deliver mail to all the government locations in the state. This necessitated that the Department of Management have the logistical expertise to move things around among all the state buildings. When the subject of enterprise creation came up, one of the participants mentioned that the state was in the process of sending the new recycling contract out to bid to the private sector. The idea was forwarded that since the logistical infrastructure was already in place, it would be possible to leverage this capability to move recycled materials just as easily as they moved the mail. Since the department is obviously a not-for-profit organization, this could save millions of dollars versus what the private sector would charge.

One of the strangest examples of enterprise creation came from a small not-for-profit physical rehabilitation clinic in the Midwest. The clinic, like many small organizations, was having trouble getting its managers to properly complete the performance appraisal process. Annual reviews were being done poorly (if at all), the forms were borrowed from a larger organization and were overly complex, and the managers saw no incentive to do the reviews since compensation wasn’t based on them. The senior leadership felt that it was necessary for long-term development to conduct the reviews, so the clinic created performance appraisal software to make it easier for the managers to complete them. The software was interactive and walked each manager through a set of questions to help analyze performance. The product was a professional-looking printout to review with the employees. It was so much easier to use than the prior process that the managers loved it, and this fulfilled senior management’s need to formalize the career development path.

The story could have ended here and been a nice example of process improvement, but there is much more. One day a visitor from a local business was in the clinic office and happened to see an acquaintance completing an appraisal on the computer. Noticing the software, the visitor remarked that it looked great and asked where the clinic purchased it. Upon being told that it was internally developed, the visitor asked how much they would charge to sell it to his organization. This spurred a huddle of the management team to determine a fair price, since selling it wasn’t something they had even thought about. To make a long story short, word got out locally about the software. Several companies wanted to purchase it from the clinic. Demand grew to the point where it became a revenue source for the organization. A hybrid physical rehabilitation clinic and performance appraisal software developer certainly doesn’t seem like a logical match. While it is true that the company sort of stumbled into this opportunity versus driving it from within, it is an excellent example of how process capability can be leveraged to drive totally new enterprises.

There is an important point to make about all three process leveraging techniques: a company will not typically find them unless it looks for them. In other words, specific time needs to be dedicated to trying to identify examples of each type. Most organizations get so tied up in trying to fix problems that they never really think about how to leverage process strengths. That is why any complete strategic assessment needs to include a session on these techniques. As has been noted, it is important to conduct these sessions in series rather than in parallel. In other words, it is improper technique to explain all of the techniques at once and then ask for examples. It is much better to explain one technique, provide examples, then give the group adequate time to think of company examples before moving on to the next category.

The strategic template lists the process proficiency matrix as a tool to use to help answer the question about devising S.W.O.T.s from process-based opportunities. The matrix is really just a form to help you record and organize ideas. A sample is shown in Exhibit 3.34.

To complete the matrix, it is customary to list the name of the process to be leveraged in the left-hand column. The second column is for proficiency class. The primary purpose of this column is to get the participants thinking about how the performance of the organizational process compares to competition within and outside of their industry. Recommendations for categories are as follows:

The world class category examples are typically candidates for enterprise creation. If a company has developed a capability to the point where it is world class, it is critical from a strategic perspective to determine how to best leverage the strength. The H&R Block hiring process is a classic example of a world-class process because it extended beyond the boundaries of the tax preparation industry to present an enterprise creation opportunity.

Industry class examples are typically candidates for market extension. Consider excess liability insurance carriers. Excess liability means that the organization only gets involved in paying a claim if something really bad happens! For example, a Fortune 500 company may need $150 million in liability insurance coverage. One insurer might provide $100 million in coverage with a $5 million deductible, or something of that nature. Then the excess liability carrier will provide coverage from $100 million to $150 million. So if a claim is for $125 million, the excess liability carrier would pay the amount over $100 million, which obviously would be $25 million. But the good news for the carrier is that a claim of $98 million would cost them nothing, as this is below the $100 million “attachment point.”

Anyway, the point is that the customers of a company like this will only be organizations large enough to need $150 million (or more) in liability coverage. This means that medium and small organizations are not attractive prospects. However, one of the key tasks done when pricing excess liability policies is risk assessment, typically conducted by highly trained engineers. This expertise is obviously valued by the company because it enables them to give accurate (profitable) pricing. But it is also valued by the customer since during the analysis the engineers often identify things that the company can do in terms of preventative measures to reduce the probability of a large claim occurring at all. While medium and small companies may not need the coverage on a grand scale, they could benefit significantly from the expertise provided by the engineering team. The company could enter the medium and small market segments and sell the risk engineering services for a fee, leveraging its expertise and generating fees for the organization.

