Only after tackling these three priorities did
the distributor return to the remaining 11. Although its overall improvement program is still
a work in progress, customer satisfaction has
already increased substantially.
One lesson of this story is that the heat map is
strictly a tool for identifying priorities. By providing an overview of all the activities in a business, it can help managers
throughout the organization agree on priorities for an improvement program – but managers must think long and hard
about how many the company can realistically take on at
one time. Otherwise, the program may go nowhere fast. A
second lesson is that automation, including the implementation of SOA, is a means to an end and not an end in itself.
or buying
SOA software should be the
last – not the first – step in
creating a new operating model.
Notably, the distributor decided what to automate – and
where to apply SOA – only after it had chosen the capabilities
whose improvement was most critical to achieving its business objective.
Creating a New Operating Model
With the heat map of activities in hand, managers will have
much or most of the information they need to design a new
operating model. They might want to probe a bit more – for
example, to ascertain whether apparently similar activities in
two areas are really the same, to check whether a standard
process already exists, or to understand just how intertwined
(or independent) activities are. Satisfied that they have an accurate picture of all activities, managers can then place them
in one or more of the following categories:
Q primary: activities that the company should keep in-house
and that should be the top priority of programs to improve
operations and technology
Q shared: activities that can be shared with other divisions
Q shifted: activities that can be transferred to customers, suppliers, or operational specialists
Q automated: activities whose capabilities – or at least whose
user interfaces – can be automated so that they can be
turned into web services
We typically find that as many as 20% of activities are primary and that 25% to 50% of all activities can be shared or
shifted to external parties. The CIO of one manufacturer initially thought that only two divisions had redundant marketing data systems and subscription
services but ultimately discovered that 12 divisions did. Consolidating them into an SOA-based system that all 12 could share cut the
annual technology and data-subscription budget
by $40 million, allowed the company to redeploy 63 of the
70 staff members who initially supported the 12 systems, and
made the new system accessible to divisions that previously
could not afford a system.
A business capabilities analysis conducted in 2000 helped
Charles Baker, Harvard Pilgrim’s then-new
CEO, realize that he could transfer 40% of
the insurer’s operations to other companies
that could perform them better. The heat
map showed, for example, that one of the
firm’s most important capabilities was identifying subscribers who were in the early
stages or at high risk of developing chronic
illnesses like diabetes and heart disease.
Spotting these people early would enable
Harvard Pilgrim to enroll them in preventive care or disease-management programs
before their conditions became serious.
That, however, required sophisticated data-mining and data-analysis technology that
could comb through claims and other information. Recognizing that it lacked the technology and the analytical expertise,
the insurer moved those activities to an outside specialist.
In the end, Harvard Pilgrim decided to focus its attention
and resources on improving distinctive capabilities that provide a competitive advantage: customer service, creating new
products, pricing health insurance (actuarial services), contracting doctors to participate in its network, selling to large
groups, and marketing directly to individual policyholders.
It had outside experts take over pharmacy-benefits management, several disease-management programs, behavioral
health management, and claims processing. With the benefit
of the capabilities-analysis results, the company could spell
out precisely what it expected its dozens of contractors to
deliver in terms of quality, cost, volume, and cycle time – and
then could closely track their success in achieving that. Three
separate finance organizations and their systems were consolidated into one.
Thanks in part to the business capabilities analysis, Harvard Pilgrim’s streamlining of its operations has paid off. The
insurer, which was on the verge of bankruptcy in 2000, is now
solidly in the black, has a host of loyal customers, and has repeatedly received top awards or rankings for the quality of its
services and customer satisfaction.
