I know Kevin’s article was targeted at web analytics, rather than, more generally, business analytics – but the points he makes are entirely valid for business analytics – and business process analytics:

We analyzed each promotion code, using “A/B” test panels. Customers were randomly selected from the population, and then assigned to one of two test panels. The first test panel received the promotion, the second test panel did not receive the promotion. [...]

In almost all cases, the segment receiving the promotion generated more profit than the control segment. [...]

Being a huge fan of “A/B” testing, I decided to try something different. I asked my circulation team to choose two customer groups at random from our housefile. One group would receive promotions for the next six months, if the customer was eligible to receive the promotion. The other group would not receive a single promotion for the next six months. At the end of the six month test period, we would determine which strategy yielded the most profit.

At the end of six months, we observed a surprising outcome. The test group that received no promotions spent the exact same amount of money that the group receiving all promotions spent. After calculating the profitability of each test group, it was obvious that Eddie Bauer was making a significant mistake. [...]

In 1999, we backed off of almost all of our housefile promotions. At the end of 1999, the website/catalog division enjoyed the most profitable year in the history of the business.

This is a classic cautionary tale for anyone measuring business processes and looking for improvements.  In process improvement, often an efficiency gain comes at the cost of customer satisfaction – which is why many businesses now manage to a “double bottom line” or use extremely customer-focused culture to counter-act that tendency.  In the case above, they’re looking at how incentives shape behavior. The thought process is equally valid for customers as it is for internal staff incentives. Do the incentives actually drive better behavior or just more short-term-optimized behavior?

Kevin goes on to recommend several remedies, most of which revolve around having a longer term view of things.  Well. Imagine that.  Good read.

Interesting article in the MIT Sloan Review on “Where Process-Improvement Projects Go Wrong“.  It compares process improvement projects to the behavior of a metal spring, by dividing into three phases:

1. Stretching – at the beginning, a small team is motivated to succeed, and has support of executives.  A six sigma or process improvement coach helps them navigate some of the harder issues to make sure they stay on target and achieve early success, which causes additional initiatives to be kicked off.
2. Yielding – As the process improvement coach is removed, teams begin to revert back to prior behavior, or lose the ability to get the team objectively past some of the harder sticking points.  Executive attention, and perhaps some of the best team members, has moved to other projects.  Performance starts to retreat, though not necessarily to pre-improvement levels.
3. Failing – the vicious cycle begins “With the improvement expert long gone and no additional training in Six Sigma or other improvement strategies provided by the aerospace company, team members became increasingly discouraged by their failure to build on earlier success. They eventually stopped caring about the improvement project, partly because it wasn’t tied to their performance reviews.”

Well, I feel motivated, how about you? Luckily we are not springs, we’re people, and we can be a bit more creative about avoiding this inglorious “failing” phase than the author imagines.

The article author proposes 4 lessons learned from the many companies they studied for this report:

1. Keep the improvement expert around longer – or share this expert among more than one team to spread the cost – but the recommended term was 2 years, augmented by training managers to pick up these responsibilities.
2. Performance appraisals tied to improvement.
3. Keep teams small (less than 10).
4. Executives need to directly participate in the projects, not just receive reports from someone who has incentive to focus on only the good news.

This isn’t bad advice, it is good advice to start.  But it is insufficient and unlikely to cause organizations to suddenly get higher success rates with process improvement.

What did they miss?  Well, they missed BPM, is what they missed.  One of the reasons BPM is a “killer app” for process improvement is that when you discover the most effective changes to make for your process, you can put them into software, not just into a book of Standard Operating Procedures that your team will quickly forget about.  And your improvements aren’t just things that people on the team learn and practice, nor just things that they pass on to others on adjacent teams – they are things that get encoded into your process.  The software gives you:

• Some resistance to the “yielding” phenomenon described in the study results.
• Accurate measurement over time – no dependence on manual measurement techniques that may degrade as team members lose interest in the stop watch and other manual measurement techniques.
• The ability to “bake in” an improvement and move on to the next thing, rather than get stuck in a high-cost maintenance of the first improvement.
• A “control” baked into the software.  (Six Sigma has standard approach called DMAIC – define, measure, analyze, improve, control… and BPM software directly addresses D, M, and C, and supports the A and I activities…)  So often the “failing” phase is because the organization loses focus.  Software doesn’t lose focus – it just keeps running.

