 Business Objectives Execution
Systematically Creating and Sustaining Business Value
Business Objectives Execution (BOE) focuses explicitly on aligning execution with business objectives to
drive profit and performance. The concept
is simple and intuitive. It calls for connecting every initiative and all individual actions directly to the business objectives. BOE applies to all functional levels – operational, tactical,
and strategic – for solving manufacturing, service delivery, or business services
problems. Examples include increasing throughput and quality, resolving customer
issues, reducing costs, consolidating operations, rationalizing products, growth
planning, merger and acquisition, etc.
Business objectives permeate throughout the
organization including all of the various business functions such
as marketing, accounting, production, supply chain, and so on. They are affected
by external factors through market trends, customers’ demands and suppliers’ abilities.
Business objectives belong to everyone in the company and, irrespective of the degree
of articulation, their importance cannot be ignored by anyone.
Rigorously managing execution
to the objectives is a sure way to increase business value. This is not a small
challenge as organizations are living dynamic systems. Any management action that
seems effective at the local level either gets amplified or attenuated by the interconnected
collective behavior of the overall system. As a result, changes sometimes have the
desired impact only locally, but often produce unexpected results elsewhere and
globally.
Companies constantly
adjust their objectives in response to opportunities and challenges. Many times
the original objectives prove unattainable as formulated under the current capabilities
and constraints of the organization. In such instances, they have to be redesigned
and therefore require an adjustment in execution.
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BOE Characteristics |
Strategic Business Unit (Holistic) Focus
Product Focus as Valued by Customers
Positioning, specification, delivery, and price
Acknowledge Competing Business Objectives
Incorporate relevant perspectives of each business objective
Future Focus
Evaluate the environment of the future
Actionable Execution Roadmap to Achieve the Business Objectives
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Businesses Require a Flexible and Pragmatic Business Improvement Framework
A confluence of global
competitive factors, the tacit acknowledgement that businesses are living dynamic
systems hence need to be managed accordingly, and data management
advancements in information technology set the stage for a facts-based, integrated, and far reaching business
improvement framework. Dogmatic approaches that focus on a single issue within a
narrow view, such as efficiency improvement, are no longer adequate.
Despite changes in the
speed of business and availability of information, the fundamental business principles
for managing companies and the standards for evaluating corporate performance remain
largely unchanged. What has changed is the demand for quick and visible results
that are guaranteed to succeed. The risks for failure or poor decisions have increased
and can rapidly lead to dire consequences. Thus, today’s improvement
framework is
an evolution of thinking and practices to accommodate current trends and conditions
rather than a revolutionary change in the way to do business.
The global business environment
has permanently changed the business landscape. Market conditions are more dynamic
than ever before. The competition is no longer local only; it is global, hungry,
and fierce. Customers expect better service, speedy product development that is
more responsive to their changing expectations, and lower prices. “Better, faster,
cheaper…” is the mantra for most successful companies.
Consequently, continuous
improvement programs spanning the whole enterprise are widespread resulting in tightened
supply chains. A great deal of progress has been made in operating initiatives such
as Lean and flexible operations, and in quality initiatives like Six Sigma. For
many companies the success of these programs has diminished the tolerance for any
error. A small glitch in operations within or outside of organization can quickly
spiral into a major disaster. Local issues, such as a supplier being late by few
hours, can unleash larger and complex problems elsewhere in operational scheduling,
logistics planning, customer relationships, and so on.
Businesses are Complex Dynamic Systems
Leaner supply chains and tighter margins for success have contributed to the growing
realization that businesses are dynamic interconnected systems. This brings its
own set of management opportunities and challenges. On the positive side, having
a detailed understanding of the capabilities and limitations of the system enables
it to be managed more effectively to achieve business results not previously attainable.
On the flip side, the tolerance for risk is lower and there is a dearth of tools
available to managers that are up to this task. The de facto divide-to-conquer approaches
of today focus on individual aspects of the system (operational or quality improvements, supply
chain, financial management, customer satisfaction, etc.) but not necessarily holistically
on the business objectives and the corresponding expectations for improvements to
overall corporate performance.
