Operations assessment

by Alex Roan on Jul 1, 2024

Introduction

Business transformation is a process where an organisation changes from an existing to a target operational state. Organisations spend a significant amount of effort identifying these improved target states. Corporate strategy drives this at macro level while team, department, function and business area managers are responsible for the execution at a lower level.

Whether identifying, assessing, initiating or executing transformation it's critical to have a good understanding of the current operational state. This is the baseline against which everything else flows; feasibility, benefits, effort, time, cost, risk and more.

The current operational state can be investigated, documented and discussed by carrying out an operational assessment. This is an activity which is relevant to all forms of business transformation. An operational assessment can take many forms in terms of scope, approach and level of detail. This depends upon the nature of the transformation in question.

This article is a discussion of operational assessments and how they apply to different organisations and transformation programs. I've put this together based on personal experience as an analyst, consultant and project manager, however every organisation and every project is different. Some viewpoints may not be relevant in some situations, but hopefully still provide a useful basis for consideration.

To plan and execute an operational assessment in a quality way we need to be clear on the purpose of assessment, the structure or organisations, the way assessments vary for different transformation types and different operational areas. The discussion is organised in the following way:

For clarity, examples of business transformation programs are:

• The launch of a new product or service
• Entering a new market
• A process change
• Shift of operations to new locations
• A new IT system or an upgrade or change to an existing system
• Work process or technology outsourcing.

And examples of affected operational areas are:

• Corporate functions
• Operations (industry specific e.g. manufacturing, equities management)
• Research and development
• Marketing
• Finance
• Human resources
• Facilities
• Legal.

We will define these in more detail later.

Operational assessments can occur at different levels of detail. Small scale assessments may occur as part of daily operations. Events such as encountering issues, reviewing results or holding team meetings may lead to the documentation of an idea for transformation in the form of a simple document, e-mail or support request. This could be considered as an initial assessment of a business situation. Usually detail is minimal at this stage; only what is required to consider if further investigation is merited.

Small scale assessments can lead to more formalised assessments with the objective to validate the opportunity or problem in detail and capture baseline factors such as feasibility, benefit level and effort estimates. As more detail becomes available a decision may be taken to transform the idea into a formalised change request, project or program. This progression into an executional phase often starts with another form of assessment such as 'requirements gathering' or 'as is' analysis.

So, assessments can happen at different levels of details throughout the transformation process. Consider a generalised flow from idea to execution:

1. A need for change is identified with a 'mini assessment', for example:
   • During daily operations; an issue is encountered or opportunity discovered
   • As part of the strategy or planning process
   • As part of the execution of an existing transformation program
2. A more formalised and detailed assessment is initiated to assess feasibility, benefit and cost
   • This can help create a baseline for change
   • And a business case for change
3. If approved, a transformation program may be initiated, which may have in depth assessments such as:
   • 'as is' analysis, requirements gathering
   • Design, build, deploy etc.

There tends to be more formalisation around step 3; the execution of business transformation programs, than steps 1 and 2; the idea generation through to approval.

There are benefits to put more formality around the `idea to transformation project initiation process. I'd recommend tracking this in a centralised way:

• Create an idea management process
• Define the minimum requirements of what should be assessed to back-up an idea
• Include stage gates with formalised criteria to progress to next stages
• Capture key metrics (number of ideas, source etc.)
• Evaluate transformation program results against the original benefits associated with the idea.

This should improve the quality of ideas that progress to transformation programs and the likelihood of success of those.

The scale of assessment

At the simpler end of transformation the scale of an assessment can take the form of a detailed description of a business issue. This forms the basis of a case for change. Consider the following examples:

• A need to hold more stock could lead to a contract tender for warehouse space
• A need to for a report to meet a new statutory reporting requirement could lead to a systems development.

At the more complex end of the scale an assessment may need to analyse a comprehensive range of factors in depth. This could include external factors such as the economic forecast, market forecast and competitor analysis as well as a internal factors such as a detailed operational analysis. Consider the following examples:

• A mid or long-term planning exercise such as annual planning (external and internal factors)
• An investigation into potential acquisitions (external and internal factors)
• A shift into a new product segment or a new market (external and internal factors)
• A major process and technology program such as new business systems (more weighted towards internal factors).

The need for assessment

Learning from past transformation projects

Looking back at the issues and problems I've experienced while working on transformation programs, many were at least in part caused by an incorrect understanding of the current state. This can be traced back to either a lack of assessment or a poor quality assessment.

When encountering an issue during a change program there is a tendency to blame factors such as the methodology, the team capability, and the resource availability. However, while these are often contributing factors, the root cause is often a mistake or underestimation of scope including the work required to deal with that scope. This is a fundamental error in defining the benefits of transformation without due diligence on identifying the true 'volume' of transformation required to achieve those.

The project management institute defines key project management dimensions of cost, time, scope, quality, benefits and risk. Experienced project managers are well versed in the challenges of balancing these. However, projects are often in trouble from day one. The errors made in scoping prior to project initiation lead to unrealistic timelines, incorrect effort estimates and in the worst case project objectives which are not feasible. These issues also mean the project teams are not correctly sized or lack required capabilities. Often it's not only the case that cost, time, scope, quality, benefit and risk are mismanaged, it's the case that they are not correctly sized at the outset.

When it comes to a lack of assessment or a poor quality assessment some situations I commonly see include:

• A lack of any form of assessment of the current state. The project may have a clear target state, but no feasible or well planned path to get there
• An assessment was carried out but without the correct scope and depth
• An assessment was carried out, but was executed without the right expertise, leading to incorrect assumptions and misunderstandings
• As part of the assessment the feasibility of the target state was not validated. This would be more common on unique or so called 'bleeding edge' transformations when there is little experience or data to validate the target state benefits.

It's useful to consider why assessments are often incomplete and develop strategies to mitigate these. Some of the factors I've observed are:

• A tendency to want to get on with executing the change. The assessment is rushed through with minimal deliberation. Stakeholders may have already made up their mind.
  • Bias can be a big contributing factor here
• Financial factors such as the need to complete the change within the current fiscal years budget
• Overconfidence with the level of understanding of the current situation
• A lack of authority within the project team or project stakeholders, this may happen in transformations with broad scope that touch areas outside of the main sponsors area. In this case it may be difficult to access information and expertise to assess the full scope of impacts.

Challenges maintaining depth of knowledge

Managers have to balance time between managing strategy and people as well overseeing their operational areas. As managers take on more responsibilities it becomes difficult to retain a depth of operational knowledge.

Consider that operations are divided into business units and functions. These then break down into departments and teams which run processes. Each process may involve human actions, data, systems, reports and controls. They may also be affected by issues, problems, risks and other transformations. The level of detail to consider when analysing an operation is extensive.

The more responsibility a manager takes the harder it is for them to maintain depth of knowledge on the current operations. Managers risk using out of date knowledge or making incorrect assumptions when they are involved in the identification and planning of business transformations. I've observed that managers have a tendency to underestimate the effort to analyse, design and build solutions in complex areas. A formalised assessment process with the structured involvement of experts can help to mitigate this risk.

Poor knowledge management

A common issue organisations face is a lack of documentation or poor quality documentation. Creating and maintaining documentation can be challenging. Often this work is avoided. Even when good quality documentation is created it may not be kept up to date.

A lack of documentation compounds the difficulties that managers face staying up to date on detail. It also makes it hard to onboard new employees or utilise consultants or contractors. Furthermore it represents a control and audit risk. As time passes a lack of documentation usually leads to poor or inconsistent knowledge transfer. This is a major source of generating process variation.

An organisational issue that arises due to poor knowledge management is the creation of the 'lone wolf' expert. Teams may end up with individuals who keep knowledge to themselves. This can lead to process bottlenecks and business continuity risks. These individuals can also become major barriers to transformation. This can be difficult for managers to deal with.

A lack of knowledge management and documentation should be considered as a high risk for transformation. If the current operational situation is not well understood then the volume of change to achieve a transformations objectives cannot be well defined. During transformation programs it's very common for scope increases to occur due to discovering new processes, new issues or hidden data and systems complexities.

Misleading reports

Leaders and managers review and discuss a range of reports as part of the decision making process. These reports contain financial and operational metrics. While they are useful, they can only convey part of what is happening in operations. For example a report showing manufacturing variances per cost center may give a good overview of manufacturing performance, but it will rarely explain why performance varies. It's no replacement for observing the process in the factory.

One mechanism which helps is the preparation of accompanying commentary by experts. However it's not feasible to prepare commentary covering everything, neither is it possible to involve deep level experts in all decision making processes.

Bias

Managers have a tendency to make decisions with bias towards their previous experiences. For example a manager who has experienced successful outsourcing may have a tendency to suggest outsourcing as a solution when they move to a new organisation. Another manager who had a great experience with a certain brand of IT system may suggest that as a solution.

Managers vary in how they focus on key operational attributes such as strategy, people, process, data and systems. This is one reason why having a diverse management team helps maintain a balanced view.

The business book genre contains books which explain a range of different approaches as the key to success. This is in part due to a tendency to try to rationalise success after the fact from a biased or individual viewpoint.

Triggers for assessment

In order to identify and plan for operations assessment it's useful to consider the different triggers for business transformation.

Daily business monitoring may uncover an acute business issue or opportunity. Within the technology space there are formalised processes that help to manage this. Frameworks such as the IT infrastructure library (ITIL) describe how issues may be linked to more fundamental underlying problems which can lead to change requests and transformation projects. Within the process space approaches such as 'Lean' promote the idea of actively looking for inefficiencies at every level in an organisation. Lean organisations will often have a form of improvement request log which may lead to transformation programs. Effective teams often have a form of daily or weekly review which can act as a source to identify transformation opportunities.

Periodic performance reviews also lead to the identification of transformation opportunities. I'd consider these reviews to occur in three broad categories:

• Periodic financial review led by financial accounting with focus on financial performance via the balance sheet, profit and loss, cash flow and other more detailed reports
• Periodic business review led by management accounting/business leads with focus on key business metrics such as sales, costs, profitability etc. by management dimensions
• Operational reviews at the business area or functional level with detailed reviews of operational metrics. These take the form of separate reviews for each area including for example human resources, marketing, manufacturing etc.

Reviews usually occur on a weekly, monthly, quarterly and annual basis. The aforementioned change and opportunity logs and other 'idea' trackers may form a part of the standard agenda. Reviews are a key part of the decision making process on whether to investigate opportunities further. Given that it's important that any small-scale or basic assessment work that forms the basis for discussion is of an appropriate level of detail and quality.

If an organisation decides to centrally track ideas as part of transformation management it may be useful to identify the source of those ideas i.e which review process, meeting or activity they originated in as well as which team, individual etc.

Annual planning

The annual planning process is a major trigger for transformation programs. This is where the executive committee come together to discuss and make decisions about the future of the business. Ideas are translated into targets, which are then used to create detailed plans and budgets. Achieving the plans may mean identifying and initiating business transformation.

The approach to strategy and planning varies by organisation, usually there are detailed targets for a year ahead, higher level targets for a longer time-frame, say 3-5 years, and at the minimum directional statements for the longer term.

