An Introduction to Capability Maturity Model Integration (CMMI)

No matter how a company’s processes are defined, whether they are strategic, tactical, project specific or part of a project
methodology, every company looks for ways to improve its processes. When management asks, “How can we make our company better?” The answer almost always lies in improving its processes.

Process improvement in any organization is important because when done correctly, it can result in increased product quality, improved customer satisfaction, lower costs or increased revenue. In short, continuous process improvement to a business is like the “fuel” required in an automobile: Without fuel an automobile won’t travel very far. Likewise, without process improvement, a company won’t go very far either. But even more importantly to recognize, is that fuel has to be repeatedly added to an engine. It is not a “once and done” scenario. Process improvement is ongoing, ever seeking better results.

One approach to continuous process improvement is to adopt a Capability Maturity Modeling Integration (CMMI) strategy. Simply defined, CMMI is a “process improvement approach that helps
organizations improve processes in order to improve their overall organizational performance.”

Introduced in 2002, CMMI was developed by the Software Engineering Institute at Carnegie Mellon University, in conjunction with individuals from both government and private industry.

(Now, before I go further into an explanation of CMMI, please understand that CMMI is body of knowledge is vast! There is way too much material, definitions, and intricacies to cover in a single blog post. Quite frankly, to mention every detail would overwhelm the reader. There is plenty of CMMI material on the Web where one can learn more specifically about CMMI and how an organization can adopt a CMMI approach. The purpose of this post is to introduce the concept. Paint with a broad brush, give an overview. You get the idea.)

CMMI enables organizations to integrate Capability Maturity Models (CMM)—the precursors to CMMI. CMMs deal with process improvement in specific areas such as software and systems development, and acquisition processes. CMMI combines these previously separate CMMs together and allows integration across an enterprise. The result is that organizations now have the ability to integrate processes involving people, systems, software, etc.

Currently, there are three CMMI models in the areas of:
1. Development – processes, best practices related to software and system development
2. Services – processes, best practices related to service and product delivery during an entire product lifecycle.
3. Acquisition – covers the processes of procuring products/services from suppliers during complex projects and efforts.

Each CMMI model contains numerous process areas (too numerous to tally here). But it is important to note that common to each of the three models are sixteen core process areas:

Causal Analysis and Resolution
Configuration Management
Integrated Project Management
Measurement and Analysis
Organizational Process Definition
Organization Process Focus
Organizational Performance Management
Organizational Process Performance
Organizational Training
Project Monitoring and Control
Project Planning
Process and Product Quality Assurance
Quantitative Project Management
Requirements Management
Risk Management

These process areas are fundamental to every process improvement activity, no matter which CMMI model is chosen—Development, Services or Acquisition.

Drilling down even further into CMMI definition, there are two representations of measuring process improvement within each of the three CMMI models. These representations are called “staged” and “continuous.” Now we’re getting to where the “rubber meets the road.”

In a staged CMMI model, there is a defined path of improvement for each organizational process. This defined path is represented by five maturity levels. Each maturity level (1-5) improves the process improvement of the previous level. Maturity levels can be visually represented by stair steps or a pyramid with sections that fit one on top of the other. The maturity levels are defined as follows:

1. Initial – process is poorly defined, unpredictable and reactive in nature. 2. Managed – processes perhaps defined for a specific project and are often reactive
3. Defined – processes defined for an organization and are proactively managed 4. Quantitatively Managed – organizational processes are measured and controlled 5. Optimized – the focus of an optimized process is continuous improvement

In a continuous CMMI model, process improvement is more specific to a process area, rather than across an organization. Since its focus is on a particular process area, it can be represented using “swim lanes” or a bar chart. A Continuous representation is defined by capability levels (rather than maturity levels in staged) 0-5 as follows: 1. 0 –process is not performed or partially performed
2. 1 – process is performed but is unstable and uncontrolled 3. 2 – process is planned for and managed
4. 3 – process is defined as an organizational standard practice 5. 4 – process is measured and controlled
6. 5 – process is performed and continuously improved

Capability Maturity Modeling Integration is a broad subject with many levels of details, definitions, twists and turns. It cannot be completely understood without intense study and experience.
Nonetheless, implementing a CMMI in an organization can improve processes and help organizations prosper.

