• Cognizant 20-20 Insights
Optimizing Outcome-Driven Change:
It’s About the Process, Not the Technology
The fundamental principle for achieving desired outcomes and user
satisfaction is a recognition that technology is just one of the levers
that can be pulled to create more efficient and effective processes.
Executive Summary
Why IT-Driven Transformation Fails
No business can afford IT initiatives that don’t
deliver significant improvements in business
performance. Yet a 2012 McKinsey study revealed
that 17% of lT projects miss the mark so badly
that their failure threatens the company’s very
existence. Further, large IT projects (budget
exceeding $15M) deliver 56% less value than
predicted.1
Too often, organizations embark on automation
and/or digitization strategies before they have
completely dissected the deficient process, and
identified precise pain points and their causes. In
these situations, digitization and/or automation
can become ends in themselves. Typically, they
are not.
While IT enablement, digitization and automation remain critical elements for implementing
processes that are more cost-effective and bring
greater value, technology can only produce
benefits if an organization fully understands its
existing processes’ pain points and how to rectify
them.
This white paper lays out a clear approach for
optimizing a business process prior to digitization — helping to ensure that the digitization
effort leads to significant improvement in the
business process and a clear and quantifiable
return on investment.
cognizant 20-20 insights | may 2015
To deploy technology effectively, it is necessary
for companies to take a comprehensive, structured approach to understanding what activities,
data, workflows, training, etc., must change in
order for a transformed process to deliver the
desired results.
By clearly defining and deconstructing inefficient
processes, organizations can begin to reconstruct
them — helping to ensure that new digitization
and automation initiatives bring the best outcomes from their investment and avoid failure
(see Figure 1, next page).
Key Reasons for IT-Driven Project Failures
Dearth of end user insight
Lack of measurable success criteria
Lack of impact assessment of business processes
Inadequate or vague requirements
Undefined goals and objectives
Figure 1
When technology becomes the focal point of a
transformation initiative, organizations often fail
to do their basic homework, such as gathering
insights from business users, which is necessary in order to fully understand why a process
is ineffective. Without this intelligence, it’s all
too easy for them to simply automate existing
inefficiencies.
Lean philosophy methodology (applied from
the Toyota Production System) posits that three
elements exist within any business process:
non-value-added activities, value-added activities and value-enabling activities. In the book
Staying Lean — Thriving, Not Just Surviving, the
authors state that research shows that any
business process is comprised of 49% to 60%
non-value-added activities and 35% to 50%
value-enabling activities. Hence, value-added
activities only make up 1% to 5% of a process.2
An organization must take the time to identify
value-added vs. non-value-added elements in a
process targeted for transformation. If not, the
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automation or digitization of that process typically leads to non-value-added activities that
continue to exist in the process, albeit in an automated fashion. So a step that actually qualifies as
“waste” would not be eliminated, but automated
— likely contributing to end-user frustration and
disappointing efficiency gains.
To achieve true transformation, processes should
be assessed and optimized/reengineered before
turning attention to IT enablement. Through a
structured process-reengineering exercise using
Lean and Six Sigma tools, non-value-added elements can be identified and eliminated to the
greatest extent possible, which can subsequently
improve the efficiency of value-enabling and value-added activities
For example, in the accounts payable/invoice process, many organizations require multiple levels
of approval to initiate payments to vendors. When
that process is automated, requests for approval are automatically granted, according to an
approval matrix. However, if the existing pro-
2
cess is analyzed before it is automated, it would
become clear that:
• The
process requires approvals for invoices
submitted against pre-approved purchase
orders. This step adds no value.
• Typical objectives could be to:
>> Make the process faster/quicker ¬ TAT (turnaround time3) reduction.
>> Make the process better ¬ Error reduction.
>> Make the process “cost effective” ¬ Cost re-
• Approvals
are required for all invoices,
regardless of their amounts. The value added
is minimal compared to the extra time required
for the approvals.
duction.
>> Make the process less risky ¬ Risk reduction.
>> Make the process easier/simpler ¬ End-user
satisfaction (the end user could be a business user or end client).
Ideally, this process should be redesigned to eliminate approvals for PO-based invoices. Further,
the approval matrix should be restructured so
that approvals are sought only for invoices above
a certain value. These steps would streamline the
process before it is digitized.
Re-engineering Before Automating:
A Structured Approach
Described below (abbreviated later as DCBA) is
a straightforward approach for identifying the
value-added and enabling process components,
and defining outcomes to ensure they inform the
transformation initiative. The steps include:
Multiple objectives for an initiative may
require multiple performance indicators. In
the accounts payable process we examined,
objectives could include faster invoice processing and elimination of duplicate payments,
for example.
