Great example of how well BPM could turn around a company

1. BUSINESS PROCESS MANAGEMENT AIR PRODUCTS
Air Products
and Chemicals Inc.
Air Products and Chemicals Inc. (APCI) is a geographically diversified Fortune 500
company with $7.4 billion in annual sales. The company operates in more than 30
countries, and half of its sales are to customers outside of the United States. It sells
gases, chemicals, and equipment and serves customers in technology, energy, health
care, and industrial markets. It has 19,900 employees worldwide.
Deliver the Difference and a Unified Focus
In 2000 APCI installed a new chairman and CEO, John Paul Jones, who had
been with the company for 28 years. He took the reins of an organization that was
doing well and started to develop a plan to position the company for greater growth
and profitability. Jones saw inefficiencies and an emphasis on “my business” and
“my function.” Employees would often identify their functions as different from the
rest of the company and believe that they required separate processes. To establish
a new order, Jones introduced a vision called “Deliver the Difference” to unify the
organization into a “one company” focus and commitment. It summarizes APCI’s
vision, guiding values, and working environment.
Today, “Deliver the Difference” posters are displayed throughout the company,
in hallways and conference rooms. When employees make decisions, they go back to
the document and ensure they are in line with it. Said George Diehl, global director
of the Process Management Center of Excellence and supply chain and process
management education lead, “People know this [document]; it is a real logo and
symbol internally for what we are all about.”
The “Deliver the Difference” vision documents how the company differentiates
itself from competitors. It outlines guiding values: accountability; innovation;
integrity; respect; and a constant focus on safety, health, and the environment. It
also contains a working environment statement. The goal of the document is to
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2. AIR PRODUCTS
increase the efficiency and effectiveness of the company and drive it to be the best
company to work for, buy from, and invest in.
Despite having disparate businesses, many functions, and operations in many
countries, the company identified four organization-wide initiatives that were
needed to create increased shareholder, customer, and employee value:
1. change—visibly value people in a positive work environment,
2. portfolio management—continuously improve the return on capital,
3. growth —grow through innovation and superior products and services for
customers, and
18
4. work processes—reduce costs through work process simplification.
Committing to this vision requires understanding and listening to customers
as one company by:
• taking the best of the best and bringing it to customers faster (so velocity and
speed are important);
• providing value for global businesses through one infrastructure (that can mean
one set of global processes, one IT system, or a set of legacy systems that support
all the businesses in a common way);
• simplifying and standardizing global work processes (another embellishment on
the emphasis on processes); and
• globally uniting by sharing knowledge across regions, businesses, and groups.
(Knowledge management is key to “Deliver the Difference,” and it is integrated
in the organization through global work processes.)
“Deliver the Difference” is the single description of the new corporate order.
BPM STRATEGY, STRUCTURE, AND FUNDING
“If you really want to become process-focused, you are changing the way
corporations have been evolving, which has been around functions, around
businesses. Now what we are saying is that there is a new dimension called
‘process,’ a whole new way of thinking about the way we add value.”
—George Diehl, global director of the process management COE
18
It is significant to this study that one of the four key foundational initiatives in “Deliver the
Difference” involves work processes.
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3. AIR PRODUCTS
“Creating a process-focused organization must be in the context of something
that is very important to the company. A process-focused organization for the
sake of being process-focused has little value and, quite frankly, has a negative
feel to it. If it is not placed within the context of the strategy and direction of the
company, you are probably not going to get a whole lot of recognition or buy-in
for the concept itself.”
—Bill Cantwell, vice president of supply chain
APCI is transforming itself to become more process-focused so that it can drive
productivity and customer value. Supply Chain Vice President Bill Cantwell said
APCI’s vision is to be an organization where all work is “thought of, performed, and
managed as a process, focused on the customer to create satisfaction and ultimately
customer loyalty.” The company is not, nor does it strive to be, process-based—it is
not organized by process, but by function. In 2005, however, APCI plans to form
shared service centers, which will be organized by process; Cantwell said this is a
potential step toward APCI being organized by process.
Soon after it published and began communicating “Deliver the Difference,”
the company tackled several initiatives to integrate this more unified and process-
focused vision into daily operations: portfolio management, a growth strategy, a
single-instance SAP
implementation, APCI’s Delivering the Difference Road Map
customer loyalty,
and introduction of
“process” as a third Past Portfolio
Growth
Global Enablers
Operating Management Work Continuous improvement
“axis” of management. Mode Process Strategy
Knowledge management
Processes
It depicted this Customer loyalty
Segmentation/business rules
transformation in a E-business
“Deliver the Difference • Governance plan
Road Map” (Figure • Planning and commitment process
21).
APCI began • Economy
Values • EPS growth
first with portfolio Accountability
• Implementation success
management to focus Innovation
Integrity
more intently on its Respect
Safety, health Drivers
“core businesses,” Environment SAP The Best Company
which have the greatest Technology
Productivity
Work for
Change Buy from
strategic impact management Invest in
for the company.
Several businesses in
its portfolio did not
measure up to EPS
Figure 21
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4. AIR PRODUCTS
19
(earnings per share) growth and profitability standards. “Portfolio management
is difficult,” said Diehl. “Many times businesses are part of the company for a long
time, and they become part of the family. People really do not like to look at them
with a very sharp eye or a sharp pencil. These businesses hang around longer than
they should.” Consequently, leaders put businesses into three categories: growth,
core businesses, and businesses that needed to be restructured.
The second initiative was to develop a growth strategy that would determine
how the company would invest its resources in the businesses. It chose to focus
future investments in four growth industries: health care, electronics, performance
materials, and energy and process industries. APCI created a growth board that
reviewed opportunities to invest in these industries.
