Our framework Post-merger Integration (PMI): Financial integration is every organization’s guide to achieving the financial alignment of both Buyer and Target.
Post-merger Integration is a highly complex process. It requires swift action as well as running the core business activities simultaneously. There is no one-size-fits-all approach to a successful PMI Process. However, careful planning focusing on the strategic objectives of the deal and the identification and capturing of synergies will help maximize deal value.
Another critical factor in PMI is pursuing Financial Integration. Financial Integration is the alignment of the finance functions of the Buyer and Target.
Why Financial Integration?
Immediately from the start of the deal, the new organization gets to be dependent on the Finance function to ensure a successful integration process. Synergies must be captured in order to maximize deal value and provide combined organizations with the flexibility to grow.
When pursuing Financial Integration, there must be an integration of business operations, streamlining of the internal control environment, provision of accurate and consistent financial reporting, ensuring tax compliance jurisdictions if the deal is cross-border, and the founding of interim legal structure and business processes. When setting the right direction for a streamlined finance function, it is important that the organizations must already tackle critical matters while still in the early stages of a deal.
The establishment of clear reporting lines must already be agreed upon and set up. Accountability for financial operations, management reporting, control of expenses, and accounting closing procedures must already be established and clear between the Buyer and the Target. These play a vital role when the organization undertakes a Strategic Planning geared towards the development of a Financial Integration Strategy and Plan.
The Financial Integration Strategy: What We Need to Know
The Financial Integration Strategy can only be defined and crafted only when immediate areas that require action have already been identified. The Strategy must be developed based on 8 key areas of focus.
- Overall Organization. As the first key area, this focuses on the overall set up of the Financial Integration processes. This starts with establishing the reporting lines from Day One of the PMI process. This also includes the establishment of a transition plan that is aligned with the process and systems migration plan.
- Internal Controls Environment. Once the overall organization has been set up, it is important that the internal controls environment is established. This will entail setting up the control procedure from Day One. It is of importance that the controls environment is established since this will mitigate risks and ensure regulatory compliance.
- Cash/Treasury. This is the third key area that looks into the cash position of the organization. It is at this point wherein the organization must be able to plan out its cash flow requirements and be able to gain assurance over adequate funding. This key area is very critical when it comes to the financial sustainability of the organization as it ensures that treasury policies are aligned, cash controls are established, cash forecasting and cash management have commenced, and there is an alignment of investments, foreign currency, and any hedging arrangements.
Aside from the 3 focus areas, the development of the PMI Financial Integration Strategic Plan must also give serious consideration on Financial Statements, Procurement, Financial Planning, Cash Controls, and Tax. These 5 focus areas are essentially important as it ensures that Financial Integration essentials are met.
When this is achieved and the 8 key areas of focus are integrated into the Financial Integration Plan, the new organization gets to prepare itself towards a larger scale Business Transformation in the future.
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Post-merger Integration (PMI) can be complex, time-pressured, and unfamiliar for most organizations. It is a highly complex process. It requires swift action as well as running the core business activities simultaneously. There is no one-size-fits-all approach to a successful PMI Process. However, careful planning focusing on the strategic objectives of the deal and the identification and capturing of synergies will help maximize deal value.
It is inevitable that some elements of information will be withheld from a Buyer pre-deal. Further, not all the synergy benefits originally identified in the deal will prove to be achievable. The foremost challenge for management at the onset of the PMI process is to identify how value can be captured from the newly combined organization via synergies and cost savings.
Hence, undertaking the PMI Process requires a clear roadmap that will take the post-merger integration journey toward a more strategic and effective direction. This is where Strategy Development comes in.
The 5 Core Components of the PMI Process
Organizations must have a good understanding of the integration process to ensure that target results are achieved and that expectations are met. There are 5 core components of the PMI Process organizations must follow to make the process more successful where the deal value is achieved and realized.
- PMI Structure. This is the first component of the PMI Process that establishes the stages of the integration process. It consists of sub-projects that take place before and after the closing or change of ownership.