•
Define a target/goal for each performance
indicator/metric. Once the focus metrics
are defined, set a quantifiable target, such as
“reduce TAT by 25%.” The success of the entire
initiative can then be determined based on
achieving these objectives.
• Defining business objectives.
• Conducting current-state assessment.
• Building the future-state process.
• Assimilating process changes into business
Historical performance data should be
assessed to define the current baseline.
Targets can be set for improvement against
this baseline. Industry benchmarks can also be
leveraged as a guideline. For instance, the 2013
Aberdeen e-Payables: Payment Automation for
Operational Excellence Survey showed that
best-in-class (top 20%) organizations took 3.7
days to process an invoice, whereas the industry average is around 8.8 days.4
requirements.
DCBA is a structured methodology organizations can use to assess and redesign any business
process before it’s automated. It stresses the
importance of outcomes-based transformation
and ensures that objectives are clearly laid out,
with quantitative performance measures in place
to gauge success. Business user involvement and
input are critical throughout DCBA to ensure the
solution is comprehensively defined.
Defining Business Objectives
The first stage in the DCBA approach is to determine the purpose of automating a specific process
or the steps within it. To do this, leaders of transformation initiatives must:
•
Determine the objective and related performance indicator(s)/metrics. Project sponsors,
business owners and other key stakeholders
should be interviewed to define and reach
agreement on the objectives of the transformation initiative. The underlying principle here
is that automation is not an end in itself; rather,
it should be evaluated as a means for achieving
the desired objectives.
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Given the broad goal of faster invoice processing, the target could be to complete invoice
processing within 10 days of receipt of an
invoice. An alternate target might aim to
ensure that at least 90% of the invoices are
processed within 10 days of receipt.
Conducting the Current State Assessment
The second step in the DCBA methodology is to
assess the end-to-end process to identify improvement areas. A variety of tools and methodologies,
including Six Sigma and Lean principles, can be
applied here.
This phase entails the following:
•
3
High-level and detailed process mapping. A
high-level process map captures the key steps
in the process. Figure 2, next page, illustrates
the steps that represent our accounts payable
process.
Stepping Through the Accounts Payable Process
Approve & Authorize
Payment Cycle
Invoice
Verification
Start
Payment
Invoice
Data Entry
Reconcile
Payment
Evaluate Discount
and Publish
Stop
Figure 2
Figure 3 below presents a comprehensive picture
of the end-to-end process.
A detailed process map is then prepared through
workshops with business users to capture the following information:
• Sequence of steps/activities.
• Time taken at each step.
• Volume details.
• Details of departments/roles
•
Process assessment. The end-to-end process
should then be analyzed to identify scope for
improvement. Process assessment is done
across two dimensions:
>> Process
analysis. Organizations can use
Lean value stream mapping to identify nonvalue-added steps in collaboration with business users.
involved in the
end-to-end process.
• Overall turnaround time.
Process Mapping: A Holistic Journey
Mailroom
Start
Receive Invoice
Transform/Store
Invoice Details
Volume:
X Thousand
Three-Way
Matching
(X minutes)
Send Acknowledgment
(X minutes)
Check for
Discounts Applied
Inspect for Complete
Details & Compliance
(X minutes)
(X minutes)
Return Invoice
Yes
End
No
Match?
Y% of Total Volume
Confirm
Entitlement
to Pay
(X minutes)
Yes
A of Total Volume
%
No B% of Total Volume
Multi-Level
Approval Process
End
Department Managers
& Finance Approvals
Exception
Claim Processing
X% of Total Volume
Reconcile
& Report
Verify Payee
Information Against
the Vendor Master
(X minutes)
Process Vendor
Payment
Prepare & Schedule
Payment Cycle
(X minutes)
(X minutes)
(X minutes)
It’s critical to create an extremely detailed process map to understand all the potential outcomes for an invoice,
including all the users and other processes and systems touched by it. Such mapping helps reveal bottlenecks, nonvalue-added activities, and potential effects of process changes on users and other workflows.
Figure 3
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4
Finding Value in the Process Stream
Multiple formats and multiple channels
for invoice receipt require mailroom services
Distributed information and
manual verification
Lack of knowledge base per vendor, products
and amounts. No visibility into cap maximization
Start
Receive Invoice
Transform/Store
Invoice Details
Inconsistent manual review of line
items from order, delivery, pricing
Check for
Discounts Applied
Three-Way
Matching
Not cataloged and integrated, may
result in repetition and duplication
Send
Acknoweldgment
Return Invoice
Yes
Inspect for Complete
Details & Compliance
End
No
Match?