References:
1. http://en.wikipedia.org/wiki/CMMI
2. http://www.sei.cmu.edu/cmmi/
3. http://www.tutorialspoint.com/cmmi/

Object Management Group

The Object Management Group (OMG) is an organization that oversees specifications and standards based upon an open standards framework. It can be described as an interoperability management group. It was started in 1989 to standardize objects in the new class of object oriented languages. It has since evolved to focus more on business process redesign and notation. OMG is a central repository for businesses to address their standardization needs. OMG is a democratic organization where each of its 800 member companies gets an equal vote no matter its size. Any member can submit and comment on industry specification proposals.

OMG’s first standard was for Common Object Request Broker (CORBA), it defined the interfaces (APIs) so applications could communicate over an agreed upon specification. This provided a consistent framework that allowed interoperability between vendor specific implementations.

During the mid 90’s there were six major design notations for laying out object oriented software. The Rational Corporation employed a few of the authors of these notations, they combined these notations into the Unified Method. OMG accepted this primary standard and called it Unified Modeling Language (UML), it is now OMG’s most-used specification. UML is used to design software applications, you can think of it as the blueprint that all software and infrastructure construction is based on. It’s a “blueprint of the enterprise that provides a common understanding of the organization and is used to align strategic objectives and tactical demands. “

OMG oversees a specification called Business Process Modeling Notation (BPMN). This aptly named graphical specification is used for business process modeling; its focus is to bridge the gap between business process design and implementation. BPMN is a common language that application stakeholders can use to understand the system using the same notations. From analyst who focus on the processes, to developers who implement the solution, to business managers who monitor the system.

There’s a new standard OMG is working on called Semantic Information Modeling for Federation (SIMF). SIMF is used to define what words and concepts mean. There is a huge problem about what different people think different words and concepts mean. This is a way for companies and industries to have an agreed upon definition. This concept intrigues me; I have experienced this problem many times in my career. I’ve been in situations before where I’m using the same language and same words as those around me but we’re still not speaking about the same language. Even subtle differences in what a word means can have profound implications when talking about complex systems.

Model Driven Architecture (MDA) is a standard that separates business and application logic from the underlying platform. The idea is basically to abstract business processes to a point where implementation is platform independent and vendor neutral. MDA was created to addresses the complete life cycle design using UML and MetaObject Facility (MOF). Some wish for MDA’s ultimate goal to be for a business analyst to build a MDA model and have the implementation of that model be completely automated. To call this a pipe dream is an understatement. There’s a reason there are many, many vendor solutions, each solution has its strengths and weaknesses that have to be taken into account. Hitting an “Easy Button” to create an end to end solution is absurd. The institutional knowledge an organization’s employees have cannot be automated. Take the concept of baking a cake, the recipe designer (analyst) can put in a process for getting ingredients, assembly and baking. But only a baker (implementation expert) knows if some ingredients should never be mixed together, or in what order. How would a recipe designer take into account the altitude of the oven or the color of a pan or any other site specific variable that would affect the temperature a cake should be baked? How would you adjust for taste, texture and presentation? Without this knowledge how would you troubleshoot a burnt chocolaty mess?

Resources:

http://www.omg.org/watson-podcast/index.htm

http://www.omg.org/mda/faq_mda.htm

http://www.mitchellsoftwareengineering.com/IntroToUML.pdf

http://blog.omg.org/

Buck Huffman

Business Process Reengineering Movement

What is Business Process Reengineering?

The best and simple definition for Business Process Reengineering (BPR) was found in the book “Reengineering the Corporation – A Manifesto for Business Revolution” by Michael Hammer and James Champy. It said, “BPR is defined as the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed”. In short, the heart of BPR lies in the notion of discontinuous thinking. According to the authors, BPR done right means starting from scratch.

Business Process Reengineering recognizes that an organization’s business processes are usually fragmented into sub processes and tasks that are carried out by several specialized functional areas within the organization. Often, no one is responsible for the overall performance of the entire process. Reengineering maintains that performance optimizing of sub process can result in some benefits, but cannot yield dramatic improvements if the process itself is fundamentally inefficient and outmoded. For that reason, reengineering focuses on re-designing the process as a whole in order to achieve the greatest possible benefits to the organization and their customers.