A project to implement a single instance of SAP started in 2001 and was the
driving force to APCI becoming process-focused. Leaders learned from Michael
20 21
Hammer and Deloitte Consulting that organizations that succeed in SAP
implementation do so because they see the project as process implementation,
whereas organizations that fail see it as an IT tool implementation. The organization
rallied around the idea that SAP implementation was a series of processes enabled
by a tool rather than the other way around.
The company also wanted to ensure that the SAP and process work was focused
on the customer and not an internally focused effort. Before proceeding, APCI
launched a customer loyalty process and a scorecard to measure customer feedback.
The process continues today. APCI cycles through approximately 5,000 customers
located in all regions of the world and uses the data to define base customer
requirements for the processes SAP is enabling.
Company leaders introduced the concept of process management as the third
axis of management, in addition to business units and functions (Figure 22). Business
units dictate where employees work; this axis includes strategy, identification of
customers, etc., and functions dictate what employees do, such as sales, engineering,
customer service, accounting, etc. As the third axis, processes dictate how employees
work together to serve customers. Accordingly, APCI examined the concept of
the connectivity of jobs. Historically, the company had a tendency to isolate jobs
and hand off responsibilities. The company is currently minimizing handoffs and
recognizing that individuals need to be responsible for an end-to-end process.
19
Although EPS is an important performance driver, operating return on net assets is the most
important. All employees know what the target is and know where the company stands in
relation to the target. They are beginning to understand person by person what they can do to
contribute to it.
20
www.hammerandco.com/about.asp (retrieved February 2005).
21
www.deloitte.com (retrieved February 2005).
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5. AIR PRODUCTS
Global Process Management
A Third Dimension in Management
BUSINESSES • Businesses
(Business unit, region, focused on P&L’s and markerts) determine where
“Best Company to Invest In” we work.
• Functions
FUNCTIONS describe what we
k
do.
or
(Departments, Centers of Excellence)
W
“Best Company to Work For”
• Processes focus
PROCESSES
on how we do our
(Source, make, fulfill, etc.)
work.
“Best Company to Buy From”
Figure 22
As the organization implemented SAP, became a process-focused organization,
and developed and communicated the concept of “one company” throughout, its
22
leaders attempted to converge processes. Because the chemicals businesses and gas
businesses had different processes in various areas of the world, convergence became
one of the most fundamental principles in process management for APCI. Leaders
wanted those who were doing similar jobs to do them in a similar way as a means to
drive efficiency and effectiveness.
Bill Cantwell, the vice president of the supply chain, said that the challenge was
great because the executives were “constantly running into the not-invented-here
syndrome.” As they were implementing a major release of SAP, they stopped the
implementation for a two-month period to focus on process convergence. Stopping
cost the company $12 million, but the executives knew they could not succeed until
processes were converged. By configuring six transaction models in SAP, APCI has
been successful in convergence.
22
“Convergence” does not mean that everyone in the company does everything the same way, but
instead means that employees may have one of six different ways of working (depending on the
kind of business). For example, if employees produce and sell a bulk material, they have a unique
model to converge around.
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6. AIR PRODUCTS
The Executive Process Owners
To underscore the importance of process as the third axis of management,
Jones appointed executive process owners to lead the effort. Executive process
owners are vice presidents of the company and are also the functional heads of
major departments. Their functional role is concerned with functional excellence
and their cost center. According to Cantwell, in their new role, executive process
owners needed to:
• articulate a process vision with key metrics,
• document the end-to-end process,
• sponsor process convergence decisions, and
• lead as a process zealot.
In addition, according to Cantwell, the company has taken all IT spending from
the businesses and given it to the process owners. The process owners are responsible
for all process convergence activities. For example, one process owner ensures that all
orders are processed one way. The job of the owner of the “fulfill” process (or “order
to cash”) is to drive convergence across the company. Likewise, the process owners
of “make,” “sell,” and “source” (or “requisition to pay”) all have the obligation to
converge.
The process owner role is concerned with the effectiveness and efficiency of the
end-to-end process across many functions. “Effectiveness” means that the process
owner ensures that the output of their processes is delivering the right value to
APCI customers and business owners. “Efficiency” means driving costs down by
focusing on cycle time, re-work, etc. By being accountable for end-to-end work,
process owners can re-align how work is done, especially at the functional interfaces,
in order to improve productivity and make it easier for employees to perform their
work, not just work smarter and faster in the old, inefficient process.
Process Principles
Early in the “Deliver the Difference” journey, John Jones and Bill Cantwell
established a set of fundamental process principles, some of which follow.
• Business processes will be simple, standardized, and global; enabled by a single
instance of SAP and governed through a global process board.
• Customer responsiveness, operational efficiency, and cycle times are all
important.
• Value creation will be focused on the enterprise versus any individual
business.
• Collaboration becomes the norm.
Global Process Board
APCI has identified 13 global processes, each of which is led by a global
process management team. The executive process owners from each global process
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7. AIR PRODUCTS
management team meet regularly as a global process board. The global process
board is responsible for documenting process design, identifying key performance
indicators, training, managing best practices (e.g., the best practices in implementing
process management), and resolving issues across the global process management
teams.
Under each executive process owner, APCI has created full-time positions
called process managers. The process managers are essential to the global process
management effort.
In addition to the global process board, APCI has a global supply chain board
to drive the efficiency of the supply chain. The company delineates the role of each
board so that none of the responsibilities are overlapping.
Process Management Road Map
The company uses a four-pronged process management model that includes
process leadership, design, performance, and improvement, with SAP in the center.
APCI is involved in a one-instance SAP implementation, and much of the process
management activity is centered around it. This model is embedded in a road map
to help communicate process management to the organization (Figure 23).
Education and Training Introduction to Process Management Course Road Map
To help instill
this understanding of “Future State”
and focus on process
management, training “Top 10 List”
concerning processes, A Process-
ERP, and supply chains Focused
is a key element of Organization
Process Process
APCI’s approach. Leadership Design
For example, APCI
Process Process
offers employees a Performance
Improvement
training class called
“Introduction to 4 Keys to Managing Processes
Process Management.” The Business Case for Process
Facilitators begin the
Why Process? The 7 “Powers of Power #8—
classes by discussing Why Process Now? Process” APCI’s “Secret Weapon”
the meaning of
processes and the
Process
attributes of a process- Basics
focused organization.