The annual planning process relies on three main inputs:

• An assessment of the current business situation including factors such as current performance, issues, risks and opportunities. This information may be gathered as:
  • Metrics from standard reports
  • Commentary from key experts and managers
  • Workshops, meetings and other discussions
  • One time analysis of specific topics
• An assessment of the external situation including factors such as economic forecast, market data and competitor insights
• Input from third party experts (auditors, consultants, contractors, research agencies etc.)

Gathering and processing these inputs is in itself a form of assessment. The quality of this assessment is critical as it provides the information executive members will base their decisions on.

Assessing the current situation is a complicated process. Individual teams, departments, functions and business areas must create management summaries which are combined and consolidated for the executive review. The following information is used:

• Business and operational performance metrics
• Scope of operational activities (i.e. processes)
• Organisation structure (i.e. org chart, key roles)
• Key systems (and state of the systems)
• Key data (and state of the data)
• Key controls and risks
• Current issues and problems.

Consider for example that a sales team manager may need to summarise sales performance for a regional manager who summarises for a national manager who then summarises for the head of sales. The head of sales is then responsible for representing sales within the executive committee discussions. They must present sales data including considerations for supporting areas such as IT, HR etc. as they relate to sales. This process will happen for all operational areas.

Within the annual planning process there is usually a cycle of assessment, discussion and feedback. In some organisations annual planning can take as long as six months, and involve multiple rounds of draft targets and plans. This is in part due to the interconnected nature of an organisation and how a change to a budget or transformation in one area may affect other areas.

In addition to the performance discussion there may be special topics such as:

• A deeper than normal analysis of a specific product or services
• A deeper analysis of a specific competitor
• A study into the impact of a location change
• A study into the impact of hiring or lay-offs.

When special topics relate to external areas or new business activities organisations often engage contractors, consultants or research agencies to help.

As targets become firm, each operational area must consider and plan how they will achieve the targets. This may result in the need to carry out a deeper assessment of the current operation. This is usually a step down into the next level of detail. The assessment will vary depending on the target:

• In the case of target cost reduction we may assess key performance indicators related to process volumes, errors and re-work
• In the case of target revenue growth we may assess product and customer performance, competitors and the market.

Employees and managers should keep in mind that whenever they report information they are taking part in the 'assessment' process that forms part of the strategy and planning process.

Types of assessment

Moving beyond the planning process the scope and approach for assessments will vary by factors such as:

• Which business areas are in scope of a transformation?
• What is the nature of the transformation?
• What is the target state of the transformed business?

These and other factors inform the type of assessment needed. Assessments will vary by factors such as:

• The resources and time required
• The information to access; such as data extracts, reports, presentations and other documents
• The people that need to be involved and the method to involve them such as interviews and workshops
• The level of detail required.

I would propose to classify assessments into two broad categories; those that investigate ideas prior to the initiation of formalised transformation projects are and those that form part of formalised transformation projects.

Prior to project initiation

After a potential transformation is identified the first assessment captures information needed to build a case for change and a project proposal.

It's this first assessment that can lack formality and depth which may leads to issues further down the line when trying to execute business transformation.

A case for change centres around financial investment required, benefits and the payback period. To build this financial case we need to assess key factors such as scope and approach which help to build a picture of the resources and time required. It's also important to clearly identify assumptions made and the main risks and opportunities. In addition to informing the financial case these are important feasibility considerations.

A project proposal accompanies a case for change and adds further detail on how the change can be executed. The information required in a proposal varies by the magnitude and type of change, but typically would include factors such as project plan, scope, team roles and other factors that are important from a project management perspective. Together with the financial case this allows stakeholders to consider everything that is needed to initiate a transformation project.

After project initiation

Transformation projects will usually start with a detailed assessment immediately after the project initiation. These assessment phases often have other names such as requirements gathering or 'as is' analysis. In the case of agile projects this may be done in parallel with design and build.

This assessment is at a lower level of detail and is aimed at uncovering the information needed to design, build and implement the transformation. The focus will vary with the type of transformation, some examples:

• Implementation of new business systems may have a requirements gathering phase focussing on existing processes, data and systems
• Work process outsourcing may have an analysis phase focussing on documenting processes, training and work-shadowing
• Process re-engineering may have a phase focussing on process mapping of existing processes
• Investigation into potential acquisition targets may focus on profiling of the target acquisitions
• A capability building initiative may focus on skills analysis.

Let's discuss a few of these in more detail.

New or upgraded business systems

Business systems enable processes by providing a level of automation of information capture and activity execution while also providing measures as a function of reporting. For example:

• Production planning systems manage the planning process, capture planning data and provide plan reports
• Equity systems such as online trading systems execute trades, hold trade position information and provide equity reporting
• Accounting systems capture financial transactions and generate financial and management reports.

Projects to implement new or upgraded business systems are difficult. They rely on a good understanding of business processes, business decisions making, organisation roles, data and technology. These projects often encounter problems due to failures of assessment, two common cases are:

• New systems are designed based on current processes without assessing the current and future suitability of those processes. An opportunity to resolve issues and workarounds and take a step towards good practice may be missed.
• New systems with reporting capabilities are often built to generate the existing reports in the new system. For example several consulting studies I've encountered in the past indicate that a lot of the information provided in reports is not utilised in the decision making process. I've personally encountered this on several projects. Projects which touch on reporting should assess each element of information provided on a report and question it's usage and value.

In both of these cases the requirements are based on the current process, without taking the step to fully assess the value or suitability of it. Projects often identify incremental improvements to the current state based on existing pain-points, but less commonly challenge the value of existing processes and their outputs with a view to a more complete re-design.

This is understandable for a few reasons including:

• A primary output of business systems is the reports that provide information for senior decision makers. The desired content of these reports can drive a lot of the process and data complexity. Unfortunately it can be very difficult for project teams to access senior decision makers. Mid and lower level experts assigned to projects often lack the perspective, authority and confidence to make decisions on changes to the outputs of systems.
• Organisations are often trapped in historical ways of working; executing a process, utilising data, reviewing results, making decisions all in a certain style. It can be difficult to challenge this. An example from finance is the structure of the chart of accounts, a poorly designed chart can create a lot of extra work and lead to poorly structured reports, however a re-design would require involvement of the CFO and all the finance directors of a company as well as many experts both inside and outside of finance.

Not every business systems project should aim for a complete re-design. However, each project should have a formalised assessment to consider the state of the current situation and question carefully the extent to which they want to replicate existing ways of workings or create something new. It's good practice to run a cost / benefit analysis on scope elements or design points of a transformation project. This helps to focus work towards value.

For business systems, the main categories to consider during assessment are:

1. Value and suitability of the current solution:
   • Estimated level of replication vs. re-design required for future solution. This can be considered at a summary level and for each of the individual factors below
2. Data:
   • Input data volume, quality
   • Details of automated or manual data conversions prior to load to the systems
   • Manipulations to the data in system
3. End to end process flows and task level instructions with details including:
   • Level of automation or manual work
   • Process performance metrics
   • Task effort vs. elapsed times
   • Complexity measures
   • Risk measures
   • Issues and workarounds
4. Structure, content and format of outputs:
   • Reports
   • Interfaces
5. User experience, roles and security:
6. Internal controls

When assessing the above it's useful to work through a checklist or questionnaire. The content of these will vary by transformation type and business are. The type of questions to consider include:

1. Process
   • Why does this process exist?
   • Is this process manual or automated
   • Is this process standardised or are there variations?
2. Information - why does this data element exist?
3. Are there any issues, problems or workarounds?
4. Have there been any control exceptions - are suitable controls in place for this activity, data element etc.

Outsourcing and shared services

With outsourcing and shared services the focus is on work migration across organisations. Consider this as shifting work from a sending organisation to a receiving organisation. The assessment here should focus on scope, and state of the work to be migrated. This could also be applied to a shift of work between teams or across locations within the same organisation.

It's critical to assess the process performance and the issues present in the current operation including issues, exceptions, variations, deviations and workarounds. These should be documented as a performance baseline which will be useful in quantifying post migration success. Success should be consistency with or improvement above this baseline.

One common issue with outsourcing and shared service space is unrealistic expectations of immediately improved performance. In some cases organisations considered a move to shared services or outsourcing a failure, where in reality the issue was a shift of broken processes and systems to a new organisation with an expectation of the performance to be improved at reduced cost.

Cost savings may be possible due to labour arbitrage by shifting existing processes to a new organisation. In this case a short term dip in performance should be expected due to challenges with knowledge transfer, and other transition related issues. If there is a desire to improve processes some investment is usually required. Note this is often more cost-efficient in the receiving organisation.

In addition to the baseline analysis, details of the current process are needed to manage the migration of work from the sending to receiving organisation. These details should include:

• Existing process documentation; process flows, task instructions, operating procedures
• Actual process steps & variation from the documentation, this can be identified during interviews and work shadowing
• Organisation chart and roles and responsibilities and the mapping of roles to process steps
• Data related documentation including field standards describing any data elements entered in systems or retrieved in reports
• Systems documentation accompanying the operating procedures and task instructions explaining how the systems work and any relevant settings that operational teams need to be aware of
• Any physical dependencies, such as locations, documents and equipment.

The assessment of these factors can be used to design and build the receiving organisation and how it interacts with the receiving organisation.

Acquisition integration

When a company is considering an acquisition it starts by identifying targets. If potential targets are found the next step is to assess them in more detail. This may be followed by an offer, a period of transacting and contracting and a post acquisition integration.

The assessment for potential acquisition targets is usually focussed on validating the following:

• The scope of the operations of the organisation
• The detail behind the published results
• Quality of plans and forecasts
• Issues, risks and opportunities.

One of the main challenges with this kind of initiative is a lack of access to data. While assessing an acquisition there may be limited access to data and limited communication channels. Sources of information to target include:

• Strategy documents
• Financial and management reports
  • Published annual accounts
  • Internal business reports (cost, profit, cash, assets etc.)
• Organisation model
  • Functions, teams, employees (org charts, policies, role descriptions)
  • Employee list by role with details (location, benefits etc.)
• Process information (flows, operating procedures, issue lists etc.):
• IT architecture and system inventories
• Locations details and physical assets lists
• Any issues or risks which may affect the stability of the operation
• Opportunities.

New product or service launch

In the case of a new product or service assessment will focus on:

• Economic outlook for the relevant markets
• Market outlook for the relevant product or service category
• Competitor analysis for the relevant product or service category
• New operational capabilities required to design, build and deliver the new product or service, for example changes to:
  • Manufacturing, supply chain and distribution
  • Sales teams
• Impact of the new operations on the existing business support functions IT, HR, Finance, Legal etc.

Assessments for new products and services are usually highly tailored to the product or service in question.

Scoping an assessment

When planning an assessment it's useful to think carefully about the desired result of the transformation being considered. This can help inform what to assess. Consider a few examples:

If the objective is to grow revenue or improve profitability focus areas would include:

• Sales and profitability by category, product, region, customer
• External factors; economic outlook, market, competitors analysis
• Product or service costs

If the objective is to reduce cost focus areas may include:

• Policy review:
  • Spending limits
  • Approved suppliers, payment terms and contracts
• In depth process analysis
  • Can work be stopped
  • Can work be harmonised and simplified
  • Can work be re-located or outsourced
• Asset optimisation
  • Facility cost reviews
  • On premise IT reviews.

