In our everyday lives and when we talk about closing the gap between planning and putting plans into action, there's a lot to learn from something as simple as a broken heater at home. Picture this: your heater suddenly stops working on a freezing winter day, leaving you shivering under layers of blankets. That's like when there's a gap between coming up with a great plan and actually making it happen in projects. It's like having a fantastic recipe for cookies but not having an oven to bake them in! Just like we need a working heater to stay warm, we need a smooth process to turn our ideas into reality.
What's the deal with the heater?
Imagine the radiator is like a magical machine that makes your room cozy and warm. Here's how it works:
You set the thermostat to the temperature you like, let's say 22 degrees Celsius. This is your plan - you want the radiator to make your room warm.
The radiator starts heating up when the temperature in the room goes below 22 degrees Celsius. It's doing its job by making the room warm.
The thermostat keeps an eye on the temperature in the room. If it's still too chilly and below 22 degrees Celsius, the thermostat tells the radiator to keep heating. If it's already warm enough and above 22 degrees Celsius, the thermostat tells the radiator to take a break.
If the room is still too cold, you might turn up the thermostat to make the radiator work harder and heat the room more.
And when that process breaks down, well, things can get pretty chilly! So, the minimum requirement you should have when implementing a heating system in your house: you need an option of manual intervention when it's getting too cold (which is quite a challenge in case of underfloor heatings, by the way :-)).
Now, what has it do with management?
Each of us can probably confirm at least two of the following four statements for our company
We lack of poor communication on the company's strategy and the according alignment.
We do not have a process to perform a strategic prioritization of projects.
We suffer from a poor execution even of key projects within our organization.
Overall, we say that there's a methodology for managing strategic projects in place, but to be honest: we do not manage strategically at all!
Just as a heating system relies on a continuous cycle to maintain a comfortable temperature, the strategy implementation depends on the PDCA (Plan-Do-Check-Act) cycle to ensure the company's strategy success. However, what happens when the cycle breaks down? Considering that a company's main goals are usually about growing and being effective, as well as being profitable and efficient, if these goals aren't achieved in the long run, things can start feeling pretty chilly as well.
What is a possible solution about?
The solution proposes a continuous flow from strategy to operations and back, focusing on "value-based transformations." It begins by setting strategic objectives and defining the necessary business capabilities concerned, which are then mapped to end-to-end processes. Next, transformational initiatives are identified and coordinated to ensure their benefits are measured within programs. These initiatives are executed through projects that are managed based on their interdependencies within the end-to-end process.
Finally, the outcomes of these projects are integrated into existing business capabilities to achieve sustainable change in the organisation.
The essence of this value-based transformation model underscores the critical importance of seamlessly linking strategy formulation with business capability management and deriving benefits through transformation initiatives. This comprehensive approach, managed effectively through value-based program management during project execution, is essential for the successful implementation of organizational strategies.
Ok, sounds simple? Let's give it a try!
1. Strategic Management: Defining the Direction
The starting point of value-based transformations lies in strategic management, where organizations set their vision and chart the course for success. This begins with defining strategic objectives, which serve as the guiding star for all subsequent activities.
For example, a leading mechanical engineering company aims to revolutionize its product offerings and enhance market competitiveness through innovative solutions.
2. Enterprise Value Management: The foundation for prioritization
With strategic objectives in place, organizations embark on value management to lay the foundation for success in terms of Objectives and Key Results (OKR). This involves designing robust business cases on a cost-benefit analysis to support key initiatives that align with strategic objectives. In our use case, the company identifies the adoption of advanced manufacturing technologies as a pivotal initiative to drive innovation and competitiveness in the market by having calculated an externally proven business case. As their major objective they codified: Introduce innovative product solutions to revolutionize the market and enhance the company's competitiveness.
Some of the derived key results might be:
Key Result 1: Develop and launch at least three new groundbreaking product designs within the next 12 months.
Key Result 2: Achieve a customer satisfaction rating of 90% or higher for the new products within six months of launch.
Key Result 3: Increase market share by 15% within 18 months of launching the innovative product solutions.
3. Strategic Portfolio Management: Maximizing Impact
As initiatives are identified and prioritized, business capability management and strategic portfolio management comes into play to maximize their impact. This involves conducting rigorous impact analyses of strategic objectives to business capability and underlying end2end processes to assess the potential benefits and risks associated with each initiative. Based on their business capabilities transformation requirements for our mechanical engineering company, the following benefits could turn out to be desirable to serve the Key Result No. 3 above:
Benefit 1: Improved product features could include increased customer satisfaction, loyalty, and willingness to purchase, leading to a larger market share.
Benefit 2: A strong brand reputation can lead to increased trust among customers, improved brand perception, and a competitive edge in the market, ultimately resulting in higher market share.
Benefit 3: Streamlining the design-to-delivery process to ensure efficient production and timely delivery of innovative products can lead to reduced lead times, which again results in faster product launches.
4. Program Design: Crafting Cohesive Programs
With initiatives identified and prioritized, they are grouped into cohesive programs based on various criteria such as strategic alignment and resource availability. In our use case, initiatives related to product innovation and process optimization are clustered together to form a cohesive program aimed at driving organizational growth and competitiveness.
5. Program Execution and Transition to Operations: Bringing Plans to Life
With programs in place, organizations focus on executing interdependent projects efficiently to deliver on time and within budget the desired business capabilities requested. This involves leveraging benefit realization management methodologies and tools to ensure successful outcome delivery. Furthermore, a smooth transition to operations is essential to ensure that the intended outcomes are sustainably embedded in the organisation before the next strategic iteration begins.
6. Continuous Measurement of Value, Benefits and KPIs: The thermostat of heating cycle
Throughout the value-based transformation journey and beyond, it is crucial to monitor the entire measurement cascade from value to benefits. This cascade is fueled by operational Key Performance Indicators (KPIs). Monitoring ensures that the desired value of the strategic management process is delivered as intended. In our use case it could mean the following: The strategic management process resulted among others resulted in a desired Key Result No. 3 (Increase market share by 15% within 18 months of launching the innovative product solutions), which again was positively impacted by the three business capabilitiy benefits mentioned in step 3 above.
Considered in a cascade of different consolidation level e.g. Benefit No. 3 will be fed by operational KPIs like
Cycle Time: The time taken to complete one cycle of a production process, from the initiation to the completion of a product. A shorter cycle time indicates higher efficiency in production processes.
Overall Equipment Effectiveness (OEE): OEE measures the performance, availability, and quality of equipment used in the production process. It provides insights into how effectively equipment is utilized and identifies areas for improvement.
Production Yield: The percentage of defect-free products produced compared to the total number of products manufactured. A higher production yield indicates efficient production processes and effective quality control measures.
In this example, the Key Performance Indicators (KPIs) mentioned contribute to achieving Benefit No. 3, which in turn contributes to Key Results No. 3. This illustrates a working PDCA (Plan-Do-Check-Act) cycle. To effectively monitor the development of business capabilities undergoing transformation, it is crucial to establish and maintain this cycle across all transformation initiatives. This ensures that the desired outcomes of strategic initiatives are accurately achieved and measured.
Puh, that was dry stuff....anyway...
Similar to ensuring our homes stay warm, maintaining a robust transformation cycle ensures that our organization develops smoothly and at an optimal pace, ensuring sustainable growth. That's not too bad, isn't it?
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