Any proficiency class may generate process extension examples. Extension may happen because an organization is very good at what it does and it is obvious that assuming control over more links in the process would be beneficial, as in the machine build example previously offered. It is also possible that extension would be necessary to close a gap. For example, consider the medical industry in Houston. There are many huge hospitals in the area, and several are growing. As a result, there is a shortage of qualified candidates to fill positions. One of the most difficult positions to hire for is that of nurse. Most qualified nurses already have good positions, so hiring is a difficult process. This particular hospital compounded the problem by having a difficult process for engaging and interacting with search firms that specialized in hiring for the medical profession. So the proficiency class was definitely needs improvement. The process extension solution was simply to purchase a search firm to do the hiring for them. This helped them bring the expertise in-house and have specialists on staff who were close to both the marketplace and the needs of the hospital.

Another process extension example comes from a situation with a serious gap. The proficiency class world’s worst is listed tongue in cheek, but the point of phrasing it so bluntly is to alert the organization that something needs to be done right away to close the gap. For example, many financial services organizations set up offices abroad in places like Bermuda or the Cayman Islands to capitalize on favorable tax laws. But in order to reap the benefits of the tax advantages, it is sometimes necessary to jump through legal hoops. For example, a Bermuda-based insurance company may have to do business with Bermuda brokers, who in turn do business with U.S. brokers, who in turn do business with U.S. clients. This does two things: It ensures that the carrier conducts business in Bermuda under Bermuda tax laws instead of in the United States under U.S. tax laws, which could save the company millions of dollars. Unfortunately, it also isolates the company from its customer base, potentially leaving them out of touch with their customers’ changing needs. This also puts them at the whim of the intermediate links. Should a U.S. or Bermuda broker make a mistake or communicate poorly, it is easier to tell the client that the carrier is to blame. This is an untenable position for the carriers because they cannot adequately defend themselves, since too much contact could run them afoul of the tax laws.

This is a case in which it would be natural to label the product/service delivery process as world’s worst. It would be difficult to imagine a situation in which the customers and their specific needs were so difficult to determine by the supplying company. Because these needs are so difficult to determine, it makes it that much tougher to meet them. From a strategy perspective, some type of analysis needs to be done to evaluate whether giving up the tax advantages would bring in enough business and help avoid enough losses to justify the move. This definitely needs to be an item on the S.W.O.T. list.

The examples presented for the various proficiency categories are listed in the proficiency matrix in Exhibit 3.35.

Note that the comments section in the right-hand column is used to describe the problem or the process opportunity. These only need to be reworded slightly to turn them into properly written S.W.O.T.s, as follows:

The workshops and focus groups utilized to determine process leveraging examples are often the most interesting and enlightening portion of the assessment. They force participants to think about issues that otherwise will not be thought of.

The final strategic question from the process section of the template deals with the product/service offering. The overarching question is straightforward: “What are the strengths and weaknesses of our product offering?” There are several issues to be discussed in making this determination, These are presented in the form of questions in the product worksheet shown in Exhibit 3.36.

The first question directs the user to list the main products that are considered to be competitors of the product your company wants to analyze. For example, Dell might want to evaluate a certain type of laptop computer against similar products from Gateway, Compaq, IBM, Sony, and so on.

Questions two and three are centered around the comparison between your product and competitors’ products. Why do customers buy from you instead of the competition? Or why do they buy from the competition instead of you? Consider the example of a youth basketball organization that was looking to purchase T-shirts for all the players that participated in their tournament. The two choices for a vendor were Haynes and Gildan. The Haynes product was lighter, which could be desirable on hot days. There also was a bigger color selection to choose from, and the turnaround time for delivery was quicker. On the other hand, the Gildan product felt heavier (making it seem of better quality), was less expensive, and had an appealing collar style that the other choice did not have. Either organization could get value out of completing the product comparison of questions two and three to determine what the key S.W.O.T.s might be.

