Big Sky Thinking

In the blog entry entitled “What is the Right Unit of Analysis for Decision Making," I had argued that identification of key underlying process is critical in making sure that managerial attention is indeed directed where it will have maximum impact and chance of success. But what are the core processes in any business—manufacturing or service, and how can they serve as the right unit of analysis for decision making? In a book published recently, my co-authors and I proposed a process oriented framework for analysis in which internal value-linkages and external value-linkages are defined in terms of core and support processes. That framework is shown below.

Source: Krajewski, Lee J., Larry P. Ritzman, and Manoj K. Malhotra, Operations Management - Processes and Value Chains, Eighth Edition, Pearson Prentice Hall Publishers, 2007, ISBN 0-13-169739-0.

The four core processes found in any organization are:

1. Customer relationship processes

Identify, attract, and build relationships with external customers and facilitate the placement of orders. It is also sometimes referred to as customer relationship management (CRM).

2. New service/product development processes

Design and develop new services or products from inputs received from external customer specifications.

3. Order fulfillment processes

The activities required to produce and deliver the service or product to the external customers. Most of the operations management activities fall within this domain.

4. Supplier relationship processes

Select suppliers of services, materials and information and facilitate the timely and efficient flow of these items into the firm. Such inter-firm activities aimed at working effectively with suppliers can add significant value to the services and products of the firm.

Organizations also have many support processes that provide key resources, capabilities, or other inputs that allow the core processes to function. An example of such support processes may be human resource development, regulatory compliance, budgeting, capital acquisition, or information systems, to name a few. When performance failure may be related to these support processes, they should be examined closely for their impact on the proper functioning of core processes.

The value chain linkages between the four core and support processes illustrate an important point of consideration - that both external customers as well as external suppliers play a strong role in influencing the business outcomes. In addition, each of these core processes is usually sufficiently complex, and may contain several nested processes within them. So the decision analyst must drill down through these nested levels until the right level of process that matches the decision-making problem at hand is reached. Cross-functional linkages, as well as the role of external and internal customers, should be explicitly recognized when charting related process maps and improvement trajectories. Such a comprehensive approach is more likely to lead to higher quality decisions and problem resolutions that meet or exceed the intended performance improvement targets.