Hammer and Champy in Reengineering Corporation – A manifesto for Business Revolution, suggest 7 principles.

· Organize around results and outcomes and not tasks

· Have those who use the output of the process perform the process

· Subsume information-process work into the real work that produce the information

· Treat geographically dispersed resources as though they were centralized.

· Link parallel activities instead of integrating their results

· Put decision point where the work is performed, and build control into the process

· Capture information once and at the source

Role of Information Technology

Major advantage of IT in reengineering lies in its disruptive power. IT has the power to break the rules and make people think inductively and give the company a competitive advantage. A great example is Amazon. Amazon turned around the customer’s view of a book store. Another example would be super markets/department stores like Wal-Mart who have used IT to drive their business. The scanners that are used to check out commodities provide huge benefit by making it possible to track sales in real time.

IT provides project management skills and experience, which is a key ingredient in successfully implementing reengineering. In Hammer and Champy’s book (1993) they state that “IT is an integral part of BPR used as an enabler since it permits companies to reengineer Business Process”. Corporations must think inductively about the solution in order to bring in innovative ideas to implement the new process.

In my research I discovered a couple of white papers that explain the role of IT in BPR:

Honey well – David J. Paper, James A. Rodger, and Parag C. Pendharkar did a case study on the successful implementation of BPR in Honeywell, Phoenix Arizona. This study shows one organization’s experiences with radical change for the purpose of uncovering how they achieved success. From their study, 2 out of 10 points stand out…

· Execution of carefully developed change plans separate the high performers from less successful BPR projects.

· Recognizing that dealing with change is difficult and complicated is not enough. This study states how World Class Manufacturing (WCM) programs achieved high performance and fewer product defects. Total Plant™ (Change Management Group) and their Factory-focused program unified business and control information to enable global customer satisfaction.

ING Bank in Nederland, A large Dutch Bank – In this is white paper written by H.A. Reijers on Product Based Design of Business Process Applied within the Financial Services. In the abstract, he defines the reengineering process suits the information intensive products such as bonds, mortgage and loans. This study shows the method of Credit Processing, which is paper intensive and by reengineering could provide substantial savings in cost and flow time.

By: Shyam P. Prabhakar

Citations / References

· Reengineering the Corporation – A manifesto for business revolution – Michael Hammer & James Champy

· http://www.anterron.com/cgi-bin/white_papers/docs/Role_of_IT_in_BPR.pdf: Business Process Reengineering: Role of Information Technology in Implementation of BPR by Nandagopal Ramachandran

· http://en.wikipedia.org/wiki/Business_process_reengineering

· A BPR case study at Honeywell: By David J. Paper, James A. Rodger and Parag C. Pendharkar. http://www.bus.iastate.edu/nilakant/MIS538/Readings/BPR%20Case%20Honeywell.pdf

· Product-Based Design of Business Processes Applied within the Financial Services by H.A. Reijers: http://is.tm.tue.nl/staff/hreijers/H.A.%20Reijers%20Bestanden/pbd%20-%20paper%20-%20reijers%20-%20final.pdf

KANBAN

What is Kanban?

Kanban is a new technique for managing a software development process in a highly efficient way. Kanban underpins Toyota’s "just-in-time" (JIT) production system.

A Kanban is a signaling device (usually a physical card in a clear plastic envelope) that instructs the moving or creating of parts in a "pull" production system, invented and developed as part of the Toyota Production System.

"Pull" means that the downstream workers (customers/retailers/users) withdraw or "pull" the parts they need from the upstream (Production system) process.

To prevent overproduction, the upstream doesn’t "push" finished parts to the downstream, but instead it is the downstream that actively "pulls" the parts from the upstream.

Toyota’s six rules of Kanban.

1. Customer (Downstream) processes withdraw items in the precise amounts specified on the Kanban.
2. Supplier (Upstream) produces items in the precise amounts and sequences specified by the Kanban
3. No items are made or moved without a Kanban.
4. A Kanban should accompany each item, every time.
5. Defects and incorrect amounts are never sent to the next downstream process.
6. The number of Kanbans is reduced carefully to lower inventories and to reveal problems.