Is improving first-time quality or overall product quality better for reducing costs
and increasing customer satisfaction? Or, should an organization invest in efficiency
improvement by offloading work from main processes to ancillary processes (either
in-house or outsourced) or in reducing equipment failures? What are the throughput
and cost implications of making the necessary changes, including investments in
people and equipment? This may include additional training or investments in automated
processing technologies. Perhaps limited capital and other resources might be more
effective if allocated to different pursuits elsewhere in the organization, such
as in product development or customer service. There are no one-size-fits all answers
to such questions. The value of systems thinking is that it provides a better and
more holistic way of assessing and quantifying the implications of a full range
of improvement ideas.
A systems approach builds
upon what most managers already know – the collective performance of the overall
system is not the sum of the individual parts. The reality is that companies operate
by way of interconnected and dynamic business processes. Overall profit and performance
is subject to the capabilities and limitations of these business processes, such
as production, service, product development, sales and marketing, etc., and in particular,
the complex dynamics and dependencies that operate within and between these processes.
As a result of such a
challenging operational context, managers are taught to break problems into smaller
pieces, optimize the individual pieces, and then wait for the positive business
results to percolate to the surface. This strategy works, but up to a point when
there are sufficient buffers to absorb the shocks of changes and prevent them from
affecting other processes in significant ways. For example, larger inventories historically
played that role when supply chains were not so tight. This resolved the problem
locally and let the benefit bubble through without affecting other parts of business.
Lots of low hanging fruit has been harvested this way, though the promised dramatic
business results are few. To an operational manager, a production line might be
leaner or more flexible, yet the financial benefit of the investment in improvement
may not surface soon enough in any quantifiable amount for the CEO or CFO.
The problem with the
“divide and conquer” approaches is that they reinforce linear, one-dimensional,
and disconnected thinking that pervades business today. It instills a stopgap mindset
of improving efficiency of a single aspect of the business instead of finding a better way to do things. Fighting fires
and improving the band-aids become the focal point, rather than the systematic pursuit
of things that lead to breakthrough performance. Correlative reasoning or a “rule
of thumb” approach takes over without any regard for the scope of its applicability.
Critical questions such as – are those rules really applicable in our situation
– are often not asked. This prevents an organization from capitalizing on its full
performance potential by leaving a host of readily achievable performance gains
on the table.
Process Dynamics are the Culprit
Dynamics appear at many
places and in many forms in an organization. They manifest from a “macro” context
at the customer and market levels all the way down to individual operations within
a process. Product and service expectations evolve, demand changes, new customer
opportunities arise, equipment fail, supplies get delayed, and it takes longer to
do a task than standard time or expectation. These are but a few examples of factors
that can create a dynamic response. The current state of the affairs and the controls
in place mediate how far the dynamic factors proliferate through the organization.
Internally and throughout
the supply chain a great deal of effort is invested in “smoothing out” process dynamics. Manufacturers collect volumes of data to identify bottlenecks in line performance
and conduct analyses to determine the best way to
manage them (e.g., buy or modify
equipment, hire more workers, increase training, redesign a line, change operating
policies, reduce waste, outsource). Business services such as customer support,
insurance processing, IT help desk, or medical care, also seek to increase throughput
in similar ways. There is hardly an organization today that does not have an active
initiative to control the spiraling effects of the dynamic behaviors inherent in
their business.
Failure to identify and
understand process dynamics and their interconnectedness leads to many problems.
Managers, who do not spend the time to understand the impact often find themselves
dumbfounded when an improvement action produces little impact given the effort.
Worse yet is the impact when their efforts actually reduce performance through unintended
consequences of operational changes. For instance, an expensive new processing technology
or equipment upgrade may not actually improve throughput due to the dynamic constrains
of a line when evaluated in its entirety. Or more simply, the cost of the equipment
cannot be justified given current or future product demand.
All too commonly, operations
are optimized locally without regard to their place in the overall system. At first
glance, a production line appears to be more efficient, yet upon closer examination
the “improvement” is revealed to be achieved by shifting costs to another downstream
or off-process line, to logistics and delivery, or some other area. Such an effort
would not meet a definition of success from a BOE perspective. An important step
in improving organizational performance involves a more comprehensive understanding
of the process dynamics and their relationship with the business objectives.