Too often, the proponents of Lean and Six Sigma ignore technology because they view it as an impediment, failing to understand that there is more to technology than MiniTab or SAS/SPSS or Excel.  And if technology allows you to do something at lower cost, such as a process improvement project, or maintaining an improvement over time, then it shouldn’t be dismissed out of hand.  But it is easy to understand why they sometimes see tech as an impediment – deploying software takes time – and during the initial phases of improvement the improvement guys just want to move fast.  My take is – don’t let the tech get in the way, but don’t pretend it can’t dramatically improve the efficiency of your business – in fact, technology, and specifically BPM software, is likely the key to locking in the gains you seek to establish a “new normal” that is a more efficient and effective process.

For those companies out there who are not employing the “ostrich strategy” and are thinking in terms of longer than 12 months, there are some real opportunities which may be worthwhile to consider, outside of just cost reduction or revenue protection objectives. In fact, it would likely be a good time to take a moment and re-discover what your business value drivers really are. Keep in mind that selecting projects or otherwise making decisions with the center of gravity being “reduce cost”, “improve profit” are really only effects; these are not projects in and of themselves. The only way you can ensure you are chasing the right possibilities is by understanding the company’s value-drivers and the “what, which, and how much” of each; find the game changers in essence. Those things which can not only help in the short-term but catapult a company over the long term (+12 months) to be more competitive, more profitable and deliver better to what your customers actually want.

Some of the really potent game changers that you may want to consider pursuing in a downturn would be in designing new processes or products, reducing operational complexity, and certainly doing work to understand what your customer’s (former and current) and your competitors customers are really seeking from your organization.

Designing new processes or products/services in a downturn is a great way to employ your assets and since you likely will have cut in other areas, put your money back to work for the future. Business process management methods and tools can help accelerate time-to-market and just as important validate that you are delivering solutions that will truly matter. Getting something out there fast is good but not if nobody wants it or cares. There is a very prescriptive way to generate these new designs and equally important process-centric tools which will help create a foundation to actually sustain these innovations.

Reduce complexity, not just reduce your workforce. “We just need to do more with less”, for some organizations they seem to believe that the laws of physics can be defied in their conference rooms. The rest of the universe is at the mercy of said laws, but not the organization. If we assume your company is a tad more realistic, then now is absolutely the time to refactor areas of the business.

Here is a great area to look at first: in most businesses there is the notion of sales configuration and there is the back-office functions to support or fulfill those various customer order permutations.  A lot of businesses try to make the back office support functions more efficient (read: “cheaper”) and they do this through automation, consolidation, etc.  As we all know, this is a never ending fight….never ending. One option here is to begin to rationalize those order configurations with the support functions. In almost all cases they are decoupled from one another and that is a problem. Until that notion is embraced, you’ll just be bailing water forever. Again, now is the time to use resources to see what can be done to harmonize these functions, this will promote process flow; and flow is exactly what we need in core processes.

Another area is doing work to get better intelligence in what current, former, and potential customers are really after. Too much of the time reactive data alone  is used to make decisions on what a company needs to improve on or even offer as a good or service. Reactive data is data the company doesn’t seek out. Proactive data is information that the company solicits from its customer and prospect base. If you do not have a solid voice of customer program that addresses aggregation of both reactive and proactive data, strong analysis capability of that data, and the right vehicles to get that information transformed into projects, then again now would definitely be the time to invest.

Any rate, these are a few examples of some game changing initiatives that could really provide a platform for future capability that can be had much cheaper than when the organization is operating at capacity. Think of this as a hedge, once the volume turns up again in the business how fast will you be able to respond, compete, lead? Chances are you have cut deep, and recouping that prior organizational capability is going to lag significantly; longer than the downturn lasted as a certainty.