They rally around
Figure 23
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8. AIR PRODUCTS
one simple, common definition of what a work process is: an organized group of
related activities that work together to create value for the customer. A process has
to be organized (i.e., designed and then documented). It has to work with other
processes, which requires cross-functional roles, and it needs to deliver something
of value to the company by contributing to being the best place to work for, the best
company to buy from, or the best company to invest in. It is end-to-end work, not
piecemeal. Facilitators make a business case for process management and explain
why it is important to the company. The course includes instruction about Michael
Hammer’s “Seven Powers of Process.”
The course uses the road map diagram as a training tool to help participants
understand where the company is today and where it is going as an organization
(Figure 23, page 89). The road ends at an image of Mt. Everest, which signifies
the future state of a process-focused organization. The Mt. Everest image indicates
that process thinking is a higher view of the business. Through process thinking,
employees can have a better understanding of how the entire business is operating
and see the company from the eyes of the customer.
The road map helps the trainees realize that process management cannot be
implemented all at once. The company has traveled the “road” for more than four
years. The trainees understand how to build a foundation for process management,
according to Bill Ney, program manager and global process owner for performance
measurement, and take each step one at a time.
BPM DESIGN
To leverage business value, APCI focuses on process leadership, process
design, process performance (measurement), and
APCI’s Process Management Model: then process improvement (which are continuous
A Continuous Loop improvement and knowledge management
activities). As visualized in Figure 24, these
capabilities form a continuous loop, and each is
Process Process closely related to SAP implementation.
Leadership Design
The step of business process management design
involves:
• identifying enterprise processes,
• defining process owner accountabilities and
assigning enterprise process owners,
Process Process • building capabilities to achieve and sustain
Improvement Performance business value, and
• establishing clear interface roles.
APCI examines each one individually.
Figure 24
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9. AIR PRODUCTS
The Basic Steps
In 1999 Diehl attended a conference hosted by Michael Hammer. Hammer
had a simple message: If you are going to become a business process enterprise, even
at a regional level, first identify the processes that make up your company’s work.
Second, assign ownership of the processes end to end. Third, begin to measure them.
Fourth, start to improve them based on the measures.
“Finally,” Diehl said, “it is one thing to measure and assign process owner
accountabilities. But what about the interfaces with other people like the business
owners or the functional owners who had some of that authority and responsibility
before? We have to recognize that there is a power-shift going on. How do you deal
with that interface and have peaceful co-existence going forward as you introduce
this new way of managing your business?” One answer is that process owners own
their global process designs, and the business and functional owners operate using
these converged, one company designs. Service level agreements begin to emerge
among them.
Enterprise Process Blueprint
APCI currently has 13 global processes. A subset of the processes forms the
supply chain, a chain that contains much of the company’s value. Diehl said, “It is
the epicenter, if you will, of our global process model.” (See Figure 25.)
In January 2004 APCI’s Enterprise Process Blueprint
each process in Figure
25 had a longer, more
Align Enterprise Process Blueprint
complicated name; for
example, “make” was
“produce products and Supply Chain
services.” In seeking
Plan
external guidance, Innovate
which APCI routinely
does to benchmark and Source Make Fulfill Customers
speed improvements, Sell
APCI adopted a concept
from the Supply Chain Build
Operations Reference
Council. APCI
managers liked the People Finance Information Environment Governance
shortened names in the
council’s supply chain Figure 25
process model, which
uses one-word terms such as “plan,” “source,” and “make.” Knowing that simplicity
would help convey the message of “what we do,” they adopted that idea.
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10. AIR PRODUCTS
APCI also has a capital equipment business (an engineering business) that builds
capital plants costing from $100,000 to more than $100 million. It has a separate
supply chain called “build,” which focuses on this work. Each supply chain includes
requisitioning of raw materials, sourcing, and purchasing. It also includes receiving
at the plants and paying the suppliers. APCI’s manufacturing facilities start the
conversion process, and maintenance processes are also in the supply chain. The
end of the “make” process is the finished goods inventory. New orders come into
“fulfill,” are picked from the finished goods inventories, and then are scheduled and
delivered. Invoices are sent out after delivery and are paid. The process ends when
cash is deposited in the bank and customers are satisfied
Figure 25 (page 91) shows the seven customer-facing processes, which are the
processes of the supply chain plus two additional processes:
1. “Innovate,” the new-product development process formerly known as “create
and improve offerings,” begins with new ideas and ends with a new marketplace
offering.
2. “Sell,” formerly “find, win, and retain customers,” goes from a lead through a
proposal and a contract and ends when the customer is on-stream. Once on-
stream, the customer is served by the supply chain.
The supply chain is supported by fundamental corporate support areas such
as “people” (HR), “finance,” “information,” “environment,” and “governance”
(corporate governance including law and corporate secretaries).
Rounding out the list of the global processes is “align,” a leadership process
that sits atop the others. The process was formerly called “develop and commit to
enterprise plans.” The align process develops the five- and ten-year plans and has a
three-year planning process called “plan and commit.” It also controls mergers and
acquisitions.
In summary, the enterprise process blueprint shows the seven customer-facing
and the five enabling processes as well as a single leadership process, for a total of
13 global processes. The company has commissioned global process teams for 10 of
the 13 in order to concentrate on where most of the money and customer impact
are. The other 3 processes (“align,” “environment,” and “governance”) are slated to
be addressed later. The current version of the blueprint appears frequently on APCI
intranet Web sites.
The blueprint represents the work of 19,900 people. Employees can identify
where they work in the model, and the blueprint is used in new-hire orientation
and other employee communication sessions. The model has been evolving for four
years and, with some minor changes, is withstanding the test of time, Diehl said.