- Management Alignment. The second core component, Management Alignment is focused on aligning top managers of both Buyer and Target. For the first time, top managers of the Buyer and Target become part of the same organization. It is at this stage wherein there is a change of priorities and commitment of top managers. The new management team must be aligned and committed to the same goal. This way, they convey the same message to the new organization.
- First 100 Days. The First 100 Days is where the PMI Process starts focusing on making changes. The First 100 Days is the maximum period people can live with the uncertainty regarding the new organizational structure and decision on redundancy. This core component is highly critical as this paves the way towards a smooth transition to a new organization.
- PMI Project Management. The fourth component is focused on budget planning and management. It is at this stage wherein the preparation of the first estimates of integration costs during the transaction or purchase phase is undertaken.
- Kick-off Meeting. The fifth or final core component is the Kick-off Meeting. Starting teamwork is its main focus. Participants are brought up to speed on events in both predecessor entities and the joint strategy. This is the avenue to provide instructions, guidelines, and templates. A Kick-off Meeting is typically a 2-day session including the time to socialize.
The Red Flag Warning in Post-merger Integration
When going through Post-merger Integration, we can expect some red flag warnings. These are disturbances that may warrant such a red flag warning. As organizations go through the deal, there will be critical issues on personnel and customers that will arise.
One critical issue that may raise the concern of the Integration team is the possibility of losing your key personnel. Losing your key personnel can cause a dent in any organization. At this point wherein integration is happening, the more the support of the key personnel is of utmost importance. Losing them would be a great loss.
Aside from red flag warnings, there will also be key considerations organizations must take note of during integration. Being aware of these will prepare them as they move on forwards to achieving a successful deal.
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When organizations go through a Post-merger Integration, often management realizes that it is never a simple undertaking. It is a highly complex process. Swift action is required as well as being able to run the core business activities simultaneously. There is no one-size-fits-all approach to a successful PMI Process. However, to maximize deal value, there is a need for careful planning focused on the strategic objectives of the deal and the identification and capturing of synergies.
The PMI Process requires a Strategy Development approach geared towards unifying 2 organizations into one new organization with a common culture, equipped with the right people and good leadership in place. It is a challenging journey where organizations, both the Buyer and the Target, must take on the appropriate approach to be able to start off the process and close the deal with the expected results in place.
New organizations often benchmark Post-merger Integration Process leaders to guide them through the process. By following best practices, new organizations will have a better understanding of how to approach the PMI process in a more strategic manner.
Achieving PMI Success: The Top 10 Tips
There are top 10 tips that can help organizations conquer what could be a complex integration process. Following the top 10 tips will enable organizations to successfully traverse through the process.
Let us discuss here 4 of the top 10 tips to achieve PMI success.
- Focus on Key Sources of Value. In focusing on key sources of value, we need to be able to communicate how the value of the deal will be captured. Success organizations often structure integration teams based on key sources of value. They make teams understand the value for which they are accountable and how this will be unlocked via the PMI process.
- Clearly Define Nature of the Deal. Often successful integrations are achieved when the nature of the deal is clear. Organizations need to be able to determine what is to be integrated and what is to remain as stand-alone. They need to have a good idea of what the adopted culture will be and which people are to be retained. This way, organizations can easily jumpstart the PMI process in the right direction.
- Have the Right People in Placed. Needless delays in the implementation of the PMI process can exacerbate anxieties amongst staff. This can cause speculative conversations or result in staff insecurities. To address, organizations focus on the immediate mobilization of the integration process. One way of doing this is having the right people in placed. Selecting people who are enthusiastic about the new vision and are happy to contribute it will facilitate a good start for the integration process. However, there is a need to maintain balance. People from both the Buyer and Target must be selected and appointed.
- Get the Buyer up-to-speed. This is one important tip that will jumpstart the process. Get the Buyer up-to-speed. This can be done by encouraging the Buyer to begin planning the integration process even before the deal is announced. It is of great advantage if the Buyer will identify everything that must be done prior to closing. Active participation of the buyer is essential to keep the PMI process on high gear.
Aside from the 4 top tips, the other 6 top tips are equally effective in guiding organizations to achieve deal maximization. These top 10 tips can be of great help to organizations when faced with challenging obstacles as they go through the process of integration. The PMI Process is a very complex undertaking but it can be achieved and be conquered with just the right approach and guide.
