The CFO as the Chief Business Architect

Few enterprises today have descriptive representations that depict how the enterprise works. Therefore, change can only be accommodated by trial and error. As complexity and the rate of change increases, risk of trial and error increases. Architecture provides the structure to predict the impact of change, reduce the risk and maintain enterprise viability in a changing environment.-John Zachman

Enterprise Architecture is a complex framework that has emerged from the IT world as a way to clearly describe the enterprise IT environment to now represent an impressive tool for orchestrating enterprise behaviour and change.

I would not go into the intricacies of what Enterprise Architecture really means, there are enough experts to battle it out forever. I only have a simple perspective and I enjoy keeping it that way.

It is no secret that the business world has already shifted its expectations for CFOs from being the guys in charge of the financial model and perhaps of the control environment to the guys in charge of the integrity of the entire business model of an Enterprise. 

Therefore, a CFO is uniquely positioned to take on the Chief Business Architect role because s/he is at the nexus of all business model perspectives. Let's examine them one by one:

1. The motivation model - the markets the Enterprise operates in, the goals, the strategies, the external change vectors.

A CFO is required to scrutinize and keep abreast of all these. SWOT analysis? Check. PESTEL? Check. Macroeconomics analysis? Check. Competitive intelligence and benchmarks? Check.

2. The organizational model - the org chart, the motivation systems, the functional design of departments, the roles and responsibilities, the back-up systems, the outsourcing / partnership strategy.

A CFO must contribute to the organizational model because maximizing the return on the human capital is the most comprehensive way to maximize enterprise value. Yes, it is rarely measurable and therefore not obvious, but that is precisely why the CFO must be involved. 

3. The process model - the process taxonomy, the task successions, the business rules matrix, the data model (the master, the transactions, the unstructured data), the adaptation strategy.

4. The technology model - the technology stack, the IT architecture, the support and services model.

The CFO is the best positioned executive to drive the internal innovation agenda, both in terms of how things get done (the process model) or what tools are appropriate to support the Enterprise (the technology model).

And of course all the business model perspectives but be tied together into something that holds water, and that is done by linking everything to the financial model  - the P/L, the balance sheet, the capital mix, the investment & dividend policies.

One could argue that it is the CEO's job to reconcile the business model perspectives. But there is a lot of in-depth work and understanding that is required by a Chief Business Architect role and in my opinion this can only be accomplished effectively by the CFO.



photo credit: NathanaelB via photopin cc

Process Re-design, Challenge #03

Re-design Around Roles, Not Persons

Democracy is the process by which people choose the man who'll get the blame.
~Bertrand Russell 

In many business process re-design projects, there is a strong temptation to start re-thinking the processes while having an eye at your current employees as process actors, in terms of capabilities, possible performance considerations, possible conflicts of interest, possible personality clashes etc.

This is the wrong way to go, because you will be designing your new process around specific people or personality traits and this kind of structure is guaranteed to be unstable.

Rather, once the ideal process sequence is established, think hard about the ideal roles that should perform the process activities: how does information flow most naturally (i.e. with the least waste) to their role? how do they get the authority to perform those steps? how are their organizational objectives aligned with the process objectives?

In a smart process, work must occur where it makes most sense.

Process Re-design, Challenge #02

Always an art, never a science?

Art and science have their meeting point in method.
~Robert Bulwer-Lytton

What makes BPM different than scientific management approaches (like project management, six sigma etc)?

1. There is no global optimum
There is no best way to execute a process, it all depends on availability of resources (time, money, talent) for execution. It is an illusion to think that one may ever reach a global optimum in any process.

2. BPM is a continuous deployment framework
There is no best time to improve / change / upgrade a process. Or rather, the best time to do that is "as soon as possible". A business process must be agile, i.e. must be able to adapt to new conditions (shift in strategy, legislative changes etc). Therefore on-the-go tweaking should be part of the process design philosophy.

Hey, this sounds a lot like the lean start-up philosophy!
1/ start small with a minimum viable process and with a few process metrics that matter,
2/ continuously test your model's falsifiable hypotheses along the way until you get it right and avoid local optima,
3/ tweak it on-the-go based on the learnings above.

Actually, there are at least two major differences:

1. Approach on customer problem
A lean start-up defines how a new product solves an existing / emerging customer problem.
A business process redefines how an existing organization addresses entire classes of existing problems (effectiveness, efficiency, segregation of duties, activity cost, information distribution, asset / function redundancy etc).

