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01/03/2016

TPI (Transactional Process Improvement) is the implementation of breakthrough improvements in the most critical and knowledge-based processes in your organization by bringing traditional LEAN management techniques to the non-manufacturing departments.

Lean has missed the mark in many organizations that continue to operate with excess hidden wastes, costs, time delays, quality problems, and major customer issues. Despite the Lean and general continuous improvement investments of the past, organizations certainly deserve and can achieve significant value contribution in transactional process improvement.

Why should organizations be all over the topic of transactional process improvement? The benefits of transactional process improvement are enormous – larger than manufacturing – because it often involves fixing problems that are the root cause of manufacturing issues, fixing problems that the organization does not know about yet, or fixing problems that as standalone efforts can easily amount to millions of euros in new value contribution. Think about the cost of excess/obsolete inventory, returns and allowances, late time-to-market and/or malfunctioning new products, or ineffectual innovation just to name a few. Below is a quick list of transactional process improvement initiatives where our clients have achieved significant benefits:

  • Strategic Planning and Business Alignment
  • Customer and Market Research
  • Produkt and Market Strategy
  • Product Management and SKU Rationalization
  • New Product Development and Time-to-Market
  • Global Commercialization
  • Invoicing Errors
  • Request of Quotes
  • Customer Service and Repair Management
  • Global Sourcing and Outsourcing
  • Sales and Operations Planning
  • Supply Chain Execution and Control
  • Financial Adjustment and Close Reduction
  • Branding and Marketing
  • Inventory Reduction
  • Warranty, Returns and Allowances
  • Information Technology ROI
  • Strategic Maintenance Management
  • Real Estate Management
  • HR Talent Development
  • Leadership Effectiveness and Execution
  • Internal Communication
  • Supplier Development
  • Acquisition and Integration Processes

The remainder of this article sheds light on how to rethink and adapt Lean to these interconnected global networks of complex, professional knowledge-based transactional processes, and achieve renewed breakthroughs in operating performance. Expand toogles below by clicking the '+'-sign.

The first step to success is to understand and appreciate the nature of transactional processes. Manufacturing, in which many Lean and general process improvement techniques evolved, represents a declining percentage of the end-to-end economic and strategic process activities in organizations. Sure, manufacturing is still part of the value chain, but a very small component in terms of the fully loaded process costs of doing business globally. Not a criticism but a fact: the historical focus of Lean has been on manufacturing and tools. Most of the books and existing body of knowledge is focused on manufacturing and tools. Education has been focused on tools. Lean has been practiced as a generic recipe of tools for improving manufacturing. This mode of Lean has produced dramatic improvements in many manufacturing and assembly environments. However, many organizations find themselves in a diminishing returns mode with their allusive going through the motions Lean manufacturing programs that worked so well in the past. What happened? The competitive leverage of process has transcended away from physical content and more towards human, knowledge, and technology content. Transactional process improvement presents a whole new set of complexities and challenges that extend far beyond traditional Lean manufacturing thinking and practice.

Many organizations have morphed themselves from geographically and country-specific physical sites into a global network of complex, knowledge-based transactional processes. Success is highly dependent upon a paradigm shift to nimble and efficient strategy and opportunity alignment processes, supply chain processes, time-to-market processes, cash-to-cash processes, engineering processes, customer service processes, sales and marketing processes, and many other “people plus technology” processes in organizations. As the professional knowledge worker and technology content increases, the complexity of transactional processes increases, the degree of difficulty of improvement and change increases, and the usefulness of Lean manufacturing toolset thinking decreases.

By comparison, Lean manufacturing is simple. If you have worked in enough organizations, there are more similarities than differences in manufacturing across different industries. Lean manufacturing is based on a commoditized, straight forward set of standard practices and approaches to improvement. Transactional processes are much more complicated because of their interconnected, convoluted, and cross-enterprise nature, lack of standardization, unsighted activities, velocity, political interchanges, and of course the human element of originality, professional judgments, and workarounds in daily operations. So why has Lean failed to deliver in these strategic and mission-critical business processes? Here are a few major detractors to success:

