Pathways

"Without [taking a process perspective of business], business improvement efforts amount to rearranging deck chairs on the Titanic.”

~ Michael Hammer & James Champy, Reengineering The Corporation

In the Beginning: Reengineering the Corporation

Back when I was a newly-minted MBA, client-server computing had already passed it's sell-by date but the Internet as we know it was yet to be born, so when I left school it was to do business-process consulting at Booz Allen & Hamilton. Process consulting was the province of McKinsey and Booz, Bain and BCG, but Hammer & Champy's Reengineering the Corporation jolted the business world when it came out in 1993. With Reengineering new rules emerged and lots of businesses started dabbling with reengineering.

Those days were not such a great time for Oracle Corporation; in fact Oracle nearly went bankrupt in the early '90s. Seeking a new executive team, Oracle CEO Larry Ellison hired Ray Lane from Booz Allen, and thence began the Oracle takeover of Booz's Information Systems Group: Ray Lane hired Robert Shaw, both hired their lieutenants who in turn hire their lieutenants, and in short order Oracle had about 40 new managers from Booz Allen, including me.

But what were we to do? To a new MBA it was obvious: Oracle had a lot of "hot" accounts that needed serious, young, suit-wearing professionals to keep Oracle from being thrown out of them. We were just the ticket, and a Business Process Reengineering (BPR) consulting group was born inside Oracle. The remarkable thing about BPR at Oracle is that, as misplaced as we were in a purely-techie company, we got really good at it! We started with Hammer & Champy and then wrote our own rules from there.

Our run as reengineering superstars was bound to come to an end, and did so around 2000 for a variety of reasons:

• Oracle V6 was leading-edge product and the Oracle Applications built on it didn't always work right. Oracle V7 and Smart Client apps were a much sharper effort, so our target-market of enraged clients and accounts simply dried up.
  
• Reengineering itself got a flood of new practitioners, who discovered that even if they didn't know what they were doing they could always just drive a bunch of layoffs and (courtesy of the same information flows that made our reengineering efforts) the organization would survive somehow while the consultant basked in the glory of the cost-savings.
  

Reengineering's death couldn't come a moment too soon, but many of the new reengineering ideas were good ones and are even better today in the advent of Advanced Analytics. The business world was so chastened by "reengineering" that many of these approaches were actively forgotten. Their rebirth has come -- from outside the business world. In 2015 it's time to ask: "Is there a doctor in the house?"

Pathways: Advanced Analytics and Healthcare

"In the next 10 years, data science and software will do more for medicine than all of the biological sciences together."

~ Vinod Khosla, Director, Founder and Partner of Khosla Ventures

In his book The Agenda, Michael Hammer defined a process as “an organized group of related activities that work together to transform one or more kinds of input into outputs that are of value to the customer.” These are simple words and early BPR practitioners probably never dreamed that such a simple idea could become synonymous with 'mass layoffs'.

But so it has, leaving behind a sometimes-insightful body of work in the process. To bring the magic back we have to start with the definition of another kind of process:

In biochemistry, a metabolic pathway is a series of chemical reactions occurring within a cell. In a pathway, the initial chemical (metabolite) is modified by a sequence of chemical reactions. These reactions are catalyzed by enzymes, where the product of one enzyme acts as the substrate for the next

Pathways in biochemistry are analogous to processes in business, but lack the taint that process reengineering wrought in the business world. Biochemist's ignorance really has been bliss, and pathways have brought lifesaving breakthroughs in the world of chronic myelogenous leukemia that I mentioned in my last post. We will start with Jim Collins' brutal facts then walk through the process, with credits to the National Cancer Institute:

• Prior to 2001, less than 1 in 3 chronic myelogenous leukemia (CML) patients survived 5 years past diagnosis.
  

• In 1960, Peter Nowell, M.D., of the University of Pennsylvania, and David Hungerford, Ph.D., of the Fox Chase Cancer Center in Philadelphia, reported finding an abnormally short chromosome in bone marrow cells from patients with CML. The tiny chromosome was quickly dubbed "the Philadelphia chromosome" for the city in which it was discovered.
  

• Not until the 1970s did researchers learn how the Philadelphia chromosome was formed. In 1973, using new DNA-staining technology, Janet Rowley, M.D., of the University of Chicago, discovered that chromosome 22 and chromosome 9 had exchanged bits of DNA. This phenomenon is known as chromosomal translocation—when one piece of a chromosome breaks off and attaches to another or when pieces from two different chromosomes trade places.

…things start moving faster now…

• In the 1980s, Nora Heisterkamp, M.D., then an NCI intramural scientist and now of Children’s Hospital in Los Angeles, and her colleagues figured out that translocation resulted in the fusion of two genes that created a new gene known as BCR-ABL.

• In 1986, Owen Witte, M.D., and his colleagues at UCLA discovered that this fusion gene causes the body to produce an abnormally active form of an enzyme called a tyrosine kinase that stimulates uncontrolled cell growth in white blood cells.