The next few questions deal with product maturity and the ability to innovate and turn out the next-generation product. Question four asks how long the product has been on the market, and question five is about the typical life cycle. Think about the technology of personal computers and how fast the definition of “state of the art” changes. Technological advances continue to make computers better, faster, more powerful, smaller, lighter, and so on. Conservative estimates would put the length of time a product could remain on the market and be ‘cutting edge’ at around six months. If the product being evaluated has been on the market for five months, it is obviously time to question how long it will remain viable. Question six probes further into the product development process, asking how long it takes to turn out the new and improved version of a product. If a product has a six-month product life cycle and a year-long product development cycle time, the company would obviously be in a precarious position. Predicting the ideal product two cycles forward would be very difficult (at least with any consistency). Question seven completes the analysis of the development process by asking if the company development time is faster than, slower than, or about the same as the competition. In a quick-moving industry, having a development time slower than competitors is certainly a competitive disadvantage.

The next questions are of a big-picture nature. Question eight asks what needs the product fills. For example, a cell phone fills the need for mobile communication, access to emergency services personnel, and other needs. The follow-up question then asks how these needs might change in the future. In the case of cell phones, recent features added include the ability to take photographs, send and receive e-mails, play music, and other features. This enhances the access and mobility element that customers value. It can be instructive to think about what features could be added to continue to meet and exceed expectations in the future.

Question ten asks how customer information is gathered to ensure that changing needs can be identified so the organization can adapt. It is important not to base all new product development or analysis of customer needs on opinion or gut instinct. Intuition, instinct, and experience are certainly important to new product development, but only in conjunction with data collection.

The final question asks how the reputation of the company enhances or hinders the perception of the product. This can identify potential barriers or advantages that need to be included in the S.W.O.T. list. For example, one of the newer models of automobile is the Mini Cooper. If you didn’t know the manufacturer of the car, then you would have no preconceived notions about process quality. On the other hand, if you knew that the car was made by a company like BMW, you would have certain expectations. Volvo might create a different set, as would Yugo. Because Volvo is known for safety, any car coming from that organization would carry the assumption that it is safe. BMW carries the expectation of being expensive, well built, and fun to drive. Yugo was a very inexpensive vehicle not known for exceptional durability. Note that the perceptions of the various companies had no bearing on the actual quality of the Mini Cooper; it simply illustrates that the company reputation may dramatically affect the perception of its product, regardless of actual product quality. (Mini Cooper is made by BMW, by the way.)

A sample product worksheet is shown in Exhibit 3.37, using a comparison of one product to several different types of competing products.

There is nothing magical about the worksheet, but the questions are designed to help the organization think through its product positioning, and it may generate several critical S.W.O.T.s. For example, the previous worksheet could yield the following:

This is just a sampling of the ideas a good discussion of product positioning can promote.

Again, these questions, tools, and workshops presented should be viewed as a menu to pick from for the process assessment. Each organization has its own set of issues and challenges that will make the assessment process unique, but properly following the guidelines presented will deliver a set of process S.W.O.T.s from which the organization can build a solid plan. The remainder of the assessment sections to be discussed serve as a necessary supplement to the process assessment.

The goal of financial assessment is straightforward: to assess the current position and think through what the numbers are predicting about the future. The template suggests an analysis of the key financial indicators and how they are trending. The purpose of this is to reinforce whether the organization is in a growth climate or a mature climate, which will dictate different strategic decisions. Brainstorming can be used for identifying key financial indicators, but practically all companies will already know what they are. Tools listed that will help analyze trends are run and control charts. A run chart is simply a tracking of data as it rises and falls over time, as shown in Exhibit 3.38.

Figure 3.38. Monthly Sales Run Chart

This particular chart shows a sales level that is generally stable, or flat over time. There are many ups and downs, but no discernible long-term trends. This could mean many things. Perhaps the demand for the product or service the company makes has flattened out. Perhaps the campaigns designed to boost sales have not worked. Perhaps price increases (or decreases) were put in place that kept sales dollars flat but dramatically affected profitability. Any of these are possibilities. The instructive point here is that the chart can give you the foundation to build a hypothesis from, but it is up to the management team to use its knowledge to determine the true reason behind flat sales. This is an important concept because it illustrates one of the benefits of formal versus informal assessment. Informal assessment requires little data because everything is based on brainstorming. This puts the burden on the management team to do three things: (1) remember the topic of sales during brainstorming, (2) accurately remember the financial figures and trends, and (3) assign the proper cause to craft a well-written S.W.O.T. In the formal assessment, the first two issues will not be significant because the assessment process addresses them. Therefore, all the management team will need to do is assign the proper cause. This reinforces the notion that the formal assessment will yield a more comprehensive list of key S.W.O.T.s.

