lean 4 - stern stewart & co. · pdf filelean 4.0 ensuring sustainable functional...

LEAN 4.0ENSURING SUSTAINABLE FUNCTIONAL EXCELLENCE

LEAN 4.0ENSURING SUSTAINABLE FUNCTIONAL EXCELLENCE

Management Summary

Stern Stewart Research // Volume 60

Konstantin Wrona, Thomas Berner

A glance at today’s management agenda shows a clear picture: In many companies, the role, character

and orientation of administrative and interdisciplinary functions are being redefined under the catch-

word “lean”. Basically, “lean” is about setting up cross-divisional functions such as HR, Legal,

Communication and IT to be more flexible and independent of the divisional or regional business struc-

ture, thus sustainably improving their quality and efficiency by means of clearly defined management

responsibilities.

The starting point for the optimization is clearly defining the functional tasks based on their fundamental

character along four distinct groups (refer to Stern Stewart Research, Vol. 55): supervisory, expertise-

driven, transactional-driven and business-specific tasks. Only truly business-specific – not necessarily

all business-related – tasks remain embedded in the organizational business structure. This is based on

the hypothesis that it is easier to achieve functional excellence with unified management while at the

same time being close to the business via business-partner models than vice versa. If has frequently

proven inadequate to accumulate own functional resources in each business accompanied by futile

standardization attempts via policies and guidelines.

The clear separation of functional tasks forms the basis for a systematic advancement of the operating

model in the administrative and cross-divisional functions. Lean 4.0 is characterized by six main

features:

1. Strong functional and disciplinary leadership: Only allocate true supervisory tasks (govern-ance) to the actual steering level (global or local) on a “one-time right” basis 2. A more pro-nounced end-to-end view within the function: Further develop fragmented activity split through bundling within the function – aiming for a true process model 3. Customer-oriented business partner organization: Ensure business proximinty in an increasingly bundled functional structure, by the means of clear roles and competencies 4. Strong delivery organization: Realize cross-functional optimization potential without diluting the functional governance (again) 5. Differentiated role of the regional organization: Increased localization in the go-to-market; enhanced bundling within the support functions 6. Knowledge transfers from the production world: Transfer of proven lean techniques to administrative processes, and systematic utilization of lean levers (e.g. continuous product/process elimination or Six Sigma)

STERN STEWART RESE ARCH # 60 // L E A N 4 . 0 – E N S U R I N G S U S T A I N A B L E F U N C T I O N A L E X C E L L E N C E

© 2 0 1 4 // A L L R I G H T S R E S E R V E D F O R S T E R N S T E W A R T & C O . 3

1. Functional and disciplinary leadership and the question of the truly required functional governance

The degree and scope of governance and supervisory tasks varies depending on the type of function.

In this context it is important to differentiate between minimum standards (“must do” governance)

and the individual company’s governance appetite (“can do” governance). It then has to be deter-

mined, across the functions, which degree of governance is actually needed, and how much the

company is willing to afford. In this way, it can be avoided that an undesirably high dregree of govern-

ance requirements is placed on the organization.

Experience tells us that some supervisory tasks are not necessarily best located at the group head

office. Governance can be divided into different levels within the function (e.g. head office, interme-

diate holding, division or local unit). It is of decisive importance,where the supervisory task can be

taken care of most effectively and efficiently. The following organizational principles have proven to

be effective in practice:

“One-time right”Instead of splitting up decisions between various different levels, causing redundancies and a lack of

clarity with regard to responsibilities, the decisions are made once and only once, and that one-time right.

“Top level”Supervisory responsibilities are taken care of at the highest possible level. This also applies to

business-specific governance.

“Balance”The group head office has to strike a balance between control and risk when decentralizing govern-

ance tasks to the local units, or eliminating governance requirements.

In some cases, these principles can even lead to intermediate levels, such as regional holdings,

becoming obsolete in their governance role.

4 © 2 0 1 4 // A L L R I G H T S R E S E R V E D F O R S T E R N S T E W A R T & C O .


