Operational Excellence Driven by Process Maturity Reviews: A Case Study of the ABB Corporation

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1 Operational Excellence Driven by Process Maturity Reviews: A Case Study of the ABB Corporation V. Isoherranen 1, M.K. Karkkainen 2, P. Kess 2 1 Oulu Southern Institute (OSI), University of Oulu, Nivala, Finland 2 Department of Industrial Engineering and Management (DIEM), University of Oulu, Oulu, Finland (ville.isoherranen@oulu.fi minna.karkkainen@oulu.fi pekka.kess@oulu.fi ) Abstract Maturity models are examined in this research as a tool for operational development in manufacturing companies. Several leading frameworks are analysed. An industry example is presented from the ABB Corporation to showcase the usage of process maturity reviews in an industry context. Keywords - Maturity Models, Operational Excellence, Manufacturing, ABB Corporation I. INTRODUCTION Global competition strongly persists among large global enterprises, and the internal efficiencies of operations to satisfy customer needs is a challenge which all players face. The drive for operational excellence to secure competitive advantage is strongly linked to cost saving, reducing the cost of goods sold and the promise to investors and shareholders of predictable returns for their money. Continuous improvement [1] is seen as an answer by many business leaders to keep enterprises moving forward and thus win the competition. Maturity models provide a framework to create momentum and a roadmap for continual improvement. Maturity approaches have their roots in the field of quality management. One of the earliest maturity models is Crosby s quality management maturity grid (QMMG) which describes the typical behaviour exhibited by an organisation at five levels of maturity for each of the six aspects of quality management [2]. The case company, ABB Corporation, is the global leader in power and automation technologies. ABB has employees in about 100 countries. In 2014, ABB s revenue was $40 billion, while its operational EBITDA was $5,4 billion. The foundation of ABB was created by the merger of Swiss and Swedish engineering companies, the roots of which both go back to the late eighteenth century. ABB is publicly owned and has its head office in Zurich, Switzerland. ABB Corporation is divided into five divisions that are organized based on customers and industries. ABB has a long tradition of research and development (R&D) and has brought several innovations to the market. Today, ABB Corporation is a large supplier of motors and drives, generators and power grid equipment to markets throughout the world. The purpose of this paper is to describe the most common maturity model frameworks and their background, and to examine how the case company applies process maturity reviews in their pursuit of operational excellence. Accordingly, this paper addresses the following research questions (RQs): RQ1: What are the leading maturity model frameworks? RQ2: How does the case company utilise process maturity reviews to achieve operational development? The first research question will be answered based on a review of the literature and the second question with an empirical case study. II. THEORETICAL BACKGROUND The use of maturity models allows organizations to assess organizational methods and processes according to management best practices and against a clear set of external benchmarks. A maturity level assessment provides a variety of benefits, including knowing the maturity level of the organization with precise recommendations on how to improve; providing organizations with the ability to compare their maturity level with other organizations or other parts of their own organization; and providing solid ground for selfassessments. Based on the assumption of predictable patterns of organizational evolution and change, maturity models typically represent theories about how an organization s capabilities evolve in a stage-by-stage manner along an anticipated, desired or logical path [3],[4],[5]. Harmon [6] argues that the basic concept underlying maturity is that mature organizations do things systematically while immature organizations achieve their outcomes as a result of heroic efforts of individuals using approaches that they create more or less spontaneously. Some researchers have defined maturity more rigorously, and use the terms predictability, control and effectiveness. Predictability refers to the use of schedules, milestones and goals that are met. Control refers to the consistency with which organizations meet their goals. Effectiveness refers to achieving the right outcomes in an efficient manner. The basic purpose of maturity models is to outline the stages of maturity paths. This includes the characteristics of each stage and the logical relationship between them [7]. As for practical applications, maturity models are typically used for descriptive, prescriptive and comparative purposes [8]. According to Röglinger et al. [9], a maturity model typically serves a descriptive