Control charts are also referenced as a potentially useful tool for data analysis. A control chart is simply a run chart with mathematically determined limits added. These limits differentiate the type of everyday variation that is built into the process from truly unusual events. A practical example may help illustrate this concept. Suppose your drive to work in the morning takes an average of 30 minutes. Sometimes it may take 35, sometimes it may take 25, but the average is about 30. Knowing this, what would you do if one day it took you 32 minutes to get there? You are two minutes above average, which in this case is a bad thing. Should you form a task force of your subordinates to walk the trail back to your house to determine where exactly the two-minute deviation occurred? This would obviously be an ineffective strategy, since you probably just caught an extra red light or there were a few more kids at the crosswalk than normal. By the time your task force walked the trail, those kids would be in their second period class and there would be nothing to find. (Which brings up another interesting point: Subordinates would never come back to the boss and say, “Gee, we have no idea why the deviation occurred.” They would instead craft an explanation that may or may not have anything to do with reality. This could quite possibly be followed by a management decision based on their report that would send the company spinning off in an inappropriate direction.)

On the other hand, if one day the drive time was 120 minutes, would you consider that to be unusual? This would almost certainly be the case, and the interesting point is that you wouldn’t need a task force to tell you why it happened. You would know it was because of the fifteen-car crash or the water main break or whatever. The point is that somewhere between the 30-minute average and the 120-minute extreme something happens: Normal everyday fluctuation gives way to truly unusual events. This boundary between common and special is important to understand, because it can impact your management decision making. Consider the control chart example in Exhibit 3.39.

Figure 3.39. New Customer Sales Control Chart

Note the similarities to the run chart. The only real difference is the presence of the UCL (Upper Control Limit) and LCL (Lower Control Limit) lines. These lines cannot simply be set wherever the user wants to set them. They are calculated based on actual historical data on the subject in question. The formulas for construction of the limits and theory behind them can be found in any elementary statistics book, but the important item for assessment purposes is the interpretation. The interpretation of Exhibit 3.39 tells us that, because everything is inside the limits with no discernible trends, new customer sales is basically steady over the course of time. Is this a good or a bad thing? It depends on the target for new customer sales. In this chart the organization averages just under $800,000 per month in new sales. If the target is $1,000,000 per month, then the organization is and will continue to be predictably lousy! Several potential S.W.O.T.s could result from this finding, including any or all of the following:

On the other hand, consider the chart presented in Exhibit 3.40.

Figure 3.40. New Customer Sales, Version Two

This particular version has a point in December 1999 that is above the upper limit (UCL). This is typically referred to as a special cause situation. The appropriate course of action in this case is to investigate to determine the cause, which in this example could yield any of the following S.W.O.T.s:

Once again, the chart gives valuable data regarding what happened, but the management team must use its knowledge and experience to determine why it happened and the implications of the event. Any of the three conclusions listed are plausible reasons for the spike on the graph; management must determine the real reason.

Control charts are not new tools invented for the purpose of strategic assessment. On the contrary, they have been used for various business applications dating all the way back to pre–World War II. Using them for trend identification and interpretation is sometimes very helpful during the assessment process, and not only for financial figures. It is common to see control charts used for tracking customer and process data as well. Using these charts to supplement other more traditional forms of financial analysis can yield good information for assessment purposes.

The next question posed on the financial assessment template is, “What external factors will impact our financials?” The purpose of this question is to get management to think about potential future financial issues; these types of things will not show up on charts filled with historical data. The tool/technique listed for this question is brainstorming, which could be supplemented by forecasting, dynamic financial analysis, or a host of other more sophisticated analytical techniques.

The final question under financial assessment deals with the budget that has been allocated to strategic plan execution. This is a critical question because many organizations do not link strategy and budget. Many times plans wither and die when initiatives resulting from plan development are not properly funded and the associated objectives are not met. Failure to allocate resources also creates the impression that strategy isn’t that important, or that it is something to do only after your real work is done. The tool jokingly referred to as being useful to help answer the budget question is a sledgehammer. The point being made here is that it must be “hammered home” from the beginning of strategic plan development that the completion of the plan is the starting point, not the finish line. Many managers have a project mentality; once the plan is complete, they (consciously or subconsciously) cross it off their to-do list and move on to the next item. In reality, the work only begins once the plan is complete. Having budget dollars dedicated to execution is a must in order to reinforce the importance of the plan and give the organization a realistic chance to execute it effectively.

The purpose of the customer assessment is to balance internal analysis with the external perspective. No assessment can truly be complete without considering the needs and direction of the marketplace. The questions and tools from the customer assessment are reprinted in Exhibit 3.41.

