Closing the gaps that prevent demand-driven process capabilities

As continuous improvement and supply chain performance improvement practitioners, we know that aligning business operating strategy and performance improvements, and building end-to-end supply chain capabilities to achieve competitive advantage are merging to achieve one goal: Grow sustainably and profitably, while remaining resilient and adapting to demand variability – a major concern, as highlighted by the COVID-19 pandemic. In reality, however, ‘disconnects’ in and ‘project-based approaches’ to achieving this goal highlight cross-functional gaps that stand in the way of collaboratively building an end-to-end business with demand-driven process capabilities. This blog addresses the question of how executive leadership teams can close these gaps.

What questions should leadership be asking to enable demand-driven process capabilities?

1. What is the challenge in translating and aligning the business operating strategy into end-to-end business processes and supply chain design, and in achieving sustainable performance improvement capabilities by aligning with continuous improvement?

2. What factors are in the way of aligning and synchronizing IT with business and supply chain transformation?

3. How is leading and managing change embedded into every maturity stage of the transformation journey?

4. Is there a model that helps us understand the different management systems operating in the business so that we can reduce complexity, and institute a governance model with a change leadership process to ensure sustainable and effective progress on the journey?

Leadership must understand and answer these fundamental questions before the business performance improvement outcome of end-to-end supply chain transformation can deliver sustainable, measurable and improved business results.

The most fundamental issue, and the one that embeds much of the complexity, is understanding the four layers of the management system that run the business.

The most fundamental issue, and the one that embeds much of the complexity, is understanding the four layers of the management system that run the business.

The four-layer management system

Three of the layers are more heavily vested in technology and data management and one is based on business process capability. These layers evolved bottom up as they were largely developed functionally, and were reinforced by the development and deployment of IT. The bottom layers grew by necessity as the business realized the need to operate holistically as an integrated end-to-end set of demand-driven processes, but needed to start at a low-level control of integrated data and event management.

The layers evolved as follows:

• Layer 1: Systems of Control (real-time data, for example process control), to
• Layer 2: Systems of Record (transaction and data processing applications, such as ERP), to
• Layer 3: Systems of Process (workflow management systems, such as integrated quality, governance and compliance, sales and operations planning)
• Layer 4: Systems of Venture and Sufficiency

What are some of the gaps in the way these layers have evolved?

Unfortunately, investments into these bottom three layers of management systems were dominated by technology-orientated requirements that indicated the low levels of data and information integration. Investments weren’t made into layer 4: Systems of Venture and Sufficiency, because the business ‘didn’t know what it didn’t know’. (A layer 4 that represented business actually operates as a set of operational and management processes comprising people, process and technology.)

While layers 1, 2 and 3 are important for the business’ data and transaction efficiency and effectiveness, they do not holistically represent the way the business effectively operates with people, process and technology. These layers also generally do not reflect or align to the business’ stage of performance improvement and operating process maturity. The five stages are explained in the blog Understanding your company’s stages of business process maturity.

With the best intentions, the IT organization designs and deploys systems for best-in-class, end-to-end value network capabilities. The business, typically still at a Stage 2-3 maturity in its process capabilities (project-based improvement), cannot operate as a Stage 5 value network process-based operating system.

To make the investment (into the bottom three layers of management systems) usable in its current stage, the business customizes the Stage 5 value network-based design to fit the current Stage 2 of business operating capabilities. This vicious cycle of continually adapting and fitting Stage 1-3 systems to the business as it evolves becomes a major source of business disruption and a hurdle to integrative performance improvement initiatives.

Furthermore, today’s global businesses operate across many cultures, business product lines and geographies — the reality is that there are many different stages of process capability maturity, not just one. Again, the business must continually adapt and re-implement its layer 1-3 systems to fit different stages of maturity across the business.

Today’s global businesses operate across many cultures, business product lines and geographies — the reality is that there are many different stages of process capability maturity, not just one.

The net impact is that customization, the lack of business standards, and the continual adaptation and redeployment of technology and information management systems all represent serious constraints to learning, sharing best practices, process development and sustainable continuous improvement across the business. This impact is compounded by the lack of a decoupling layer from the way the business actually operates.

The need for an integrative improvement approach

An operational excellence executive from a leading global life sciences company stated the issue very succinctly when she attended an IT systems design and blueprinting meeting to deploy a major vendor’s application.

She noted the following:

1. The IT-based ‘‘blueprinting’’ and systems design in layers 1-3 did not represent the way the business actually works, but was being done that way because the IT system required it.
2. Secondly, one simple transaction or workflow process in layer 2-3 designs could involve five to nine different departments in the business to be successfully executed. This was not reflected in the systems design.

This means that businesses are encapsulating IT, data management and process automation into layers 1-3, but they’re not considering the real people, process and stage of organizational and process maturity implications in layer 4 (the way the business actually operates). As a result, many digital technology investments are not necessarily leading to organizational and process effectiveness across the business as a whole. This approach is also not developing integrative improvement capabilities and end-to-end value network process capabilities as found in the requirements the business has in layer 4.

After billions of dollars of IT investments in layers 1-3, the business is still not at a proficient level of process capabilities that enables it to operate as a demand-driven value network across people, process and technology components — at least not in a way that performance improvements are sustainable and the business is agile to change.

Investments must evolve top-down

The strategic alignment and integration of continuous improvement, change management, strategic planning, enterprise architecture planning, enterprise data warehousing and advanced process analytics are a leadership, top-down business responsibility. These investments will not achieve the same objectives cost effectively if they are allowed to evolve from the bottom up.

What is the conclusion?

1. Responsibility lies firmly in the hands of the business executive leadership team and must include IT.
2. The business and IT must collaboratively discover, plan, build and deploy a flexible information management and analytics layer between layers 3 and 4 that allows decoupling of technology from the way the business operates in processes, without disconnecting the two critical pieces. The flexible analytics and performance management layer and information model must support different levels of maturity, and be able to grow to support different levels of process and operating maturity found across the business. These flexible model-based capabilities already exist with vendors such as Every Angle, Aegis Analytical, Rockwell Incuity, Kinaxis™, Software AG and Vecco.

The key principle in the second conclusion above is that companies must institute this reference layer for information and process performance management to support the way the business actually operates, and be agile and adaptable to support new questions that the business is asking as the level of process maturity evolves.

Investment in this layer must have the outcome that the business continuously needs to change, redesign and redeploy technology applications at layers 1-3 to support evolving business capability maturity in layer 4. It is a leadership and strategic planning responsibility to synchronize change management across layers 1-3 to align it with the business operating system in layer 4.

The combination of the decoupling information layer and the leader’s top-down alignment strategy (between the business operating system and IT investment) in layers 1-3, means that prioritized technology, work flow initiatives, and IT architectural planning must be driven top-down by the process maturity of the business, and governed by its performance improvement needs. In other words, a business can only leverage applications such as network planning and master data management when these are aligned and synchronized with its process capabilities and integrative improvement priorities.

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