EXAMPLE OF FUNCTIONAL GOVERNANCE REQUIREMENTS

2. A more pronounced end-to-end view within the function

We are entirely convinced that the (governance) dimension of the function has to be noticeably

strengthened – compared to the common practice – in order to improve control. For some functions,

(e.g. IT, HR and Procurement, and to some degree also in Controlling, Quality and Sales) this means

that relevant activities and processes have to be based within the direct responsibility of the functions’

management, since this enables a holistic functional optimization. As a result, cross-divisional func-

tions can then be positioned more independently and flexibly in relation to the business or regional

units. At the same time, the opterational business receives the freedom to concentrate entirely on the

ongoing business activities.

Additionalbundling within support functions automatically leads to more end-to-end responsibility for

the work content and processes within the function, and hence also to increased functional and discip-

linary leadership. Traditionally, predominantly transactional activities are bundled and thus placed

The size of the circles represents the absolute amount of the governance within the function

Internal Controls

M AINLY GLOBA L GLOBA L / LOCA L M AINLY LOCA L

LEV

EL O

F FU

NC

TIO

NA

L G

OV

ERN

AN

CE

S C O P E O F G O V E R N A N C E

Share of governance in the overall function

Procurement

Optimizat ion

Optimizat ion

Compliance

Communication

Taxes

HRAccountingIT

...

Share of “must have” governance:

large medium small


under more function-based management. In practice, however, know-how-based tasks are increas-

ingly also being grouped within centers of expertise (CoE), which provides further potential for com-

pany-wide optimization and a reduction of functional costs. Where the degree of bundling has already

reached a high level (e.g. more than 80%), the question is then inevitable of whether the remainder of

the tasks and/or resources shouldn’t also be grouped within the function. The objective is to put an end

to the “game of ping pong” that so often takes place between parts of the process and activities, and

to transfer them into clearly defined end-to-end fields of responsibility.

In some fields it can also make sense to establish a field of responsibility that is both cross-functional

and end-to-end. In particular processes like “Purchase to Pay” – where Procurement, Accounting,

Supply Chain and sometimes IT are affected – are obvious choices for cross-functional optimization.

There are three evolution phases for establishing and anchoring a cross-functional and end-to-end

scope of responsibility.

Phase 1: Nominate an end-to-end sponsor for each processThe sponsor assumes the task of proposing process and organizational improvements and preparing

these for implementation. The sponsor’s role here is not institutionalized: No committee or board is

installed, instead additional responsibility for this role is assumed within the existing organization.

Phase 2: Cross-functional responsibility within the organization A separate organization is created that takes care of the cross-functional optimization. In addition to

having the right to make proposals and analyze, this organization is also authorized to implement meas-

ures in the company’s interest. Hence, this unit has “teeth”.

Phase 3: True adjustment of the organization The most effective way of strengthening end-to-end processes is by structuring them in an organization

that reflects the end-to-end processes. This structure offers the greatest potential for improving in

the sense of a “lean factory”, but it often initially requires a high level of functional maturity.

Methods like the “activity split” can help when developing an optimized target process model.

The goal of the activity split is to gain transparency across all activities within the function, to identify

further efficiency potentials and to realize thosesustainably.

Subsequently, the target fields of responsibility for each individual activity are distributed, for example

using a RACI logic (Responsible, Accountable, Consulted, Informed), and the resources required for

each of them are allocated and optimized over time.



3. Customer-oriented business partner organization

Both the bundling of tasks and resources as well as their enhanced functional governanceenable the

realization of synergies and additional functional optimizations. Only at a first glance, the operational

business, such as business units, divisions, country organizations and regions, lose influence on,

access to and responsibility for overarching functions. However, even after the functional bundling

outside of the operational business, the functions want to and should remain in close proximity to the

actual business, so they can render business-specific services.

In order to retain this proximity of the functions to the business, “business partners” or “customer

points of contact” are established for them. The business partner is to be considered as a role here,

and not as a position within the organizational structure. The prerequisites for a successful business

partner system are:

Business partners belong to the function, both in terms of disciplinary authority and the

specialist field – entirely in the spirit of a clear functional and disciplinary leadership – and

they report to the people responsible for the function.

