Perhaps the oft-repeated advice of consulting firms and veteran practitioners has taken hold, or perhaps it's just that scrutiny of software investments has increased, but more companies seem to be adopting a truly strategic approach to their business performance management initiatives these days. We hear less often about BPM systems introduced as a kind of isolated tech fix, of measurement for its own sake and companies throwing rather expensive software at their performance challenges in the hope that something will stick. Principled, aligned implementations are the order of the day.
The winners of the Business Finance 2008 Vision Awards — Presbyterian Healthcare Services, Seattle City Light, and the South Dakota Department of Transportation — amply illustrate why this is important. But they go a step further. Each of these standout programs demonstrates how a carefully selected external reference point — a kind of strategic North Star — can help to orient the project and channel its energies. The touchstones for our winners were, respectively: a comprehensive quality improvement framework; a customer-focused management methodology; and a rigorous costing model.
Category: LARGE ORGANIZATIONS
Name: Presbyterian Healthcare Services
Home office: Albuquerque, N.M.
Number of employees: 9,500
Annual revenue: $4.6 billion
Third-party technologies: Lawson ERP; Oracle, Business Objects, and Premier data warehouse tools; Actuate Performancesoft Views; Actuate e.Spreadsheet
One of the hallmarks of a vibrant business performance management program is its ability to evolve and expand over time, and you couldn't ask for a better example than Presbyterian Healthcare Services' BPM initiative.
Presbyterian — an Albuquerque-based, not-for-profit system of hospitals, health plan, and medical group that serves one in three residents of New Mexico — purchased Performancesoft Views back in 2002 and scored some early successes in standardizing data analysis across its various groups as well as providing enhanced performance reports for its board, committee, and council members.
But it wasn't content to stop there. About three years ago, Presbyterian's leaders saw an opportunity to leverage the BPM system to support the organization's pursuit of the Malcolm Baldrige National Quality Award. “As part of that, we identified a need to look carefully at our processes for performance improvement and strategic planning,” says David R. Scrase, executive vice president and COO. The Baldrige process challenged Presbyterian to answer questions such as, “How do you decide what's important to measure? How do you follow up when you're not hitting targets? How do you monitor competitor performance?” According to Scrase, “As we measured ourselves against best practices, we realized that we came up short.”
The next stage in the project's evolution was a drive to extend the use of the tool by managers and physicians across all of Presbyterian's operating units. Molly Payne, performance management analyst, found a receptive audience as she talked with potential users. She noticed that some managers who didn't have access to the BPM software were producing documents that imitated the distinctive format of reports created in the BPM system. “We would approach these people and say, ‘It looks like you're trying to create this kind of report; let us help you!’ And most of the time people were extremely receptive because we were able to pull the data from various sources throughout the organization, so it reduced the manual effort that was required to enter the numbers,” she reports. During the past year, Presbyterian has rolled out the BPM tool to nearly all of the departments in its health plan, all of its hospitals, and 65 primary and specialty healthcare clinics.
Presbyterian now holds quarterly, systemwide, management meetings to discuss key performance results. The process was a challenge at first for the organization's six regional facilities in rural areas of New Mexico, Scrase reports. “We would ask those folks to explain their turnover, their financial performance, or why their care of pneumonia patients was falling short, and it was not something they could do really well.” Nowadays, though, the regional operations “really shine,” he says, adding that in the most recent meeting they were “all over the data.”
The BPM software plays a central role in these meetings (it's now Actuate Performancesoft Views; Actuate acquired Performancesoft in 2006). “We use the Actuate tool to bring the data to the top of their computer screens and click on it to see where performance is low and where it's high. And then we click on the places where it's low and have people talk,” says Scrase. It's easy to imagine how the process might become confrontational, but the opposite is the case; the atmosphere in the meetings is one of learning, understanding, and support. “People are feeling really comfortable talking about their results and getting help from others. And this is the kind of environment you need to create to really learn enough to achieve excellence.”
Presbyterian Healthcare Systems is closing in on its goal of winning a Baldrige Award. In 2006, it was one of only 15 organizations to receive a site visit from the award committee.
The organization estimates that the BPM system saves 500,000 manual labor hours per year across all locations. It's used by about 200 managers and 9,000 operational-level employees.
Presbyterian posts some of its key performance indicators, including turnover and operating margin, on its Web site. Check out the scorecards at www.phs.org [1] (click on About Us and then Performance Scores).
Category: MEDIUM ORGANIZATIONS
Name: Seattle City Light
Home office: Seattle
Number of employees: 1,592
Annual revenue: $900 million
Third-party technologies: Oracle Data Integrator; Cognos 8
The phrase “customer-centric business” often gets bandied about in corporate strategy sessions, but few leaders have any idea how to create such an organization or even what it might look like. As a result, most organizations remain resolutely product-centered.
Publicly owned municipal utility Seattle City Light (SCL) is determined to be an exception. “The vision for our organization is to be the premier provider of customer service in the electric utility industry, and we design all of our activities around that vision,” says Herb Hogue, CFO.
This includes SCL's performance management activities, a relatively new departure for the utility. In December 2007, after an exhaustive RFP process, SCL settled on Cognos for its BPM tool. Oracle Data Integrator provides data-crunching muscle for the pilot initiative, which kicked off in March of this year.