The store works as a queue of parts, the pallets work as a carrier of parts, and the Kanban cards work as a carrier of customer-need information. They make it a "pull" system, creating a balance between sustaining "continuous flows" (eliminating the waste of waiting) and "ionizing WIP" (eliminating the waste of overproduction). This mechanism of managing the "right" amount of WIP in the flow between buying-in and selling-out is exactly what happens in a supermarket, and doing it well is the key to the profitability of the store.

KANBAN FOR SOFTWARE DEVELOPMENT

Why KANBAN?

Kanban takes an organization’s current development process and provides greater visibility into the status of the work and how it is proceeding. Kanban provides a method to continually adapt in order to smooth out kinks in the arrival of new development work. In this way, it allows the organization to avoid crises and respond more quickly and easily to issues that do arise.

Kanban also gives more precise direction on how to invest development energy into only the most valuable work. The end result is a development pipeline that is predictably and efficiently delivering high value work.

The Kanban Method reduces risk and increases flexibility, resulting in a more resilient development cycle.

The KANBAN Method

The five core principles enable the Kanban Method are:

1. Visualize the Workflow
—Represent the work items and the workflow on a card wall or electronic board.
2. Limit Work-in-Progress (WIP)
—Set agreed upon limits to how many work items are in progress at a time.
3. Measure & Manage Flow
—Track work items to see if they are proceeding at a steady, even pace.
4. Make Process Policies Explicit
—Agree upon and post policies about how work will be handled.
5. Use Models to Evaluate Improvement Opportunities
—-Adapt the process using ideas from Systems Thinking, W. E. Deming, etc

When these 5 conditions are present, a Lean software development method will emerge over time.

Sustaining Kanban

A Kanban system is used in a traditional waterfall development model but with a flow. This project has separate and serial processes which they call "design", "development", "validation" etc., and the Kanban cards move between processes.

Note that this is not a classic waterfall process, where all the requirements are "designed" at one time, "developed", and "validated" at another time, which would cause all the cards to move in a group. Instead, the cards move one by one, like the one-piece-flow of manufacturing.

Agile Kanban

WIP can be limited by defining the size of each area. To make this a pull system, it needs a mechanism allowing the downstream process to somehow signal the upstream process to start working. Making a rule that only the downstream can move the DONE cards to signal the upstream is one option. Having "Iteration Meetings" periodically is another option which synchronizes the teams and the transportation (communication) of the information among the teams.

Conclusion
Kanban systems are used in order to achieve:

1. Better process control — they keep continuous flow while limiting WIP
2. Better process improvement — they make the flow visible.

"Agile Kanban" focuses on #2, while "Sustaining Kanban" focuses on #1.

References:

http://www.infoq.com/articles/hiranabe-lean-agile-kanban
http://www.kanbanblog.com/explained/index.html

Thanks,
Sudheer Amireddy

CMMI

What is CMMI?
Capability Maturity Model Integration (CMMI) is a process improvement approach whose goal is to help an organization improve their performance (from Wiki). It provides guidance for improving the organization’s processes and the ability to manage the development, acquisition, and maintenance of products or services.
CMMI was developed by the Carnegie Mellon Software Engineering Institute (SEI). The main sponsors included the Office of the Secretary of Defense (OSD) and the National Defense Industrial Association.

CMMI is different from ISO-9001. It shows the maturity of the process that is being followed by the organization. It goes beyond process documentation. CMMI implementration will be more costly than ISO implemetation

What can CMMI do for us?
There are different answers for different people. For project managers, CMMI can improve their project management capabilities, to deliver quality projects on time and within budget. For salesmen, CMMI can help them to judge an organization’s implementation capacity, thus ensuring their purchase correctly and smoothly. For CEOs, CMMI can enhance the whole organization’s management level.
Overall, CMMI can help us improve the project quality, and decrease the cost of quality and the risks.