Time-consuming, inconsistent and ad-hoc
processing results in late payment and fees
Manual activity and lack
of SLA-resulting follow-ups
Confirm
Entitlement
to Pay
Yes
Multi-Level
Approval Process
Stakeholders not
updated on status
Verify Payee
Information Against
the Vendor Master
Manual, early or
delayed payments
No
End
Department Managers
& Finance Approvals
Reconcile
& Report
Process Vendor
Payment
Prepare & Schedule
Payment Cycle
Exception
Claim Processing
Average TAT of 32 Days
A typical value stream map uses various symbols (Language of Lean) to depict inventory, operators, work cells, etc., and
capture details of time and inventory at each step. For ease of representation, we have used process mapping symbols and
Kaizen bursts alone in this VSM depiction.
Figure 4
great detail in order to arrive at key sources of
variation and identify areas for improvement. A
few vendors may be responsible for a majority
of incomplete, inaccurate and/or duplicate
invoices. In these cases, a pre-defined template
could be shared with these vendors to ensure
they provide all details tagged as “mandatory.”
An online portal for invoice submission can
also resolve this problem.
In a value stream mapping workshop, business users from various teams that participate
in the end-to-end process objectively assess
every step of the process to gauge whether it adds value and whether it is performed
in the most efficient manner. Rework, delays,
waiting time, excess inventory and over-processing are typical “wastes” found in a process.
All improvement areas are highlighted using
Kaizen bursts.5
When the current-state assessment phase is
complete, the organization will have a detailed
list of areas for improvement throughout the
process.
Figure 4 above represents a sample value
stream map.
•
Data analysis. This involves assessing
historical process performance data to identify
trends/variation sources. Past data covering
transactional volumes, invoice processing time
per region, incomplete invoices by vendors,
duplicate invoices, etc., should be studied in
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Building a Future-State Process
The third stage in the DCBA methodology is to
design a future-state process that addresses all
the identified improvement areas for achieving
5
Sample Cross-Team Brainstorming Agenda
People
Technology
Automate invoice mailroom
services through OCR with
business rules.
Standardize invoice formats in
collaboration with vendor
teams; enable online invoice
submission.
Introduce an online, rule-driven
workflow tool to streamline
approvals, returns, automatic
invoice posting and exception
processing.
Harmonize PO and vendor
master data to improve
extraction rate and auto-posting
of invoices.
Study effectiveness of resource
alignment by vendor/invoice
type and simplify as necessary.
Process
Improve accuracy of the vendor
master database.
Define standard operating
procedures for internal usage
and for vendors.
Define a prioritization matrix
for invoice payment.
Train resources on standard
operating procedures and
monitor adherence.
Study past performance to
identify sources of variation
and ensure consistency in
performance/output across
the entire team.
Improve coordination between
various teams/parties involved
in the process (vendors,
accounts payable, accounts
receivable and finance teams).
Examples of solutions user teams could brainstorm to improve accounts payable.
Figure 5
This enables stakeholders to envision the benefits of the proposed future state and helps win
their commitment and sponsorship. In many
cases, business users are neither engaged in
the analysis of current processes nor in the
design of future-state processes. So when
they are required to migrate to a new process,
they typically show strong resistance. That’s
why the DCBA approach places great emphasis on involving the business in every step of
the transformation journey (see Figure 6, next
page).
more efficient and effective performance, per the
identified metrics. This phase entails:
•
•
Improvement recommendations. All improvement areas should be assessed in greater
detail; brainstorming with business teams can
lead to solutions/ideas to overcome key pain
areas (see Figure 5). In our accounts payable
example, if the approval process is tedious and
has been identified as needing improvement,
the team could brainstorm ways to simplify this.
Multiple tiers of approval could be introduced
based on invoice value. Then, only high-value
invoices would require senior management
approval, thus assuring faster turnaround.
Creation of a detailed “to be” process map.
This process map will highlight the process and
technology changes necessary to optimize
it. Simulation tools (for instance, ProModel or
SIMUL8) should be deployed during this phase
to gauge the impact of these changes on overall
process performance. A process simulator can
help define the impact of suggested process
changes. If the future-state process design
eliminates a few steps, the simulator calculates
the overall impact of this action on end-to-end
turnaround time and resource requirements.
cognizant 20-20 insights
Assimilation of Process Changes into IT
Business Requirements
The final step in the DCBA structure focuses on
mapping the process changes to the business
requirements. This involves creating the business requirements document with details of the
revised process.
In the accounts payable example, the future-state
process recommends automated invoice verification. In this case, parameters must be defined and
databases identified to enable verification. Rules
may need to be defined to specify a course of
action in case voice verification fails.
6
Holistic Process Change
Vendor
Emails/Uploads
scanned invoice
to portal against
the PO
Match
REJECTS
OCR, extract &
capture defined
field data
Mail detail
to vendors
Mails acknowledgment
& original/updated
invoice
Checks for
duplicates
Business rules
validate accuracy
& data against PO &
receipt
Manual
review
Acknowledgment
with unique ID
(barcode), one per PO
Discounts
applicable
Detailed
inspection:
Integrated system
displays vendor data,
discounts & past
invoices
NO
APPROVED?