Just as important as the technology choices was the utility's decision to adopt the Performance Power Grid (PPG) management methodology to guide the project. As the name suggests, PPG uses the metaphor of an electrical grid to explain how businesses can channel and distribute the energy of their employees into processes and projects that produce the highest value. It can be applied in any kind of organization, but clearly the methodology was speaking SCL's language.
It's axiomatic in this approach that employees are eager to contribute to the bottom line, but they don't always know the specific actions they need to perform to achieve this. The Performance Power Grid helped SCL to create a system of interrelated performance metrics and alerts for every level of the organization, explains Hogue. “Each manager has a metric that is actionable, that is related to the vision, and that explains his or her part in achieving the vision. And when the metric isn't achieved, the system tells the organization why things are off track. It's very insightful, and everything is logically connected.”
Guided by the methodology, SCL chose an incremental path for its BPM project. And, true to its overarching vision, it focused its key performance indicators on customer service levels, according to Carol Butler, director of corporate performance. “We could have gone the standard way and looked at ourselves as just a power generation and energy delivery company, but instead we had interviews with about a hundred people in different groups at the utility to ask questions like, ‘How do you run your operation? How does it fit in?’ And then we structured the whole architecture of performance management around achieving customer satisfaction,” she reports.
Project leaders scrutinized what PPG practitioners call the “customer-critical path” — the steps that the various customer segments must take when engaging with the organization for the first time. “We went through the whole process, from when customers call in to request service and tell us when they want it, through whether or not the service needs to be engineered, through metering and installation, to the first billing and payment cycle,” says Butler. Now SCL's managers have access on a daily basis to data that enables them to pinpoint areas of success, areas of risk, and bottlenecks in the customer on-boarding process.
In the next stage of the rollout, Seattle City Light will extend the BPM system's analysis of metering and billing processes before turning its attention to asset management, power delivery, and eventually power generation. “It's a whole flow, and it's kind of backwards from the way most utilities think of it,” Butler notes.
It's too early to quantify the dollar savings, but SCL has already seen an improvement in service connection time. And the new system has been well received by its users. “Everybody's excited about it — and what more can you ask for?” asks Butler. “I'm not saying that we haven't run into problems, but we haven't hit anything major. And this was the whole reason for the pilot — to find out what kinds of things we needed to know.”
Category: SMALL ORGANIZATIONS
Name: South Dakota Department of Transportation
Home office: Pierre, S.D.
Number of employees: 997 full-time, 77 seasonal
Annual budget: $470 million
Third-party technologies: Lawson ERP; SAS Activity-Based Management; SAS Strategic Performance Management
Much of the impetus for the South Dakota Department of Transportation's BPM drive came from its need to gain insight into the cost effectiveness of its business processes — no easy task for an organization that manages more than 83,000 miles of highways, roads, and streets, as well as some $300 million worth of road and airport construction contracts. “We get asked a lot about how much something costs to do per mile and how that compares with the private sector. Before we had this system in place, we weren't able to do any of that,” says Kellie Beck, director of finance.
For example, several years ago the department was approached by vendors offering to manufacture its road signs, which at that time were produced in-house. Outsourcing looked like a good deal, but South Dakota DOT didn't know how much it was spending on producing the signs, so a rigorous cost comparison wasn't possible.
The root problem — multiple accounting systems, resulting in an inability to accurately allocate overhead — is common enough and by no means restricted to the private sector. South Dakota DOT set about investigating costing methodologies and in 2002 hired Portland, Ore.-based consulting firm Cost Technology to help it develop an activity-based costing model that was phased in over the next five years.
Cost Technology also helped the department build its enterprise analytic system. Cost data is captured in tables in Microsoft Access and exported into SAS Activity-Based Management, which lets users drill down into any project or service area to examine its associated outlays and compare them with those of private industry.
The next level of the solution, SAS Strategic Performance Management, enables decision-makers to evaluate the department's various programs and identify best practices. A strategy map and scorecard help employees to understand the organization's goals and how nonfinancial measures impact their productivity. Key decision-makers can access the operational and financial data they need from their desktop via a portal.
“We use the system a lot for comparisons among our four different regions,” says Beck. “If there are differences among regions, it brings them to light, and then we can do a little digging into what one region is doing vs. the others, find some efficiencies, and do things in a more standardized way.” One unusual feature of the software is its use of a geographic information system (GIS) to display asset management data for the regions, a capability that comes in handy when a big snowfall hits and the department needs to optimize the deployment of its trucks and snowplows.
The activity-based costing model was key to a process improvement drive that analyzed more than 50 core and support processes and generated some $3 million in savings, according to South Dakota DOT cost analyst Johna Leidholt.
Apples-to-apples comparisons with external suppliers are now straightforward. “Our right-of-way appraisal department got the go-ahead to hire four new appraisers because we showed that it was cheaper to do the work in-house than to farm it out,” says Leidholt, noting that “it's very hard to get the okay to hire extra people in state government.”
The finance office scored some benefits too, Leidholt reports. By streamlining some processes, the department was able to avoid backfilling a position when a finance staffer retired. “We have one position less, but we're getting just as much done,” she says.