…A HA! Now we have a mechanism driving growth — the "Achilles heel" for cancer progression! If this highly active enzyme could be suppressed, CML might be treatable. Now we move to the endgame…

• By this time, Brian Druker, M.D., of Oregon Health and Science University, had already been studying tyrosine kinases as possible targets for precisely aimed treatment and he was focusing on CML as a promising disease to study … Because CML has a singular mutation, these researchers targeted this disease and began screening compounds developed by Dr. Lydon’s lab. Eventually, Dr. Druker found one compound, called STI571, that was more effective than others. This compound, which eventually became known as imatinib, would kill every CML cell in a petri dish, every time.

This is the approach that's driving a scientific revolution in healthcare, and can drive a similar revolution in business. The new approach is, loosely:

Here scientific advances were critical, but the path to victory over CML began with "screening compounds." The best-in-class were identified by the screen, chemically modified to enhance the desired properties (tyrosene kinase inhibition), and the winning compound became Gleevec.

We can adopt a similar approach with Advanced Analytics for a new era of business process revolution. Next we'll talk about how AA can drive new approaches to business.

The Path Forward: a New Look at Business Processes with Advanced Analytics

"We approached the case, you remember, with an absolutely blank mind, which is always an advantage. We had formed no theories. We were simply there to observe and to draw inferences from our observations."

~ Sherlock Holmes - The Adventure of the Cardboard Box

The wonder of BPR in its early days was the belief that if you could just draw up the right process — boxes and arrows and swim lanes — all of the business's problems would be solved. In fact, a great many businesses advanced by getting just such basic controls in place. Even though the image of "BPR" is tarnished today, the word did get out and in 2015 most businesses are at least modestly process-aligned. This is progress, but it's only the beginning.

Eli Goldratt, with his book The Goal accurately pointed out the problems with pure process-ness: All process-steps are NOT equal, and the path to the The Goal required us to a) identify the constrained steps, and b) exploit the constraints. This is also a real advance, but it too is not enough. In a world where processes are in place and the obvious rate-limiting steps have been removed, how can we still move forward? Even in our Hammered, Champied and Goldratted world, it's still all too common to hear:

We have processes and we have data. What we can't explain is why both our mean manufacturing cycle times and our on-time delivery rates are dropping!?

This is where Sherlock Holmes' observation above comes into play, along with another observation commonly attributed to Albert Einstein:

"We can not solve our problems with the same level of thinking that created them"

We can go with more boxes, arrows and swim lanes, but these are what got us to where we are now! We don't need more processes but we do need "new eyes" to discover new insights on our challenges. We already have metrics that describe the nature of competition in different industries; these can give us insights into where to look for new wins in existing business.

Let's consider some different businesses, such as high tech manufacturing, aerospace & defense, and consumer packaged goods. Each of these industries has key performance indicators (KPIs) that describe how they are run — at a high level an Aerospace and Defense company might have the same boxes-and-arrows for core Procurement or Fulfillment processes as a CPG company, but the nature of the two business could scarcely be more different and the critical KPIs for those businesses will be different as well. These key KPIs are where we'll use our new tools to start a new search for business advancement.

The following table shows how some major industries compare in the types of metrics we might look at every day:

Table 1. KPIs For Some Leading Industries

Let's consider this new "pathways" approach for a business that we know. "Rocketera" (a fictional company) manufactures embedded circuit boards for the automotive and aerospace industries. They are a skilled high tech manufacturer, but they also have some real business challenges to deal with:

• Their customers are major auto companies and defense contractors — big companies with JIT manufacturing and demanding delivery schedules
  

• Their suppliers are electronics companies in Taiwan and Japan — products are frequently revised and updated and delivery times for the most complex products can be long
  

• Materials management matters a lot to Rocketera — the length of the supply chain, short lifespan of components and the cost of those components makes supply chain monitoring more important in HT-MFG than in almost any other industry
  

• Rocketera targets a gross margin of 25%, and keeping gross margins with Moore's Law-era products means that Rocketera has to cut supplied costs by 30% each year — just to stay in the game!

This is just a sample case, but even with these first rough numbers we have a few obvious candidates for analytics and Advanced Analytics:

• We need better forecasts — here advanced analytics can supplement Rocketera's existing planning system by
  • Reviewing customer order histories to find signals that forecast unexpected orders
  • Tracking media sources on the growth and business prospects of its customers
  • Tracking political trends (as via 538) on key candidates with hawkish or dovish positions
  • Tracking social sources for customer and public opinions on high-profile products or customers
    
• Supply chain tracking is also critical — Rocketera can also update it's planning system by:
  • Reviewing supplier delivery histories to find signals that forecast unexpected delays
  • Analyzing the spot market (or setting up an exchange) for critical components
  • Integrating weather updates into supply chain planning for potentially-delayed shipments

The approach shown here is a general one, but advanced analytics with modern tools gives it a new relevance. Every industry group has it's own set of KPIs that describe the locus of competition, and by focusing on the KPIs that provide differentiation we can ensure that even small changes have magnified impacts. The great promise of Advanced Analytics is that it makes business advances possible — even in (in fact, particularly in) businesses that have already crossed their T's and dotted their i's in process and business planning. Done properly, an agile business can move data to information, and from information to wisdom. Pathways are the next step in business planning.

"The real voyage of discovery consists not in seeking new lands but seeing with new eyes."
~ Proust