CMMI representation
CMMI has two different representation ways: continuous and staged. Different representation way’s level represents a different content. The continuous representation is a way to measure the project capacity of an organization. It is easy to reach a high CMMI level because the organizations can pick up the project by themselves to assess. It merely means that the organization has reached a certain level in the certain project or similar projects capacity.
The staged representation is mainly a measure of the maturity of the organization, that is, the comprehensive strength of the project capacity. CMMI appraiser can pick up any projects or any parts of a project in the organization to assess. Stage representation is difficult to reach a high level. Although the CMMI is represented in different ways, its substance is exactly the same, is a way to two different means of representation.

Maturity levels
There are five maturity levels.
Lv1.Initial. Processes unpredictable.
The lowest possible CMMI level means an organization has some successful projects, depends on the heroism of a few key players, but may not be able to repeat their past successes. There is no predictability in schedule, budget, scope or quality, no formal or very poor planning process. Management and engineering is weak.

Lv2.Managed. Processes characterized for projects and is often reactive.
Project management processes are planned, performed, measured, and controlled: the organization will prepare resources, arrange right persons to right positions and train related staffs when the project starts; measure and control all phases in the project; examine the project and all processes, and all issues in a project are recorded.

Lv3.Defined. Processes characterized for the organization and is proactive.
The processes and its interpretation are not only managed, but also get institutionalized. The organization ensures that individual projects get success.
In reference to CMMI, Level 3 contains the maximum number of process areas that need to be addressed.

Lv4.Quantitatively Managed. Processes measured and controlled.
Digital management. Use statistical tools to manage the projects and processes, data and pictures are from Lv3.
The organization delivers its projects with high quality and stability.

Lv5.Optimizing. Focus on process improvement.
The highest CMMI level provides the highest quality and the lowest risk. The organization analyzes the quantitative data from the projects and applies it to refining the processes for the future. This level represents an introspective approach to quantitative project management, combined with a continuous improvement objective.

Higher levels are the cornerstone of lower levels, no level can be skipped. The higher maturity level, the higher quality, the lower risk.

By Min Sun

1) SEI Web pages
2) http://www.tutorialspoint.com/cmmi/cmmi-maturity-levels.htm
3) http://www.article-hut.com/article7993_Understanding_CMMI_Levels.html

Kaizen: One small step can make a difference

What is Kaizen?

Kaizen in Japanese means good (zen) change (kai). It is known as the Japanese technique of achieving success through small improvements, steady changes or steps. The methodology of Kaizen includes making small changes to a task or activity and monitoring the results then adjusting properly based on the feedback. At the same time a key aspect of the Kaizen methodology is that it empowers everyone within the organization to suggest or recommend a change. I think this key aspect is of high importance for Kaizen to work within an
organization. In order for managers and executives to be able to implement Kaizen successfully, they have to be able to communicate, listen and encourage to their workers to bring ideas, changes and feedback to them. They have to make everyone be part of the team and feel appreciated for making a difference. The scope of the change or suggested improvement should be small enough to be measured and routinely checked but large enough to notice the value of the change. There is newly method of using Kaizen in which a particular issue is changed during a week’s time, this is known as “kaizen blitz”, and a limited scope is addressed. Kaizen focus on continuous improvement practices can be applied to a professional environment or to your own personal life. In terms of industries using Kaizen, it has been applied to many major industries such as healthcare, construction, life-coaching, banking and even government. Kaizen can be structured individually, in small groups, large working groups within the same department or cross-departmental.
Toyota is the company known for using Kaizen across the entire company. Toyota Production System is built around Kaizen methodology.