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“A problem well framed is a problem half-solved.” — Jay Galbraith
Organizational Design is more than just structures. It is having policies and strategies that are aligned with one another. When this is achieved, it allows organizations to operate at maximum efficiency and achieve Operational Excellence.
The Galbraith Star Model™ is the foundation on which a company bases its design choices. The organization’s design framework consists of a series of design policies that are controllable by management and can influence employee behavior.
Organizations use the Star Model™ framework to overcome the negatives of any structural design. Every organizational structure has positives and negatives associated with it. If management can identify the negatives of its preferred option, it can better design other policies around the Star Model™ to counter the negatives while achieving the positives.
Understanding the Galbraith Star Model™
Galbraith Star Model™ is the organization’s design framework for effective strategy execution. It consists of 5 major components.
- Strategy. This component is the company’s formula for winning. It is the goals and objectives to be achieved, as well as values and missions to be pursued. It defines the basic direction of the company. Strategy Development is essentially important in specifying sources of Competitive Advantage.
- Structure. The second component, the Structure, determines the location of the decision-making power. It is the placement of power and authority in the organization.
- Processes. Information and decision processes is a component that cuts across the organization’s structure. It is a means of responding to information technologies. Management processes can either be vertical or lateral. Either way, these are designed around a workflow from new product development to the fulfillment of a customer order. If the structure is the anatomy of the organization, processes are its physiology or functioning.
- Rewards. The fourth component provides motivation and incentive for the completion of the strategic direction of the organization. Rewards are recognition that influence the motivation of people to perform and address organizational goals. It becomes effective only when they form a consistent package in combination with other design choices.
- People. People is the fifth component that focuses on influencing and defining an individual’s mindset and skills. It looks into the human resource policies of recruiting, selection, training, and development of people needed by the organization to achieve its strategic direction. HR policies work best when these are consistent with the other connecting design areas.
The five components are essentially important. Each component has its underlying purpose and impact. How the organization can effectively align the components with each other makes a huge difference in achieving an impact. Further, in this fast-changing business environment, organizations must be keenly aware of the implications of implementing the Star Model™ framework. The Star Model may have its implications, including the interweaving nature of the lines that form the star shape.
The Man Behind the Organizational Design Framework
Dr. Jay Galbraith was an internationally recognized expert on Strategy and Organizational Design. With more than 45 years of research and practical experience, Dr. Galbraith’s extensive knowledge came from his background in information processing systems, chemical engineering, and organizational behavior. As the original creator of the Star Model and the Front-Back organization structure, Dr. Galbraith transformed organizations across a broad span of industries including consumer goods, manufacturing, health care, financial services, and telecommunications, among others.
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Performance evaluation serves as a health check on operations and individuals’ work. The organizational maturity notion signifies the progress of an organization in terms of developing its people, processes, technology, and capability by implementing quality practices. Organizations aiming to achieve the highest maturity levels in performance need to take care of the intricacies involved in deploying a Performance Management system and the relationships it has with the other key organizational activities.
Performance Management processes in organizations can be assessed using maturity levels, by measuring the implementation of Performance Management tools, analyzing the availability of internal Performance Management processes in place, assessing the structures, procedures, and interactions utilized to direct Performance Management systems.
An organization’s performance maturity is assessed on 5 levels of progressive growth. These 5 stages present a valuable dashboard to gauge the implementation of the corresponding levels of the Performance Management Maturity Model.
To achieve maturity in performance management, organizations need to build capabilities in 5 core elements—referred to as “Operational Levers”—Tools, Processes, Governance, Architecture, and Integration.
The organizations at the first performance maturity level are not acquainted with—or totally unfamiliar of—the tools necessary to implement the Performance Management system. The Performance Management processes are typically inconsistent. Organizations at this maturity level do not practice employee empowerment, development, and innovation. There is a dearth of appropriate KPI calculation approach and the performance architecture is in its budding stage. Roles and responsibilities, importance of KPIs, and individual/organizational indicators are unclear to employees.