If the objective is to increase innovation and launch new products focus areas may include:

• Skills and capability reviews
• Recruitment of top talent
• Workplace culture, ways of working, and processes surrounding idea generation, collection and review
• The research and development function structure, budget and effectiveness
• Use of external agencies and consultants.

If the objective is to increase controls after an incident such as fraud, a data leak or incorrect statutory declaration, focus areas may include:

• In depth review of processes and their control steps and reports
• Roles & responsibilities, handovers of information and authority to review and approve
• Systems and data access controls.

In each case consideration of the desired transformation helps to identify the focus areas for assessment.

Interpreting results

It can be difficult to interpret the results of an assessment. Consider an assessment identifies how many manual journals an accounting department posts in a month, how do they gauge whether this is efficient or inefficient? Making comparisons can be useful. A few ways to do this include:

• Connecting with industry, market and professional bodies. Information and insights can be gained from activities such as attending events and reviewing journals
• Utilising research agencies or consultants
• Accessing benchmark data from other sources.

Benchmark data is often used by consultants. I've found both freely available and paid data to be useful in previous projects. Benchmarking can give an idea of the level of potential improvement that may exist without doing a deep analysis of roles, process, data and systems.

For example when assessing the efficiency of the finance function calculated metrics may include:

• The cost of the finance function as a % of revenue
• Average finance salaries
• Process metrics:
  • Number of manual journals posted
  • Number of reversals posted
  • Payment on time rates
  • Number of failed or rejected payments
  • Number of post close-adjustments
  • Number of calls, requests etc.

These can be benchmarked both internally and externally.

Internal benchmarking works well with multi category multinational organisations. Results may be compared by industry, business areas and locations.

In addition to commonly reviewed process metrics other factors such as process design, use of technology, organisation structure and data volumes can also be benchmarked on a similar basis. I have found it useful to look at factors such as number of employees per manager or number of business systems per business area or function, comparing these to what I've seen in organisations that perform well can give me a rough idea of how organisations differ and provide clues on where to assess in more detail.

When it comes to benchmarking it's important to adjust expectations based on the overall business situation. An organisation with a history of business issues, old systems and no process standardisation will rarely be able to transform isolated processes to reach a level in-line with a top performing organisation. This would require a broader transformation of culture, policy, processes and systems.

A business framework for assessment

Based on the discussion so far we can see there are a lot of factors to consider when it comes to operational assessment, this makes it useful to work from a framework. This helps ensure all possible areas are considered. It also promotes the use of a common language which helps to avoid misunderstandings and incorrect assumptions.

Terminology relating to organisations varies across professional bodies and organisations so it can be useful to clearly define terms. For the purpose of this discussion I will use 'business area' to describe the breakdown of the organisation into different areas. I'll use the term 'attribute' to define factors that enable business areas to operate. These attributes include process, people and systems.

One standardised way of looking at organisations is through Michael Porter's value chain.

I like the value orientated viewpoint. I'll discuss this later as part of process management. However I believe Michael Porter's layout has a few downsides:

• It doesn't map that well to organisation structures
• The category of firm infrastructure isn't very clear. Infrastructure as a term tends to be more commonly used to describe parts of IT and facilities
• I don't like the connotation of support for some business areas. I prefer to use business services as those areas can deliver value directly on their own. For example Finance may do this by providing economic and market insights.
• The structure is dated towards traditional manufacturing industries.

I approach my own work with a framework that shows business areas vs. attributes as a matrix.

The business areas that make up an organisation should be adapted to fit specific organisations, I normally start from the following:

In this view:

• An organisations business areas are split into three key categories; corporate functions, line of business operations and business services. This mirrors the way most organisations are structured and is easy to work with
• The list of individual business areas may be customised by organisation. Note that line of business operations will vary the most
  • I generalise supply chain vs. service delivery as a starting point to represent various industries. Service delivery could represent banking services or patient care in a hospital
• The view is structured to to minimise hierarchy and promote equal focus on value across all business areas
  • All business areas are important
  • Value may be margin, or it may be other factors such as compliance as we can see from examples such as Lehman Brothers. While shareholders are primarily interested in dividends and growth a sole focus on this is a mistake.

The next step in building the framework is to identify the attributes that enable the business areas to operate. Consider the following:

This is an example of a slightly adjusted list of business areas against a list of attributes:

• Strategy
• Financials
• Policy
• Process
• People
• Organisation
• Technology
• Data
• Locations
• Governance, risk and compliance.

The extent to which an assessment should look at each attribute will vary depending on transformation type. For example a major finance systems project may need to look at all attributes in detail while a data cleansing program may focus 80% of effort on data and 20% of effort on people, process and systems.

To illustrate how attributes may relate to individual business areas consider some example points for the finance function:

Let's discuss each business area in detail.

Business areas

The way an organisation is structured depends on the organisation type; public vs. private and the industry, product or service. Regardless of this we can still start from the three major areas; corporate, line of business and business services and adjust these as necessary.

As opposed to business area some organisations use terms including business unit, division and function. In certain business systems terms such as 'business area' or 'functional area' may have a specific meaning. In this discussion I use business area in the general sense.

Corporate functions

The corporate area can be considered primarily as housing headquarter activities. The most important part of this is the executive committee. In addition it may house other specialities. These specialities often differ from those housed in business services in that their role is more orientated to advise or govern rather than provide a service. Or they may simply contain activities that are best positioned in close proximity to the executive committe. Common activities in corporate include:

1. Office of the executive
2. External communications including investor relations
3. Legal
4. Governance, risk and compliance including internal controls.

There may be other areas such as global branding, and portfolio management.

Line of business

Line of business includes the product, service, customer or market focussed areas. Common line of business units include:

• Customer relations management:
  • Sales
  • Billing and invoicing
  • Customer contact centre
• Marketing
• Product manufacturing and delivery, examples:
  • Product development
  • Manufacturing and supply chain
• Service delivery, examples:
  • Service development
  • 'Front office' within financial services
  • Store front in retail

When it comes to individual organisation there are many permutations of how these areas may be structured. In multi-product or service category organisations there may be:

• Separate business areas per product or service category
• A global business area setting overall branding and direction and market units managing local sales
• Customer specific business areas e.g. global customers vs. small and medium size national customers

By multi-product or multi-service I refer to organisations which may have products or services across different categories. For those familiar with financial reporting you can consider these as IFRS segments. For example:

• Within financial services consider equities, retail banking, insurance
• Within consumer goods consider household products, beverages, beauty.

The structure of the line of business area will have an impact on the assessment approach. The structure itself is often the focus of an assessment. This is particularly true when the assessment is related to corporate targets such as revenue growth and profitability.

Assessing and transforming an organisations line of business operations is a major focus of restructuring initiatives.

Business Services

Business services exist to ensure that both corporate and line of business operations can function. These usually include:

• Finance
• Human resources
• Information technology
• Procurement
• Facilities and workplace.

Historically line of business operations may have included their own finance, HR, IT etc. however from around the late 90s there was a shift to centralise business services into one business area servicing multiple line of business operations.

Business services are value drivers in themselves and can significantly influence an organisation. I'd recommend against them considering them as support functions.

• The finance function informs the CFO who can be a driving force behind growth and profitability
• Human resources strategy can define the ability to attract top talent and influence the future of the organisation
• Technology can create new products and services or new sales channels for existing ones.

Business attributes

Earlier I introduced ten business attributes:

1. Strategy
2. Financials
3. Policy
4. Process
5. People
6. Organisation
7. Technology
8. Data
9. Locations
10. Governance, risk and controls.

This list is flexible. Identifying ten is probably towards the more detailed end of the scale.

Sometimes these are simplified by grouping areas such as policy & process, people & organisation, data & technology. This is useful from a communications perspective, but care should be taken to cover the nuances of each topic.

A simplified grouping:

1. Strategy
2. Organisation & people
3. Policy, process and controls
4. Technology and data.

I haven't included change management as an attribute for a couple of reasons:

• Change management needs to be considered for each attribute in each business area
• This discussion is focussed on one activity of transformation delivery which is in itself change management.

I'd recommend to consider change management alongside project management. I would build this into my plans as a stream of project activities rather than a part of the business area x attribute framework.

In certain organisations there may be other attributes that should be called out, an example of this could be locations.

Let's discuss each attribute in detail:

Strategy

Part of the corporate process is deploying strategy down through an organisation. This includes objectives and quantifiable targets. Each business area develops it's own strategy describing how it will deliver the corporate objectives and targets.

When carrying out an assessment of a potential business transformation we should consider strategy at the corporate level and the level of other affected business areas.

Questions to consider include:

• Does the transformation idea align well to the overall corporate strategy
• Does the transformation align well to individual business area strategies.

Assessments may uncover conflicts. For example a line of business may have an idea for a new reporting system which helps improve sales forecast accuracy. This may align well with corporate strategy, however the desired reporting system may have conflicts with data and systems strategies.

Often these conflicts come to light after transformation projects are initiated and experts start to discuss the requirements and design across different business areas.

Financials

As opposed to the finance function business area this attribute refers to financial data which can be relevant to any business area. The finance function are important transformation partners as they can contribute to assessments with the analysis of financial data.

The usefulness of the financials will depend on how well structured the organisations data is. Noteworthy focus areas are listed below.

Cost analysis

When assessing operations we look at individual business areas. The cost of these business areas be seen in the cost centre hierarchy. Generally costs incurred in an organisation are posted to a cost centre. At it's lowest level a cost centre should represent an individual team or department. The design logic of a cost centre is to create one for each cost responsible manager, which normally aligns to a team or department. Cost centres can be grouped which then shows the cost of the business at a variety of levels (team, department, business area, office, country).

Because cost centres are defined by responsible managers they tend to mirror an organisations structure. They let us see costs by major buckets of organisational activities:

• Sales
• Marketing
• Administration
• Research and development
• Production
• Transportation
• etc.

When costs are captured by cost centre they are also captured by general ledger account. Accounts are defined according to accounting standards, however for the cost relevant accounts we can consider them as being organised closely related to 'nature of activity'. This lets us see whether they are related to items such as research agencies, consultants, systems, utilities or outsourcing service providers.

Using this combination of account and cost centre is a great starting point to build a picture of how much each area of the operations spends. This data answers questions such as:

• How much does finance spend on technology?
• How much does HR spend on technology?
• How much does warehousing spend on HR?
• How much does corporate spend on consultants?
• In a multinational case how much is country A spending on technology vs. country B?

In a company with a good data model and well designed account and cost centre structures we can often dig one or more levels deeper where we see unusual patterns. If a business area has unusually high expenditure on consultants we can see which team within that department is using the consultants. This helps to identify items to investigate further during assessment. This leads to targeted questionnaires, interviews and workshops.

Profitability analysis

Product related industries in particular have advanced cost and profitability reporting capabilities. These can provide very detailed analysis of

• Profitability by various dimensions (product, sales team, sales location, customer etc.)
• Product cost breakdowns (materials, labour, utilities etc.)

Analysing this data is a key part of assessments focussed on revenue growth, profitability and cost management.

