Shantanu Ghosh
However, standardization is a difficult endeavor in most conventionally structured organizations and can produce varied results. In our work with leading enterprises, we have identified some of the essential levers of success that separate the successful journeys from all the rest.
1. Create an empowered process organization without waiting for change in traditional company organization models.
Diverse organizations are typically organized along traditional lines of department, business line or geography, each with its own processes, systems and policies. When transforming to a global process model, change necessarily cuts across all these lines, such as when a new order-to-cash process creates a single workflow across verticals.
In order to manage this change, global process standardization needs to be a CXO-led initiative. One global pharmaceutical company, for example, chose one of their most influential business CFOs to spearhead its process standardization, and as a result, is now well advanced toward the CEO's goal of a single global services division and best-in-class process framework. Having a central authority responsible for achieving transformation goals empowers cooperation, ensures that managers and stakeholders agree on objectives and outcomes, and ensures that ongoing issues are promptly addressed and milestones are met.
2. Use a robust process excellence and evolution framework.
Many enterprises focus on change at the sub-process level rather than viewing processes holistically. This lack of scope limits the potential impact. Enhancing purchase order penetration, for example, does not improve overall procurement; greater efficiency in receivables accounting will not usually improve receivables to entitlement.
To attain real standardization, the organization must understand each sub-process and how it affects the value chain. This is an impossible task without looking at the entire process at both the highest and the most granular levels, benchmarking metrics, and understanding the processes and policies that drive better performance.
One leading consumer products company, for example, found that master data management (MDM) was the key to their entire lifecycle, from materials to product development to promotions. It treated MDM as a value stream impacting the entire supply chain, and as a result, created global centers of excellence for that process. Development of a change roadmap becomes possible only after careful analysis of current processes against best-in-class and when the management team understands which key business drivers most affect daily operations and how to link them to better outcomes.
3. Change the operating model.
A healthy debate as to whether global process standardization can be achieved by creating global process champions while decentralizing process execution continues. In our experience, success in that model is scarce unless companies evolve with a clear, standardized framework – something which is unfortunately a very rare occurrence. We have found that executing to a standardized model is the hard part, not the conception. If a group only conceives the global model but has no accountability for execution, driving adoption becomes a significantly bigger challenge.
As such, the organization must create centralized, consolidated platforms to perform the bulk of process execution. This does not mean that a single location is the only answer. A global hub-and-spoke model can consolidate operations in selected locations using a mix of global, near-shore, regional and in-country resources to deliver the most effective services at the best cost. This allows faster, targeted changes in technology, processes and policies, and reduces “localization” to a closely governed minimum.
4. Create a broader vision beyond cost efficiencies.
There's little doubt that standardization delivers greater efficiency at lower cost. Focusing solely on cost savings, however, can be short-sighted. True business impact comes from a variety of metrics beyond cost drivers. Shortening DSO impacts the company's ability to maintain working capital; speeding time to market reaps rewards in innovation and revenue.
One global beverage company, for example, has significant businesses in low-cost countries where the cost savings from centralization would be hard to justify the change effort. Instead the company developed a business plan that included achievement of a variety of metrics designed around specific business targets such as working capital.
For every company the cost equation is different, and cost benefits vary across business units and geography. Targeting cost alone may not create compelling value for change for parts of the organization, which can induce barriers to adoption. Creating business objectives beyond cost helps generate business cases more easily accepted by local management teams.
5. Process standardization must result in clear supplier-customer performance metrics and commitments.
Whether a company executes a new operating model alone or through service partners, it must ensure that the recipients of the standardized services meet performance commitments. Both process leaders and internal business leaders must know their objectives and responsibilities for the change. There can be no consultant mindset here; each player must be focused on hands-on achievement.
In our experience, this is one of the most common failure points, related to the need for a new operating model. Creating this kind of relationship is almost impossible in a wholly decentralized execution model, regardless of how well-conceived or staffed the process standardization team may be.
6. Global process standardization capabilities are not the same as functional competencies.
Ninety percent of CFOs surveyed by the Chartered Institute of Management Accountants last year said they use or plan to use an external provider to assist with finance transformation and/or are considering outsourcing or moving to an SSC model. These CFOs know that designing effective end-to-end global processes is quite different from the daily execution of sub-processes. And while most global companies have excellent functional experts, driving process standardization requires a broader worldview. The skills required to analyze, benchmark, design and run global processes are only developed over time and after many engagements, in many diverse environments.
7. Treat the standardization initiative as a journey, not an endpoint.
While companies may dream of a hard push that quickly results in global standard processes, reality is much different. The diversity found in global companies means that a detailed plan is required to accommodate local conditions, worldwide systems, and investment constraints in both manpower and dollars. Such plans take time to implement. A roadmap prioritized on high impact and returns has distinct advantages in the form of phased investments and the opportunity to experiment with new working models.
For example, one Fortune 100 company is undertaking a multi-year standardization of their ERP backbone to SAP and simultaneously creating global process standards and a new operating model, including service providers for its order management and collection processes. The company plans to continue leveraging parts of the existing technology backbone, use bolt-on technologies, and create a technology strategy consistent with the ERP rollout, but the whole project is not limited by the ERP initiative.
Global standardization can and will give companies who embrace it a competitive edge -- if it is done in a carefully managed manner. Strong oversight, a detailed plan, competent partners and a realistic timeline are all crucial to a successful transformation project. A smart approach makes for an intelligent outcome.
