In Part 3 of this essay series on enterprise Architecture, we reflected on defining the purpose of the organization. What the organization does or should do, taking into account the pair Vision / Mission . The next logical step is the definition of the value chain, the set of processes necessary to deliver results to stakeholders in the form of value. I’ve written before about the importance of distinguishing between the output and result that is perceived by the customer as value when a process is executed, however it is worth recalling the concept because recognizing this formalism is the difference between operations that are geared towards what customers want or what managers claim. There is a big difference. Here are some classic examples:
- An organization with a customer base exceeding 10 million who made an effort to shorten the complaints processing time from 7 to 5 days after the regulator changed that particular service level agreement (output), but customers want the answer to be given in 3 days (results) and in some cases the decision should be made automatically if the customer provides all the necessary elements to make a decision, based on a paradigm of self-service or in the case there are shared digital data between the client and the organization, that allow an immediate decision based on rules of commercial or technical nature defined in the contract.
- An insurance company with which celebrates an insurance policy (output) or the client feels in fact insured, because after an accident, the insurance company legally defended the client, assured mobility or health care after an accident (result).
To build a value chain, it must be defined first the services of the organization, what the organization is the “WHAT”. For each service there must be a process that “realizes”, operationalizes the service. Before going into details, make a reflection on what should be the organization or in order words, the State. As you know, the Portuguese State, as well as Irish and Greek States were under a program of direct aid from the IMF and the European Union (Spain was supported indirectly by injecting capital into banks and restructuring of an obsolete business model through the merger of a number of small local banks called “Caxas”). During the financial aid program, it was attempted by the government (I’d say it was only a formal act, poorly done, that public opinion never cared about that) to create a script on the reform of State. In this script, the focus was the balance between a minimal state and a state where everything is public, from a state where education to health care is provided by private companies and citizens have to pay for it in exchange for less taxes or the same services are public, universal, free, which implies an increase of the tax burden. It is precisely this type of exercise that organizations have to do about the “WHAT “. What services are necessary to deliver value (results) to the customer.
The definition of the value chain is based on several important principles :
- There should be a value chain for each line of business, however, some of the services / processes may be shared (the true principle which should be behind the creation of shared services rather at the expense of “fashion” / hype initiative because it’s been writing about it in management magazines). For example, a conglomerate that is in engineering and construction, waste treatment and renewable solar energy business, should have 3 distinct value chains. Processes such as Procurement and Recruitment should be shared with some variations according to the specific business line of business. Creating multiple value chains, based on the cybernetic principle of recursion, the organization as a system, is itself constituted by other organizations.
- Each service must be supported by at least one process . If there are services that are not supported by processes, means that perhaps have no reason to exist (you have organizational “fillers” or you are not defining correctly the value chain).
- Do not try to “fit” value chain models in your business . Although models such as generic SCOR eTOM, APQC are a starting point to reflect on what processes we should have, are normally contrary to the specific nature of the business model.
- Do not decompose services or processes to a level of infinite granularity. In the early 2000s there was a tendency to over document processes, to the point that there is a document which specified the process, other for the sub processes an even activity details. What seemed to be a way to create a knowledge repository about processes, quickly turned into a document management nightmare, were composition and degree of granularity are associated what is commonly termed “engineering decision”. After a short time of being immersed in this approach, I concluded decomposing the value chain in layers was a way to sell professional services. Unfortunately, this approach still holds today when Enterprise Architects speak about creating “Capabilities Map”. For example, let’s consider a Procurement Process. The logic decomposition of a Purchasing process is to include these sub processes (or not). Purchase Requisitions , RFQ and Quotation , Purchase Orders , Contracts and Purchase Agreement ; Release Documents payments and purchase . If what we want is to define a value chain and Purchasing process is part of this value chain, why not just stay in the identification of the process as a whole and how it is made in terms of creating quotations or payment of invoices is mirrored in the way you want it to be in information systems, documents, legislation or any other support? What is the value for a manager knowing that you have to specifically improve the way payments are made to suppliers, because this is the cause of the delay in closing the accounts and makes the financial statements take more than 10 days to be published? This information should be part of the Business Case of the improvement project. To the manager, is only necessary to know that the procurement process must be improved.