The level is characterized by casual strategic planning practices—dependent on top management experience—with ill-structured communication mechanisms. The initiatives lack alignment with organizational goals. Leadership involvement in mentoring and developing employees is at sub-optimal levels. Staff motivation and increasing their engagement levels is not given due importance.
The organizations at the second level of Performance Maturity have a strong desire to improve performance. At this stage, organizations begin exploring Performance Management tools, but have uncoordinated and un-standardized internal processes and systems. Initiatives to integrate performance management procedures are planned with clearly defined objectives and expectations.
However, at this level, strategy does not deliver value and is not more than formal documentation. Managers are assessed based on performance results, but not the lower hierarchical levels. There is unclear articulation of company goals, misalignment at various organizational hierarchical levels, and incompetent communication. A few basic performance measurement methods—e.g., KPI selection and documentation are embraced by the organization. The KPI selection process, however, lacks appropriate yardsticks, tools, standardized forms/templates, and approaches. Performance evaluation and reporting processes exist but are deficient in clear communication by the leadership. Leadership possesses a basic understanding of performance measurement processes. Measuring performance at the individual level is uncommon at this maturity level. Performance review meetings are short of delivering the insights required to make critical decisions.
The “Structured” stage of the Performance Management Maturity Model is characterized by well-coordinated and carefully regulated Performance Management processes. Organizations at this stage have a defined set of Performance Management tools. There are standardized Performance Management practices with well-defined and improved process flows. There is typically an inconsistent approach towards adopting an aligned Performance Management architecture though.
Organizations at this level employ strategy monitoring tools—e.g., scorecards and dashboards—but do not cascade these at the lower ranks and files. KPIs are selected based on a clear-cut criteria, established tools and methods, and agreement across the board. Standardized forms are used to document and report KPIs. The KPI targets are established utilizing data, benchmarking, and comparing market figures. Organization-wide performance evaluation data is gathered and disseminated at all levels. People, largely, have a fair understanding of their personal and organizational performance goals. A well-defined Performance Management system is in place with appropriate templates, procedures, and governance structures ready for each Performance Management cycle. Incentives and training and development opportunities help improve performance.
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Supply Chain Management across industries has become way too complicated and globalized today. Since the popularity and use of Social Media has grown, organizations are increasingly getting under pressure to disclose their information publicly. This pressure on information transparency has reached a level where external stakeholders expect to know the details of an organization’s Supply Chain practices much more than what is typically required to disclose legally.
Executives are finding it hard to deal with this situation. A majority of them have a limited understanding of the salient features and capabilities of their own Supply Chains, lack the expertise to gather and report Supply Chain data, and fail to develop a Supply Chain Information Disclosure Strategy.
To begin with, they need to first realize the forces that are pushing this trend for information transparency—government regulations, laws, competitors’ best practices, and non-governmental organizations (NGOs). NGOs often highlight media campaigns to expose poor Supply Chain practices carried out by organizations. These campaigns may have adverse effects on brand reputation.
Once a fair understanding of these forces has been established, only then executives can develop approaches to deal with these information transparency trends effectively.
Supply Chain Information Categories
The growing demand and understanding of organizations to make Supply Chain information transparent warrants them to have an in-depth know how of what is required to accomplish this and the constraints therein—e.g., their data collection capabilities, the resources required to establish reporting systems, the technology requisites, and clearly defined standards for reporting systems.
Supply Chain Management experts identify 4 categories of Supply Chain information that organizations can publicly disclose:
- Supply Chain Membership
- Environmental Information
- Social Information
1. Supply Chain Membership
This category pertains to information related to the suppliers. It includes basic supplier information, e.g., the names of first-tier direct suppliers and supplier locations. For instance, Nike shares a list of its global suppliers for the entire product range with names, locations, workforce composition, and subcontracting status of every supplier.
This category entails information related to ensuring compliance of materials used to produce products with regulatory standards. Specifically, this includes source (material) locations, material extraction practices, and compliance with safety and quality standards.
3. Environmental Information
This category pertains to reports on environmental measures, including carbon and energy usage levels, water use, air pollution, and levels of waste in the Supply Chain.
4. Social Information
This category entails reports on labor policies (health & safety conditions, work hours), human rights data, and social impacts of the Supply Chain (community involvement and development work).