2. Build-Measure-Learn cycle
A lean start-up iterates the product. One product iteration may be deployed almost instantaneously. Customer reaction can measured reliably in direct relation with that specific iteration.
A business process iteration manages the change to the process (employee education, transition, organizational feedback, integration into an existing business model). Therefore, a business process iteration needs a significant soak period before it starts to perform as intended.

So... how do we reconcile this?...

More to come :-)

Process Re-design, Challenge #01

Re-design From a Blank Slate

A relentless barrage of "why’s" is the best way to prepare your mind to pierce the clouded veil of thinking caused by the status quo.  Use it often.  
~Shigeo Shingo

When you hire BPM consultants to help you redesign your processes, they will usually start with a presentation of the implementation methodology, a recommendation of the software package to use for modelling and a timesheet estimate for the blueprint project (AS-IS, TO-BE and gap analysis)

As a result, many organizations start a process re-design by having a look at their current process, the AS-IS situation.

My challenge: this AS-IS approach is a waste!

When starting from the current situation, you are basically throwing resources back at yourself, ending up either:
1/ being convinced that you were right to start a re-design project or
2/ getting comfortable with the current status quo.

So, get over your legacy mindset and take a completely fresh view of what you do - you might be surprised about how many bright ideas are lurking in your -apparently dormant- organizational layers.

I would even argue whether a proper methodology is needed! Of course you need clear steps on how you execute the re-design (as in: how do you manage transition?), but business process design does not work best with a methodical approach.

More on this next week :-)

Process Re-design - the lean way!

"A corporation is a living organism; it has to continue to shed its skin. Methods have to change. Focus has to change. Values have to change. The sum total of those changes is transformation"
Andrew Grove

In the next few weekly entries I will be focusing on a process re-design approach that doesn't go well with the current thinking around Business Process Reengineering - the approach will be centered around Lean Start-up notions (minimum viable product, build-measure-learn cycle etc) instead.

I do admit that the two approaches do not fully reconcile, so I will be careful to point out the differences. The Lean Start-up is a very seductive concept and once you fall in love with it (as I did), you tend to apply it to everything!

I will be challenging classic approaches like AS-IS / TO-BE analysis, never cutting corners, focusing on organizational aspects etc.

The main scope of the following entries will be to understand how we can eliminate waste from the Business Process Reengineering process itself :-)

More to come :-)

Lean Processes, Tip #04

Reduce the Batch Size

"We are what we repeteadly do. Excellence, then, is not an act, but a habit"
- Aristotle.

We have discussed previously (Tip #02) how minimizing the number of handoffs will make your process more agile and more straightfoward. Today we'll be discussing the virtues of minimizing the size of the handoff - and, since the handoff contains a batch of work done, the size of that batch.

Historically, companies have built up manufacturing systems to be efficient in terms of cost-per-product. Traditional management science views the products as cost collectors and therefore one of the way of minimizing unit costs (like overhead) was to increase batch size. More products in the same batch accumulate same absolute overhead (say, for QA), therefore less overhead per unit, right?

Not necessarily. Toyota has long time ago turned this concept upside down with their TPS (the predecessor of the lean manufacturing concept). The actual cost drivers are the activities, if you want to reduce costs per unit, you are better off optimizing activities within processes.

By minimizing the batch size you get several key benefits, crucial especially in an intangibles production system (like, services and software):

1/ smaller batches = faster feedback. In a lean start-up, the build-measure-learn cycle needs to run many times before the invention of a valid business model. Ability to iterate as fast as possible is vital to success. Ideally, the batch size should get as close as possible to 1. If we build excellence by repeating what we do, then let's repeat what we do a whole lot more, and then we'll be excellent much earlier.

2/ smaller batches = less overhead. You will find that, with the right batch size (depending on your size of business), your QA/testing overhead will actually decrease significantly. That's because the QA/testing function will get much more responsive, much more automated, much faster in identifying issues - you would need less QA resources overall, and they will be more evenly allocated across your product cycle.

3/ smaller batches = less risk. You will be able to check your work much faster and correct errors much earlier in the process, before they become ticking bombs in your value chain.