The first question deals with customer segmentation. There are a number of ways a company can segment its customer base (e.g., product type, size of customer, geographically). The objective is to isolate the different segments that are strategically important to meet the mission and vision, determine each segment’s needs and expectations, and think about how those needs may change in the future.

For example, consider a traditional U.S. airline. The segments of the airline might be business travelers, leisure travelers, and cargo shippers. The business traveler segment may put a premium on convenience and speed of travel. A business traveler might be willing to pay an extra few hundred dollars to travel from Dallas to Chicago if the flight leaves at their preferred time, is nonstop, and will get them there in time for their big meeting. A leisure traveler, however, may be far more interested in price. This person might be willing to leave at 6 a.m. and connect in Salt Lake City to get from Dallas to Chicago if it can be done cheaply.

The interesting thing about this example is that the same person can fit into both segments at different times. This illustrates the need for segmentation by customer type versus simply segmenting into passengers and cargo. The cargo segment may be further broken down into high-volume and low-volume shippers if the company feels that needs and expectations will vary between the two groups and each group needs to be analyzed.

Another segmentation example comes from the consulting business. Orion Development Group is one of the top consulting companies in the country, specializing in the fields of strategy development and process improvement. It has partnerships with universities throughout the United States, and a large portion of its business involves conducting public seminars through the universities. The public seminar participants are a key customer segment. These people receive one of the seminar brochures in the mail, decide that the topic would be of value, and register and attend the programs at the university. The need of this segment is transfer of information. The range of participants might be from those who know nothing about a topic to those who are practically experts, but they share the goal of learning more to determine whether and how to implement the chosen concepts in their own organizations.

The next segment consists of in-house training customers. These companies receive the brochure in the mail and decide that it would be of greater value to have an instructor come to the company and teach a group of internal people versus sending a person or two to a university to learn. This segment shares the public seminar participants’ goal of knowledge transfer, but wants to discuss more of its own company examples and how the concepts specifically apply.

The third main customer segment is the process consulting customers. These companies have a specific process problem they need help in fixing. This involves having a consultant come on site to help with the mapping, determine process gaps, help identify, prioritize, and implement solutions, and so forth. In short, facilitate the entire process for fixing the problem.

The fourth and final segment for the company is the strategic consulting customers. These companies need assistance in the development of a strategic plan or Balanced Scorecard. While this segment shares many of the same characteristics as the process consulting customers (i.e., they need help finding a solution to a gap they are experiencing), the company chose to separate the strategic clients for a very important reason: the contact level within the customer’s organization. Requests for process consulting can come from many different levels within the customer organization, depending on the size and complexity of the process in questions. Requests for development of strategic tools, however, almost always come from the company’s executive team. Because of this, it is important that Orion have people handling these requests and conducting the engagements who have been executives and can relate to executives.

Once the appropriate customer segments have been defined, the company may proceed to question two from the assessment template: “What are the key S.W.O.T.s surrounding relationships with key customer segments?” Each segment the company considers to be of strategic importance (i.e., it will significantly impact their ability to meet the parameters established by the vision) can be analyzed via the system map tool introduced in the process assessment section. In this instance, the company as a whole should be placed in the P/D/C/I box and the customer segment placed in the oval as the answer to output question one. An airline example is shown in Exhibit 3.42.

Figure 3.42. Airline Customer System Map Example

The customer segment system maps raise a host of important issues for discussion. The box in the lower right-hand corner is an analysis of the key customers’ needs and how well they are being met, both perceived and actual if data is collected. The feedback and feed forward questions tell how connected the company is to the customers, and the analysis of gap causes provides feedback on the internal processes and issues that cause the gap. This is valuable information in itself, but looking at the supplier side helps complete the picture. The box in the lower left-hand corner enables the company to evaluate its suppliers, again both perceived and actual if data is collected. The communication boxes are still present to evaluate interaction quality, and the gap analysis gives an indication of how much of the problem is internal versus external. Potential S.W.O.T.s that could come out of this exercise are as follows:

Does a company need to create a system map for every customer segment? Of course not. The objective is to determine which segments are the most important strategically and analyze them. There are usually about a half-dozen or less strategically important segments, so the system map analysis should take one to two days to effectively complete, pending data collection issues. The participants in the session should be a combination of people who understand customer needs with those who can pinpoint internal reasons for not meeting those needs. Collecting data to confirm or deny perceptions is a critical part of the analysis. An organization often perceives one set of needs to be critical, but the customer has a very different list of expectations. It would be appropriate to add a S.W.O.T. dealing with the lack of understanding of customer needs in this case.