Supply Chain Information Transparency Strategies
There is no one-size-fits-all approach to information disclosure that suits every firm. Once senior management has evaluated the leading best practices on types of Supply Chain information that can be shared publicly, their emphasis should be on determining and agreeing on the level of Supply Chain information disclosure that is ideal for their organization. Senior executives can select a viable strategy from the following 4 typical Supply Chain Information Disclosure Strategies:
This strategy involves maximum public availability of all Supply Chain information. Companies following the “Transparent” strategy regard information disclosure as a core competence. They take full disclosure of their Supply Chain information as a commitment to satisfy external stakeholders.
For instance, Nike was criticized throughout the 1990s for poor working conditions in its Supply Chain, but now it is recognized as a leader for its responsible supply chain membership, provenance, environmental, and social sustainability information disclosure.
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Reducing the fragility of global Supply Chains in the event of disruption through natural or other disasters is a major concern for most senior executives. This rings true more so now than ever, as the world grapples with COVID-19, the worst human health crisis in 100 years.
The strategies to enhance the effectiveness and readiness level of Supply Chains and to reduce risks associated with disruption come with a price. These costs are critical to build Supply Chain Resilience across all industries.
However, these expenses are, generally, considered a hindrance in the implementation of risk reduction strategies by many leaders. This is one of the major factor that precludes them from anticipating and managing Supply Chain Risks.
Able leaders anticipate these risks and invest in building organizational resilience. They leverage a couple of potent Supply Chain Risk Reduction Strategies that have nominal impact on cost efficiency but offer substantial reduction of disruption risks:
- Diversify supply base
- Overestimate likelihood of disruptions
Diversify Supply Base
It is vital for organizations to diversify their supplier base to avoid disruption of their Supply Chains in the event of a natural disaster. Manufacturers have been found to have been using pooling—combining resources, inventory and capacity by maintaining fewer distribution centers—and producing common parts to help reduce costs. However, too much pooling and commonality can make the Supply Chain vulnerable to disruption.
For instance, relying too much on a single supplier and common parts—in an effort to be as lean and efficient as possible—became a Supply Chain Analysis nightmare and cost Toyota billions of dollars in terms of lost sales and product recalls in 2010. Back then, the auto manufacturer was counting on a single supplier for a common part for many of its car models, which was effective in curtailing costs, but turned out to be a disaster.
Organizational leadership should evaluate the trade-offs between having a leaner and efficient Supply Chain—with common parts and single suppliers—and preparing for and reducing the risks of disruptions. Minimizing the number of distribution centers offers diminishing marginal returns for Supply Chain Performance and increases the Supply Chain Fragility. Creating little bit of commonality presents significant advantages, but when more parts are made common the benefits shrink and it rather becomes detrimental.
The key for senior leaders is to find an optimal balance between resource pooling, creating common parts, and deciding on whether to decentralize or centralize their Supply Chains. Decentralization (e.g., by having multiple warehouses or plants) increases costs as it requires more inventory, but it does curtail the effect of disruption significantly. Centralization or pooling of resources, on the other hand, reduces total costs, but the cost again goes up by centralizing beyond a reasonable degree. Recurrent Supply Chain Risks necessitate focusing more on centralization and pooling of resources and commonality of parts, while rare disruptive risks necessitate decentralization. Achieving a state of equilibrium between pooling of resources, parts commonality or fewer plants helps keep Supply Chain Risks low. Ignoring the possibility of disruption can be very expensive in the long term. Samsung Electronics Co. Ltd. always maintain at least two suppliers, no matter if the second supplier supplies only a fraction of the volume.
Overestimate Likelihood of Disruptions
The risk of disruption of supply chains due to any unforeseen event is typically considered a rare possibility and goes unaccounted for during planning by most executives. A fire break out at a distribution center, defective auto part, or a supplier’s facility closure for a prolonged period of time can happen anywhere, but we tend to underestimate the likelihood of such events. The reason for this is attributed to the requirement of assigning a significant chunk of investments upfront from the already limited resources and budgets, to prepare for and mitigate likely disruptive risks.