2 purpose if it can be applied for as-is assessments. It serves a prescriptive purpose if it indicates how to identify a desirable future maturity level and if it provides guidance on how to implement the improvement measures accordingly. A maturity model serves a comparative purpose if it allows for internal or external benchmarking. Typically a maturity models consist of five maturity stages or levels. In addition to the stage structure, one idea behind the maturity models is that an organization has to go through all stages before it can reach the highest maturity level. Maturity should be seen as an organizational characteristic to excel [10]. However, maturity models have also been subjected to criticism. They are often characterized as step-by-step recipes that oversimplify reality and lack an empirical foundation [11], [12],[8]. Organizations searching for an adequate maturity model must be aware about their intentions, i.e. the purpose of use and the scope they want to apply the model for. As for descriptive uses, most models seem to be capable of providing a basic diagnosis of organizations and processes. With respect to the purpose of use, organizations should be especially careful as most of these models give little guidance on the specific steps that should be taken to improve and move between the maturity levels [9],[13]. Companies today are increasingly trying to manage their processes, customers, supplier, products and services as an integrated whole. They try to meet today s customers requirement and hope to improve and innovate their business process to cope with market dynamics. Maturity models have gained popularity as a management principle and they are now applied in many aspects of management. According to Smith [14], business process management (BPM) systems and methods help organizations deliver optimized business performance by providing the environment in which they develop, operate and continuously improve technology-enabled, end-to-end business processes. The purpose of BPM is to drive business by fostering the effectiveness and efficiency of business processes. Humpreyh s framework [15] was elaborated into the capability maturity model (CMM) for software [16] and later into the CMMI. It has become the preeminent standard for assessing the capability of organizations that develop software-intensive systems. A business process maturity model provides standards and measures to organizations for assessing, defining and improving business processes, thereby guiding them to achieve their business goals and uphold their values. The basis of the business process maturity model is the CMM developed by the Software Engineering Institute at Carnegie Mellon University. This model was originally developed to assess the maturity of the software development process and is based on the concept of immature and mature software organizations. According to Lee [17], maturity models which are derived from CMM/CMMI are based on the construction of the principles of software engineering. The basis for applying the model is confirmed by Paulk et al. [18] who indicated that improved maturity results in an increase in the process capabilities of the organization. The CMM introduces the concepts of five maturity levels defined by special requirements which are cumulative. With continuing support from a few companies, several authors, including Weber and Curtis, evolved the service operation CMM into the business process maturity model (BPMM). OMG s BPMM is derived from the service operation CMM [19]. CMMI and ISO/IEC explicitly refer to organizational maturity, whereas OMG- BPMM focused more on process maturity. Smith and Fingar [14] argue that a CMM-based maturity model which postulates well-organized and repeatable processes cannot capture the need for business process innovation. Smith and Fingar [14] introduced a process maturity management model (PMMM) and insist that the PMMM should be taken into consideration because process management maturity has an orthogonal relationship with process maturity. Harmon [6] developed a BPM maturity model based on the five changes with five states of maturity. Lee et al. [17] argue that although Harmon s approach shows the need for including values in the process maturity model, his maturity model does not provide the means to actualize these values. Furthermore, it is a heuristic and informal approach that assesses the maturity level based on just a few checklists. Hammer s process [19] and enterprise maturity model (PEMM) is different from other process maturity frameworks, such as CMMI. The CMMI model identifies the best practices for specific processes and evaluates the maturity of an organization in terms of how many of those practices it has implemented. In contrast, PEMM applies to companies in any industry and does not specify what a particular process should look like. It identifies the characteristics that any process and every enterprise should have in order to design and deploy highperformance processes. A company can apply PEMM to all its processes, which allows the use of a standard approach across the organization, easy sharing of experience and quick comparisons of results. In addition, every organization can develop processes that meet its own needs since PEMM does not insist that the design contain specific features [19]. Power [21], however, is sceptical regarding this architecture and believes that it does not make sense in all situations. Each company is unique, and while the practices for a maturity level make sense in one organization, they will not make sense in another. Most companies who are using Hammer s PEMM are customizing it for their unique needs, and thus it can be relatively easy to overcome these weaknesses. Power [21] insists that despite its weaknesses, PEMM