Implementation – Best Case: Toyota Production System

There are many books and case studies written about how to implement Kaizen successfully within a company or department but greatest and most factual example of implementing Kaizen is in Toyota.
Toyota Production System is built around the concept that all personnel in the line are empowered and expected to stop their ongoing production in case of any quality issue or abnormality and suggest, along with their supervisor, an improvement to resolve the problem. The main purpose of the implementation of Kaizen at Toyota is for the sole purpose of eliminating waste, could be due to overproduction, excess inventory or defects. The way Toyota was able to implement this innovative concept is to allow for continuous improvement from the people affected by that activity or task so that any employee can grow in a learning experience and be part of improving the state of the company.
The main cycle of Kaizen activity is defined as PDCA, also known as Shewhart cycle.
1. Plan – Establish the objectives and processes necessary to deliver results 2. Do – Implement the plan, execute the process, make the product 3. Check – Evaluate the actual results measured and collected based on “DO” and compare against the expected results. This outcome will provide with the difference and what you need for the next step 4. Act – Ask for corrective actions to be taken on the noticeable differences between actual vs. planned results
More importantly I think the five building blocks and elements of Kaizen is what made Toyota successful at implementing Kaizen. These five building blocks are teamwork, personal discipline, improved morale, quality circles and suggestions for improvement. Without the proper implementation and continuous encouragement of these elements, Kaizen cannot succeed within an organization. In my personal opinion and work experience, the implementation of these five elements can be very difficult as each department or individual has to put their own benefit aside and be genuine about the overall good of the company. This fundamental concept I perceive as the biggest challenge for Kaizen to succeed in today’s society. Individuals are looking for their gratification and personal gain instead of the collaboration and teamwork for the greater outcome of a company or community.
With the implementation of the Kaizen processes, Toyota became the largest car manufacturer in 2007 and was as profitable as all other companies combined.

Using Kaizen in your Personal life

For my own benefit in the execution of this blog, I purchased the book “The Kaizen Way” by Dr. Robert Maurer. In this book, Dr. Maurer uses the concept of Kaizen to walk through and teach the reader about how to improve their life by making small changes in your daily life that can improve your health, behavior, new skills or outlook of life. In the book, the author provides several life scenarios in which he improved the life of people’s health by using the Kaizen concept. In today’s society, everyone wants instant results whether is losing weight or making more money overnight. Dr. Maurer explains how long term results can be achieved through performing small actions, thinking small thoughts and asking small questions. Since I read the book, I have obtained great ideas and knowledge on approaching and resolving daily problems by following the Kaizen steps and techniques outline in the book. I recommend the book to anyone that would like to improve their life. Think small steps and you will succeed.

By: Ruben Martinez-Raposo

http://en.wikipedia.org/wiki/Kaizen
http://en.wikipedia.org/wiki/Toyota_Production_System
“Kaizen – Continuous Improvement”
http://www.thetoyotasystem.com/lean_concepts/kaizen.php
http://www.toyota-forklifts.co.uk/EN/company/Toyota-Production-System/Kaizen/Pages/default.aspx The Kaizen Way: one small step can change your life” by Robert Maurer, Ph. D

Corporate governance

Corporate governance

Corporate governance is "the system by which companies are directed and controlled". Governance is applied to relationships between a company’s management, its shareholders and the stakeholders. The idea is to future conflicts with stakeholders and the board. There are differences around the world as to how corporate governance is applied each with its own set of rules and management styles. Corporate governance is critical as to no one person has the ultimate decision making power for the company. (1,2).

Over the years there have been many CEO who have overlooked and even made decisions which had critical impact on its board of governors, stakeholders and most importantly, its employees. In the past twenty years the decisions made by CEO’s or even the board of directors of large companies have affected stock prices and the loss of confidence by the stakeholders and the public. Major companies which have placed themselves in the local and international news, here are a few examples; Hewlett Packard, British Petroleum, Disney and Yahoo to name a few. All have made critical decision, mismanaging the future of companies with lack of control, showing only panic when something goes wrong. This begs the question, how are all of these companies going to get their acts together and decide which is the best course of action for the sustainability of the company. (2,3)

Here are some basic requirements for corporate governance for global market utilization. A company should to be transparent, meaning total open and exceeding the expected requirements. A company should be responsible by acting in the broader and longer term interest of all. A company should be committed to the highest moral positions. A company should not make wild decisions but take care to avoid major risks. (4)

There are simple rules for companies to live by and best practices, this simple but a reminder of the following should not strike as surprising! Here are some of the agendas for the board of directors, their mission and their responsibilities.

