Accelerating Innovation Using Business Process Simulation

By Steve Phinney As companies complete in the global marketplace, innovation is a key to survival. As with everything else in todays information age, product and process lifecycles are much shorter, forcing companies to turn to speed-to-market as a major opportunity for competitive advantage. Process modeling and simulation provide visual and analytical insights into several key process variables such as variation and the efficient utilization of resources. Simulation provides the user with an understanding of the factors offering the largest opportunities for improvement and what the optimal settings of those factors are. Process modeling and simulation are also tools for visually presenting an innovation process challenges and opportunities to management. Many times our calls to management do not receive the responses we desire; often, this is because of our inability to effectively communicate with business leaders. Process models visually show current process performance and how proposed changes impact performance. This article discusses the impact of process task variation and resource utilization on speed-to-market and the ultimate impact on company profits. Impact of Resource Utilization and Process Variation on Speed-To-Market Consider the following example which depicts a current as-is innovation process for ABC Company (exp. Dur: (1,2)mt means Duration is between 1-2 months):

Innovation Department

Dur: Between(1,2)mt Start - Clarify Design Opportunity Dur: Between(1,2)mt Generate Potential Solutions Dur: Between(1,2)mt Evaluate Potential Solutions

No

Dur: Between(2,3)mt Yes Deliver New Solutions

Acceptable?

Dec: Decision 0%-No, 100%-Yes

The benchmark for innovation cycle time in ABCs industry is three months. The first simulation is run with resource utilization at 87 percent, giving ABC an overall cycle time of 8.2 months. If we are losing an average of $1 million in revenues for each month we are behind the competition, we have an opportunity cost of over $5.2 million (not to mention lost market share we will never get back). To show the impact of resource utilization on cycle time, the simulation model shows that a reduction to 75 percent utilization results in a corresponding cycle time of 6.9 months, a 1.3 month improvement in cycle time. Additional simulations show that an increase in resources decreases utilization, but does not reduce cycle time. We must now investigate other variables we can improve within the process.

In another scenario, we will show what happens if we reduce variation of each process step. By reducing variation, we would expect to see a positive shift in the mean cycle time as well. Using the new cycle times, we have the following model:

Innovation Department

Dur: Between(0.75,1.25)mt Start - Clarify Design Opportunity Generate Potential Solutions

Dur: Between(0.75,1.25)mt Evaluate Potential Solutions

No

Dur: Between(1.5,2)mt Yes Deliver New Solutions

Acceptable?

Dur: Between(0.75,1.25)mt

Dec: Decision 0%-No, 100%-Yes

Using the model to analyze sources of variation, then attacking those sources, results in a new cycle time of 4.7 days, while reducing utilization to 48 percent and increasing throughput to 37 from a previous 34 innovations. The model also shows us that we can reduce resources from 17 to 11 workers before we start to see a slight increase in cycle time, while maintaining utilization at less than 75 percent. Process Simulation is Not a Panacea for All Problems This simple example shows the power of process simulation in testing improvements to the innovation process. The model is only as good as the inputs, so proper validation of the as-is process is essential. Once validated, the model helps identify the factors that impact the process and alter those variables until optimal levels are reached. Arguably, one of the greatest impacts of process simulation is the ability to test changes in a safe environment prior to actual implementation. In this example, the simulation model shows that resource utilization and variation have a major impact on overall speed-to-market of new innovations. About the Author: Steve Phinney is a contributor to Real Innovation. He has experience as an instructor in Process Modeling and Simulation, as well as process management theories such as Lean, Six Sigma and ISO. He is also an understudy of Ms. Ellen Domb in the field of TRIZ (Theory of Innovative Problem Solving). He can be reached at stevephinney@msn.com.