Other financials

The above examples relate to the profit and loss statement which is often focussed on as part of business transformation. Finance may also help with balance sheet or cash flow reporting, for example:

• Asset vs. liabilities may be a focus during financial services transformations
• Cash flow may be a focus particularly in terms of operational sustainability.

Combining financials with other data

Magic starts to happen when combining financial data with other data. A good example is HR data. Care should be taken in this area as HR data can be very sensitive. Normally accessing data with named individuals is not advisable from an ethical, statutory and regulatory perspective. However, usually it is possible to access de-personalised data such as number of employees by level, by team, by function etc.

With the number of employees in a business area and the costs by nature of that business area we can look at cost per employee. For example:

• What's the spend on finance technology per finance employee
• What's the spend on training per line of business employee.

With data on locations, such as floor space per location we can look at cost with respect to location. For example:

• What do finance and HR spend per square foot on utilities for their shared service centre?
• What does corporate spend per square foot on utilities for their head office?

These results can be compared with benchmark data as discussed earlier to give an indication of whether inefficiencies are present or the performance is in line with good practice.

Easily accessible benchmark data includes high level metrics such as the cost of finance function as a percentage of revenue. It's more difficult to find the cost of a sales management team in the beauty industry. The more detailed we get, the closer we get to confidential information. However, some of this detailed benchmark data can be obtained from research agencies.

Even if external benchmark data is not available it can be useful to compare costs internally:

• What's the difference in travel spend across finance, sales, and HR and why?
• What's the difference in sales office costs per location and why?

In certain situations where access to operational teams or data is limited this may be the only source of information and should be explored in detail to draw as many conclusions as possible.

Policy

Each business area should have a clear and up to date policy. A good policy contains rules and guiding principles on the application of the other attributes, especially process, people (roles), data, systems and controls. Let's illustrate with a few examples:

The finance policy includes:

• Define the interpretation of generally accepted accounting principles (GAAP) to the specific interpretation and implementation by the organisation
• Describe how accounting principles translate into the valuation of transactions as they are recorded in systems
• Including; codification, materiality limits, approvals and the handling of accounting issues.

A poorly defined accounting policy can lead to operational inefficiencies and issues. At one end of the scale this means capturing more information than needed or doing more processing than needed. At the other end of the scale it leads to posting inconsistencies which make reports hard to interpret or at the worst incorrect.

The human resources policy will document important factors concerning the management of people such as the performance management process:

• How is performance measured?
• How does promotion work?
• Is there a performance improvement plan?
• What is the severance policy?

Without a clear HR policy there may be a number of issues caused by inconsistent management of people.

A good policy can provide a good sense of how an organisation operates. When carrying out an assessment this is a good place to start. Initial questions include:

• Does the business area have a policy? - if not, why not?
  • With no policy there will likely be informal or inconsistent processes and decision making
• If a policy exists, what is the quality level - is it complete, clear, up to date?
• If a policy exists is it used - are managers and employees aware of it, do processes, systems and data comply with it?

For a high level assessment checking if policy exists, how accurate it is and whether it is used is a good starting point. This can be done through document review, questionnaires and interviews. For an assessment of limited scope only a number of policies may be relevant and within those only limited number of sections.

For detailed assessment such as the implementation of new systems a line by line review of policy should be done as as early as possible, preferably prior to transformation project initiation. Policies often have useful and easily accessible information which can inform a projects scope, issues and risks.

Process

At it's simplest process is the conversion of an input to an output through one or more actions. These actions can be manual or automated. Manual processes may or may not be assisted by business systems. Where people are involved processes may be run by a single individual or may involve individuals across multiple business areas.

Processes can be defined at different levels of detail. For example a sales person adding commentary to a sales report may be considered as a process. This may then form a part of the sales performance management process, which in turn forms part of the order to cash process. Processes done by a single person at a single point in time may also be referred to as activities, tasks or process steps.

Transformation initiatives start by identifying scope at higher levels of process detail. During assessment, design and build projects move into lower levels of process detail. Project scope often changes as new information comes to light when assessing details.

All processes have a cost and a benefit. When assessing processes we should always maintain focus on these factors.

For example process costs may include:

• Labour cost equal to duration of human steps
• Labour costs related to management and governance oversight efforts
• Software costs; licenses, hosting, maintenance
• Data maintenance and hosting costs
• Asset maintenance costs where machinery or other devices are involved
• Location costs for any physical space required.

Benefits can be defined in terms of the value of the process outputs.

Ideally an organisation will have a clear understanding of all it's processes and each will be optimised in terms of cost and benefit. However assessing processes is challenging:

• Business areas can have thousands of processes
• Large scale transformations projects can easily become overloaded by the volume of processes they need to assess
• Processes are often not well documented
• Even if documented, processes may not be executed as documented:
  • Over time employees adjust and evolve processes based on issues, workarounds and individual preferences
  • Systems and data changes may lead to undocumented process changes.
• Systems, data and reporting transformation may overlook the human steps that processes facilitate. This includes meetings, discussions and decisions making. In these cases process documents only provide a limited view of the full process
• Organisation re-design programs may fail to assess the full scope of process work within teams or assigned to individuals
  • Activities such as work-shadowing can help mitigate this risk.
• Acquisition integrations often focus on financial metrics, organisation design and systems architecture without considering processes in detail. Organisations with a history of making acquisitions without full integration often end up with multiple variations of the same process; different steps, different systems, different data. This can lead to inefficiencies as well as a lack of true comparability of the financial and management results.

When assessing process focus should be placed on:

• The efficiency of the process activities
• The quality of outputs

The lean mindset is useful when it comes to process assessment. A big part of lean is looking at the current process in detail and continually trying to identify defects and inefficiencies.

I view process as the foundation of an organisation. If strategy defines the objective, process is the way to reach it. People, data, technology and other attributes are key enablers, but tend to be more transient.

Process knowledge in an organisation is often spread out and inconsistent. In large organisations experts tend to work in silo's. This means it can be difficult and time consuming to understand the operation. Many leading multi-national organisations have invested in multi-year projects to understand and document processes. They do this for several reasons:

• To manage risk and gain improved control
• To identify the source of inefficiencies and better manage cost
• To make it easier to identify improvement opportunities.

Process frameworks

Given that processes are challenging to work with it's useful to work from a framework or taxonomy. This can help ensure an assessment is comprehensive. A framework can show the breakdown of processes across different levels of detail. Take for example the finance function, one way to break down its processes:

• Finance & accounting
  • Financial accounting
    • Accounts payable
    • Accounts receivable
    • Inter-company accounting
    • Fixed assets accounting
    • Accruals
    • Period end closing
    • Statutory and regulatory reporting
  • Management accounting
    • Internal adjustments
    • Period end closing
    • Financial planning and analysis
    • Management reporting
  • Specialist functions
    • Treasury
    • Tax
    • Technical accounting and accounting issues.

Each of these can be be further broken down into more detailed processes eventually leading to individual tasks.

A similar framework can be put together for any business area. Once we have this framework we can use it to better structure assessments.

This initial step of documenting processes in a framework can improve management and collaboration by building a consistent understanding of what is done in each business area. It also promotes the use of a common language. I've observed that terms such as 'financial accounting' and 'management accounting' are interpreted differently by different people. The framework removes any vagueness about this and at a glance shows exactly what is included in each. At this stage frameworks may highlight:

• Unexpected work being done in a business area
• Work being duplicated across business areas.

Observations at this stage can help generate a list of focus areas to investigate in more detail during an assessment.

Moving into further levels of details can be time consuming, this will often require:

• Gathering and reviewing process documents
• Issuing questionnaires
• Holding interviews and workshops.

From the finance taxonomy above take the example of 'Fixed Assets Accounting'. To understand how that breaks down into sub processes an expert may be able to guess that it will be something like:

• Asset acquisition
• Depreciation calculation
• Asset disposals
• Asset counts
• Asset reporting

But to understand what kind of assets are relevant and validate/update this list it will likely require discussions with fixed assets accountants. Detailed assessment and discussions can not only help define the detailed processes it can capture process attributes such as

• Time spent on each process
• Systems and data related to each process
• Extent of manual calculations or postings
• Extent of effort related to reconciliation across accounts or systems
• Existence of issues, problems or workarounds
• Time spent 'fixing' data
• Time spent preparing reports.

The challenge is it takes a lot of time and effort to reach this level of detail. This is one of the biggest challenges transformation experts and consultants face. Especially as business experts are often assigned to assist transformation projects in addition to their full time daily work.

In the case of limited time or access to experts I'd recommend starting with:

• Review of
  • Strategy documents
  • Organisation model documents
  • Policies
• Holding interviews with business area leaders/managers only.

This can be quick and can provide a way to partially validate an initial process taxonomy as well as identify key attributes of each process, for example:

• As a rough %, how much effort is spent on each sub process?
• Do any process areas suffer from repeated issues or problems?
• What is the nature of the business systems supporting each process
  • Single or multiple?
  • New or old?
  • Self managed or software as a service?
• Are there any significant data issues or work required to fix or transform data?

Process modelling

If there is time and access to experts to go into more detail a structured way to do this is through process modelling. There are various approaches and standards to process modelling. One that I've used extensively before is BPMN. An older, but excellent book on BPMN is BPMN Method & Style.

Process modelling provides a standardised format to document and visualise processes while clearly calling out inputs, activities and outputs.

• What are the inputs?
• Are there connected upstream processes?
• What are the attributes of the process steps / activities?
  • What is the nature of the activity e.g. create, approve, analyse, post?
  • How long do the activities take - effort vs. elapsed time?
  • Which systems are involved?
  • Which roles are involved?
  • What data is involved?
  • Are there control steps?
• What are the outputs?
• Are there connected downstream processes?

Building process modelling capability with methods such as BPMN can be time consuming. If there is limited time to invest then simple block diagrams or bullet points lists can provide a starting point. However I'd recommend even in a simplified approach to create a style guide with modelling rules, it's important to make sure that processes are modelled in a consistent way, otherwise we lose the benefit of creating transparency.

Assessing operations through process

Let's summarise key factors to assess when looking at process.

Outputs

Outputs are key. Process models should always clearly define the output state:

• Think of it in terms of of output content and how that changes the business state
• Does the output add value to the business in it's current form?
• Can it be simplified or otherwise improved?
• From 'lean' consider 'overproduction'

Activities

The next step is to assess the state of the activities used to generate the output:

• Are there more steps than required?
• What is the end to end elapsed time? is time lost to waiting?
• What is total effort?
• How many different systems are used?
• From 'lean' consider over-processing.

Inputs

When mapping a process we also need to capture the trigger and inputs. Often the state of the inputs have a big effect on the steps involved in a process.

For example:

• Warehousing may have extra work due to procurement issues
• Finance may have extra work due to procurement and warehousing issues
• Treasury may have extra work due to finance issues.

This way of looking at process drives us towards horizontal process management and value chains. Rather than improving individual areas in isolation and risking a negative impact on upstream or downstream processes it's better to consider the end to end process.

Process considerations for different transformations

As a starting point here are sample process considerations for a range of common transformation types.

Acquisition and divestitures

• The scope of processes carried out by the business
• The maturity of the processes
• The amount of effort behind them
• Any high risk processes (business critical, unstable, with issues, requiring critical human knowledge)
• In the case of acquisitions do all existing processes need to be continued post-acquisition, are there synergies with existing processes?