However, the business partner is located – also often in the literal, spatial sense – right at

the operational business or at the venue, in order to ensure that the functional requirements

TARGET ACTIVITY SPLIT FOR CORPORATE COMMUNICATION BASED ON THE “MAGAZINES” CORE PROCESS

CoE

100FTE: 10 10 25 10 5 10 30

Governance CoE Business CoE CoE SSC SSC SSC

Staff communication

Topic definition

Research Content input

Content generation

Editing Layout Production Distribution

Region Global Global Country Country Meta-regionRegion Meta-region

Business organization fulfillsprocess step within the process chain – no allocation of FTEs required

Demands of the business and country organizations

Interface to segment, business unit and local management where the business/country organizations are responsible for the interaction with the functional process

Region

SSC = Shared Service CenterCoE = Center of ExpertiseFTE = Full-time equivalentMeta-region = Group of regions



are met and to support the operational management in its global responsibility. In selected

functions (e.g. HR, Legal, Finance), the business partner should also remain part of the local

management team.

Business partners must have operational expertise and credibility in order to be able to

understand the interests of the business. They also need profound functional know-how and

a relationship of trust with the management.

Candidates are nominated in collaboration with the respective business and functional

management. The objectives and hence the remuneration of business partners are closely

linked to those of the business, if not to some degree entirely identical.

The business partner’s organizational unit is to be dimensioned individually in terms of its

function. This size can range from a single partial-role through to a distinct organization with

multiple resources.

The business partner is the central point of contact for the business in all function-related matters.

He also clarifies the business specific demands on content, quality and timing together with the

business. He forwards functional issues to the correpsonding resources within the function (e.g. to

the COE – center of expertise – or SSC – shared service center), ensures that all the business-specific

requirements are met and acts as the first escalation stage in the case of operational issues.

From experience, the specific role of the business partner demands new competencies that are not

always already in existence within the function. These include, for example, the ability to position

oneself as a partner or service provider to the business. Because the role and its competencies vary

depending on the function, they have to be clearly defined.

For instance, the operational business can continue to exercise influence on the function’s direction,

via service or steering boards that can be set up. The decisive KPIs can be determined and tracked

through this channel between the business and the function.



4. Strong delivery organization

Each function first defines the optimum delivery organization for itself, i.e. the organization of the

service delivery and its performance for each know-how or transactional activity. This structure

depends both on customer needs and the size and type of the functional unit. There are two basic

philosophies in the delivery organization:

“Function first”Here, the focus lies on finding the best end-to-end structure within each function. Resources respon-

sible for the process design or process execution are managed autonomously from other functions.

Resources from other functional units can, however, be based at the same location in order to achieve

economies of scale.

“Optimize global execution” In particular with transactional activities, the focus is on cross-functional optimization. In this case,

resources that are responsible for the process design report to the function because of the function-

Function Supply defines the

„how“

BUDGET & PERFORMANCE REVIEW

2 TO 5 PEOPLE RESPONSIBLE FOR BUSINESS:DEFINE VOLUME AND QUALITY

HEAD OF OPERATIONS:BUDGET PROPOSAL

FUNCTIONAL HEAD:FUNCTIONAL RESPONSIBILITY

EXAMPLE: BUDGETING AND PERFORMANCE REVIEW BETWEEN BUSINESS AND FUNCTION

Business partner

Customer feedback

Service

Customer feedback: Subjective performance evaluation,

satisfaction level of the business, feedback interviews

BusinessDemand defines the

„what“

Demand

Smart KPIs

Smart KPIs: Objective performance evaluation, developed and calculated by

Business & Function on the basis of specific hard facts.



A D VA N TA G E S O F T H E C R O S S - F U N C T I O N A L D E L I V E R Y O R G A N I Z AT I O N

Measures for job rotation and job extensions

Management of fluctuation

of service demand

Using general infrastructure(plant, leadership, team, HR, training)

Cross-functional end-to-end optimization

Cross-functional continuous

improvement

Cross-functional service management

(SLAs, metrics, reporting)

Leveraging the technical platform

(ERPs, workflows, imaging, CM)

specific character. Resources involved in the execution of the process may also report directly to a

“delivery center”. This results in synergy potential, e.g. regardinginfrastructure or through cross-

functional process execution. Experience has shown, however, that an exchange of resources that

take care of the tasks for several functions only makes sense for a very small number of selected

activities (e.g. rotation of account paypable management within Accounting,master data mainte-

nance within Procurement). The more know-how-based parts are integrated into one delivery center,

however, the greater the risk of functional dilution.