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11. AIR PRODUCTS
“We have very intelligent and questioning people, and we are pretty much locked
in on this.”
Process Governance Structure
Process leaders do not simply own the design of the process; that is only the
beginning of their accountabilities. They are also responsible for the measurement,
performance, and improvement of the process.
Executive process owners could not manage entire processes on their own.
Initially, they were asked by the CEO to form the global process management
teams that would work with the SAP team to develop the infrastructure necessary
to deliver the full benefits of SAP implementation. In addition, they would oversee
the orderly transition of the SAP development activities from the SAP project
teams to the ongoing global process management teams as the implementation
rolled out. (See Figure 26 for the organization of the global process management
teams.) All convergence decisions are transferred to the executive process owners
and their teams, and they manage and own the process designs enabled by SAP
going forward.
Global Process Management Team Structure at APCI
APCI process
leaders benchmarked
other companies that Global Process Board/
had formed global Global Supply Chain Board
process management Executive Process Owner
Executive Process Owner
IT Account Manager Executive Process Owner
Process Manager
teams. As a result, it IT Account Manager
Global Process
IT Account Manager
Global Process
Process Manager
Process Manager
Global Process
Owner Process
Global Owner Process
Global Owner Process
Global Global Process
developed a common Owner Process
Global
Owner
Owner Process
Global
Owner
Owner Process
Global
Owner
Management
structure led by an Executive Process Owner
Team
executive process
owner. Currently, Integrated IT Account Manager Process Manager
the company has 10 Supply Chain
official global process
Global Process Global Process Global Process
management teams.
SAP team Owner Owner Owner
The process manager
acts as a lieutenant, a
day-to-day overseer Enterprise Regional or Sub-process
E-business Design Owners
of the process. He or
Owners (As required)
she is involved in the
details of measurement,
Figure 26
design, education, and
training.
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12. AIR PRODUCTS
The IT account manager, representing the IT organization, is focused on making
sure both the SAP and the legacy systems for all the IT spend (and the applications
that support the process) are addressed.
Each process is too big to be managed globally by one person, so the process
is divided into three or four sub-processes owned by global process owners. For
example, for the “plan” process, one global process owner is responsible for sales
and operations planning and another is responsible for inventory management.
The process also has regional and sub-process owners as required. An enterprise
design owner has a detailed understanding of the SAP configuration in the global
process.
Finally, some people outside of the team are regularly involved in the global
process. This may include representation from the integrated supply chain team,
the SAP team that feeds the particular process, or e-business. E-business is another
form of technology enabling the processes, since external Web sites often act as
windows on these processes that allow customers to access services, products, and
information directly.
Process leaders from the different teams meet on a monthly basis and drive
commonality around global process management issues.
Process Design in a Process-focused Organization
Process designs require documentation that provides clear understanding and
agreement regarding what work is to be done within and across the global processes.
Just as important as product specifications, process designs help the company
resolve customer complaints, take orders, deliver products, and collect money. The
company requires processes be documented consistently so the employees in France,
the United States, and Taiwan can have a global process that they can understand
and perform consistently.
Using as unifying enablers a robust architecture, a single repository, common
end-to-end process responsibility, organizational roles, and consistent terminology,
the company can consistently control, store, and make documentation available so
that processes are replicable, efficient, and value-driven.
Robust architecture—The company uses a multiple-level architecture and is able
to drill down into the process. It uses a standard set of symbols and a standard set of
six elements that make up a complete process design. It has adopted many elements
of the Supply Chain Operations Reference Council’s architecture and uses common
terminology. In 2001 it had approximately six ways to document processes; today
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13. AIR PRODUCTS
it has one. (The company trains employees to use this architecture and uses ARIS
23
as its modeling tool. )
Repository and document control —Allprocess documents should reside in
one location. The company does not want an ISO documentation repository, a
process design for effectiveness and efficiency repository, and a Sarbanes-Oxley
documentation repository. Launched but not yet fully deployed, its single repository
is a Web-based tool, using a Microsoft SharePoint server.
End-to-end connections —Processes are fitted into the architecture so that
employees can see the connectedness, for example, going across the entire supply
chain. The company also defines clear process levels to prevent employees from
jumping between levels when they document processes. Employees need to
understand supply chain variations and the appropriate end-to-end process.
Organization—APCI needs employees who can read process maps, create a map,
design a process, and model a process. Practically every employee needs to be able to
read process maps. Training is provided to readers as needed. Employees can take
a two-hour course on how to read a standard map, and a three-day course teaches
employees how to map a process. Currently, approximately 600 employees have
taken the three-day course.
Consistent terminology —Thecompany consistently uses ARIS symbols. Most
people in the company use the low-cost Visio tool, a common Microsoft software
product. They can use Visio to work with processes and generate new ideas. Then,
once the process is locked in and the executive process owner approves it, an ARIS
expert can put it into the more sophisticated ARIS process model.
The company knows the value of standards, said Diehl. It has common naming
and numbering systems and uses the outside Supply Chain Operations Reference
Council reference model for numbering; the numbering system is also being made
compatible with Sarbanes-Oxley documentation requirements. Along with the
council, it leverages other models that follow standards, such as the APQC Process
SM
Classification Framework , so that it can compare best practices internally as well
as with other organizations.
Process Measurement in a Process-focused Organization
The global process management teams assess processes using specific performance
measures and targets. The key performance indicators of a process are leading
indicators and predict performance. If a team measures increases in new customer
signings, then it can predict revenue generation six months from now. If signings
23
Produced by IDS Sheer (www.ids-scheer.com).
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14. AIR PRODUCTS
are going down today, that predictive process measure alerts the team to take action
now to prevent future revenue decrease.
For APCI, key performance indicators predict financial and customer value.