The next two questions introduce terms that were popularized by the Kano model of quality, introduced by Noriachi Kano in the 1980s. The model holds that there are three levels of customer needs and satisfaction. The first and most basic is the “must be” level. A “must be” is something that absolutely has to be there or the customer will be upset. The absence of a must be is sure to provoke an immediate negative customer reaction. For example, consider a stay in a hotel. The list of items that would qualify as must be include a clean room, hot water, a bed, an electronic key that opens the door, a television, and so on. No matter what price a customer pays, almost any customer would consider these to be standard features.

An important feature of the must be category is that meeting all of them doesn’t guarantee customer satisfaction or loyalty. Customers don’t usually call their friends after a hotel stay and tell them, “I stayed in a great hotel this weekend—it had a bed! Right there in the room! You have to go check this place out!” In fact, a must be could be diagrammed as shown in Exhibit 3.43.

Figure 3.43. Kano Model of Quality: The “Must Be”

The vertical scale reflects customer satisfaction. The range is from a totally dissatisfied customer at the bottom to a completely satisfied customer at the top. The horizontal scale measures how well the particular characteristic has been fulfilled. The left-hand side of the scale indicates total lack of the characteristic in question, and the right-hand side reflects that the characteristic has been completely fulfilled.

In the case of the must be, the line drawn on the model shows that the absence of the must be characteristics reflect a very dissatisfied customer, but as more and more must be’s are met, the satisfaction level starts to rise. However, notice that the satisfaction never goes above neutral, reemphasizing the point that meeting the must be cannot result in a high level of customer satisfaction or loyalty. Meeting the must be’s is just like the ticket to get into a movie; you have to have one to get in, but the ticket doesn’t make going to the movies a memorable experience. Kano pointed out that so many organizations spend so much time just trying to satisfy the must be characteristics that they do not realize they are just meeting the minimum.

The moral of the story is that to create a high degree of customer satisfaction, it is necessary to move beyond the bare minimum level. The second level of customer satisfaction, called more is better, does just that. More is better features may not be absolutely necessary to the customers, but the more they see of them, the better they like it. For example, a towel in a hotel is a must be, but the bigger, thicker, and softer the towel is—more is better. A television might be a must be, but the capabilities of having cable, movie channels, on-demand movies, and video games is better. The more is better line has been added to the model in Exhibit 3.44.

Figure 3.44. Kano Model of Quality: The “More Is Better”

Note that the absence of any more is better features still yields a low level of customer satisfaction, but as the more is better features become present, the level rises to well above neutral. Indeed, fulfilling more is better’s can yield a fairly high level of customer satisfaction and loyalty.

Kano felt that there was an even higher level, however, and he called it “delighters.” A delighter is a special feature that the customer doesn’t expect, but when it is present it provokes an immediate positive reaction. A great example comes from Doubletree Hotels. If you ask a roomful of people what differentiates Doubletree from the other hotel chains, you will immediately hear “The cookies!” Many years ago, Doubletree began giving warm, fresh-baked cookies to guests upon arrival, and this simple feature continues to make a big impression. Another example comes from the Hotel DeVille in Binghamton, New York. A guest returned for a second visit six months after his initial stay, and was upgraded to a suite for no charge. Upon entering the room, he found a fruit basket and bottle of champagne with a note that read “Welcome back” with his name on it. This sort of thing might be expected when visiting the same hotel over and over, but for a two-time visitor, it made a huge impression. And there has never been an instance when this traveler has returned to Binghamton without staying in the Hotel DeVille.

Premium hotel chains (versus economy hotels) really have to go the extra mile to do something that qualifies as a true delighter. Here’s an example from the Four Seasons that would certainly make the grade. A customer was checking out of a Four Seasons and told the desk clerk that he was very nervous because he was flying to New York to make a 2 p.m. presentation to over 400 people. He was so nervous, in fact, that he left his presentation materials in a briefcase right in front of the registration desk, and didn’t discover the error until he was on his flight to New York. To his dismay, there was no chance of getting back to the hotel on time, so he had no choice but to make the best of it. At 1 p.m. he was busy lining up flipcharts on the stage side by side and putting large writing on them (trying to write large enough for 400 people to be able to see!), when the doorman from the hotel in his originating city walked in. This gentleman had found the briefcase, driven to the airport, flown to New York, found the hotel, and delivered the training materials. This would almost certainly qualify as a delighter by any standards! The delighter line has been added to the model in Exhibit 3.45.