T Y P I C A L E V O L U T I O N S TA G E S

Consultant model with advisory role

No final decision-making rights – these remain with the function

“Advisory role“ and preparation of decisions for cross-functional optimization

Delivery organization with advisory role

Strongest form of delivery organization

Defined decision-making rights

Receives reports directly from the resources responsible for the execution

No explicit delivery organization

Weakest form of delivery organization

No explicit responsibility for function-specific optimization


1 0 © 2 0 1 4 // A L L R I G H T S R E S E R V E D F O R S T E R N S T E W A R T & C O .

L O C A L F O O T P R I N TB U S I N E S S

G L O B A L F O O T P R I N T A D M I N I S T R AT I V E F U N C T I O N S

Footprint follows cost optimization, functional requirements and demand

Delivery organization can follow business fields if beneficial

Delivery center (regional center) with legal hosting by country organization

Go-to-market approach determines regional footprint

Region as „first vendor“ with key account management for top customers in the region of the country

Support of market penetration, market presence and lobbying with decision-makers

THE DECISION ON THE FOOTPRINT OF THE ADMINISTRATIVE FUNCTIONS IS INDEPEND-ENT OF THE REGIONAL BUSINESS ORGANISATION.

5. Differentiated role of the regional organization

We have a clear concept in mind forthe dimension of the country and regional organizations and their

roles: There is no comprehensive third matrix layer in addition to the functions and the operational

business (e.g. divisions, business units). Experience shows that support functions do not generate

noticeable added value at the intermediate level of the region.

The function does have regional and local satellites and characteristics, but no own organizational

unit is required for this either. The management is performed globally from within the function, while

the required local know-how for e.g. the functions Legal, Tax or Accounting, can be provided locally.

As a result, the country organizations focus more on supporting the business. They are responsible

both for creating demand and for increasing the market penetration within the strategic framework

prescribed by the business. The person responsible for the country is given tasks relating to the local

market development. This makes him the “first vendor” and responsible for representing the inter-

ests within his own country. Alternatively, this task can be set up at the regional level if there are

advantages of bundling across national boundaries.

For the functions, the country is essentially a legal shell. This applies in particular to the global

internal service functions – i.e. the shared service centers and centers of expertise and their regional

satellites. Here, the country also acts as a supplier of infrastructure (e.g. rooms, IT) and as the legal

“host”. The person in charge in the country has neither disciplinary nor specialist authority; these lie

exclusively with the heads of the shared service centers and centers of expertise (see also delivery

organization).

C

lear

differentiation


© 2 0 1 4 // A L L R I G H T S R E S E R V E D F O R S T E R N S T E W A R T & C O . 1 1

6. Knowledge transfers from the production world

Optimization efforts within the administrative functions can and should not be a one-off. Project expe-

rience has shown that improvements and savings can only be sustainable if they are regularly

reviewed and the processes documented. In particular in the area of production, but also in the trans-

actional process areas, lean methods for continuous improvement have become firmly established

over time. When optimizing administrative and support functions, we also recommend applying and

anchoring lean techniques in order to systematically leverage lean potential. Some examples of such

lean techniques are:

Creating performance transparency that makes the contribution of administrative tasks

to customer benefits measurable and that enables the set up of clearly defined improve-

ment goals

A leadership approach that applies the transparency gained in a responsible way, to stimulate

continuous improvement

An infrastructure that empowers staff members company wide to continuously recognize

improvement potential and that provides the methods and tools required to do so

A fast-track platform for quickly realizing the recognized improvements

Of decisive importance is that sustainable lean management begins with a clearly communicated

vision – also in the field of administrative functions. These fundamental values must reflect the

expectations of the management, and the management must openly back them. As we see it, an

infrastructure has to be set up that enables the management to carry lean management methods into

The restructuring of the country and regional organization also has a positive effect on the leadership

complexity and structure costs: the country organizations can also offer smaller companies a legal

shell, in order to further reduce the number of legal units within the company group.