More to come :-)

Lean Processes, Tip #03

Morph Your Handoffs Into Teamwork

I discussed last week about the need to minimize the number of handoffs, as they build up cycle time and noise in the organization.

When we cannot reduce anymore the number of handoffs, we should try to optimize the handoff process, so that we enable process roles to be more aware of each other in their quest to fulfill the common process goal:

1. Make your upstream roles proactive on the downstream information needs.
This way upstream roles can design templates and checklists before they push the info downstream.

Example: an efficient salesperson (what is that, anyway? :-) ) would follow a predefined checklist when finding out about a new customer to ensure the lead is fully qualified (do they have the budget / the authority, the pain / the urgency to buy?) before proceeding along the sales funnel.

2. Promote downstream roles upstream.
Sometimes you just need to redesign the whole process and have your downstream role take up upstream responsibilities.

To note, this "tip" requires quite a bit of proper transformation within the organization:
- cross-functional trainings;
- setting up stand-ins / back-ups for all process roles;
- setting up systems to automate data validations (in templates and checklists) wherever possible;
- have a Business Process Lifecycle Management practice in place.

I never said it would be easy! :-)

More to come :-)

Lean Processes, Tip #02

Minimize the number of handoffs

If you want a fast and reliable process, cut the middlemen.

A process handoff is an intermediate step in a business process where work and information passes from an upstream player to a downstream player.

Handoffs are the usual suspects for a slow process. Here's why:

1. a handoff is an opportunity for cycle time build-up
Prior to a handoff, the upstream employee usually prepares the information, the documents, the action history or any other data that will assist the downstream employee in performing future work.
After the handoff, the downstream employee will consume the data prepared by the upstream employee, will seek clarifications and / or further guidance and will then proceed with work.

These additional activities create additional time in the process, only for the sake of the process.

Example: most Sales people abhor doing paperwork - especially when they create a new sales transaction. If they have to bring complete cases to the Legal Department, they have to spend time building them. Under pressure, they will deliver incomplete cases just to hand them off quickly and then the time waste is moved in the Legal Department. This could be redesigned through a technique I am going to discuss about next week.

2. a handoff adds noise in the information flow
With signal, comes noise. The more we communicate, the more likely we are to be misunderstood. When handing off multiple activities multiple times, the noise can get out of control.

In the SCRUM methodology (an agile software development methodology), an estimated 50% of knowledge is wasted after 5 successive handoffs. Therefore, a handoff is a significant opportunity for mistakes and misplaced work, to the point you could reliably measure its cost.

Example: a purchasing employee obtains an additional rebate deal for a complex Purchase Order, gets approval of Management in one form, then passes this to Contract Management, who then passes this to the Warehouse (if it's a goods deal) or to a Service acceptance function (if it's a service deal), then somehow this info needs to come to Invoice Passing (maybe other functions, like Engineering or Tax). The more complex the deal is, the more likely it is to get misunderstood, to get stuck, or to get executed very differently from what has been approved - and generate lots of waste.

If you cannot minimize the number of handoffs (especially in large organizations), there is a solution: morph your handoffs into teamwork.

More on that next week :-)

Lean Processes, Tip #01

Design Around Customer Interactions

Your value chain processes should be designed with the end in mind: attract and delight your customers as fast and as friction-free as possible. They will be more than willing to then pay for whatever they perceive as valuable in your offer.

Think about a high-touch sales process:
1/ establish initial contact (meeting, business cards)
2/ execute sales pitch
3/ follow-up for decision to enter into business together
4/ negotiate contract T's&C's
5/ acquire customer master data to set them up in transactional systems
6/ sign contracts
7/ get order
8/ deliver
9/ wait for the payment term
10/ cash in
11/ if not cashed in, follow-up on overdues through a dunning process

At the opposing end, you have the no-touch sales process (the so-called freemium model), where you first give some of your product's features away for free and then try to upsell your initially acquired customers to your paid product.

Between these two extremes, you can imagine a plethora of accelerated sales processes, by asking some of the following questions:
- can you execute your sales pitch proactively? Create marketing, webinars, YouTube presentations, grow an audience.
- can you make your business case extremely clear in how you deliver value? Your product landing page should be like a Mafia offer: so good they can't refuse!
- can you make your standard T's&C's extremely friendly to your customer? This way you will remove upfront a massive class of typical customer objections.
- can you skip some customer master data on the first sale? Can you collect the non-critical data after the sales closure - I bet you can.
- can you automate your collection? Remember, your objective is to part your customers from their money as fast as possible for you and as fun as possible for them.