Process key performance indicators are regularly reviewed and acted on at business
and process reviews. A business review is generally held monthly to examine those
key performance indicators in the context of the business. Business measures and
process measures are integrated at this meeting.
APCI plans to have real-time, global key performance indicators in place as
a critical element of its process and supply chain focus. With SAP, the company
has the potential to implement real-time global key performance indicators. In
2003 teams were looking at scorecards to review their measures every quarter. Now,
with its new dashboard (described in a later section), teams are reviewing monthly.
According to Diehl, the company is striving for real-time measures because the
sooner the teams know about potential trouble, the sooner they can act to get back
on track.
The company is implementing a Web-based tool so that process key performance
indicator results can be communicated to each employee. The goal is to allow every
employee’s performance goals to be aligned with a few key performance indicators
that they see on their portal when they open their PC. They can interact to find
out where their team is performing on a key performance indicator and provide
feedback to the process team about ideas they have to improve that indicator and
how the team might work better together. (An example of this capability follows in
the discussion of supply chain measurement.)
The company links its key performance indicators together. It has a corporate
scorecard with 10 key performance indicators that the chairman and executive
committee use. It also has a line-of-sight to the process and functional scorecards
and to the strategic business unit scorecards.
Process Improvement in a Process-focused Organization
When a team has its design capability in place, has its processes documented, is
performing to the process, and is measuring actual versus target performance, the
company looks first at what is going well. Diehl said: “We try not to jump to the
negative. If one region is losing fewer accounts to the competition than another
region, we want to understand and share that best practice.”
If the team recognizes a gap between the value of the key performance indicator
and the target, then it performs a root-cause analysis. Figure 27 shows that the team
has two options on the left hand side: either the process is correct and the execution
is the problem or the process itself needs to be redesigned.
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15. AIR PRODUCTS
Process Management Model
Cause CREATE AND IMPLEMENT SOLUTIONS
Analysis • Improve execution • Continuous improvement
• Process redesign • Knowledge management
Process
Improvement
Gap Success
SHARE BEST PRACTICES
• Knowledge management
Process
MEASURE ACTUAL VERSUS TARGET PERFORMANCE
Performance
Process
DESIGN AND IMPLEMENT PROCESSES
Design
Process
APCI STRATEGIES, BUSINESS MODELS,
Leadership
BUSINESS PLANS, CHANGE MANAGEMENT
Figure 27
Continuous Improvement and Knowledge Management
APCI’s “one company” continuous improvement model is a merger of Six Sigma
and Lean management principles. In some companies, Lean groups and Six Sigma
groups work side by side, and each group reports its benefits independently. In 2002
APCI determined to combine the two, even though some employees felt strongly
about one and some about the other. According to Diehl, the model merges the best
of Six Sigma with the best elements of Lean: Six Sigma is strong in planning and
looking across processes to determine where the best opportunities for improvement
are, and Lean provides excellent continuous improvement tools.
The continuous improvement model has five steps: prepare, analyze and
prioritize, plan, implement, and learn. It enables teams to use a variety of tools
to solve problems in untraditional ways. Continuous improvement has top-
down leadership; businesses or processes do not begin until the top leader agrees.
Continuous improvement is tied to the annual planning cycle.
Continuous improvement tools are plentiful and varied. They include both hard
and soft tools adopted from Six Sigma, Lean, and other sources. Teams use Kaizen
methods, value-stream mapping, and many more. The company has a five-step
change model with several tools including a stakeholder analysis tool.
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16. AIR PRODUCTS
“Deliver the Difference” mandates an environment of knowledge sharing and
reuse in globally connected communities. Knowledge is shared through a variety
of communities such as communities of interest, communities of practice, centers
of excellence, aligned organizations, and integrated work processes. Knowledge
management activities are organized around four key capabilities: collaboration, idea
management, best practices transfer, and learning. Figure 28 shows how knowledge
management and continuous improvement are integrated with process management
using the following steps:
1. W h e n w o r k i n g
Applying CI and KM to Global Process Management on process
improvements,
4. Improvements are APCI uses key
Process Process sustained by process performance
Leadership Design documentation and Collaboration indicators to
4 KPI monitoring.
measure how the
Process Process work process is
Idea
Improvement Performance
Management performing relative
PM to speed, waste, and
1 effectiveness. From
Best Practice
3 Transfer
these measures, it
determines what
process elements
Learning need to improve.
2 2. C o n t i n u o u s
improvement is
KM
applied to the work
Prepare Prioritize Plan Implement Learn
process to improve
Cycle Tied to Operating Plan it.
CI 3. T h e c o m p a n y
applies knowledge
Figure 28 management to
share the best
processes and
practices.
4. Improvements are sustained by documenting processes and monitoring key
performance indicators.
A Vision for Collaboration
Collaboration is essential for maintaining a unified outlook, and corporate
leaders share a vision for collaboration, said Diehl. They believe that process owners
should have high-performing processes using the best designs and the best practices.
In turn, the process owners should be supporting the businesses in achieving their
goals because the businesses are executing these common processes.
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Process owners must have well-established, actively aligned, and collaborative
relationships with the business units and their leaders. Process owners develop
and share critical key performance indicators and targets with the business units,
and they are continually identifying opportunities to improve processes across the
businesses. APCI does not want to only deploy continuous improvement projects
inside businesses because they cannot be leveraged. Projects have more value if they
are done at a global process level. Business and process leaders select major process
improvement projects together.
Another important area of collaboration among business leaders and process
owner is consistent employee communication. For four years, APCI has cascaded
communications throughout the organization. Three times a year, leaders meet with
the top 50 executives worldwide. They in turn communicate to the top 600 leaders
in the company. The top 600 communicate down to the rest of the organization.
Leaders think of it as a waterfall effect.
