MONDAY, APRIL 21, 2014
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Methodology Hoshin Kanri Six Sigma Strategy: Understanding the Customer Process

Six Sigma Strategy: Understanding the Customer Process

Many companies which choose not to utilize Lean and Six Sigma as key components of how they implement change in their organization say it is because the methodologies are too complicated for their business environment. They claim that they do not have the time to build an infrastructure, train Black Belts and Green Belts and dive deep into statistical analysis. They say that such an effort is too burdensome and that it would slow them down in their fast-paced world of meeting customer demands.

Unfortunately, most of these companies are not actually meeting customer demands because they do not know their customers as well as they could. They need an organized approach to making change happen in order to enhance the customer experience and positively impact the company’s profitability.

The initial step in such an approach is to have a customer strategy. For many companies, the typical customer strategy, if it exists at all, takes the form of budgetary goals for sales, coupled with visionary mission statements about how they treat their customers better than the competition. Here are three ways that leaders of an organization can define and document their customer strategy regardless of whether they choose to utilize Lean and Six Sigma to execute the strategy:

1. Business Architecture

The purpose of developing a business architecture is to provide all members of a company a simple scheme for understanding how they relate to the various customers of the company. People working in traditional functional organizations often have difficulty in seeing how their work relates to other departments and, more importantly, how their work relates to customers. This can be especially true for centralized service units such as technology, operations and finance.

Business architecture is best understood graphically. The key tool for educating people about a company’s business architecture is a diagram which links customers, processes which touch customers, and support processes. The processes are not the same as the departments of the company.

How does a company know when it has a useful business architecture?

  • The architecture can be explained in a one-page picture.
  • The architecture ties departments together into processes which customers care about.
  • All departments can find themselves in the picture.
  • Each person can trace a line-of-sight from their work to a customer.
  • The architecture reflects more of how the company wants to relate to customers to achieve its strategic goals than how things are currently being done.

A common misconception is that business architecture dictates an organization chart. Companies may choose to re-organize themselves to align with their desired business architecture, but that is not crucial. Sometimes reorganization can even be a distraction from the important work of improving the experience for the customer. A business architecture describes how everyone is bound together to serve the people who provide revenue – the customers.

Once a high-level business architecture is agreed upon, many other kinds of work flow naturally. These can all come under the title of business architecture, if management chooses. Measures, both financial and non-financial, can be assigned and gathered. Compensation and incentives can be based on the measures and aligned with the processes. Customer research can be redirected. Products can be reviewed for their effectiveness in the processes that customers care most about. Technology projects can be redirected, accelerated or killed. Problem-solving programs can be refocused.

While the term “business architecture” can sound theoretical, companies that have a clear business architecture – captured in a simple diagram which all employees understand – can accelerate their progress toward their strategic goals. Business architecture forms a foundation for many management practices and programs including Lean and Six Sigma.

2. Hoshin Planning

Loosely translated, Hoshin means “compass.” It signifies setting direction and alignment of resources to long-range goals, and is a strategic planning process. Kanri means “management.” Kanri signifies managing to long-range goals. Together, Hoshin Kanri helps an organization set direction and manage for results. The Hoshin plan for a bank, for example, can be built in a synergistic and dynamic fashion along with the business architecture, with each deliverable being tied together along the way.

Hoshin planning is a process used to formulate and execute breakthrough strategy to achieve long-term customer, associate and shareholder goals. A Hoshin plan documents an organization’s strategy and 12-month performance plan. Here are key items to include with each process.

Deploying Objectives:

  • Set key metrics and measurement (at the executive level).
  • Choose a balance of financial, customer and operations metrics that drive strategic objectives.
  • Limit the number of key metrics – the idea is to focus everyone on the critical few.
  • Agree in advance on an operational definition for each of the key metrics.
  • Agree in advance on how the measures will be taken, aggregated and reported.
  • Set a stretch target for each of the key metrics
  • Assign a financial analyst (or more than one if organization is large) to validate all project reports, measurement plans and measurement methods.
  • Link all performance bonuses to financially validated progress on the metrics.
  • Review performance weekly.

Cascading the Objectives (Each Level Repeats This Process):

  • Identify the key processes at the highest level of the organization (Level 1).
  • Use “House of Quality”-type matrix to identify the correlation between each process and the key metrics.
  • Develop correlation metrics in advance (e.g., high = 6, medium = 4, low = 2).
  • Identify the key metrics at Level 2 that drive the Level 1 metrics.
  • Play “catch ball” with Level 1 on the feasibility of the stretch targets.
  • Agree on Level 2 targets for their key metrics.
  • Use the metrics methodology above to develop measurement plan for Level 2.
  • Repeat this cascading process for Level 3 and on through the organization.

Selecting Key Projects:

  • Make sure key projects tie to the Hoshin Plan.
  • Demonstrate how potential project results will drive one of more of the Level 1 key metrics. Use financial analyst to help with this.
  • Do not use “cost avoidance” as a legitimate reason to undertake a project. Projects should clearly demonstrate net income savings, productivity improvement or customer delight.
  • Using metrics methodology above, develop a measurement plan to be included in the project.
  • Hold executive-level project reviews at least monthly to go over progress toward targets.
  • Focus review presentation on the measurable progress. Make sure they are financially “blessed” before hand.
  • Audit performance to metrics for three quarters after project close to ensure repeatability.
  • Declare a win and move on.

3. Information, Process and Infrastructure Diagramming

An information, process and infrastructure (IPI) diagram takes the business architecture structure and Hoshin planning techniques to the next level by accurately depicting current and future environments. Creating these diagrams is a dynamic and iterative process. Basic DMAIC tools are used to obtain information and documentation, develop the drawings, and validate and revise these drawings to ensure they accurately depict the current environment and the vision.

An example of one of the building blocks of an IPI diagram is using a high-level process map such as a SIPOC diagram. A core principle of understanding a customer strategy is understanding how the customer aligns to customer touch points and internal processes supporting those touch points. Simply stated, a SIPOC diagram is the simplest process view of how a company goes about satisfying a customer requirement:

Supplier: Roles within the organization that support the customer experience
Input: The information used to execute the customer request
Process: The value-added steps to perform the work required
Output: The product, service or information sent to the customer
Customer: The fulfillment of the customer need

A SIPOC is a basic visualization of a customer process in an organization. Value stream maps are the next level of documenting a customer experience that help move toward the ultimate creation of the IPI diagram. By adding data to a SIPOC, an organization can determine “pain points” for the customer and discover which steps are value-added from a customer perspective and which ones do not add value.

Ultimately, the scope of the IPI diagrams will be determined by the organization’s management team as the best fit becomes clear during the build-out of the business architecture and Hoshin plans. The timeline and subsequent effort estimates to build an IPI diagram are based on the availability of documentation about the current processes. Usually three maps will be created: a current state map, a future state map and change initiatives that build toward the future state (transformation/transition).

Conclusion: A More Customer-Centric Organization

The business architecture, Hoshin planning and process diagramming are three legs that support a well-thought-out customer strategy. The customer strategy model is a step toward an operating strategy that is customer-centric – one that is aimed at enhancing the customer experience while maximizing growth and profitability. A customer-focused strategy will differentiate an organization from its competition and can be communicated at a level of detail that gives associates direction in how to do their jobs every day. It also is the starting point for implementing Lean and Six Sigma if that is the chosen execution model.

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