The Engine That Drives Value Based Management (VBM)

Identifying and implementing the right process improvement methodology, is the engine that results in a Value Based Management approach that is successful. The end result of this stage of VBM, should be an increase in company value that is tied to company goals. 

Company value can be defined in qualitative or quantitative metrics and is improved by reducing internal costs or increasing company revenue or a combination of both. In order to achieve this, focus should be on following a process improvement methodology that will allow you to assess the value chain, discover areas of inefficiencies, quantify monetary impact, identify the right solutions and setup governance dashboards to track implementation progress and desired results. It is our recommendation, to use use value measures/metrics that are quantifiable to make gauging the improvement initiatives easier. Especially if solution implementation and value realization is a several month endeavor.

The right kind of process improvement methodology should be based on evidence and data and allow for continuous improvement. There are a number of process improvement methodologies such as but not limited to Six Sigma, TQM, Just-in-Time, Kaizen, PDCA, Lean Management and Agile Management. Each of these methodologies have their proponents and detractors, but they are all focused on achieving similar goals, which is to improve productivity and create the most efficient system possible, even if they take different approaches and identify root causes of waste differently.

The approach we use not only inculcates parts and philosophies from existing methodologies, but is further customized to create a methodology that works best for us and is easy to implement. Such an approach also results in quality improvement along the value chain. Our method consists of 4 phases i.e. diagnostic analysis, solution framing, implementation plan & performance management/governance. On some occasions I have even split the ‘implementation plan’ phase into 2 phases i.e. ‘action plans’ & ‘execution’ for customers seeking further visibility. However, most often a 4 phase process is followed which are linked together, flow logically and are focused on the maximization and realization of value.

It is very important to note that process improvement is not a one time activity that in order for impact to be long term, processes need to continuously monitored. This is similar to having one’s health continuously being monitored to quickly identify and offset potential impactful health issues. Now let’s look deeper into the different phases.

Diagnostic Analysis:

The aim of the diagnostic analysis is to determine the inefficiencies existing in the process, quantify their impact and isolate the causes behind the occurrences. This might require you to understand the current baseline/state of the existing business processes through interviews, perform a value-streaming exercise to identify valid metrics to measure progress and gather associated data to calculate monetary impact. If data is not available, then this may delay the ability to quantify the impact as you will first need to collect enough data using different methods such as a time stamp study. Quantification of inefficiency impact is important as this exercise is what helps capture value of company loss.

The existence of different process improvement methodologies, has given rise to a variety of tools such as process mapping, fishbone diagrams, scatter diagrams, value stream map, flow charts, process mapping and bar charts just to name a few. A combination of these tools may be used during the analysis phase, as some tools help with problem identification while others with root cause analysis. The conclusion of the diagnostic phase should start to lay down the strategy needed to resolve the issues observed which leads to the final solutions.

Examples of tools:

Source: Strojniški vestnik – Journal of Mechanical Engineering 55(2009)5 by Soković, M. – Jovanović, J. – Krivokapić, Z. – Vujović, A.

Solution Framing:

This phase or stage focuses on finalizing the solutions needed to address the observed gaps/ issues seen. This could result in changes to the current baseline by recommending updated ways of working through the introduction of a new or modified process, tool or software to give a few examples.

While metrics/measures/KPIs are gathered during the diagnostic analysis, determination as to the continuous usage of these metrics or the need for new metrics happens during the solution phase. These metrics will then be tracked throughout the solution implementation stage to ensure and gauge solution success. Progress of the solution will be indicated through dashboards as part of the governance phase. 

It is highly recommended to share the new solution with the workforce to build awareness, increase buy-in and to also take advantage of the organization’s collective experience and knowledge to ensure successful roll out. This allows for the solution to be validated as much as possible especially if it can’t be tested before being implemented. Solution execution success is directly impacted by organizational buy-in and belief in the improvement potential, especially by those who will be implementing the new changes. Failed implementations usually happen when the expected outcomes are not clearly identified or not communicated through out the organization.

Implementation Phase:

The implementation phase has two desired outcomes. The first one is to carve out the steps needed to implement the finalized solutions from the previous phase. The second outcome has to do with identifying implementation leaders and change agents for the different improvement initiatives. 

Let us say you have discovered 4 improvement areas in the existing process, then you need 4 implementation leaders, one for each of these improvement initiatives. In our experience, it is better to find personnel with PM experience, to take ownership and accountability of the overall improvement initiatives. This is due to the fact that some of the improvement solutions could be a multi step process with several activities that may need to be executed across cross functional areas. Now the sub activities can be delegated to execution owners or change agents who will be responsible for their execution. As an example, one initiative can have multiple sub activities, especially if the initiative is cross functional, which means that a single initiate might have several execution owners. However the leaders are still responsible for these execution owners / change agents.

Governance Phase:

The governance phase, in our experience, is very important to ensure improvement in company value. Being able to monitor the progress of the implementation plan using metrics/measures/KPIs and track the outcomes using dashboards, provides valuable visibility into the effectiveness and progress of the solution. If the desired outcomes are not being obtained, then this indicates that either further adjustments need to be made to the solution or there exist issues with the implementation of the solution itself. 

Part of the governance phase includes setting up a reporting cadence with the implementation team. We recommend that the implementation leader of each of the improvement initiatives meets at least weekly, if not daily with their sub activity owners/change agents especially at the start of implementation. The SME consultants are then responsible to consolidate the progress and result of the initiatives in a visual governance dashboard, which is shared with the stakeholders. 

Dashboards are a powerful tool to help with continuous improvement and we have used them to keep track of realized savings in projects not only across multiple countries but also of varying durations. For example, we have tracked projects that have lasted multiple years, as our savings projections were forecasted over the entirety of the project. 

Depending on the industry and/or solutions being implemented, these dashboards can be updated realtime, daily, weekly or monthly. In our consulting experience, solution complexity, organization maturity and how quickly the results are realized, impact how often updates are reported to the stakeholders. We recommend that updates be reported no less than weekly during the initial stages, as to monitor the progress of the implementation plan, with a slow graduation to a bi-weekly reporting structure once a certain level of progress has been achieved. The platforms used for the dashboard could be as simple as excel or a real time cloud based solution that generates interactive dashboards that update live with features such as drill down functionality etc. 

Unfortunately there is no one single model that is the right fit for every situation or every industry, which is why business process improvement methodologies may have to be customized. Hopefully this article has given you an idea on what to look for and some of the principles to keep in mind, as you being to execute Value Based Management in your organizations.