Business systems implementation

• The scope of processes, in particular the quality of outputs
• How clearly understood and documented processes are
• The level of standardisation, number of variances and exception handling
• Reliance on manual work
• Known issues and problems.

Cost reduction

• The scope of processes
• Whether all outputs are used/required. Cases of overproduction.
• Cases of over-processing and over-production such as excessive checks, approval or overly detailed outputs
• High level of effort due to manual work, duplication, system interfaces etc.

Work transfer to shared services or outsourcing

• Scope of processes
• Extent of and quality of documentation
• Issues, workarounds, manual steps.

Organisation re-design

• Scope of processes
• Extent of and quality of documentation
• Accuracy of job descriptions and understanding of role to process mapping.

People and organisation model

Special care should be taken when it comes to assessing people. There may be statutory, regulatory, union, works council and ethical considerations when it comes to using employee data, discussing or making decisions concerning employees.

I'd recommend working with human resources and legal when it comes to accessing and using human resources data or when a transformation has the potential to impact employees.

Organisation model

The structure of an organisation in terms of people and their roles is usually summarised in an organogram with accompanying detail in human resources systems, spreadsheets and other documents. Useful information from these documents to consider for assessment includes:

• The number of employees per business area, function, department etc.:
  • Consider the number of employees vs. size/value of outputs
• The ratio of managers to employees:
  • Useful to benchmark internally and externally
  • This can reveal a high level of middle management or conversely can reveal a lack of management
• Number of people in core product / service delivery roles vs. service functions
• Consistency of reporting lines
• Retention rates across business areas.

I've found that organisation structures are prone to inconsistent evolution based on the preferences of individual managers.

Organisations often periodically assess and adjust their structure. This can include assessing the number of roles and the reporting lines. These initiatives often aim to reduce cost, improve controls, and improve overall effectiveness. However, after an organisation update it may not take long for the organisation to start deviating from the design based on the preferences and decisions of individual managers. This may lead to inconsistencies across business areas when it comes to factors such as responsibilities, skills and capabilities at different levels. A good policy and effective human resource function can help to maintain organisational consistency.

When considering business transformation we should assume there may be such inconsistencies within the organisation. Reviewing the organisation chart, human resources policy and holding an initial discussion with human resources is a good way to start an assessment.

Detailed employee data

Detailed employee data that can be useful includes:

• Role descriptions
• Detailed employee data:
  • Hire date
  • Salaries and benefits
  • Location
  • Performance ratings and feedback
  • Potential severance timeline and costs per contract.

As some of this is sensitive data it may not be possible to access by named individual, but may be possible to access in a de-personalised form with names and employee id's removed.

This information helps to analyse how consistent employee costs are by role, team, business area and location. The roles can be benchmarked with internal data including other locations or business areas and with external data including data by industry, competitor and professional bodies.

Culture and behaviours

It's important to consider an assessment of an organisations culture and any patterns related to employee behaviours. Transformation programs often focus on tangible factors such as financials, project plans, roles, process, data and systems. These can be assessed in a methodical way. On the other hand culture and behaviours are harder to assess. Consider:

• Organisation wide culture
• Business area, function, department, team specific dynamics
• Location based culture particularly for multi-nationals
• Level based behaviours for example; blue vs. white collar employees.

I started my career at Procter & Gamble. P&G have a strong corporate culture, I re-call we even had the term 'Proctoid' to describe us. However even in P&G there were significant cultural differences:

• Location based: Mid-west american headquarters vs. UK entities
• Manufacturing plants vs. marketing
• UK northern service centre vs. London HQ.

Moving beyond broader cultural factors and into individual business areas we see differences across individuals:

• Individual working vs. team working (levels of collaboration)
• Aggressiveness vs. politeness
• Honesty vs. politics
• Focus on soft vs. hard skills
• Clarity of communications (openness vs. 'closed door')
• Excitement for and willingness to change vs. resistance to change.

Some of these factors have a bigger impact on the ability for an organisation to transform in a positive way than more obvious things such as budget or skills.

For example it's easy to observe that in some cases a new employee who is optimistic and hard working can achieve more than an experienced employee who is unhappy and resistant to change. This isn't intended to point blame at individual employees, but rather to uncover the reasons for such behaviour and it's importance as something to assess.

Approaches which may help with assessing cultural and behavioural aspects include:

• Discuss this with human resources. They may have existing culture or behaviour assessments
• Use stakeholder analysis methods to profile people who have the ability to influence a transformation, then create strategies to manage them
• Make culture and behaviour an active part of the project plan. Hold workshops, review meetings, create an issue/risk log. Address the topic directly with more traditional project management mechanisms
• Make communications a focus. This can help to neutralise individuals with negative behaviours by reducing the power of disinformation and miscommunications
• Gather feedback. Use workshops and surveys. Anonymous surveys can be a useful way of gathering information that people are hesitant to raise in person
• Utilise change management methods and tools.

A people orientated change management method I have had success with is prosci ADKAR which stands for awareness, desire, knowledge, ability, reinforcement.

This is an approach that helps work through change with people. I've used this to facilitate information gathering and discussion with stakeholders and employees before. It's very effective at uncovering fears and other concerns. This can be invaluable to identify potential issues early and make adjustments.

ADKAR is one of many approaches available. The key is not the method, but the intention to address the topic in a direct way.

As mentioned this kind of assessment often uncovers fears. Some of the common ones I've encountered include:

• Risk of job losses: 'the transformation makes my role less important'
• Loss of importance: 'the transformation may make my current skills and knowledge obsolete'
• Undesirable role changes: 'my role in the future organisation does not look appealing'
• History of failure: 'we already tried this and failed, this will create extra work for nothing'

When assessing operations if you encounter resistance to change it may in itself be an operational performance issue. Effective organisations should be flexible, adaptable and be able to affect change without the creation of undue stresses.

It may be useful to assess in more detail the history of transformation within the organisation. Have previous programs frequently failed? If so, why?

Change fatigue

A history of failure links to change fatigue. Many organisations run a constant stream of transformations. Often employees, managers and stakeholders have transformation project responsibilities in addition to their day-to-day full time roles.

When assessing change effort and putting together a business case and project proposal it's important to consider the resource requirements. Watch out for managers assigning employees transformation roles on top of their daily work. It's not uncommon to see people already working full time assigned additional project roles. In some cases individuals have workloads exceeding 100% of a normal full-time level.

This leads to change fatigue. This can be made worse if there is a history of transformations that fail. This includes transformations that did not achieve their targeted benefits or transformations that were more complex than initially estimated.

Bad actors

I'm hesitant to write about individuals as there are often complex reasons for the way people behave, but I think a good quality assessment has to consider this.

Many of the transformation programs I've worked on have encountered issues due to the behaviour of one or more individuals. This includes:

• Basic behavioural issues; gossip, complaining, work avoidance, poor communication, lack of diligence with work basics (task quality, meeting management, use of e-mail etc.)
• People acting according to their own agenda rather than in the interests of the transformation and the organisations broader goals
• Managers assigning low performing individuals to critical transformation roles
• Organisations staffing transformation programs with people that lack the required skills or capabilities.

These may be issues with the employee or managers. The impact of these behaviours often go beyond the individual.

• Complainers can influence those around them to create a culture of focussing on the negative as opposed to working towards more optimistic goals
• Those who avoid work, or have other behavioural issues or lack skills often create a additional work for those around them. Hard workers and highly capable people may end up doing the work of more than one person. This can lead to burn out or resignations from those who are in critical roles.

As part of an assessment it's important to proactively look for bad actors either within the project team, the stakeholders or other employees the team interacts with. This assessment can help as a basis to plan to either help people or neutralise any negative influences.

I am sure that I myself haven't always behaved perfectly at work, especially during stressful transformations and I would have benefited from mechanisms being put in place to help.

Technology

There are two main aspects to consider when it comes to technology, there is 1) 'functional' technology utilised by non-technology functions and 2) the technology functions own technology which will typically includes things like telecoms, internet, data centres, IT service providers etc.

The biggest challenge in the technology space is perhaps the complexity to execute change.

Areas to consider as part of assessment include:

IT service providers:

• Contract rates
• Service provision quality

Business systems:

• Feasibility of existing systems to support any process, data or role changes, or feasibility to find and implement replacement systems
• Existence of any end of life systems that represent risks
• Existing costly systems that could be easily migrated to cloud services
• License costs: are all licenses paid for required/being utilised
• Support and development costs. This is a good point to benchmark.

Desktop:

• Operating platform, potential to move to lower cost
• Are all paid for desktop applications required/being utilised?

If it's not already done, it's worthwhile considering benchmarking all technology costs. Within the technology industry there's rarely a fixed price for software and maintenance and an assessment of costs could lead to contract re-negotiation or a change of suppliers.

Data

As with technology, data is an area that can be expensive and time consuming when it comes to transformation.

Factors to considering in an assessment include:

• Over-processing and over-production
  • If there is data on a report that doesn't need to be there. Then likely there are a number of upstream steps gathering, cleaning, analysing and preparing that data.
• Duplication, is same data being stored in multiple locations
• Are there problems with the interfacing of data between systems
• Are multiple reporting tools being used to access and manipulate the same data.

The problem of multiple reporting tools can be a large problem particularly in multinationals. These companies normally have complex systems architectures comprised of numerous business systems. In recent years tools for data manipulation and reporting have become cheaper and easier to use. This can lead to different functions and teams putting the same data into different tools. Manipulation of the same source data in different analytics and reporting tools can create comparability issues. This is a real challenge for technology functions as it has become easier for other business areas to buy software as a service without the involvement of the technology function.

Within finance this is often an issue between statutory reporting and management reporting tools at the consolidated level. One set of reporting tools is configured orientated towards statutory consolidation, the other to the towards management consolidation. This can create a stream of dual work. And can result in inconsistent management reports which require further effort to reconcile.

To make this worse, other teams such as sales may be using yet another set of reporting systems.

In some companies there are teams of people in different departments doing the same thing, but with different tools in different ways.

I've seen cases where executive committees have to deal with several different calculations of gross sales or gross margin.

Locations

Assessing locations includes considering office space utilised as well as the potential usage of work from home policies.

In some industries locations may include facilities such as manufacturing sites, distribution centres, data centers, hospitals, hotels etc.

Factors to consider are:

• Number of locations, facilities in each location
• Cost per square foot of locations
• Utility cost per location.

An analysis of this can lead to location moves and/or consolidations. When taking these decisions it's important to consider all impacted factors:

• How does location affect recruitment and employee well-being
• How does location affect supply chain; access to customers, vendors etc.
• Are specific locations required for licensing reasons
• What office facilities are available at different locations

Governance, risk and compliance

Business transformation is often focused on revenue growth, cost and profitability. Whenever considering and designing a change to an organisation it's important to consider governance, risk and controls.

Some transformations may be specifically focussed on this topic. This may be the case following fraud, financial reporting errors etc.

Governance, risk and compliance applies to other process attributes. For example controls should be embedded as part of roles, process, data and systems design.

During an assessment, key questions to consider include:

• Do policies cover governance, risk and controls
• Do processes have built-in or compensating controls
• Does the data management policy, process and systems cover data access, security and retention requirements
• Do systems have access and process controls in place.