Measuring Maturity
APCI believes that the higher a process is in the maturity model, the better the
link to business value. (The company has used a maturity model developed by Kevin
24
McCormack. ) Processes are designated with the following levels of maturity:
• Ad hoc (Score 1.0 to 2.0) —Processes are unstructured and ill-defined. Process
measures are not in place, and the jobs and organizational structures are based
on the traditional functions, not horizontal processes. Individual heroics and
“working around the system” are what makes things happen.
• Defined (Score 2.0 to 3.0) —Basic processes are defined and documented.
Changes to these processes must now go through a formal procedure. Jobs
and organizational structures include a process aspect but remain basically
traditional. Representatives from functions meet regularly to coordinate with
each other concerning process activities but only as representatives of their
traditional functions.
• Linked (Score 3.0 to 4.0) —This is the breakthrough level. Managers employ
process management with strategic intent. Broad process jobs and structures
are put in place outside of traditional functions. Cooperation between intra-
company functions, vendors, and customers takes the form of teams that share
common process measures and goals.
• Integrated (Score 4.0 to 5.0) —The company, its vendors, and suppliers take
cooperation to the process level. Organizational structures and jobs are based on
processes, and traditional functions—as they relate to the supply chain—begin
to disappear altogether. Process measures and management systems are deeply
embedded in the organization. Advanced process management practices take
shape.
24
Business Process Orientation: Gaining the E-Business Competitive Advantage, K.P. McCormack and
W.C. Johnson, St. Lucie Press, 2001.
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In 2003 APCI surveyed 100 of its top managers—the top 50 in the corporate
hierarchy plus another 50 thought leaders. The survey asked: Where do you think we
are on this model? The average score was 3.2. McCormack’s benchmark data showed
that APCI was below the average of leading process-focused companies, whose
average score was 3.5. McCormack and APCI’s process leaders concluded that, to
drive its process efforts up the maturity scale, the company should concentrate on
process measurement, process design, and role clarity. In this way, the company
used a maturity model to focus its priorities to build company capabilities.
IMPLEMENTING AND SUSTAINING BPM
The company can no longer maximize its productivity and customer satisfaction
by focusing on individual global processes; it is changing its focus to the points where
the processes intersect and where they link end-to-end. This is where it has found the
biggest areas for improvement. The first group of processes that it decided to focus
on was the supply chain processes: plan, source, make, and fulfill. Approximately 80
percent of the cost-of-goods-sold go through this chain. “That is where the money
is,” said Diehl, “and we are trying to follow the money for business value. After all,
our customers depend on the output of our supply chain processes.”
The supply chain organization includes all process management, continuous
improvement, and SAP activities. The chairman has seven direct reports including
the vice president of the supply chain. Reporting to the vice president of the supply
chain is a group of both traditional functions and global processes.
Annually, APCI purchases approximately $3.5 billion of goods, equipment,
and raw materials. It has an SAP project, a global customer service organization, a
customer engagement team, a customer loyalty team, and the “sell” global process
management team. The names of the boxes in the lower level of the chart indicate
a major change in how APCI operates as a company. It is changing the names of
organizations to verbs as an indication of what is important. The organizational
chart names are a mixture between processes and functions; the company is creating
a balance between the two.
Integrating Global Processes Through a Supply Chain Focus
The company developed a supply chain planning capability that it organized
to take advantage of the visibility of data that SAP was providing. Because the
new group wanted to drive supply chain processes to the highest level of maturity
possible, it called itself “integrated supply chain.”
According to Tom Ward, the vice president of the integrated supply chain,
businesses were on the verge of mutiny when the company first introduced a supply
chain focus in late 2003. To overcome resistance, the CEO had to visibly support
the effort.
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Ward was assigned to head the integrated supply chain group to focus on
building capabilities, solutions, and global strategies on a “one company” basis.
According to Ward, this involved more than just planning; the group cuts across
all the supply chains and determines the most effective ways to run a global supply
chain. It is not, nor will it ever be, a big team. Its people are deployed globally and
have skills in continuous improvement, process management, data management,
and SAP.
Within each of the businesses, a supply chain director has been assigned to drive
the supply chain activities for that business. To create the “one company” approach,
they align everything that they do with what the integrated supply chain team does
at the enterprise level. Because the integrated supply chain team is responsible for
continuous improvement, each business has the same responsibility. Because the
integrated supply chain team instills foundational capabilities at the enterprise level,
the businesses deploy these capabilities at their level. The integrated supply chain
team has a supply chain key performance indicator dashboard at the enterprise level;
the businesses use the same measurement dashboard.
Ward’s task became to create the focus while not adding overhead. The reason
for the supply chain focus is that the processes that compose the chain spend $4.6
billion annually. “It is the core set of processes where the money is,” said Ward.
A challenge was not to focus on the supply chain by creating a whole separate
structure; the company wanted to work with the existing organizations. It wanted to
leverage the existing continuous improvement, process management, and knowledge
management infrastructure. It reorganized without spending any new money; in
fact, it reduced costs due to overlapping activities.
Ward uses the pipeline in Figure 29 to help employees envision the supply
chain. It portrays a pipeline with no bends or constrictions in which goods and
services go to customers seamlessly, and it is running on the back of a single instance
of SAP. Images such
as these are valuable Pipeline to Our Customers
for training and
communications.
The company’s
goal is to have 13 Customer’s
Supplier Plan Source Make Fulfill Customer Customer
percent operating
return on net assets
by 2007. It is driving Leverage the Single Instance SAP Platform
a program to triple
productivity based on
Figure 29
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APCI’s historic rate. The supply chain teams play a critical role by continuously
improving the supply chain and reducing functional costs. People first tried to meet
the goals by simply reducing service levels and not worrying about effectiveness. To
prevent a slippage in effectiveness, the company is now entering into service level
agreements with its functions and businesses.
The integrated supply chain group will meet its goals by simplifying,
standardizing, shortening, and sharing processes—a mandate from the “Deliver the
Difference” vision. Its leaders are concentrating both on educating the employees
(especially the middle managers) and on funding approximately 1,700 projects. It
manages each one using color-coded status indicators. With processes defined and
deployed, it can focus on measuring and monitoring results.