  • Many uninitiated and well intentioned Lean practitioners view Lean as a standard toolset vs. an open mindset by their actions. Consequently, many of the Lean tools that produced success on the production floor were ported over to the human-dependent transactional processes with little (and often negative) results. “5Sing” the entire office (including bathrooms) or creating a pull system to replenish Jello® to a hospital floor or hanging up symbolic A3 storyboards in an engineering department might be interesting but it does not improve much of anything.
  • Transactional Lean initiatives cannot rely upon normal senses to identify issues and new opportunities for improvement that is possible on the production floor. Transactional process opportunities are hidden in the human and information architectures of organizations. One cannot see an IT transaction or a human bottleneck, hear a bad decision or sniff end-of-month G/L adjustments. The process of readily defining and measuring defects and root causes is highly complex . . . and often put off. In the absence of hard data and facts, transactional processes are managed via opinions, perceptions, cursory explanations, and political deflections that lead to quick symptomatic responses;
  • Lean practitioners have relied on a fixed set of Lean tools in the transactional process space. For example, many organizations have spent months conducting blind value stream mapping exercises of the entire company with no purpose or specific problem in mind. The hard truth is that these naive efforts often lead to a dead end of “now what do we do,” and does not serve much use other than a non-actionable, out-of-date reference covering a conference room wall.
  • There is a fact about transactional processes that is proven time and time again due to the human factor. There are (at least) three versions of every transactional process: how it was designed to work, how it has been documented to work, and all the variations of how it actually works in practice. Consensus on which version is correct does not exist; all versions may be incorrect, and each is open to scrutiny and improvement. Failure to flush this out through the right business process expertise and data and transaction-driven analytics results in the failure of improvement.
  • In some situations it is a leadership introduction and commitment issue of allowing Lean into the professional and knowledge worker domain, but preventing practitioners from tackling the things that matter the most to the business. In this world of egos and perceived power, functional authorities, and political imagery, improvement can be viewed as a challenge on professional judgment or negative reflection on performance. Many engrossed executives, managers, and highly skilled professionals are allowed to skirt Lean altogether and become conveniently exempt from improvement.

Transactional process improvement requires a much deeper view of Lean thinking, approach, analysis, information, and measurement systems.  It requires a broader blend of improvement thinking, methodologies, and technologies.  In the absence of a proactive, well planned and executed transactional improvement effort, organizations cannot manage and prevent problems.  Instead, they are forced into a mode of detecting and reacting to problems after the fact – and that is too late.  This is not acceptable, and organizations should not have to put up with these wastes because they are assignable and correctable.  It requires putting the Lean keys down for a minute and rethinking the journey with the right competencies, resources, and approach.

One thing is for certain: the philosophy and mindset of Lean are directly applicable to complex transactional processes, but the planning and execution is very different. Adapting Lean to the complex realities of transactional processes is not straightforward. Success involves putting away the traditional bag of Lean tools and learning about cognitive thinking:

  • First of all it requires improvement resources that have a deep understanding of strategic improvement in general, and how to adapt Lean thinking to extremely non-conventional and highly complex processes and environments. Transactional process improvement requires more complex analysis, creative and non-linear problem solving, business analytics, technology, and a higher reliance on the “soft” improvement skills. Simply overlaying the commoditized Lean tools and approaches that worked well in manufacturing is dead wrong and doomed to failure.
  • Second, improvement resources must have a deep understanding through direct experiences and thorough analysis about the organization’s key business processes and the specific knowledge-based technology architecture (e.g., ERP, BOMs, financial systems and G/L, inventory management and accountability, receiving, sales systems and account management, HR systems, cost accounting, warranty and returns, invoicing and collections, order fulfillment, regulatory management, patient admitting and scheduling, and other system architecture applications). The seasoned Lean transactional expert has deep business process knowledge and is able to provide both subject matter and Lean expertise. They can mentor and ask the right questions, help teams to understand the process interrelationship and dependencies, and guide teams through the enterprise network of transactional processes. The right cross-functional team with the right composition and transactional skill sets is also a mandate for success.
  • Third, this approach to Lean requires creativity and innovation. The objectives may be the same (e.g., eliminate wastes, improve process quality, align to customer requirements, velocity, asset and human capital optimization, etc.) but the execution is typically created to achieve a specific purpose. There are no Lean tools that readily solve invoicing errors or inventory variances or overwhelmed engineering resources or an embroiled S&OP process or failed design verifications. Transactional processes require experimental recreations, replications, and simulations of problems using the combined knowledge, wisdom, experiences, and data of highly competent professionals that live the process every day. Tracking down and eliminating the root causes of waste is often analogous to an accident or crime scene investigation.
  • Fourth, transactional process improvement requires measurement system analysis (MSA) and other simple analytics in parallel with process analysis. Many issues in transactional processes can be directly pegged to the mechanics of how performance is measured – and not measured . . . so the real detractors remain buried. Additionally, one needs only to fix the critical few root causes (vs. the trivial many) to create a transactional breakthrough.

These are the primary factors that explain why organizations have not achieved the benefits that they deserve:  they have used a Lean manufacturing toolset approach.  Fact is, all of these “people plus technology” transactional processes are interconnected and interdependent professional processes.  Silo-based improvements will actually create more wastes and inefficiencies in the business.  The right cross-functional improvements will produce both direct and residual benefits throughout the business.  Transactional processes are much more dynamic and subject to change than a machine on the production floor because they are directly linked to customers and suppliers, where the highest leverage for improvement exists.  They require true continuous monitoring and improvement to keep the waste from returning.