Most of our typical risk assessment measures involve approximating the probability and the likely damage caused by an event. Estimating the likelihood of disruptive risk to a reliable degree isn’t easy even for large multinationals—even an auto manufacturer like Toyota could not anticipate the occurrence of the part failure issue until the damage had been done. These risk estimations do not have to be strictly precise. Rough estimates of disruption risk are fine—any small mis-estimates that occur have negligible consequences.
Senior leadership needs to cautiously contemplate the areas that are likely to get affected the most due to potential disruption. Building resilience does not cost much for large organizations. In the long term, doing nothing costs much more than investing in preparing for a probable disruption. When disruption occurs, the loss incurred greatly exceeds the amount of saving executives save by not investing in risk mitigation strategies.
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Supply Chains often get disrupted by calamities that are beyond human control. Natural disasters, such as tsunamis and floods, in the last decade have drastically affected major businesses—from automobiles to technology, to travel, to shipments—and exposed critical weaknesses in Supply Chain mechanisms around the globe. And, now, we are living through a global disruption of an unparalleled nature, COVID-19.
Organizations that rely on single-source suppliers, common parts, and centralized inventories are more susceptible to the risk of disruption.
Management in most cases is aware of its responsibility to prevent their Supply Chains from getting disrupted by ensuring measures such as keeping enhanced stocks, improving capacity at discrete facilities, and choosing multiple sources. But these measures have a negative effect on Supply Chain cost efficiencies.
However, discerning the effects of costly Supply Chain disruptions is one thing and taking actions to avoid such situations or mitigating their undesirable effects is another. Managing Supply Chain risks necessitates careful evaluation of the impact that these measures have on Supply Chain cost efficiencies and bottom line. During the COVID-19 pandemic, it has become clearer than ever that Supply Chain Management must also involve this form of Risk Management.
Supply Chain Efficiency entails improving the financial performance of an organization and focusing on improving the way we manage supply and demand. Demand fluctuations or supply delays are independent and can be typically tackled by having appropriate inventory levels in the right place, better planning and implementation, and improving Supply Chain Cost Efficiency.
Supply Chain Containment
Supply Chains are complex operations encompassing many products or commodities that are sourced, manufactured or stored in multiple locations. These complexities can slash efficiency, cause delays, suspension of operations, and increased risk of disruption. Containing complexities brings higher cost efficiencies and reduced risks.
Supply Chain Containment ensures that Supply Chain disruptions caused by internal factors or through natural hazards are contained within a portion of the Supply Chain. A single Supply Chain for the entire organization seems cost effective in the short term, but even a small issue can trigger a disaster.
Supply Chain Containment Strategies
Supply Chain Containment Strategies are useful for the organizations to design and deploy solutions fairly quickly in the event of disruption through natural disasters. The objective is to limit the impact of disruption through disasters to a minimum—to just a portion and not the entire Supply Chain.
For instance, in order to reduce the impact of parts shortage, a mechanical parts manufacturer should arrange multiple supply sources for common items or limit the number of common items across different models. To reduce Supply Chain instability and to improve financial performance, organizations can use the following containment strategies:
- Supply Chain Segmentation
- Supply Chain Regionalization
Supply Chain Segmentation
The basis for Supply Chain segmentation are volume, product diversity and demand uncertainty. High margin but low-volume products with high-demand uncertainty warrant keeping Supply Chains flexible, with capacity that is centralized to aggregate demand. Manufacturing everything in high-cost locations is detrimental to profit margins. Sourcing responsive suppliers from Europe is a model feasible for trendy high-end items only. For fast-moving, low margin, basic products it is sensible to source from multiple low-cost suppliers. Centralization is favorable in case of fewer segments, significant product variety, low sales volumes of individual products, and high demand uncertainty to achieve reasonable levels of performance. Decentralization is suitable in case of higher sales volumes, less demand uncertainty, and more segments, to help become more responsive to local markets and reduce the risk of disruption. For instance, utility companies utilize low-cost coal-fired power plants to handle predictable demand, whereas employ higher-cost gas- and oil-fired power plants to handle uncertain peak demand.