The integrated supply chain group is involved in some foundational projects.
One is the sales and operations planning process, a rudimentary process that was
built in the early days of SAP. Either businesses were not using it or they were
modifying it to meet their needs. In 2004 the integrated supply chain created a
second version that has been well-received. It is now implementing a “one company”
enterprise tool to enable this process so that every business that runs the process can
use the same tool.
To enable a process with an IT tool, the team uses the same disciplined approach
that the company uses for its SAP project: Bring all businesses in, write a blueprint,
develop a consistent design, and require everyone to use it the same way.
EVALUATION AND RESULTS
The company no longer tracks separate lists of benefits (SAP benefits, continuous
improvement benefits, etc.). All benefits are managed through one instrument called
the “one company” improvement tool, or Idea Tracker. It sits on a platform built in
2003 for knowledge management and now supports all businesses and functions. It
is helping the company move away from a paper-based environment (spreadsheets,
PowerPoints, Word documents, special reports, etc.)
The intranet-based Idea Tracker tool was developed simply to track new ideas
until they became projects. APCI added the capability to monitor and log the
benefits of ongoing projects. The company developed a rigorous definition regarding
what a benefit is (e.g., a onetime benefit, an ongoing benefit, an avoided cost, or a
reduced cost). Idea Tracker captures whether the project impacts the profit and loss
statement or the balance sheet.
Employees enter information about ideas or projects into the tool. The
organization requires that all projects that are complete be documented in Idea
Tracker so that the cumulative benefits can be tracked across the company and
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the owner of the idea can get credit for the results. In the future, all businesses and
functions will be required to enter their approved but not-yet-started projects to be
able to provide an organization-wide benefits forecast.
The company measures its success based on two result areas: increases in
productivity as shown on the profit and loss statement and increases in customer
loyalty scores. Incentive compensation is designed to reward people based on
the performance of the company as a whole and not on the performance of the
business—a system that Cantwell said encourages convergence. APCI has not drawn
a direct line between customer loyalty scores and incentive compensation. Customer
loyalty is a leading indicator, a means to an end.
Results and Progress Under “Deliver a Difference”
The company’s values come directly from “Deliver the Difference.” In adherence
to those principles, the company has:
• begun a single instance implementation of SAP and established 10 global
processes,
• consolidated global organizations under single managers,
• established an annual customer loyalty survey for each business in each region,
• doubled the rate of hard productivity savings in 2004 and is on target to triple
the rate in 2005, and
• created regional shared service centers.
The Supply Chain Dashboard
The supply chain dashboard is available to all employees through an intranet
portal. Drilling down through the portal by clicking on a performance measurement
link leads the employee to an option to review the supply chain key performance
indicators. The 17 key performance indicators are aligned with “Deliver the
Difference” values and are categorized under the goals of best company to: buy
from (customer value), work for (operational leadership), and invest in (shareholder
value). Down arrows indicate a trend in the wrong direction, and up arrows indicate
a trend in the right direction. Some icons allow the reader to drill down further for
more information.
Businesses have business-level targets. The target of the vice president of the
supply chain at the enterprise level is a sum of the targets of all the businesses that
he supports.
The Effect of BPM Implementation—Customer Loyalty Example
APCI measures 54 individual customer characteristics; an example is illustrated
in Figure 30 (page 104).
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22. AIR PRODUCTS
Customer Loyalty
Key Drivers—Differentiators SAP Recovery Evident in Germany
(from the customer’s perspective)
• Ease of doing business
• Respond and resolve problems
• Lower cost of business
Customer Loyalty
• Manage activities in an integrated
fashion
Germany
• Increase productivity and efficiency
Business Basics—”table stakes”
• Consistent reliable product
SAP Currently
• Delivery as committed Go Live
• Complete and accurate invoicing Note:
Vulnerable = Indifferent + At Risk Customers
Figure 30
The characteristics are broken up into a number of different categories. Some are
“table stakes;” that is, the company receives no value for differentiating itself in these
areas and considers it the cost of doing business. However, if the company achieves
in the area of key drivers, then it receives benefits and increased customer loyalty.
For example, during its first SAP release in Germany, APCI surveyed its
customers both before and after the implementation. Using this data, it kept a
focus on its customers as the new process and ERP system bugs were worked out.
As illustrated in Figure 30, the company did suffer a performance dip in customer
satisfaction as the new ERP system was implemented but actually increased its
performance to higher levels after a period of time.
Each of the 17 businesses is required to survey their customers annually.
Businesses work on the one or two high-priority areas that customers indicate need
improvement.
Based on survey results, APCI categorizes its customers as: secure, favorable (the
largest category), indifferent, and at-risk. The indifferent and the at-risk customers
are recognized as a group called “vulnerable.” The secure customers typically not
only give 100 percent of their business to APCI but also are willing to recommend
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the company to another customer. Customers of the businesses going through SAP
implementation (and the accompanying process convergence) began to receive
different invoices and their prices and units of measure changed. The company
matched their survey responses to the changes that were occurring. The company
considers the results of this study carefully because possibly the unprofitable
customers are becoming more vulnerable—a fact that is not necessarily bad. APCI
tries to ensure that its important and profitable customers are driven into the secure
category and tries to move unprofitable customers to profitability by changing their
service offerings based on the price that they are willing to pay.
LESSONS LEARNED
“Our single instance ERP system has been a great catalyst for the company
because trying to implement business process management and become a process-
focused organization without a big catalyst or a lever for change would be more
daunting than it has been.”
—George Diehl, global director of the Process Management COE
APCI’s concept of “one company” jump-started global process management.