Complex transactional processes include unpredictability, professional judgments vs. hard data, a high degree of informal activities underlying a formal process, and fuzzy cause-and-effects in space and time. The seasoned improvement expert uses the organization’s integrated enterprise architecture and other applications to trace and defrag the transaction trail like a forensic detective reconstructing and processing a crime scene to identify wastes and root causes. In practice, the differences between root causes and outcomes is often fuzzy, and the challenge becomes one of identifying and isolating the right pain point segments of these transactional processes with real facts. Success requires a deep understanding of both improvement and key business processes.

A fact about professional knowledge-based transactional processes is that the major detractors of performance are assignable and correctable with the right facts and the right Lean improvement-enabling actions. Technology investment and/or existing technology effectiveness is often a critical enabler of this success. Since most of these transactional processes have not been analyzed and defragged to this extent in the past, the results are usually breakthroughs in operating performance.

Transactional forensics is a very appropriate name for this approach to Lean and transactional process improvement. It involves setting up deliberate but simple process experiments for transactional stream mapping and classification to either discover the deep root causes and magnitudes of problems, and/or to verify that problems have been eliminated through the right data-driven improvements and corrective actions. In most cases, what was perceived to be the problem is not the problem at all; it is something different, often multiple interdependent, interactive root cause and effect issues buried in the complex transactional network. Solving this puzzle is what creates the breakthrough magnitude of improvements in organizations.

Technology-enabled improvement plays a key role in this next generation of Lean improvement. Technology is enabling this warp speed transformation of organizations into global, multilevel networks of transactional enterprises. Transactional improvement is transparent and comprised of key business processes, information flows, knowledge-based employees, and complex, contradictory decisions. There are literally hundreds of professional and knowledge resources managing thousands of dynamic process touch points, a continuous churn in changing requirements, specific country needs, time constraints, communications issues and exponentially greater opportunities for waste, variation, human risk, and bad decisions.

One criticism of Lean has been its attempt to replace technology with oversimplified mechanical practices (e.g., visual management boards, kanban cards, magnetic scheduling, etc.). It has also been too common to pass the blame onto IT for serious transactional process deficiencies. The features and functionality in SAP, Microsoft Dynamics NAV/AX/GP and other information architectures is both compatible and enabling with Lean in the form of basic planning and control systems, electronic kanbans, business analytics, real time digital dashboards, supplier-managed inventory, and many other features. In our experiences, the majority of supposed software issues are really user process deficiencies that require improvement.

A major consideration of technology-enabled improvement that must not ever be overlooked is that successful integration is a function of the improvement practitioner and the user community in the form of human intelligence. The process of improvement still relies on human intelligence to define and segment the right root cause information, analyze data with the right methodologies and tools, draw the right, data-driven conclusions, take the right fact-based actions (improvement + evolving technology), and close the loop with the right performance metrics. The competitive leverage of organizations is becoming more dependent on their effective and efficient integration of processes and technology infrastructures than on the production floor.

As we mentioned in the first sentence, If you have a Lean initiative in place, chances are that your organization is missing the mark on the total opportunities of transactional process improvement. If you are one of the success stories, then congratulations! If your organization is in the majority segment of underperforming in the Lean transactional improvement space, it’s time to expand Lean horizons and go for the enormous opportunities for improvement and competitiveness. Denial, postponement, or saying, “We’re already doing Lean” is not a strategy.

ADAPT LEAN AND WIN BIG

A final reality check: transactional process improvement represents millions of euros in new value contribution for many organizations. Think about the total waste and lost human potential throughout the entire enterprise due to inefficient and ineffective key business processes. Think about the short term P&L impact and the longer term competitiveness of:

  • Reducing returns and allowances by €20M;
  • Improving speed-to-market and revenue from new products by 80%;
  • Adding 2-3 gross margin points to the P&L through less planned financial reserves and write-downs;
  • Reducing supply chain time, complexity, and costs by €28M;
  • Achieving hundreds of millions of revenue growth, cost reduction, profitability, and competitive market position that are directly attributable to developing new products on time, on budget, without post release quality, reliability, or performance issues;
  • Reducing the financial close and all related G/L clerical adjustments by 75%;
  • Realizing a faster, positive, and validated financial ROI on IT investments;
  • Reducing engineering changes and the associated hidden costs by 50%;;
  • Reducing international travel expenses to put out fires by €3M;
  • Improving advertising and promotion effectiveness by 100%;
  • Reducing operating supplies and facility costs by €7M.

These are actual transactional process improvements achieved in organizations. The improvements above were challenging: they required unwavering leadership, creative thinking, non-linear problem solving, and ingenuity in the specific methodologies of improvement. The same opportunities most likely reside in your organizations, hidden and waiting to be harvested.