Assessment approach

When executing business transformation organisations usually follow a project management methodology. These can be a useful starting point when considering how to approach an assessment. Commonly followed standards and methods include:

• Project management institute: project management body of knowledge
• PRINCE2: projects in controlled environments
• Agile/scrum (many variations)
• Software specific methods e.g. SAP Activate method
• Consulting firm methods
• Organisations internal methods

We can consider project management methods to broadly focus on two areas:

• Main phases; initiation, planning, execution & control, closure
• Management mechanisms: issues, risks, stakeholders, change, financials etc.

Assessments are usually carried out as part of different phases. For example a scope assessment during initiation or a detailed 'as is' assessment during execution. The challenge with many project methodologies is they give only general guidance. This allows methods to be applied to many project types, but makes them less useful when it comes to telling you exactly what to do at what level of detail.

IT vendor or consulting firm methods may provide more guidance on exactly what to assess as they are customised to specific transformations. However they tend to have their own weaknesses. Software implementation methodologies tend to be poor at covering business value and people-steps. Consulting methods may focus well on value, but lack technical detail on exactly how to achieve it.

Part of project planning and initiation is to design the detailed approach to any assessment that needs to be undertaken. The starting point for this is to identify all relevant assessments. Usually transformations require more than one as successive levels of detail are explored:

1. Assessments at the organisation wide level
   • Business overview & strategy
   • Financial and management reports
2. Business area overviews
   • Strategy
   • Financial and management reports
   • Organisation charts
3. Business area details
   • Policy
   • Process
   • Reports
   • People / org model:
     • Headcount
     • Roles
     • Training, skills, capabilities
   • Technology:
     • Infrastructure
     • Business applications architecture
     • Design specifications
   • Data:
     • Data model
     • Data library

Tools and templates

After identifying the necessary assessments and the desired level of detail the next step is to define the assessment activities and the tools and templates that will help facilitate them.

I recommend to approach assessment in three main steps:

1. Gather and review available information
2. Identify and request additional needs
3. Hold discussions as required.

There may be multiple iterations within these steps.

Available information

The following can provide useful sources of information:

• Presentations:
  • Strategy & plan
  • Recent performance reviews packs
• Policy and process documents
  • Policy documents and handbooks
  • Process design documents such as process maps
  • Standard operating procedures
  • Work instructions
• IT documents:
  • Standards
  • Architectural documents
  • Design specifications
  • User manuals
• HR documents:
  • Organisation charts
  • Roles and job descriptions
  • Employee lists and details
• Logs of issues, problems and changes
• Project documents:
  • Project initiation documents
  • Design documents
  • Status reports.

What's available will vary by organisation. Experienced employees will be able to suggest other sources of information. The quality will also vary by organisation and will be a factor in determining how much effort is required for discussion and whether new documents need to be created.

Gathering additional information

Often additional information is required, useful ways to approach capturing this include:

• Surveys
  • Can be useful when anonymous information is needed
• Questionnaires
• Checklists
• Document requests
  • In some cases new documents may need to be created

Discussions

Discussions can take the form of meetings, interviews and workshops. These can be structured in several ways:

• Document walkthroughs:
  • Works well items where documentation exists but isn't clear or is complex
  • Examples include; strategy presentations, process maps, business or IT architectures and IT specifications
• Questionnaire reviews:
  • Help to clarify question answers
  • Unfilled questionnaires work well as interview and workshop agendas
• Brainstorming sessions can be useful in various situations:
  • Initial discussions at any stage to help clarify scope
  • Capturing undocumented factors such as issues, problems and inefficiencies.
• Workshops are useful when complex topics need to be addressed that require the participation of several people.

Lean

In addition to project methodologies there are other 'tools' that can be useful in facilitating assessment. Lean is one of these. Lean which famously originated from the Toyota Production Method is both a cultural approach to business and a set of tools. It represents a shift towards proactively looking for deficiencies and inefficiencies in daily work. This creates an excellent environment for assessment as there is a high level of focus and awareness on the attributes of existing operations; policy, process, systems, data, issues etc.

Lean also has a number of tools which can be useful in helping structure assessments. For example the 'the seven wastes'. Lean classifies waste into seven categories. These were originally identified for manufacturing, but can translate well into service industries too.

The seven wastes within services:

• Transportation: routing of paper documents, interfacing data across systems
• Inventory: unused software licenses, excess data
• Motion: poorly structured workspace, excess of meetings or travel
• Waiting: waiting for approval, actions or interfaces
• Overproduction: producing reports with unnecessary information
• Over-processing: excessive data manipulation that doesn't add value
• Defects: anything leading to rework.

This may look more like a design consideration than an assessment consideration, but these categories help to define what we need to look for during an assessment.

Other useful tools from lean include value stream mapping and right first time.

Six Sigma

Six sigma is another noteworthy technique worth mentioning in relation to assessment. In contrast with Lean six sigma is a statistical approach to assessment. Six sigma works well in processes which can be measured. The focus is on identifying variances and defects and eliminating these. Originating in Motorola this was traditionally popular in manufacturing where production lines could generate high quality statistical data.

This can also be used in service processes where IT systems can provide process data.

Assessing business areas in detail

Corporate function

Starting from the top the corporate function is an area that houses the executive committee members. It may also house areas such as strategy, legal and external communications.

Office of the executive

Executive committees provide the top level of management that is responsible to ensure organisations meet stakeholder needs. We can consider stakeholders in two groupings:

Primary stakeholders:

• In listed companies these are shareholders. They are interested in value in the form of growth and dividends
• In private companies these are owners. They may be interested in various things, but often growth and profits as well
• In public organisations they vary depending on the organisation. For example:
  • In the case of the BBC we could say it's the license fee payers
  • In the case of a hospital we could say it's the patients
  • In the case of a charity we could say it's their recipients.

Other stakeholders:

There's a fairly broad list of other stakeholders. These include statutory authorities, regulatory bodies, employees, unions, customers, suppliers, the local community and environmental groups. Which of these are relevant and how much focus is put on them will vary by organisation. The nature of responsibility of the executive committee will also vary depending on the stakeholder, for example:

• Statutory authorities: the executive committee must oversee the disclosure of accurate financial statements
• Employees: the executive committee is responsible for various aspects of the working environment and the management of benefits e.g. pensions.

In my experience executives manage these objectives through two different operational views:

1. Management of the current operation (daily / short term view)
2. Making decisions and plans for the future of the organisation (mid / long term view).

These two focuses break down into individual process areas.

Management of the operation

• Management of major issues and risks
• Monthly and quarterly reviews and corrective actions
• Drafting, reviewing and approving external communications
• Active management of important or high risk external stakeholders.

Making decisions and plans for the future:

• Annual business reviews and corrective actions
• Future planning (annual, long term)
• Review of research on product/market/economic trends
• Oversight of investigations into future opportunities:
  • New products, new markets
  • Acquisitions
  • Leveraging new technology.

In addition to these there is a significant amount of effort in managing collaboration across an executive team. This means committee meetings need strong processes in terms of agenda preparation, chairing, minute taking and follow up action tracking.

Within corporate it's common for organisations to engage strategy consultants, economic/market/product advisors and research agencies. It's less common to engage operations experts. This may be due to the infrequency or variability of corporate processes. This may increase the chance of finding improvements via operational assessment.

I'd consider key assessment topics according to a few categories

Executive committee structure and work systems

• Participation, clarity of roles and responsibilities
  • Too many people involved, slowing down decision making?
  • Involvement of right or best experts to improve discussion quality?
• Meeting frequency and format
  • Is web conferencing and other communication tools optimised?
• Consistency and comprehensiveness of agenda for periodic discussions
• Method for capturing issues discussed, actions agreed and follow through.

Daily work systems can be underrated. A good case study of this is the UK government 'Whatsapp' scandal. Ministers 'Whatsapp' chat histories were leaked. The data showed a few things:

• Decisions were often made at the last minute without a rational analysis
• Opinions were not formulated into options with issues and risks to be considered
• A lot of energy was wasted in complaints and frustration with this approach to management and decision making.

Future planning (annual, long term)

• Are inputs gathered in a structured way (reports, intelligence etc.)?
• Are inputs complete and of sufficient quality?
• Do discussions and decisions involve the right experts?
• Are all options explored before making a decision?
• How well do corporate targets translate to individual plans?

In the book Superforecasting: The Art and Science of Prediction by Philip Tetlock (Author) and Dan Gardner (Author) the authors bring to light the many of the challenges with forecasting. However, one of the common factors they find with 'good forecasters' is a data-based approach, and an ability to see past 'bias' and red-herring 'big ideas'.

Monthly/quarterly business review on actuals vs. plan vs. historic

• How well are results summarised to the executive?
• How clear is executive feedback and is it acted on?
  • Are executive comments and concerns formally tracked and resolved.

External communications (annual reports, press statements, investor updates)

• How many drafts and review cycles are undertaken?
• Are errors made?

Investigation into opportunities and challenges

• How long does it take to put together a team, run an analysis?
• What's the success rate of of previous initiatives?

Legal

Outside of the legal industry the legal area in an organisation may be small. Organisations may have in-house lawyers, or managers that engage and co-ordinate external lawyers as needed. Legal is often not a major focus of an operational reviews.

Key processes:

• Corporate legal structure
• Contracting support
• Policy support across all areas
• External communications and disclosures supports
• Legal perspective on business issues and risks
• Managing legal actions.

Questions to consider during an assessment:

• What's the organisations historical legal performance?
  • Is legal under or over represented in the organisation?
• Are business areas well informed from a legal perspective?
  • This can be gauged by looking at the clarity of policies. For example HR policy on employee severance, data policy on data retention, procurement policy on contract terms.
• Have any legal costs been incurred that may have been avoided. This includes costs such as non-compliance fines, contract break fees, court cases.

Costs to analyse:

• External spend on legal services; which can be very expensive
  • Lawyers, consultants and specialist advisors
• Internal costs; likely to be mostly employee related
  • Number of employees; salary and benefits
• Travel
• Any other legal fees.

Governance, risk & compliance

This is an area where responsibilities are built into employee and manager roles throughout the organisation.

• Governance: each business area should maintain their own policies, rules and frameworks
• Risks: each business area should run risk assessments and build risk mitigation plans
• Compliance: each business area should ensure they follow all legal, statutory and regulatory requirements.

For example:

• Finance are responsible to ensure annual accounts are submitted externally on time and with quality
• IT or data are responsible to ensure data is used in accordance with data laws.

In order to oversee how well business areas manage this an organisation may have a dedicated governance, risk and compliance team with several responsibilities:

• Overseeing governance, risk and compliance plans and activities
• Carrying out an internal audit
• Providing specialist advice on governance, risk and compliance, including:
  • Advising on policy
  • Advising on controls

Within certain industries there may be large teams of GRC experts that form a larger business area. For example in banking and insurance there are often separate risk and compliance teams. These industries have a large number of complex disclosures to prepare and a large number of high impact risks which creates significant operational work.