Figure 3.45. Kano Model of Quality: “Delighters”

Note that the absence of delighters still yields no less than neutral with regard to customer satisfaction. Because customers do not expect delighters, they cannot be disappointed when they are not present. However, continuing to provide delighters to customers results in the highest rating for customer satisfaction and loyalty.

There are a number of important points to be made regarding Kano analysis. First, an alert observer would note that all the delighter examples given require additional cost. Whether it is a bottle of champagne or a flight to New York, it certainly is possible that a delighter will add to the expense side of the ledger. However, the goodwill and customer loyalty generated through these giveaways can more than offset the cost involved if they are deployed judiciously.

Remember also that if the strength of your company lies in developing strong customer relationships, identifying and implementing a delighter is not a one-time chore for you. As soon as a delighter is introduced, it quickly begins sliding down the scale toward must be. Think about the Doubletree example: a frequent guest at the hotel would be looking forward to receiving the cookies, and if they weren’t there it would cause dissatisfaction. Even though other comparably priced chains don’t have cookies, Doubletree has set the expectation and now must live up to it. Think about buying a new car. Things like CD players, automatic door locks, automatic windows, power steering, anti-lock brakes, air bags—all of these were considered delighters at one time, but today they are almost all seen as must be features. This phenomenon dictates that an organization must continue to come up with new and interesting delighters to keep its customers happy and loyal.

The phrasing of the last sentence was critical: the company must continue to come up with delighters. It is a mistake to rely on customers to tell you what would delight them; your organization must determine what delighters could be. Most customers don’t understand your business well enough to even begin to know what you may be capable of providing. For purposes of strategic assessment, the two questions from the template are meant to determine what must be features are not being met and what delighters might be possible. It is recommended that a focus group be conducted with people within the organization to determine what issues fall in each category. The process should be as outlined in Exhibit 3.46.

Figure 3.46. Conducting the Kano Focus Group

Note that the delighters exercise is split into two categories. When trying to identify delighters, participants typically start with ideas that involve free giveaways. The delighter is that they should take the customer to the baseball game, out for dinner, to the golf course, and the like. These are good relationship-building ideas, but they are not powerful competitive differentiators because they can be so easily matched by competitors.

A different and more lasting delighter can be found if the focus switches to solving customer problems. The facilitator should instruct the participants in the focus group to put themselves in their customers’ shoes and think about the problems they face on a daily basis. This doesn’t necessarily need to be problems with your company. The intent is to determine what causes your customers pain from any source. Once a list has been compiled, brainstorm ways in which your organization can solve their problems for them. Experience shows that solving problems for customers that they are not expecting you to solve creates a long-lasting delighter. The Machine build opportunity for process extension actually originated out of a Kano brainstorming exercise. The customer problem identified was that of damaging machines during the setup phase, leading to the process extension suggestion of sending the technician with the machine to assist.

Sample S.W.O.T.s that could come out of a Kano exercise are as follows, with must be violations followed by different types of delighter possibilities. The context of the example is for a hotel.

The Kano exercise is very useful in provoking thought and evaluating customer relationships in nontraditional ways.

The next customer assessment question involves identification of competitors’ strengths and weaknesses. The potential tools listed to answer this question are focus groups and/or research. The organization must evaluate how much formal research is needed to determine the necessary level of competitive analysis. The product worksheet developed in the process assessment section provided an informal version of competitive product assessment; a similar thought process could apply to competitors. Many organizations conduct excellent formal research, so it would be up to the organization to decide how best to glean the necessary S.W.O.T.s for planning purposes.

The final customer assessment question is about the industry in general and how it will change in the future. Once again, the company must decide between focus groups and formal research to identify the necessary information. If the decision is made to use focus groups, a good process is to pick a time point in the future (five years out, ten years out, whatever the planning horizon happens to be). Ask what changes are going on in the industry and how they will transform the way business is conducted by the target date listed. It is instructive to think about technology, competitor consolidations, customer consolidations, the mutation of product and service offerings, and so forth. Upon completion of this focus group, the customer assessment questions will have been answered.

There are two purposes to the learning and growth assessment. One is to evaluate the support systems of the organization to determine how well they will be able to fuel process performance, customer satisfaction, and financial results. The other is to ensure that management takes a participative role in generating the S.W.O.T.s. This component can be essential to buy-in later in the process. The questions and tools used in the learning and growth assessment are reprinted in Exhibit 3.47.