1. Create an empowered process organization without waiting for change in traditional company organization models.
Diverse organizations are typically organized along traditional lines of department, business line or geography, each with its own processes, systems and policies. When transforming to a global process model, change necessarily cuts across all these lines, such as when a new order-to-cash process creates a single workflow across verticals.
In order to manage this change, global process standardization needs to be a CXO-led initiative. One global pharmaceutical company, for example, chose one of their most influential business CFOs to spearhead its process standardization, and as a result, is now well advanced toward the CEO's goal of a single global services division and best-in-class process framework. Having a central authority responsible for achieving transformation goals empowers cooperation, ensures that managers and stakeholders agree on objectives and outcomes, and ensures that ongoing issues are promptly addressed and milestones are met.
2. Use a robust process excellence and evolution framework.
Many enterprises focus on change at the sub-process level rather than viewing processes holistically. This lack of scope limits the potential impact. Enhancing purchase order penetration, for example, does not improve overall procurement; greater efficiency in receivables accounting will not usually improve receivables to entitlement.
To attain real standardization, the organization must understand each sub-process and how it affects the value chain. This is an impossible task without looking at the entire process at both the highest and the most granular levels, benchmarking metrics, and understanding the processes and policies that drive better performance.
One leading consumer products company, for example, found that master data management (MDM) was the key to their entire lifecycle, from materials to product development to promotions. It treated MDM as a value stream impacting the entire supply chain, and as a result, created global centers of excellence for that process. Development of a change roadmap becomes possible only after careful analysis of current processes against best-in-class and when the management team understands which key business drivers most affect daily operations and how to link them to better outcomes.
3. Change the operating model.
A healthy debate as to whether global process standardization can be achieved by creating global process champions while decentralizing process execution continues. In our experience, success in that model is scarce unless companies evolve with a clear, standardized framework – something which is unfortunately a very rare occurrence. We have found that executing to a standardized model is the hard part, not the conception. If a group only conceives the global model but has no accountability for execution, driving adoption becomes a significantly bigger challenge.
As such, the organization must create centralized, consolidated platforms to perform the bulk of process execution. This does not mean that a single location is the only answer. A global hub-and-spoke model can consolidate operations in selected locations using a mix of global, near-shore, regional and in-country resources to deliver the most effective services at the best cost. This allows faster, targeted changes in technology, processes and policies, and reduces “localization” to a closely governed minimum.
4. Create a broader vision beyond cost efficiencies.
There's little doubt that standardization delivers greater efficiency at lower cost. Focusing solely on cost savings, however, can be short-sighted. True business impact comes from a variety of metrics beyond cost drivers. Shortening DSO impacts the company's ability to maintain working capital; speeding time to market reaps rewards in innovation and revenue.
One global beverage company, for example, has significant businesses in low-cost countries where the cost savings from centralization would be hard to justify the change effort. Instead the company developed a business plan that included achievement of a variety of metrics designed around specific business targets such as working capital.
For every company the cost equation is different, and cost benefits vary across business units and geography. Targeting cost alone may not create compelling value for change for parts of the organization, which can induce barriers to adoption. Creating business objectives beyond cost helps generate business cases more easily accepted by local management teams.
5. Process standardization must result in clear supplier-customer performance metrics and commitments.
Whether a company executes a new operating model alone or through service partners, it must ensure that the recipients of the standardized services meet performance commitments. Both process leaders and internal business leaders must know their objectives and responsibilities for the change. There can be no consultant mindset here; each player must be focused on hands-on achievement.
In our experience, this is one of the most common failure points, related to the need for a new operating model. Creating this kind of relationship is almost impossible in a wholly decentralized execution model, regardless of how well-conceived or staffed the process standardization team may be.
6. Global process standardization capabilities are not the same as functional competencies.
Ninety percent of CFOs surveyed by the Chartered Institute of Management Accountants last year said they use or plan to use an external provider to assist with finance transformation and/or are considering outsourcing or moving to an SSC model. These CFOs know that designing effective end-to-end global processes is quite different from the daily execution of sub-processes. And while most global companies have excellent functional experts, driving process standardization requires a broader worldview. The skills required to analyze, benchmark, design and run global processes are only developed over time and after many engagements, in many diverse environments.
7. Treat the standardization initiative as a journey, not an endpoint.
While companies may dream of a hard push that quickly results in global standard processes, reality is much different. The diversity found in global companies means that a detailed plan is required to accommodate local conditions, worldwide systems, and investment constraints in both manpower and dollars. Such plans take time to implement. A roadmap prioritized on high impact and returns has distinct advantages in the form of phased investments and the opportunity to experiment with new working models.
For example, one Fortune 100 company is undertaking a multi-year standardization of their ERP backbone to SAP and simultaneously creating global process standards and a new operating model, including service providers for its order management and collection processes. The company plans to continue leveraging parts of the existing technology backbone, use bolt-on technologies, and create a technology strategy consistent with the ERP rollout, but the whole project is not limited by the ERP initiative.
Global standardization can and will give companies who embrace it a competitive edge -- if it is done in a carefully managed manner. Strong oversight, a detailed plan, competent partners and a realistic timeline are all crucial to a successful transformation project. A smart approach makes for an intelligent outcome.
Shantanu Ghosh, Senior Vice President for Practices, Solutions and Transitions, Genpact
www.genpact.com
www.genpact.com