Business Objectives have Competing Elements
Business objectives are
the strategic goals of organizations. Conversion to measurable targets occurs through
a cascading process that flows from corporate objectives, to division or strategic
business unit objectives, to operating plans for execution. Determining precisely
how to achieve the objectives is the domain of operational managers.
In their various forms,
business objectives therefore run the gamut from the executive suite to the front
lines, simultaneously affecting all management layers and operations. Every stakeholder
in this chain has their own priorities and criteria by which their individual performance
is evaluated. Such a hierarchical flow gives rise to competing elements within the
corporate business objectives.
A line manager cares
about doing whatever it takes to meet per-shift production or service quotas. A
facility manager wants to overcome process or delivery obstacles. A general manager
may plan for short-term gains, and search for ways to synchronize processes with
cost and profit goals. A director of operations deals with division and plant-level
issues for improving profits for the strategic business unit, and so on up the management
chain.
For an organization to
succeed, the interests of the direct and indirect stakeholders must be identified
and addressed. They must coalesce at a common organizational
level where objectives can be defined in business terms and not as efficiencies
or wastes in individual operations or process. This requires an unambiguous definition
of the Strategic Business Unit (SBU) where the results are tallied. Without such
a framework, balancing the multiple and sometimes competing interests of the various
stakeholders for the common good is not possible. A benefit to this integrated
thinking is that decision making becomes more rationale. The loudest or those best
at gaming the system are brought into a more objective decision making process.
Success of any initiative
can only occur once the stakeholders are identified and the objectives are translated
into agreeable terms. Only after doing this, it is time to act. The objectives are
performance targets but do not indicate how to achieve them. Although objectives
can point in certain directions, a roadmap for action still has to be developed.
The improvement roadmap must layout a step-by-step approach to meet the business
objectives while satisfying the needs of the individual stakeholders.
Align Actions to Business Objectives
Aligning actions to objectives
requires an integrated approach capable of continuously improving the system of
relationships among all parts of the business. Changing the system is the only way
to create sustainable improvements that continually meet the business objectives.
A systems perspective engrains a highly focused way of thinking about alignment
and actions. Every action must bring the organization
one step closer to achieving the business objectives in a sustainable manner.
Actions that do not contribute toward achieving the goals should be avoided or deemphasized
if already in place.
This is easier said than
done. Potential improvement actions can come from any number of sources. Often,
improvement philosophies can cloud or filter the types of ideas that managers are
willing to entertain. If a business group sees waste reduction as its primary improvement
lever, then it might not be open to consider other ideas that potentially fit the
definition of success that emanates from the business objectives.
Often, there are many
good ideas. Which ones make the most sense in the context of the larger objectives?
Let’s say that a facility is having trouble keeping up with demand. Reasonable options
range from the tactical to strategic. Should the company invest in a new piece of
equipment, redesign a line, hire more employees, outsource to meet the excess demand,
build a new facility, or explore other options? Recall that some of these options
can actually have a negative impact on other business objectives that are not explicitly
stated here. For example, cost may rise by adding people or equipment. A singularly
focused approach could potentially meet the stated business objective. However,
it may not produce sustainable results and may violate
other related objectives.
The answers to questions
about what actions to take begin with the identification of factors that are both
relevant to the business challenge at hand and have the potential to move the organization
at least one step closer to its objectives. These factors are simply ideas for specific
actions that may lead to success. The final decision made by management in this
context is therefore a balanced compromise of the competing interests of the various
stakeholders.
The approach of aligning
actions to business objectives is most notable in Toyota Motor’s management philosophy.
In essence, their approach is to change the system that creates the problem as opposed
to simply fixing problems in isolation.
The Toyota Production
System, with its emphasis on continuous system improvement through rapid problem
solving reflects this thinking. It advocates a practice called
genchi genbutsu or “go to the place and see for yourself.” Firsthand knowledge
derived from seeing and confirming the situation trumps secondhand information and
communications. It also helps focus on all the different upstream and downstream
impacts that are possible from any action. Such an approach provides an opportunity
to balance the competing elements while meeting the business objectives.