3 may be the best process maturity model in the market. Curtis and Alden [13] criticized that while Hammer s PEMM describes how various aspects of a process-driven enterprise would appear at four stages of maturity, it provides no practices for moving between the stages. Consequently, the use of this model is primarily diagnostic, since it does not offer an improvement roadmap of best practices. Like PEMM, the vast majority of maturity models are descriptive rather than prescriptive, and their use is primarily diagnostic [13]. Fisher [22] argued that business processes comprise multidimensional and non-linear characteristics, unlike the software project/systems life cycle. Fisher defined actions on the grounds that PMM is represented as five levels of change and five states of process maturity. Due to this high level of abstraction with respect to action, Lee et al. [17] argued that Fisher s model provides only ends, with no means to achieve these ends. Lee et al. [17] suggested that the model could be improved by incorporating suggested actions and achieving capability in a progressive manner. Rosemann [23] describes BPMM as a threedimensional structure. Rosemann s model has an advantage over the other models in that it is supported by survey and case studies. However, Rosemann s model is an unorganized and complex three-dimensional structure [17]. Some BPMMs and CMMI focus on the maturity of particular business processes, whereas other BPMM (like Rosemann s [23] and debruin s [8] models) focus on the maturity of the whole process portfolio in an organization. Only a few BPMMs (like Hammer s model [20]) allow a combination of both maturity types. There are several research studies on business process maturity; however, business process maturity has not been defined and standardized well enough to be applied in an organization s business process to improve its performance [17]. strategy, global values and a global connection in the top management and a global code of ethics [26]. Both the benefits and the negative implications of this structure are summarized below in table 1. The structure of the highly decentralized organization of ABB provides profit and lost (P&L) accountability close to the local markets and units. This accountability is supported by local autonomy. The local managers have the ability to develop their own approach and organizational setup to be able to achieve the set targets. This local flexibility also results to speed to market and the capability to address needs from various segments which are locally relevant. In terms of the negative implications, there is fierce competition between units, which can be seen from the corporation s viewpoint as the local optimum, not the total optimum for the corporation. The distributed approach is also challenging from the point of view of economies of scale as, for example, manufacturing units are independent and naturally have few cooperative forums for sharing, coordination or alignment of activities [24],[26],[27], [28]. A. Case analysis To succeed in global competition, the ABB Corporation has strongly emphasized a culture of continuous improvement as the guiding principle towards developing world-class operations. The high intensity of global competition demands several activities and steps to be taken to reach the desired future vision of performance (Fig. 1). The drive for continuous improvement comes from customers, who are demanding more each year; the increasing pressure for delivering more shareholder value and the demand for operational excellence as competitive advantage. Competitors are also developing aggressive programs to improve their operational efficiencies and productivity which means, e.g. reduction of the cost of goods sold and of the quality costs in general [27], [28]. III. CASE STUDY OF THE ABB CORPORATION A. Case description The case company, the ABB Corporation, has developed from a holding company into a globally connected enterprise during the last 15 years. The ABB journey can be described from the years before 2002 as a holding company to years of survival. The period between 2005 and 2008 can be characterized by efforts to build the global footprint and drive organic growth with a relentless bottom-line focus. From 2009 onwards, the focus has been on refining the global presence, making valueadding acquisitions and striving for faster customer responsiveness [24] [25]. ABB organization is highly decentralized. The characteristics of ABB are as follows: a deeply rooted local presence, a global vision, a globally distributed Fig. 1. Drive towards vision through continuous improvement The usage of process maturity models in ABB is driven by companywide development, adoption and deployment of ABB s quality policy. It sets the strategic vision. For operational purposes, ABB has created process maturity reviews. It is based on evaluation of the current state and maturity of the processes. This tool is to be used at the single manufacturing unit level as the starting point for the operational excellence loop to provide information on the current status.