Supply Chain Regionalization
Supply Chain Regionalization helps curtail the impact of losing supply from a plant within the region. For instance, Japanese automakers were badly hit by shortage of parts globally in the event of 2011 tsunami, since most of these parts could be sourced only from storage and distribution facilities in the tsunami-affected regions. Had they operated with decentralized regional Supply Chains with logistics centers dispersed in various locations they would have significantly contained the impact of disruption.
Supply Chain Regionalization lowers distribution costs while also reducing risks in global Supply Chains. During periods of low fuel and transportation costs, global Supply Chains minimize costs by locating production where the costs are the lowest. As transportation costs rise, global Supply Chains may be replaced by regional Supply Chains. Regionalized Supply Chains with same inventory stored in multiple locations appear wasteful, but are more robust in case one of the logistics centers suffers from a disaster.
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Unsuccessful software applications cost organizations significant efforts and resources. The reasons for these failed ventures are often attributed to technology issues. However, the real issue is flaws in business processes—the enterprise application deployment environment and the ecosystem which the application targets.
This calls for ensuring the organizational readiness before initiating technology deployment. It is for this reason the Business Process Maturity Model (BPMM) originated. BPMM helps achieve uniform standards, identify weaknesses in workflows, and create standardized tailored processes that simplify the requirements for enterprise applications.
BPMM’s roots can be traced back to the Process Maturity Framework (PMF) created by Watts Humphrey and his colleagues at IBM in the late 1980s. Process Maturity Framework explores the ways to introduce quality practices in software development. Humphrey and his colleagues introduced incremental stages to adopting best practices in software organization. The PMF served as the groundwork for the development of the Capability Maturity Model (CMM) for software in 1991. CMM then became the foremost standard for appraising the capability of software development organizations.
BPMM ensures the success of enterprise systems by providing proven methods for system requirements validity; accuracy of use cases, and effectiveness of applications; simplification of requirements for enterprise applications; and providing a reliable standard for appraising the maturity of business process workflows.
The Guiding Principles for BPMM
BPMM considers processes as workflows across organizational boundaries. The key guiding principles governing BPMM are:
- A process should be analyzed in terms of its contribution to organizational objectives.
- It depends on the organizational ability to sustain efficient processes.
- Process Improvement should be ideally executed as a phased Transformation endeavor that aims to achieve successively more predictable states of organizational capability.
- Each stage or maturity level works as a groundwork to build future improvements.
BPMM has the following 4 primary utilities.
- To drive business process improvement initiatives
- To gauge enterprise application deployment risks
- To ensure selection of capable suppliers
- To Benchmark
BPMM – Conformance
Evaluating the BPMM conformance is about ensuring that the implemented system meets the needs of the client. Verification of conformance necessitates an effective appraisal technique to gather multiple forms of evidence to evaluate the performance of the practices contained in the BPMM.
The BPMM conformance appraisal should be headed by an authorized Lead Appraiser—external to the organization, trained in BPMM as well as appraisal methods. The team under the lead appraiser should include some members internally from the organization. The BPMM conformance appraisal team gathers and analyzes evidence regarding the implementation of BPMM practices, judges their strengths and weaknesses, and gauges their effectiveness in meeting the goals of the process areas at respective maturity levels.
The following evidence is utilized during BPMM conformance appraisals:
- Review of outputs produced as a result of a process.
- Review of objects, documents, products supporting the execution of a process.
- Interviews with individuals that perform a process and those who support and manage it.
- Quantitative data that depicts the organizational state, employee behaviors, performance, and results of a process.
BPMM Conformance Appraisals
BPMM Conformance Appraisals help assure the implementation of practices at a level that achieve the intent and goals of the practices and their process areas. BPMM conformance appraisals are of 4 distinct types:
- Starter Appraisal: An inexpensive BPMM conformance appraisal—which takes only a few days—that entails gathering quantitative data by conducting few interviews.
- Progress Appraisal: An extensive appraisal that entails quantitative data collection, investigation of all process areas and practices, review of artifacts, and analysis of interviews.
- Supplier Appraisal: An appraisal method to select sources and to make informed decisions during procurement contracts.
- Confirmatory Appraisal: A rigorous investigation of all process areas / practices where all evidence is accounted for.