Questions to consider:

As with legal a good place to start is a brief investigation into historical performance in this area:

• Major control failures
• Compliance exceptions

The effectiveness of a GRC organisation can be assessed by how well their objectives are executed throughout the organisation by looking at:

• Volume and quality of policies in place
• Whether roles and responsibilities are clearly defined
• Whether process controls are in place
• Whether data controls are in place
• Whether IT access controls are in place
• A review of exceptions and failures.

Another point to consider is the frequency of and results of GRC assessments:

• Existing operations:
  • Operational control / compliance assessments
  • Risk assessments
• Assessments for operational changes.

One form of assessment I enjoy reading about is penetration testing. This can apply to physical locations as well as IT systems. Experts use social engineering and IT tools to test an organisations process and access controls. It's surprising how far experts can penetrate into an organisations process, data and systems, highlighting how important GRC assessments are.

Costs to analyse:

• Internal employee costs
• External contractor/advisor/consultant spend
• Cost incurred due to above control or compliance failures.

Line of business operations

Marketing

There can be a lack of clarity around the role of marketing in an organisation. At Procter & Gamble. AG Lafley famously talked about the core of the business as consumer market knowledge (CMK). In this sense marketing is identifying the wants and needs of potential consumers. The management of advertising campaigns also often sit within marketing. In some cases marketing includes leads generation and sales conversion, but I include these in sales. In other cases marketing includes branding, but I include this in product management.

Key processes:

• Create and manage marketing strategies
• Identify the wants and needs in the marketplace
  • Define the target market
• Input into product development and branding activities
• Input into sales planning and target setting activities
• Marketing campaigns
• Advertising campaigns.

Key metrics and reports:

• Consumer engagement
  • Cost to engage new customers
• Brand awareness
• Return on investment for marketing and advertising campaigns
• (Pipeline, lead and sales metrics as part of Sales)
• With online purchases there may be technology related metrics related to things lick click-through rates etc.

While there are many marketing metrics, an important metric is the connection between marketing campaigns, advertising campaigns and sales. In many cases this may not be well tracked due to the challenges to connect sales to specific campaigns.

Digital businesses may have quite unique approaches where marketing and sales are highly interconnected. For example when marketing and advertising campaigns are online and drive clicks from social media to online stores. In this case many metrics can be tracked across the end to end process.

Questions to consider:

• Past success of marketing and advertising campaigns
• Return on investment of marketing and advertising campaigns
• Use of external agencies and their performance
• Level of market research, source of information.

Key costs to analyse:

• External spend on market research / insights
• External spend on marketing and advertising campaigns
• Promotional materials.

Product development

Key processes:

• Develop products and services to meet marketing wants and needs
  • Product
  • Brand
  • Packaging
• Localisation of global branding and packaging.

Key metrics and reports:

• Sales
• Consumer feedback

Questions to consider:

• Analysis of product launch and sales and consumer feedback.

Key costs to analyse:

• Brand agency costs
• Design agency costs (packaging)

Sales

Key processes:

• Sales planning: from top down sales targets to market/customer plans
• Lead generation
• Pipeline management
• Sales conversion
• Contract management
• Relationship management
• Customer contact centre
• Indirect sales (wholesalers, resellers)

Metrics and reports:

• Product sales, gross margin
• Gross sales:
  • Value at cycle stage; lead, total contract, order, invoice
  • Value by management dimensions; location, product/service, sales org, sales person
• Customer contact centre metrics (calls, requests etc.)
• Customer feedback.

Key questions to consider:

• Basics of the sales model; direct vs. indirect, customer types etc.
• How well managed are the key processes?
  • Level of documentation and standardisation
  • Frequency and quality of performance reviews and corrective actions.
• Review of sales performance; product/service by geography, customer etc.
• How does sales performance vary by location, team, individual?
  • Identify exceptions and look for reasons for good or bad performance.
• Ratio of employees focussed on sales vs. management or assistance
• Analysis of customer relationship management including:
  • Different approaches based on account type / size etc.
  • Review of customer feedback
  • Review of customer requests (volumes, topics).
• Reasons why leads or existing customers are lost.

Key costs to analyse:

• Employee pay structure:
  • Do pay levels mirror performance
  • Effectiveness of any bonus or other performance benefit structures.
• IT systems and data management
• Market intelligence.

Outbound logistics

Key processes:

• Warehousing management
• Inventory management
  • Stock management and stock counts
  • Order picking and packing
• Transportation
  • Shipping
  • Last mile delivery
• Indirect distribution (wholesalers, retailers)

Metrics and reports:

• Inventory turn-over, stock to sales ratio, sell-through rate
• Safety stock
• Accuracy of forecast rate, demand patterns
• Lost sales ratio
• Perfect order rate
• Inventory shrinkage, average inventory

Key questions to consider:

• Optimisation of stock levels held in inventory
• Demand variability and effectiveness of outbound logistics to manage it
• Analysis of issues
  • Customer returns and rejections (wrong product, quantity, condition)
  • Customer complaints (late deliveries, product quality).
• Effectiveness of IT systems
  • Real time stock updates
  • Delivery information portals for customers.
• Operations model for distribution centres (staging, sorting, loading etc.).

Key costs to analyse:

In the case of outbound logistics high costs are likely to be centred around warehouse locations and transportation.

• Warehouses and other storage locations including rent, rates and any physical asset purchase/maintenance costs
• 3rd party logistics agreements for 3rd party warehouses/distribution centres
• Transport contracts
• Employee costs
• Finished product stock write-offs due to damage etc.

Supply chain

Procurement

Within manufacturing procurement is a major part of inbound logistics which focusses on raw materials and packing materials. However, procurement has a broader scope including items such as fixed assets, office supplies and external business services. Therefore I've separated it out from inbound logistics.

Key processes:

High level process areas include:

1. Procurement management and policy
2. Sourcing
3. Contracting
4. Ordering
5. Vendor management.

Within procurement management and policy important areas include:

• Procurement organisation set up (level of centralisation, scope of categories managed)
• Sourcing approach:
  • Usage of tenders, RFIs, RFPs etc.
  • Negotiation skills and approach
• Contracting approach
• Policy rules:
  • Approved supplier list
  • Spend limits and approval limits per category
  • Payment methods and terms
• Utilisation of technologies such as e-invoicing, procurement portals, supplier portals etc.

Within the raw and pack space important areas include:

• Sourcing approach for raw and pack (tenders, RFIs, RFPs etc.)
• Special processes such as consignment stock / vendor managed inventory
• 3-way matching (order, receipt, invoice)
• Communication related to returns and handling of credit notes etc.

From a broader procurement perspective important areas include:

• Sourcing specifics for business services. Common examples include:
  • IT hosting, software as a service, IT outsourcing etc.
  • Business process outsourcing
  • Facilities maintenance
• Controls related to purchases without contract or order.

Metrics and reports:

• Spend by various dimensions:
  • Spend category: materials, assets, utilities, services etc.
  • Spend type: on / off contract, On / off purchase order
  • Initiator: Business area, department, team, individual, location
  • Payment methods
  • Payment terms.

Questions to consider:

• Analysis of the spend as noted above. How do business areas compare? How does the organisation compare to competitors?
• Is there a structured approach to procurement across all spend categories?
  • Within manufacturing the high value of raw and pack combined with the focus on cost management usually means there is a highly structured approach to procurement; tenders, negations, contracts, orders-receipts-invoices matching etc. However this may be missing when it comes to other spend categories.
• Is there a single procurement organisation able to leverage scale of organisation wide spend in a controlled way with centrally selected suppliers
• Are payment terms standardised and optimised. This includes a focus on time to pay vs. discounts achieved which will vary depending on cash flow vs. profitability objectives of the organisation.
• Are any purchases made outside of contracts? Were they needed, were they good value
• Are any purchases made without purchase orders? Were they needed, were they good value
• Are preferred payment methods identified in policy and how compliant are suppliers with this
• Feedback from suppliers and open issues and risks lists.

Key costs to analyse:

• Contract purchase rates vs. benchmark
• Any off contract purchases or off order purchases
• Lost discounts.

Inbound logistics

Key processes:

• Procurement for raw and pack
• Transportation
• Receiving
• Inventory management
  • Goods movements (into storage, to manufacturing etc.)

Metrics and reports:

• Transportation: less than truckload shipments
• Time to receive
• Supplier quality index.

Key questions to consider:

• Supplier relationship management (covered above, but key for raw and pack):
  • Payment on time, discounts achieved?
  • Leveraging scale for discounts?
  • Negotiation approach and capability?
  • Supplier performance; delivery, quality etc.?
• Optimisation of transport costs:
  • Level of consolidation of suppliers and discounted rates
• Variability in demand plan and level of optimisation of raw and pack stock levels
• Volume of goods movements, are locations optimised, are unnecessary movements happening
• Transportation scheduling
• Are there wastes in the system (consider the Lean 7 wastes).

Key costs to analyse:

• Raw and pack spend including loss discounts
• Transportation contracts
• Any wastage / write-offs.

Manufacturing

Key processes:

• Production planning
• Production process:
  • Raw and packing material transfer to production
  • Production line steps
  • Finished products receiving into stock
• Plant maintenance

Questions to consider:

• Production costs in detail:
  • Including direct and indirect costs
  • Looking at performance vs. plan vs. previous periods.
• Analyse product line metrics; downtime, changeovers, reliability, issues, defects etc.
• Look at use of in-house production vs. third party contract manufacturing
• Location considerations; distance from raw materials, cost of utilities, access to workforce, distance from warehousing locations or customers

Key costs to analyse:

• Indirect
• Rent and rates (utilities)
• Workforce
• Asset cost/value (plant machinery)
• Plant maintenance.
• Transport costs
• Contract manufacturing
• Contract warehousing

Business services

The finance function

As finance is an area I focus on I will discuss in a little more detail. It's useful to start by considering the purpose of the finance function. The main objectives are:

• Keep a financial record of business activities:
  • Ensure transactions managed by other areas are correctly recorded and valued, for example:
    • Goods receipt of raw materials into inventory
    • Conversion of raw materials into finished products
    • Asset purchases
  • Ensure 'finance owned' transactions are correctly recorded and valued, for example:
    • Assets: Investments and cash movements
    • Fixed assets depreciation
    • Liabilities: Loans and debt
• Implement and manage controls for all financial transactions
• Ensure that business decisions consider all relevant financial factors including helping to steer the business through financial insights
• Manage financial processes, for example:
  • Ensure suppliers are paid
  • Ensure payments are received and processed
• Prepare financial reports for various stakeholders, including for example:
  • Statutory authorities
  • Regulatory bodies
  • Shareholders
  • Internal decision makers.
• Specialist areas such as tax are often considered as part of finance.

This can be summarised as the correct recording and processing of financially relevant business activities and reporting and communicating results in as efficient a way as possible.

Questions to consider at different stages of the process:

Inputs: the recording of financially relevant activities:

• Who records the transaction (departments, teams)?
• Where are they recorded (which locations, which systems)?
• What level of automation is in place?
• Are there errors? Are multiple reviews and correction required?

Processing: correcting, adjusting, aggregating and summarising:

• Who does the processing work (departments, teams)?
• How many steps are there?
• What level of automation is in place?
• What level of re-charging, cross-charging, and allocations take place?

Outputs: reports summarising financially relevant business activities:

• How many reports are prepared, by whom?
• What level of automation is in place?
• How much manipulation is required to create reports?
• Is all of the data contained in reports utilised?
• Is some data missing?
• Is reporting effort duplicated across business areas, or systems?