Cantwell said that before “Deliver the Difference,” the organization was influenced
by what seemed to be the initiative-of-the-month. Consequently, employees found
prioritizing difficult. APCI was a decentralized enterprise; it had its gases business,
chemicals business, and equipment business. It operated in Europe and the United
States and was developing a business in Asia, and employees often operated as
though they were in an independent organization. APCI had 34 legacy systems
to process customer transactions, five ways to manage quality, and three ways to
conduct continuous improvement activities.
APCI has many success factors in place, among them the use of enablers such as
continuous improvement, knowledge management, customer loyalty, segmentation,
business rules, and e-business. Frequent benchmarking was also a factor. The
company benchmarks for credibility and speed. It benchmarked the procedures
necessary to form process teams and document processes.
Key Findings
Process owners should be clear about what they are not going to do. APCI
process owners are tempted to try to do too much. The global process board focuses
the process owners on the priorities and initiatives and then drives the initiatives
throughout the company.
Resistance from middle management to a process focus has been, and continues
to be, very strong, according to Cantwell. Middle managers feel the brunt of change
and, he said, 40 percent of them may not make it because they do not have the
skills to operate in the new world. The company has learned to manage change
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24. AIR PRODUCTS
proactively. It recognizes before it begins where to expect the resistance. Because
change takes so long, convincing people to change is difficult. Many will not be in
the same job long enough to see the fruits of their labor; organization leaders thus
pave the way for the success of successors and must rely on employees doing the
right thing just for the sake of doing the right thing.
The company converged processes concurrently with SAP implementation.
SAP gave the work teams hard deadlines that they had to meet, and the SAP project
artificially imposed the deadlines. A motivator in meeting deadlines came from the
estimation that delaying SAP implementation would cost the company $6 million
per month.
APCI has made a conscious decision not to distract employees from SAP
implementation by implementing other initiatives such as customer relationship
management. Its philosophy is to be SAP-centric and not include vendors or
capabilities that are not integrated into SAP—because to do so would require
upgrading SAP, which would require that all interfaces with other applications be
redone. Cantwell said: “We are not at all interested in looking at a lot of boutique
solutions to bolt onto SAP. If SAP has it, we’ll use it.”
Mapping and maintaining processes can be expensive. The company carefully
balances business value versus elegant solutions. Employees have a tendency to
map everything and document all processes. Leaders continue to tell employees
to prioritize and avoid documenting, for instance, how to forklift something in a
plant. Global process teams have been asked to identify the five processes that they
are working to improve.
APCI has also learned to:
• focus on a few measurable initiatives,
• avoid creating a bureaucracy and overhead,
• define what it will and will not resource each year to keep process owners from
being conflicted,
• integrate change plans into project plans and anticipate resistance from middle
management, and
• communicate frequently to leaders and then let them cascade and customize the
message.
Suggestions for Success
Cantwell said that APCI is cautiously optimistic that it will be successful in the
long term by focusing on process as an integral part of its strategy. Its leaders have a
few suggestions that will help others transform their organizations.
• Do not do everything at once. Lay a foundation, and constantly build on what
came before. The company recognizes and stifles the desire to jump to the answer
too quickly.
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• As you go step-by-step, sequence events with dedicated resources. Transformation
cannot be a part-time job. Find a number of employees and isolate them to
drive the initiative. Cantwell said: “Somebody’s life has to depend on this being
successful. If you can say, ‘Well, I did not quite get to this,’ or ‘Let me show you
all of the other good things I have done, so we did not really get to this,’ you will
not be successful.” Cantwell suggested dividing the work, isolating a few steps,
dedicating resources to them, creating credibility in the organization by meeting
milestones, and moving to the next step.
• Manage change aggressively. Anticipate resistance and deal with it early to gain
acceptance that the change has value.
• Concentrate on visibility and velocity. By implementing a single instance of
SAP, the company increased visibility of information. By increasing its focus
on processes, it has achieved faster cycle times.
• Also concentrate on simplicity. Take complexity out of the business. Historically,
APCI made its business complex by customizing products for the benefit of
customers, but customers were not paying for the customization.
• Focus on both effectiveness and efficiency.
• Realize that the transformation process is never complete.
• Keep a customer focus. APCI has learned during the first four years of its
process-focused evolution that focusing on IT systems and processes can make a
company internally focused. If it does not also have a metric to focus on customer
responsiveness to the transformation, then it will lose those customers.
One suggestion for success rises to the top, and all of the APCI site visit hosts
consider it essential: Obtain CEO support. Moving to a process-focused organization
requires too much change to accomplish without the strong endorsement of the
CEO. Employees’ jobs and environments change. For them to be able to buy in,
they must recognize that the CEO is behind it and intends to make it happen.
Cantwell provided an example of its necessity. “Process convergence, driving people
to change the way they do things, is exceptionally challenging for an organization,
especially when it is not a good solution for an individual business. What typically
happens in that business is that managers say, ‘No way am I doing it. You are
increasing my cost structure, and you are decreasing my effectiveness.’ The managers
inside the business bring it up to their general manager, the vice president of the
business, who will always support them. The issue continues to be escalated until it
arrives on the desk of the CEO. The CEO must say ‘I don’t care if it is worse for your
business; this is what I want for the company to succeed.’ If the buck does not stop
at the CEO level, there is always going to be someone to override convergence.”
Goals and Plans
By the end of first quarter 2005, 80 percent of the company will be operating
with SAP. APCI’s Asia operations will have SAP in 2006.
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Ward said that APCI believes that its BPM infrastructure and tools are mostly
in place, positioning it for future success. In his cover letter in APCI’s 2004 annual
report, John Jones concludes with this paragraph:
All of the groundwork we have laid since 2000—restructuring our portfolio,
resourcing our growth businesses and focusing on work process improvement—
paid off in fiscal 2004. Those four years presented great challenges for Air
Products, but our focus and desire to win came through. And this will continue
into fiscal 2005 and beyond. …There’s still much important work left to do.
Our strategies will help drive top-line growth and return on capital. And it will
be our passion that delivers that difference.
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