4 V. CONCLUSION Fig. 2. The ABB Corporation operational excellence loop [27]. By having this operational excellence loop in place, ABB wants to develop world-class operational excellence. ABB is building competences in all levels in the organization for continuous improvement in skills and leadership while also simultaneously putting in place steps regarding how to achieve operational excellence [27], [28]. The development of competencies is deployed through the company via an extensive 4Q Program [29]. The operational excellence loop approach is built from lean methods and principles of pull production [27] with the aims of waste reduction (such as 5S), supplier integration and a comprehensive value stream management view. IV. DISCUSSION Securing competitive advantage is a target which all companies want to achieve [30]. The promise to their shareholders to increase revenues and dividends forces companies look for ways to increase efficiencies and cost reductions in operations across different units and functions. The options for increasing prices for customers are very limited, as customers have a variety of choices today. The answer to this management puzzle is to build operational excellence based on competitive advantage. In order to succeed in this endeavour, senior management in large corporations requires an index to map the current status of operations, the shortcomings and the problem areas. Maturity models provide a framework to assess the corporation s operations or the current status of the processes. The also provide a step-by-step best practice framework for improvement to achieve the next level of performance. Many models have been developed to serve this purpose, each of which present their own advantages and challenges. It is up to the management to select, modify or adapt these frameworks to suit the needs of their company s drive for operational excellence based on competitive advantage. However, as this case study shows, these reviews are only the starting point for the process of the development of operational excellence based on advantages, and thus they need to be coupled with development actions. Maturity models have gained popularity as a management principle. They are applied in many aspects of management. Typically, a maturity model consists of five maturity stages or levels. These span from the least mature to the most mature as follows: Initial, Repeatable, Defined, Managed and Optimizing. In addition to the stage structure, another idea behind the maturity models is that an organization has to go through all stages before it can reach the highest maturity level. Maturity models contribute to the development of corporate competitiveness as well as to a relentless drive towards productivity. As a short conclusion, RQ1 was answered with a brief description of the various maturity models in chapter II. RQ2 was answered in chapter III which describes how the case company (ABB Corporation) is utilizing maturity models in its relentless drive towards operational excellence. In further research, it would be interesting to examine how smaller businesses can utilize the frameworks built for larger corporations and based on their own challenges. Especially in the context of the growth paths of small businesses, maturity models could provide a valuable tool to achieve progress in their operations by adopting the best practices of these models. REFERENCES [1] D. Lua, A. Bettsa, and S. Croob, Re-investing business excellence: values, measures and a framework, Total Quality Management, vol. 22, no. 12, pp , [2] P. Crosby, Quality is Free. McGraw-Hill, New York, 1979, p [3] Van den Ven, and M. S. Poole, Explaining development and change in organizations, Academy of Management Review, vol. 20, no. 3, pp , [4] P. Gottschalk, Maturity levels for interoperability in digital government, Government Information Quarterly, vol. 26, no. 1, pp , [5] R. K. Kazanjian, and Drazin, An empirical test of a stage of growth progression model, Management Science, vol. 35, no. 12, pp , [6] Harmon, Evaluating an organization s business process maturity, BPTrends 2004, vol. 2, no. 3, [7] S. Kuznets, Economic Growth and Structure, London, UK, Heinemann Educational Books, [8] de Bruin, T. Rosemann, M., R. Freeze, and U. Kulkarni, Understanding the main phases of developing a maturity assessment model, Australian Conference on Information Systems (ACIS). Sydney, Australia, [9] M. Röglinger, J. Pöppelbuß, and J. Becker, Maturity models in business process management, Discussion paper WI-352, Business Process Management Journal, vol. 18, [10] Van Looy, M. De Becjer, and G. Poels, Defining business process maturity. A journey toward excellence, Total Quality Management & Business Excellence, vol. 22, no. 11, pp , 2011.

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