December 23, 2011
As facilitator of strategy development and execution for almost 20 years, I am reminded of the importance of business processes in the effective execution of business strategy in every single client engagement. There is some logic to my thinking that I provide in this article – a gift to all followers for this Holiday Season!
Michael Porter’s classic Harvard Business Review article from 1996 – What is Strategy – provides a definition of strategy that includes business processes as critical to competitive advantage. I believe leading organizations fully realize this, while lagging organizations are just coming to this realization.
“All differences between companies in cost or price derive from the hundreds of activities required to create, produce, sell, and deliver their products or services … Cost is generated by performing activities, and cost advantage arises from performing particular activities more efficiently than competitors. Similarly, differentiation arises from both the choice of activities and how they are performed. Activities, then are the basic units of competitive advantage.”
Source: Harvard Business Review – November 1996 – “What is Strategy?” Michael E. Porter
The definition above examines the fact that activities (read processes) drive cost, which then drives price. This is foundational for all organizations and is quite evident from the language. A more subtle message from the language is the part of the definition that focuses on how differentiation arises from the choice of activities (again read processes) and how these activities are performed.
As an example – all organizations invest in some level of customer service – some good, and some not so good. Certain organizations recognize that customer service can differentiate themselves from their competition and, as a result, strategically invest in ensuring that their customer service stands above. In these cases, the organization has chosen specific business processes as a focus for their competitive advantage, and they typically invest significant time and effort into determining how they will perform these business processes. Without truly understanding the business processes that deliver this superior customer service, however, it is difficult to understand the specifics of the competitive advantage and ascertain the return on any strategic investment in these processes. So subtly, there is a value derivation that is required for strategy to be executed in a manner that exploits your competitive advantage.
As additional evidence we can turn to Robert S. Kaplan and David P. Norton’s latest research on the importance of strategy maps – an extension of their Balanced Scorecard theory.
Source: Harvard Business Review – January 2008 – “Mastering the Management System” Robert S Kaplan and David P Norton
Again it is quite evident from their research that having a “process” perspective is critical for “balance” in strategy execution. A more subtle message from an examination of the other perspectives and the notion behind “strategy maps” reveals that the value of business process analysis and modelling in achieving the strategies depicted is almost a necessity.
I have leveraged business process analysis and modelling into almost all aspects of my strategic work with clients. In every circumstance the business process analysis reveals opportunities for strategic investment – in fact, it reveals so many that you are typically at a point of grouping/aggregating/segmenting for the purpose of determining where to make your strategic investment. Additionally, where I am working with more sophisticated organizations, we can use business process models to establish scenarios and analyze the potential impact of one strategic investment versus another – something that is not easily accomplished without some level of business process depiction.
I recently attended the Palladium Group’s Balanced Scorecard Boot Camp. I was pleasantly surprised by the number of times business process analysis and modelling entered the week-long dialogue created by the instructors/researchers who have worked directly with Kaplan and Norton since the beginning. Every single day of this training strengthened my understanding of the power of Balanced Scorecard. It also confirmed that I have interpreted the use of business process analysis and modelling as a complementary and necessary tool in both the development and execution of strategy.
And as a final testament to this theory I can share the wisdom of a very successful strategy consultant/colleague from the US who recently passed away. He took the importance of process analysis and modelling to the extreme suggesting you cannot effectively develop strategy without understanding and modelling business processes. A minimum requirement for his clients was the development of a one page process map that was acknowledged and agreed to by the senior leadership of the organization – something he referred to as a Level 0 Process Model.
My gift to you this Holiday Season is passing along my theories and my colleague Hank’s wisdom!
Here’s to successful execution of your strategies in 2012 and beyond!
– Steve Engel
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