BPMM – Maturity Levels
BPMM encompasses 5 maturity levels that signify the transformation of an organization on the basis of improvements in its processes and capabilities. BPMM Maturity levels 2, 3, 4, and 5 each contain 2 or more process areas, whereas the Maturity level 1 does not contain any process areas. The 5 successive levels of BPMM are:
The focus of the BPMM level 1 is on achieving economy of scale, automation, and productivity growth by encouraging people to overcome challenges and complete their tasks.
The 2nd maturity level aims at developing repeatable practices, minimizing rework, and satisfying commitments — by managing work units and controlling workforce commitments.
The focus of the 3rd maturity level of BPMM is to accomplish standardization in terms of business processes, measures, and training for product and service offerings.
The 4th maturity level aims at achieving stable processes, knowledge management, reusable practices, and predictable results. Organizations accomplish these results through standardization and managing processes and results quantitatively.
The focus of the organizations operating at the highest maturity level of BPMM is on implementing continuous improvements, developing efficient processes, and inculcating innovation.
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Organizations today are spending money on the latest technologies and working hard to solve problems as they arise. Yet, sad to say, this is simply not enough.
Today, to get on top of today’s fiercely competitive business environment, organizations need to take a strategic move: Develop an Innovation Mindset. What is an Innovation Mindset? What does it take to develop an Innovation Mindset? Often, this can be mindboggling as we get confused as to understanding what is an Innovation Mindset. Developing an Innovation Mindset is never the mere act or intent of investing in technology. It goes beyond spending money on the latest technology.
Developing an Innovation Mindset is to undergo the transformation from an innovation-averse to a forward-thinking organization.
Understanding an Innovation Mindset: What It Takes to Develop One
Developing an Innovation Mindset requires scaling innovations repeatedly and making it grow as fast as others. Companies need to depart from adopting technologies as point solutions to evolving future systems. This can be achieved by cultivating the mindset and methods of the top 10%.
The top 10% are the Leaders in Innovation Management that are already enjoying a considerable head start and are not standing still. The systems they have put in place are specifically designed to not only accommodate innovations but also scale them across the enterprise.
Developing an Innovation Mindset Starts with the Right Tools
These 5 principles can provide organizations the foundation on developing Innovation Mindsets. There first 2 are defined as:
- Adopt technologies that make the organization fast and flexible. Consumers now demand that companies are fast and flexible. The market is getting impatient when there are delays and so structured that it ceases to be an organization with a Customer-centric Design. Principle 1 focuses on making organizations fast and flexible. Achieving this call for efficient use of decoupling data, infrastructure, and applications to achieve greater flexibility and a faster-moving IT culture.
- Get grounded in cloud computing. This principle is focused on catalyzing innovation. Adopting this principle will enable organizations to maximize the use of the cloud to successfully utilize other technologies, including Artificial Intelligence and analytics.
There are 3 other principles that organizations must take notice of and focus on. The other 3 principles are recognizing data as being both an asset and a liability, managing technology investments well across the enterprise, and finding creative ways to nurture talent.
Integrating these principles in the organization’s journey towards Digital Transformation will promote the development of an Innovation Mindset. When this happens, we can expect our organization to keep up with the pace and catch up.
What Does It Take to Have an Innovation Mindset
Developing an Innovation Mindset has led leaders to take command and be in-charge of market demands. Leaders are adopting DevOps, automation, and continuous integration/continuous deployment at a faster rate than Laggards. Let us take a look at a Travel Industry disruptor. The company migrated its platform to microservice as part of decoupling initiatives.
As a result of taking this initiative, rapid response to change was achieved. This also enhanced its capability to add new features as the company experiences explosive growth.
Let us take a look at a more internationally recognized company: Ant Financial (formerly known as Alipay), the Alibaba Group’s financial arm. The organization embedded cloud services and AI across multiple processes and product lines. Furthermore, AI capabilities were offered to external ecosystem partners.
Today, Ant Financial can instantly assess the credit risks of underserved people who may not have bank accounts and even target them with loan offers. The overall cost was reduced by 50% and the company experienced a 10-fold increase in daily visitors.
Developing an Innovation Mindset is key.
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