1 2 © 2 0 1 4 // A L L R I G H T S R E S E R V E D F O R S T E R N S T E W A R T & C O .

C O N T I N U O U S I M P R O V E M E N T D E P A R T M E N T

M G M T. B O A R D

F U N C T I O N S

M A N AGE ME N T B OA RDWe assure management presence and visibility at any time.

We provide a go-to-organization as platform where people can address their ideas for improvement, also as assistance for our middle management to make things happen.

HUM A N RE SOURCE SWe believe that with the right people and the right attitude we can make this work.

We ensure that our best qualified people act as experts and change facilitators within the functions.

MIDDL E M A N AGE ME N TWe have full backing including resources to promote the continuous improvement across the organization.

We involve all stakeholders, address concerns and proactively drive solutions forward.

P ROCE S S O W NE RWe take the chance to apply what we have learned and hopefully to develop it into something much greater. Let‘s do it!

C H A N G E F A C I L I TAT O RWe appreciate input, to give substance to ideas in collaboration with the people responsible for the processes.

We, as change facilitators look forward to your input giving us the chance to substantiate ideas with the process owner.

E X P E R T SWe are trainers and coaches and make methods and tools available for continued improvement.

We promote the cross-functional application of best practices.

Finance HR …IT COM Legal Operat.

M I D D L E M A N A G E M E N T

ANCHORING A LEAN ORGANIZATION

the “functional factories” and to bring ideas for improvement to the surface quickly, so they can be

realized. It also has to be ensured that sustainable improvements are transparent and measurable, that

efforts are rewarded and that the investment in lean management does not remain a “one-hit wonder”.


C H A N G E F A C I L I TAT O RWe listen to you to get your insights on how to best improve your functional work with a customer perspective.

© 2 0 1 4 // A L L R I G H T S R E S E R V E D F O R S T E R N S T E W A R T & C O . 1 3

Conclusion: Long live the function!

Businesses are today often structured following the guiding principle of the “global entrepreneur”.

The same applies increasingly to functions: better networking and new technologies today make

a more global orientation possible and necessary, and will continue to do so in the future.

Applied strictly, Lean 4.0 represents an opportunity to significantly reduce structure costs, to improve

the quality of the functional service delivery and to increase flexibility in making changes to the

company structure. And of course, this leads to a redistribution of roles throughout the organization:

The company concentrates on the business – using highly developed service functions – while the

regional organizations ensure the local connection for business development. The advantages of the

matrix are exploited, but the points of interaction and interfaces are optimized to what is truly

necessary. In this context, the new approaches to optimization apply not only to the typical “support

functions”, they can also be translated to “operational functions” such as Sales, Quality, R&D and

Health and Safety in many fields.

The authors

Konstantin Wrona, Partner, [email protected]

Thomas Berner, Partner, [email protected]

Stern Stewart & Co.

Stern Stewart & Co. is an independent strategy consulting boutique. Our advisory

focus is on the core issues of management. These include strategy, corporate

finance, organization and performance management. We see company managers

as strategic investors in the business, and support them to increase the value of

their company.


Stern Stewart & Co.

MunichSalvatorplatz 4D-80333 MünchenT +49.89.242071.0F +49.89.242071.11

DubaiEmirates Towers, L 41Sheikh Zayed RoadPO Box 31303, DubaiUnited Arab EmiratesT +971.4.319.9963F +971.4.319.9964

London2nd Floor, Berkeley Square HouseBerkeley Square London W1J 6BDUnited KingdomT +44.20.7887.6265F +44.20.7887.6001

New York1330 Avenue of the Americas 23rd FloorNew York City NY 10019United StatesT +1.212.653.0636F +1.212.653.0635

ShanghaiOffice 1206, 12/F Shui On Plaza333 Huai Hai Zhong RoadLu Wan DistrictShanghai 200021P. R. ChinaT +86.21.5116.0564F +86.21.5116.0555

I www.sternstewart.comE [email protected]

lean 4 - stern stewart & co. · pdf filelean 4.0 ensuring sustainable functional...

Documents