Mailroom
Sort, catalog &
store for reference
Manual
review
Rule-driven workflow
routes for approval
APPROVED?
Collaborate &
Resolve
YES
System verifies
payment cycles,
evaluates JIT
payment
System employs
integrated ERP & BPM
setup entitlement &
payment
Auto
reconciliation
System initiates
payment on correct
date
Vendor
The “to be” process map captures the workflow, human and technology changes necessary for
optimal process transformation.
Figure 6
These detailed requirements then become the
basis for the IT design documents the software
development lifecycle follows. At this point, the
transformation team must determine the extent
of customization and the development effort necessary to align the technology deployment to the
future-state process.
Looking Ahead: Focus on Outcomes First
The outcomes-driven approach to transformation not only results in a more robust IT design
and smoother implementation, but also contributes to overall program success through intense
end-user involvement, greater commitment and
sponsorship, and empirical assessment of its
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impact on the business. Defining key success
factors, base-lining and target-setting before
deploying any technolotgy helps in assessing and
projecting the impact of the project (see Figure 7,
next page).
The insights uncovered by the DCBA structure
create a strong business case, and help ensure
that supporting automation and digital technologies directly address specific pain points. In this
way, a reengineered process can truly operate
better and deliver more value to its users, inside
and outside the company. That’s an outcome that
reflects well on an organization’s IT professionals.
7
Achieving Success by Envisioning End Results
End-user involvement
in process design
Greater commitment
and sponsorship
Ease in quantifying
business impact
Definition of KPIs and
target-setting
Design of a robust
Effectiveness of the future-state process
overall IT implementation
program
The outcomes-driven approach to process transformation helps generate business user support, smoother technology deployment and easier quantification of the project’s business benefits.
Figure 7
The key to achieving this and other outcomesdriven transformations is making sure that
technology is always a means, never an end in
itself. Focus on outcomes first; the technology
will follow.
•
• View the time and effort recommended by this
approach as an investment and indemnity to
keep failure at bay and ensure that IT projects
deliver true business value.
To create a strong base for outcomes-driven
transformation, organizations need to:
•
Involve
key
business/process
owners
throughout the prioritization and execution of
IT projects to ensure their support and collaboration.
Evaluate every IT project/spend against the
business impact/benefit it would create.
Footnotes
1
McKinsey & Co. “Delivering Large-Scale IT projects on Time, on Budget, and on Value.” October, 2012.
http://www.mckinsey.com/insights/business_technology/delivering_large-scale_it_projects_on_time_on_
budget_and_on_value#sthash.IIqZB8xs.dpuf.
2
Peter Hines, Pauline Found, Gary Griffiths and Richard Harrison. “Staying Lean, Thriving not Just
Surviving.” Lean Enterprise Research Center. Cardiff University, 2008. http://www.amazon.co.uk/
Staying-Lean-Thriving-Just-Surviving/dp/0953798291.
3
TAT is the period for completing a process cycle (such as repair or replacement of a component or
equipment), commonly expressed as an average of previous such periods. Read more at: http://www.businessdictionary.com/definition/turnaround-time.html#ixzz3UkQVyjHk.
4
From the Global Exchange Group white paper, “Automating Accounts Payable — Leaving the Paper Jam
Behind,” page 3. Aberdeen, 2013. “e-Payables: Payment Automation for Operational Excellence Survey.”
Published by Aberdeen. https://www.gexchange.com/pdf/GEG-paper-to-electronic.pdf.
5
Kaizen bursts are used to indicate improvement areas in a process during value-stream mapping workshops. Each Kaizen burst may then be analyzed in greater detail. (Kaizen, also known as continuous
improvement, is an approach to work that systematically seeks to achieve small, incremental changes in
processes in order to improve efficiency and quality).
cognizant 20-20 insights
8
About the Author
Uma Kasoji is a Director of Consulting within Cognizant’s Business Consulting group. She brings more
than 14 years of experience and expertise in Lean and Six Sigma methodologies to lead a variety of
process reengineering and business transformation initiatives for Cognizant clients. Uma has helped
various organizations in setting up process excellence programs, and has led stand-alone projects to
deliver cost optimization, risk reduction and efficiency improvements across a variety of business areas.
She is a Six Sigma Master Black Belt, has expertise in Lean and received an MBA from the Indian Institute
of Management. Uma can be reached at [email protected].
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in
Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry
and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 75
development and delivery centers worldwide and approximately 211,500 employees as of December 31, 2014, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among
the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on
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