The first question brings management opinion into the assessment. It is a good idea to schedule individual interviews that are approximately a half-hour in length for the senior leadership team. These interviews should consist of roughly half a dozen questions to start, and all should be centered around the identification of S.W.O.T.s. Suggested interview questions include:

Asking the vision question can be very revealing. The interviewee might need some prompting to give a usable answer. It is good to ask about an overall sales projection (if you are in a for-profit organization), because comparing the numbers given from executive to executive reveals how in tune they all are to the business. The same holds true if asking about customer needs and how they will be changing. Sometimes the range of answers makes it clear that certain members of the team are not really plugged in to the business. One assessment revealed that a few management team members could not even identify the external customers of the organization, much less discuss their needs. Having executives who are out of touch with customer needs is obviously not a healthy situation and definitely worthy of mention on the S.W.O.T. list.

The next four interview questions literally ask for management opinions in the four S.W.O.T. categories. The goal is not only to get feedback on the key issues, but also to determine whether management is consistent in their view of what the key issues are. For example, during one assessment the interviewer had eight executive team interviews to schedule. The first seven respondents all said that the number-one weakness of the organization was lack of trust and cooperation among the members of the management team. The eighth and last executive said that the number-one strength of the organization was management team cooperation and trust. After watching the group interaction during the assessment, it became obvious that the final executive was damaging relationships among all members and was the cause of the problem. While this may have been clear anyway, the interview process illustrated how problematic the situation had become.

The next question asks management to rank employee morale on a scale of 1 to 10 and discuss factors that influence their rating. Understanding the morale of the workforce is imperative to the assessment process. A company with high morale is far more adaptable to change than one with low morale. If the ranking is low and the causes are fixable, it would be a good idea to include the potential fixes as opportunities on the S.W.O.T list. If the causes are not fixable, they should be included as threats on the S.W.O.T list. In either case, it is important to assess the morale factor. Note that employee focus groups are listed as a potential tool for assessing morale in addition to management interviews. It is instructive to see whether employees have the same perception of morale that management does and whether the causative factors are consistent. Significant disparity in the perceptions of the two groups could indicate that management really doesn’t understand or feel connected to their employees, which certainly should be added to the S.W.O.T. list.

A related employee focus group question is about the company vision. Many organizations have an employee group that understands the vision and lives it day to day, which is a powerful strength to have. In other organizations, the employees can quote vision verbatim, but it really doesn’t mean anything to them or affect how they do their jobs. And still other organizations have employees who have no idea the company has a vision or even what a vision is for. Asking about the vision usually leads to a revealing discussion of how much ownership the employees have in company success and can certainly lead to the generation of many key issues for the list of S.W.O.T.s. Marked differences in management and employee perceptions on vision for the future should be noted as well.

The next learning and growth assessment question deals with future technology. It is typically useful to (either formally or informally) assess how technology will impact the organization and industry in the future. This can be done via focus groups or more formal research. Since technology is increasing the speed of business on almost a daily basis, it is imperative to spend time trying to determine relevant technology-focused S.W.O.T.s. If the chosen course is to use focus groups, it is a good idea to mix internal technology experts, operational people, and employees who are close to the customers’ needs. This mix will enable you to discuss the technological capabilities that customers want, the capabilities that processes need, and the techno-trends that might result in filling all the gaps.

The final learning and growth assessment question is focused on the workforce skills necessary to be successful in the future. Being good at what you currently do is often not sufficient to guarantee future success. For example, many years ago there was certainly a company that was number one in its field of producing buggy whips for horse-drawn carriages. Being the best today is no guarantee of future success, however. No matter how cost efficient the company was or how wonderful its product was, it became irrelevant when people started traveling by car and didn’t need buggy whips any more. Therefore, the long-developed skills of the employees in whip production eventually became irrelevant.

A more recent example comes from a state Treasury Department. Tax returns in the state had always been processed manually, so having an army of reviewers on staff possessing a certain set of skills was required. But due to resource constraints, the state began a big push toward electronic filing. The skills needed to succeed in this environment were obviously much more technology-oriented, so the current skills could be at odds with necessary future skills. Identifying whether skills needed for the future are present in the current workforce is the final critical element for the S.W.O.T. list.

It is important to remember that the questions posed in the template should be viewed as a menu; not all of them will be ordered in every situation. When conducting an assessment of any individual organization, certain questions may be excluded and additional questions added. It is necessary to keep the overall intent in mind: identifying the key issues that will impact the ability to meet the parameters established by the organizational vision. Once the assessment has been completed, the organization will be ready to take the S.WO.T.s generated and move to the next step: building a strategy map.