When assessing the finance function there are a range of documents that can be reviewed. These include:

• The finance policy (or accounting policy)
• The log of accounting issues
• The auditors reports
• Organisation design documents
  • Organisation charts
  • Roles / job descriptions
• Process documents
  • Process maps
  • Work instructions
  • Documented workarounds
• IT documents
  • User guides and handbooks
  • Design specifications for systems
• Plans and reports
• Key meeting agendas & minutes
• Issue lists, change lists, problem lists
• In-flight project information
  • Project initiation documents
  • Status reports
  • Requirements documents and design specifications.

Assessing finance metrics

The best place to start is the cost of the finance function. As with other service functions the main cost will either be staff costs or external service providers.

In the case of the internal finance function the sizing and suitability can be examined by looking at the organisation model and role descriptions alongside the scale of transactions and complexity of the overall operation. This is a point that can be benchmarked internally or externally.

In addition to staffing costs, other costs to look at include:

• Accountancy fees for external accountants
• Consultancy fees
• Audit fees
• Finance systems costs including:
  • Enterprise resource planning
  • Financial planning and analytics
  • Management reporting
  • Consolidation and statutory reporting
  • Disclosure / return preparation
  • For all systems consider license fees, maintenance costs and development costs.

In addition to costs finance processes can be analysed through process and data metrics:

• Volume of transactions by type and status
• Number of data elements managed.

Assessing the accounting policy

A poor quality accounting policy can lead to processing issues:

• Uncertainty on how to handle certain transactions
• Inconsistencies and variation in recording and valuing activities.

Questions to consider:

• Does the policy exist?
• Is it up to date and complete?
  • Is there an organisation specific interpretation of IFRS/local GAAP?
  • Are valuation guidelines and rules clear for different transaction types?
  • Are clear codification rules included (account and management objects)?
  • Are appropriate materiality limits included?
  • Is delegation of authority covered?
  • Are spend limits clear?
  • Are accounting controls clear?
  • Are roles clear including key roles such as financial controllers?
  • Is there a documented process for accounting issues and escalation?

Assessing finance process

• Are processes well documented?
• Are processes standardised?
• Do exceptions/issues exist, are they documented?
• Do variations exist, are they documented?
• Are process responsibilities clear including task to role mapping.

Accounting specifics:

• Are any business activities recorded in finance manually?
• Are open items cleared in a timely manner (aging analysis)?
• How well do finance sub processes perform, for example:
  • Accounts payable: right first time, payment on time, rejected payments
• What level of manipulation do finance people do on financial data?
  • Reversals
  • Adjustments
  • Recharges
  • Cross charges
  • Allocations
• How much effort goes into migrating financial data across systems?
• How many reports are prepared:
  • Are any reports prepared manually in tools such as excel and access?
  • Is there duplication of effort across different reporting tools?
• How many days does it take to run periodic financial closing?
• How many days does it take to run periodic management closing?
• Is there any misalignment between financial and management accounts?
• How many accounting and audit issues exist?

Assessing people & organisation

• How well designed is the finance organisation model:
  • Level of centralisation (scale)
  • Level of outsourcing (labour arbitrage, access to expertise)
  • Presence of business partnering / dedicated business analytics roles
  • Presence of supporting technical roles such as technical accountants
  • Pooling of delivery roles such as A/P across business areas.

Assessing data & information

Topics to consider include:

• Financial data structure complexity:
  • Legal entities
  • Accounts
  • Currencies
  • Transaction types
• Management data structure complexity:
  • Cost centres
  • Profit centres
• Duplication of finance data across systems
• Overproduction of finance data:
  • Reports with unnecessary data
  • On demand report generation: is it all necessary, value-add
• Underproduction of finance data:
  • Do discussions and decisions suffer from lack of supporting data.

Assessing finance systems

• Is an integrated enterprise resource planning system and the associated automation of transaction capture in place?
• What extent of automation is in place?
  • Basic automation 'out of the box' with systems
  • Tools such as robotic process automation (RPA) to automate user steps
  • Tools such as artificial intelligence e.g. chatbots
• Are there a significant number of interfaces?
  • Does this lead to any additional reconciliation effort?

Finance costs to analyse

• Employee costs for finance
• Audit fees
• Consultancy fees
• Finance systems license and maintenance; ERP and reporting tools.

Human resources

Human resources manage the hire to retire cycle. A primary focus of this is the recruitment and retention of talented individuals.

Key processes:

• HR strategy
• Advising and administration of the organisation structure
• Co-ordination of employee communications
• Talent pipeline, talent acquisition
• Leavers
• Succession planning
• Learning and development
• Objectives & performance management
• Compensation management
• Benefit delivery
• Personnel administration
• HR contact centre
• Payroll
• Time management
• Reporting / analytics
• Business partnering

Assessing HR metrics

• Hiring statistics
• Retention statistics
• Regretted leavers statistics and reasoning
• Process measures:
  • Travel expense processing (number of claims, blocks, rejections)
  • Employee requests processing (number of request by type)

Assessing HR policy

• Policy quality and consistency on key HR factors:
  • Salaries & Benefits
  • Travel
  • Performance management including disciplinary procedures
• Facilitation of basic training for employees:
  • Including new corporate processes and policies.
• Simplicity and consistency of reward; benefits, salary etc.

Assessing HR processes

• Do HR adequately support other business areas on key people matters?
  • Recruiting for key roles and managing leavers
  • Performance management (objective setting, reviews etc.)
  • Skills and capability management.
• Do processes exist to manage and retain top performers?
• Are succession plans in place for key roles?
• Does HR drive high quality, consistent employee communications?
• Is the handling of employee requests well managed?
• Are travel expenses processed on time, without error?

Assessing HR people and organisation

• Is the organisation model well documented?
  • Is there a detailed and up to date organisation chart?
• Do job descriptions / role descriptions exist for all roles?
• Is the HR function centralised?
• Is HR outsourcing leveraged (opportunity areas include payroll)

Assessing HR data & information

• What level of manual data manipulation takes place:
  • Administration of employee data
  • Processing employee requests
  • Manual report creation.

Assessing HR systems

• Are HR systems fully integrated with finance (expenses and payroll)
• As with finance, what extent of automation is in place?
• Are there a significant number of interfaces?
  • Does this lead to any additional reconciliation effort?

HR costs to analyse

• Employee costs
• Outsourcing if in place e.g. payroll
• Specialist administration costs e.g. pensions
• Consultants and advisors.

Information technology

Key processes areas within IT include:

• Processes:
  • IT strategy
  • IT architecture management
  • IT service management
  • IT systems development
  • IT systems security
  • IT project and portfolio management
  • IT business partnering
• IT areas:
  • Technical infrastructure
    • Operating platforms, middleware, network etc.
  • Business applications
    • By domain; finance, HR etc.
  • Internet
  • Mobile
  • Desktop

Metrics and reports:

• Service metrics:
  • Incidents, change requests, problems
  • Availability
  • Capacity.
• Security incidents/log
• Projects:
  • Success criteria
  • Issues created by projects
• Service provider / contact metrics

Questions to consider:

• Does an IT policy exist, is it complete? Does it cover items like:
  • Approved apps
  • Web filtering rules
  • Security policy
  • IT procurement rules, approved vendors.
• Is architecture management in place, this can apply at various levels:
  • Technical infrastructure architecture
  • Business applications architecture across various domains
  • Is there a clear strategy of on-premise vs. software as a service?
• Is there a project and portfolio management office in place?
  • What's the success rate for IT projects?
  • Are 'lessons learned' captured and integrated into future projects?
  • Are integration points well managed across IT projects?
• How well defined and managed are processes around issues, changes and problems?
• How well defined and managed is the application development process?
• Is IT outsourcing in place?
• How well managed is desktop?
• Connecting to data, does IT have a master data management system?

People and organisation:

• Is the organisation structure clearly documented?
• Are role descriptions in place for all IT roles?
• What level of centralisation is in place?
• Is IT outsourcing utilised?
• What level of reliance is there on contractors or consultants?

IT systems:

• What level of 'lock-in' exists with software suppliers
• What extent of legacy systems exist? What is the level of risk?
• Factors related to the architecture:
  • Complexity: number of applications (level of fragmentation)
  • Level of integration of different business systems
    • Manual vs. automated interfaces (and reliability of automation).

Costs to consider:

• Hardware costs from data centres and servers to network and desktop
• Software licensing costs
• Software as a service fees
• Employee costs
• Consultancy costs.

Facilities and workplace

Key processes:

• Facility maintenance
  • Fixtures, fittings, furnishing etc.
• Asset management
• Security
• Health and safety
• Cleaning
• Food and drink.

Questions to consider:

• What's the organisation structure of the facilities team?
• How many physical locations does the organisation use?
  • Are locations owned or leased
• What are the costs associated with the locations?
  • Benchmark internally and externally
• What are the benefits per location:
  • Access to skilled workers
  • Proximity to sources of raw materials or customers
• Are physical assets correctly inventoried and well managed?
• What level of outsourcing is in place?
• What feedback exists from employees and customers on the facilities?

Key costs to analyse:

• Leasing costs
• Employee costs
• Outsourcing costs
• Equipment costs.

External assessments

Another assessment area to consider as part of business transformation is the external environment. These are outside of the scope of this discussion, but the following could be considered:

• Economic analysis
• Policy research
• Market analysis
• Competitor analysis
• Research into new products and technologies.

Conclusions

I hoped to cover a few things in this article:

1. Business transformation can suffer from an incorrect understanding of the current state. Usually due to a lack of assessment or a poor quality assessment.
2. Assessments take place at different levels of detail from issue, idea or opportunity identification through to transformation project completion.
3. Frameworks, approaches and business area checklists can help us plan and execute good quality assessments.

Every situation is unique:

• Organisations vary (public, private, industry, product etc.)
• Business areas, functions, departments, teams vary
• Attributes such as people, processes, systems and data vary.

And I'd recommend to always think carefully about transformation and assessments and customise them to the situation.

Finally, I'd re-cap key watch-outs and barriers related to assessment and transformation:

• Lack of time/budget/resource to run an assessment, suggestions:
  • Clearly quantify the risks and impact of a limited assessment
  • Consider carefully how the assessment can be tailored and focussed to critical items
  • Make as much use of existing documented information as possible.
• 'Blockers': employees / managers that don't engage:
  • Understand their motivation, and look for compromise
  • Check if they can be circumvented
  • Leverage stakeholders as required.
• Lack of documentation (policies, roles processes, systems specifications, data libraries):
  • Prepare questionnaires
  • Look for sample documents from other business areas/organisations as templates to start
  • Observe by work-shadowing
  • Workshop the target state to try and identify key differences from the current state
• Lack of metrics:
  • While undesirable sometimes manual data gathering and manipulation is beneficial in the short term
• Lack of expert knowledge:
  • Role backfilling to free up expert resources
  • Engage consultants / contractors
  • Portfolio review, ensure initiatives are correctly prioritised by business risk and value.
• Incomplete methodologies:
  • Be aware that most project methodologies and change methodologies are incomplete, always think carefully to make sure everything is covered.