Process excellence and value creation center around creating value for all stakeholders, in particular the customer and the company that provides the service or product.
The customer typically perceives value based on a relationship between the price for, and the quality of a product or service. A business typically defines value based on profits generated.
Stated differently, to satisfy the customer, an organization needs to be effective in its creation and delivery of a product or service. This leads to the creation of standards based on the “voice of the customer”.
Process excellence and value creation effectiveness thus relate to the quality of the product or service. When it comes to defining effectiveness key performance indicators (KPI), two-parent categories are used – First Time Through and Defect Rates.
To balance the entire value creation process, the company has to put in place business process targets aimed at maximizing efficiencies or productivity. After all, a business is in business to produce as much of a widget/service to fulfill market demand, and it wants to do so as cost-effectively as possible. Thus, the two-parent categories typically use for process efficiency are Speed of Throughput and Total Cost of the final product/service.
Below is an example of drilling down to identifying process excellence and value creation appropriate KPIs.
In order to maximize profit to the organization, it needs to be effective to increase sales at maximum price, while being efficient through keeping costs as low as possible. Both these objectives can be reached through achieving processes excellence.
The Process Excellence and Value Creation Sweet Spot
As the illustration below shows, when a minimum level of product or service quality is achieved the customer’s perception of value increases and sales start to grow.
Naturally, to further enhance growth, the business continues to invest in enhancing the quality of the product/service. However, a point is reached when it becomes counterproductive. That is, the customer is satisfied with a specific level of quality, and no matter how much more the firm invests, the customer is no longer to increase sales or pay more for the product. Thus, this additional investment and effort go to waste. No additional value is created.
Thus we at AchieveProcessExcellence prefer to focus on providing APPROPRIATE quality (not necessarily the highest quality) to the customer. This enables cost minimization while ensuring customer satisfaction.
We go a step further and argue, that a business can maximize profits when it finds its “sweet spot”, which is located where appropriate quality cost is minimized at a specific customer price and volume. That is, the point where the ratio between additional investment in quality and sales & price growth becomes negatives. Sometimes it is simply not worth it having larger sales volumes.
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related page: Breakthrough Opportunity Selection