A gemba visit to see the place for oneself is an important step in capturing the
functional knowledge of people most intimately familiar with the situation and leverages
their practical experiences. This is a highly effective and irreplaceable way of
capturing ideas for improvement. The focus is on letting the people who know the
system best provide the knowledge rather than computers sifting through enormous
amounts of historical data. This creates an opportunity to incorporate the objectives
of all the stakeholders from the plant floor to the executive suite. In the Toyota
Production System, the genchi genbutsu
or “hands on” practice is most frequently discussed in relation to quickly solving
line problems in a manufacturing environment.
From a BOE perspective,
the practice of identifying the stakeholders and their objectives, considering solutions
that align with the business objectives and evaluating which of the options will
most likely be successful should be at the crux of an improvement methodology. The approach
is of equal importance outside the four walls of an organization as it is inside.
It can be applied, for instance, from identifying ideas for improving operations
and the supply chain, to the strategic level for mergers and acquisitions. The integrated
concept is identical irrespective of application. Although the methodology is constant,
the particular problem statements, stakeholders, and depth and type of analysis
will reflect the unique circumstances of each business challenge.
Multiple Scenarios to Assess Future Conditions
To be successful with
BOE, organizations need a method for closing the gap between good ideas and those
that will also lead to business success. In an interdependent system, linear expectations
about cause and effect quickly break down. To improve business value, a good idea
must pass an effectiveness test at multiple levels and retain its significance as
it bubbles upwards through the organization to produce measurable results at the
corporate level. There are several interrelated steps in accomplishing this task.
First, the improvement
candidates must be categorized into meaningful business scenarios. Each scenario
represents proposed alternative solutions for the business challenge. If an objective
is to improve the effectiveness (e.g., speed, quality, cost) of an insurance processing
business, then the scenarios might represent different potential solution sets.
In this instance different scenarios might include installing improved automation
technologies, training, more workers, policy changes, product/service design changes
to lessen support requirements, outsourcing, combinations of the above, and so on.
Second, each scenario
must fully encapsulate the challenge. This enables each scenario to be compared
in an apples-to-apples manner with each other.
Third, each scenario
must include multiple integrated “perspectives” of performance. Understanding the
process characteristics is a fundamental building block. In addition, any related
resource capabilities and limitations must be included. Most importantly, the cost
implications of the process and resource requirements must be explicitly included
in the scenarios. The objective is to understand the implications of each scenario
on the business objectives, and financial performance is a critical aspect that
cannot be “addressed later.” Until you can connect
the financial implications of any change (i.e., improvement scenario) to performance
you cannot demonstrate its true operational value to the business.
Fourth, assessing the
impact of operational change on future conditions requires future oriented dynamic
analytical methods. Historical information is only valuable to validate the current
situation, but is of little help in evaluating the future. Future conditions always
differ from the present and earlier situations. Hence, past performance adds little
or no insight going forward. Scenarios by their very nature represent ideas for
improving the future. Thus, analytical methods must account for the system of relationships
implicit in the scenarios and how they would evolve over time in the future.
Further, these methods
must be capable of capturing the dynamic variability inherent in business today.
Demand changes, customer requirements change, machines break down or become less
efficient over time, the process itself may change, people who are crucial to the
process may not show up for work, a supplier may run into difficulties, transportation
glitches may arise. These and other factors are constantly working to alter the
“activities” that go into delivering a product or service. In other words, the requisite
activities undergo constant reshaping by the fluctuating demand and a multitude
of factors internal and external to the process. Unfortunately, looking to past
performance for insight into navigating these dynamic challenges leads to unexpected
results because the past is a poor representative of future conditions.
As this discussion has
highlighted, an integrated holistic scenario based approach is a good fit for understanding
living dynamic systems. Most importantly, it sets the foundation for a new generation
of flexible and practical management tools that enable companies to systematically
execute their business objectives for superior performance. Organizations need to
come to grips with the fact that any decision, no matter how small or seemingly
trivial, has the potential for a significant unintended impact elsewhere in the
system. This is particularly acute when financial performance objectives are at
the forefront. BOE is not a destination, but a complex ongoing journey among a multitude
of business functions that requires tremendous agility and foresight to navigate.
© 2006-2007 Adam Garfein &
Anil Menawat
Edition 1.2
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