Sustainable success through consequent customer orientation

Controller Congress of the Baltic States

October, 21st, 2011

Definition of a Business Process

A business process is a series of definable, predictable, and repeatable

activities, which produces a certain output to a defined customer.

All processes are by definition customer oriented.

But in a functional organization this is not always obvious.

CustomerCustomer

Customer

What is a business process?

Different levels of processes

Decision

Activity 2

Activity 3

Defined trigger with quality

hurles

Clear and processable activities(process monitoring, workflow management)

Clear target with planned output

Activity 1

OutputInput

Customer requirements

fulfilled

Customer requirements exist and are analyzed

Customerlevel

Managementlevel

Performancelevel

Customer requirements are known to all all persons involved in the process , link to certain

activities is transparent

I (Input) P (Performance) O (Output)

Activity 4

Activity 5

Parallel „flow“ of

Products, Material, Information, Documents,…

Target orientiation

Steering

Definition of Flexibility and Efficiency

Definition of Flexibility of a business process:

The ability to adjust the CostContent (steps to produce the expected output)Quantity

to changed environmental conditions and/or customer expectations.

Definition of efficiency / cost-effectiveness of a business process:

Input = Resources costs

Output Value / turnover

Efficiency = Output

Input

To calculate the efficiency, we need to have the same unit, e.g. € or hours

The basic idea

Are we flexible or efficient / cost-effective? Why can‘t we be both?

The more efficiency a company wants to achieve, the more cost reduction they need. At the lowest cost and at given market prices, they earn most money.

fixed costs

€

x

variable costs

sales

break-even

What happens to the Flexibility?

To reduce costs to a minimum, all business processes which are not necessary, have to be eliminated. customer specific solutions are not possible,customer service is mostly reduced, manufacturing processes allow no specialities, production and warehousing are designed to a stable sales quantity, there is no personnell for internal projects, etc.

cost

quality time

Conclusion: We have to decide what degree of effectiveness we need to be competitve enough and what degree of flexibility we need to be able to react adequately to fluctuations in market volume, product requirements, etc.

Wider market requires more effort, but makes the company more robust

- low quantity per product

- high effort for tool changing,etc.

- many customer specific solutions

- sales activities widely spread

- All market orientied services designed for all eventualties

• Slower processes (e.g. product development)

• More expensive processes, infrastructure and overhead

+

-

• Robust business, more crisis resistant

• More flexible at changed customer requirements and quantity

• Cost-effective processes (mainly production)

• Less infrastructure required

• Sensitive to volume changes

• Lower margins

• Less flexibility to changed market requirements

Many specialities for all kinds of usage one product for main market

- high quantity per product

- Specialized, lean processes

- almost no customer specific solutions

- high volume sales

Practical Example

After the reunification of Germany I used to work for the governmental authority, which had to privatize the former government-owned companies in eastern Germany

We had a dozen of steel manufacturing companies to be restructured. They all had bad cost structures because of their very flexible and individual order processing.

All companies cut off their specialities of small volume but at high costs (C-products) and concentrated on a narrow product portfolio, which then could be produced very effectively. Of course, the targeted customers changed. Only the „main stream“ customers remained.

All, except one. One of the companies collected all the low-volume products which were not delivered anymore by the other companies and offered only these specialities. They changed their customer portfolio away from the mainstream towards customers with special requests. And of course, the customers knew that they have to pay extra prices.

In the end, this specialized company was very successful. But some of the other companies with the specialized main stream products were successful, too.

Conclusion: The decision whether to be flexible or effective depends on the positioning in the market.

Positioning

Outsourcing

Adjustment/Networking

Adjustment/Networking

Strategic Positioning:Definition of own company role and selection of partners and markets

Suppliers CustomersOwn Company

Price Leader Technology Leader

Diffuse market costs time and money

Target market

Target market

- More product development projects fail in the market

- More sales effort, lower order entry rate

- Production not optimized

- Higher stock quantity, more obsolete stock

- Different processes „just in case …“

Lower margins, lower result Higher risks at changing markets

- Clear customer requirements can be met exactly

- Lean processes with clear customer orientation

- Direct feedback in case of changed requirements

Higher margins and result Faster, exacter reactions

You need to know who your customer is and what the requirements are

Conclusion: Customer orientation makes a company more flexible and more effective

Effectiveness and Flexibility through customer orientation

Also customer specific processes can be Standardized (to be predictable) Defined (steps, responsibility, standard documents and IT-systems, etc.) Practiced and continuously improved (several times repeated)

After that, processes can still be flexible, but are more effective than before. In this way, processes can be flexible and effective at the same time

Customer orientation in charging

external customer

Special effort needs to be extra charged customer / process specific cost calculationIf customer is not willing to pay the cost-covering price, processes have to be streamlined or eliminated process optimization

Methods of process optimization

reduce activites

Reduce interfaces

No loops

Parallel instead ofsequential

Efficiency of individual activities[in min.]

Eliminate bottle-necks

Clear overall responsibility

Direct feedback on each activity

3 2 4

312,5

?

Methods of process optimization, e.g.:

+ process insourcing and outsourcing, etc.

Cost-reduction in processes enhances efficiency

Value creating

Neutral

Unplanned neutral

Value Reducing

The total cost of business processes can consist of:

Statement: The more customer oriented the business processes are, the lower are the total costs (at given flexibility)

e.g. re-work, unnecessary movements

e.g. waiting times

e.g. internal transports

e.g. design, assembling

Wrap-up

Every process activity costs money; the less activity for a certain output, the higher the cost-effectiveness (Output : Input)

The more spread the market out is, the more robust is the company against environmental changes (but more expensive and slower)

Whether a company needs slim / lean or more complex processes depends on the strategic positioning in the market (technology leader or price leader)

The better a company knows their customers and the customer requirements, the more focused can the processes be ( more cost effective and more flexible)

Different processes for different customers need to be accounted and charged correctly (otherwise we lose market)

If process costs are too high to be competitive, process optimization with customer focus can help (or elimination of processes)

Customer orientation is key to achieve as well flexibility and cost-effectiveness

Short film on process management (8 mins)

Thank you for your attention!

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