Take a look at already existing examples of excellent frictionless customer interaction examples: Amazon Web Shop (and 1-click payment), Mobile Ecosystems (Google Play or Apple App Store). These examples have almost completely turned the classical sales process on its head.

I'm eager to learn from you some other fascinating examples of brilliant processes that simply look at every aspect of enhancing customer interaction.

On The REAL Social Web

The social networks of today's internet (the Facebooks, Twitters, G+, LinkedIns - FTGL) have barely scratched the surface of our real-life social web, the one we weave everyday.

I believe that in real-life (IRL) social web has three fundamental components:

Roles
IRL - our society's tribes or communities have specific roles, statuses and identities.
FTGL - we know where our acquaintances work, their siblings, we may organize all of them by groups. That's a low-resolution (dyadic, triadic), individual perspective of our social framework.

Rules
IRL - our actions are guided by norms, laws, taboos, customs, shared paradigms.
FTGL - you may have community rules and Terms of Use, but they're not modelling social relationships. They're just there for the legal protection of FTGL.

Interactions
IRL - we give, we take, we negotiate, we barter.
FTGL - Sharing / tweeting / liking / +1'ing are just basic, lifeless, data points, modelling our attention span and browsing patterns for the monetization of the advertising industry. Again, a very low-resolution view on how we act in the social framework.

So what, you say? Entertainment has always been the first monetizable content of any new communication medium. Why should this be different? Well, because you can go much deeper on social modeling, in ways that are incredibly more relevant to our real-life environment - and much more monetizable.

Let's take - doing business. To me, this is the fundamental social behaviour of humanity. After all, business is one of those very few things you can't do alone - you need at least one other person to act as your customer :-) 

So, why is no one modelling the social process of doing business, in all its splendour? It is complex and painful - of course - business entities must be orchestrated internally as well as choreographed externally. But it's doable. The brain and the brawn are there. But there is no compelling vision.

You see BPM (Business Process Management) providers choking on competing methodologies, struggling with emerging standards, crowding the training curriculae, selling overblown tech stacks and expensive consulting timesheets... and then you realize how much of an opportunity has been missed by this industry.

There is a better way.

More to come :-)

The Process Shall Set You Free

“If you can’t describe what you are doing as a process, you don’t know what you’re doing.” 
– W. Edwards Deming

In emerging markets, having clear business processes in a company is seen, more often than not, as a sign that bureacracy and narrow-minded control freaks have kicked in and it's time to leave towards something more fun.

This is mainly due to several objective factors, economic and cultural:

1. emerging markets had cheap, relatively well trained, workforce. So whenever more work had to be done, it was easy to just tap into the cheap labour pool and call it a day. Back in the days, cheap was smart. It still is, in some cases.

2. emerging markets were tough to plan. They were highly volatile and anyway they were growing so fast that your elaborate business plan would have been left in the dust in a few months. I remember that, in one of my positions responsible for the whole Balkans region, we used to call our region "the CNN countries", because at that time there was always something in the international news about them: wars in Bosnia or Serbia, ethnic tensions in FYROM or Albania, an economic meltdown in Bulgaria, a political turmoil in Romania, an army standoff in Moldova. Good luck doing anything else than surviving.

3. the prevalent emerging market business model was: "start doing something, doesn't matter how because you are anyway one of the firsts, grow it fast and sell it to a multinational that wants a quick way into an unknown market without the trouble of setting up shop". There is no room for business processes in such a gold rush.

There are also lots of subjective factors that stem from the negative-bias management style (particularly specific to former Eastern Europe dictatorships), the social pressure to quickly perform and achieve a desired status (which leads to corruption) etc..

They all lead to the same conclusion: educating local businesses about the need for business processes is one tough nut to crack.

Nevertheless, in the following weeks, I'll be trying my teeth at this seemingly monstruous task, but not in the usual "consultant's way", preaching incessantly about optimization and automatization and standardization and return on investment.

Instead, I'll be giving out specific tips & tricks, from my own experience, at the same time putting them into the overall framework of "lean mentality".

Feel free to chip in with your own tips & tricks.... as of next week. :-)

More to come :-)