Monday, October 25, 2010

Redefining the Business for Success

Commonly, a business is described as an organization designed to exchange goods and services with customers for profit. While this definition provides a simple way to understand the purpose of a business, it leaves quite a bit to be desired when it comes to executing on the promise of profit. It doesn’t really give us any guidance on how to produce those goods and exchange them for profit.

Today, processes are a well understood concept for most business executives as is the value they provide. Processes are simply algorithms for success. They have inputs, actions and outputs. When the actions are consistent, a process will produce a consistent output from a given set of inputs. Thus, if we want to create a controllable business, we need to start by defining our business in terms that are controllable – in terms of process.

So, let’s redefine our business as a process. Business is the process of generating a profit from the exchange of goods and services for money. While this sounds similar – it uses some of the same words – it is quite a bit different. With this new definition, we can really start looking at the components of the business and how to best make them work to optimally achieve our goals and objectives – the main one of which is to generate a profit.

Processes, at their heart, are the most elegant way to look at the world. They only have three core components: Inputs, actions and outputs. In theory, any stable process can be optimized to perfection.

Let’s take a look at the process of business more closely. We take as our inputs customer requirements or desired outcomes. These are the criteria against which our customers will judge the value of our goods and services. We combine them with all other inputs such as products, factories and sales channels to produce our output – profit.
  • Input: Customer requirements, customers, raw materials, vendors, factories, products, sales and distribution channels, employees, territories, countries, business units, etc…
  • Actions: Convert customer requirements into goods and services, produce/obtain goods and services, exchange goods and services for money, and provide goods and services to customers
  • Output: Profit
When we look at our business in this way, we see that in the calamity of corporate America, there really is a simple stream of calm running throughout. The process, no matter how big or small, should always be this simple. As we said earlier, processes are little algorithms for success. So, if you want your business to be successful, follow this simple formula:
Take deliberate, effective and efficient actions on high-quality inputs to produce valuable goods and services for which your customers will pay more than your costs.
To most, this seems obvious. In fact, corporations today build entire departments focused on nothing but improving internal business processes – the actions. Six Sigma teams, business Ninja warriors toting green belts and black belts, storm the offices promising to deliver high quality. Clearly this is very important. Business Process Management has been around for many years but, to date, it has not been able to rid the business world of bad outputs. Why? In our rush to execute these great processes, we often overlook one of the keys to our formula – high-quality inputs. Remember the phrase “Garbage in garbage out?” This is where that phrase comes from. To solve this problem, we introduce a new concept called Data Governance. Actually, it’s not that new, it’s been around for quite a while. However, until recently, it hasn’t gotten much attention because it requires that we look at our business in a whole new way. It requires that we see our customers, products, vendors, etc… as the building blocks of our organization. It requires that we see our business as a process and that we recognize the formula for success lies within the quality of both our Corporate Assets and the processes that string them together.

Data Governance is the formal process by which an organization ensures high-quality data used to create optimal business processes necessary to generate maximized output. In other words, we can rewrite our formula for successful business as:

Figure 1: "The" Business Process

In future posts, we will discuss how defining business in this new way allows us to more clearly see the building blocks of our organization – our Corporate Assets. We will further discuss how those building blocks, as the inputs to our mega process, need to be of the highest quality in order to optimize our success. We will then go on to discuss how this revolutionary way of looking at our business combined with the right process controls and technologies can create a sustainable engine for building profit for any company.

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