The mission of the Board of Directors is to protect the equity and to add value to the company and to maximize the return on the investment of the owners. The Board of Directors should uphold the company’s values and the owners’ principles and purposes in the company’s activities. These matters should be discussed, reviewed and approved in meetings of the Board of Directors. The board should be responsible for defining strategies, electing and removing the CEO, supervising management and naming and removing independent auditors. The activities of the Board of Directors should be further specified in an internal instruction clarifying its roles and responsibilities. (4,5)

The Board of Directors should approve the company’s code of ethics. Several activities of the Board of Directors need more thorough analyses, which may exceed the meeting time available. Different committees, each made up of a few members of the board, must be set up. For example: nomination committees, audit committees, remuneration committees, etc. The committees study issues in their specific areas and submit the proposals accordingly. Boards of Directors should be as small as possible and may vary in size between 5 and 9 members, according to the needs of the company. There are three kinds of board members:

– Independent

– External (Board members who do not work at the company, but are not independent)

– Internal (Board members that are company Directors or employees).

The Board of Directors should supervise management. Supervising yourself is a typical conflict of interest situation. Therefore, the owners should avoid electing the CEO and other management personnel to the Board of Directors. The Board of Directors evaluates continuously the CEO and top management. In order to do this without constraints, the independent and external board members should meet regularly in the absence of these people. The Chairman of the Board of Directors should subsequently give a feedback to the CEO and the top management (3,4,5,6)

Corporate governance from a five hundred foot view seems simple and should not be difficult to implement, the weakest link in the entire scheme of no governance is the human factor and a lack of discipline.

Dan Prabhu

Reference:

1. http://www.economist.com/node/21529101

2. http://en.wikipedia.org/wiki/Corporate_governance

3. http://www.globalchange.com/corporategovernance.htm

4. http://www.applied-corporate-governance.com/best-corporate-governance-practice.html

5. http://www.oecd.org/dataoecd/4/48/1824495.pdf

6.http://www.asxgroup.com.au/media/PDFs/cg_principles_recommendations_with_2010_amendments.pdf

7. http://www.kantakji.com/fiqh/Files/Companies

Corporate Governance

Corporate governance as the name suggests is the mode by which companies or corporations are governed & operated. It outlines the rules which regulate the relation between executives, board members, shareholders, employees and stakeholders. From time to time in the history the working of companies, especially those traded in public, have come under scrutiny because of the frauds, failures and scandals at the management level. Enron and WorldCom are two famous examples of such failures.

In United States, efficient corporate governance practices are promoted by trade organizations, stock exchanges, regulatory bodies and government regulations i.e. SEC, NASDAQ. These groups lay out guidelines to protect the interest of investors and ensure transparency in the markets.

There are six principles of corporate governance that are defined by OECD (Organization for Economic Co-operation and Development) which will be elaborated further.

1. Ensuring the Basis for an Effective Corporate Governance Framework.

2. The Rights of Shareholders and Key Ownership Functions.

3. The Equitable Treatment of Shareholders.

4. The Role of Stakeholders in Corporate Governance.

5. Disclosure and Transparency.

6. The Responsibilities of the Board.

1) Ensuring the Basis for an Effective Corporate Governance Framework – Under this principle it is made sure that corporate governance rules will be made in accordance with the law, the policies would ensure the integrity and transparency in the market by keeping the competition fair. The organizations that will make and regulate these governance procedures would carry their task diligently and impartially in a timely manner.

2) The Rights of Shareholders and Key Ownership Functions – This principle clauseelaborates in detail the rights of shareholders and important functions related to their ownership. An interesting fact about this principle is that all shareholders should have equal rights despite the size of their ownerships.Companies would inform their shareholders about their working and financial standing on a regular basis. They should also give shareholders the chance to participate and vote in the general shareholders meeting, where shareholders can become part of the decision making process. Investors regardless of the size of their investment should be allowed to question board members and make suggestions. Shareholders should also be given the right to consult each other in order to decide the future of the company. Overall, this principle emphasizes the protection of shareholders interest and their democratic rights in the functioning of the company.

3) The Equitable Treatment of Shareholders – This code suggests that all shareholders should be treated justifiably. Rights of minority and foreign shareholders should be protected and their issues should be properly rectified. All investors should have access to the information regarding their rights before the investment. All hurdles to cross border shareholder voting should be removed. Moreover, insider trading and all other abusive practices should be discouraged at all levels. Board members should also give disclosures about their interest in the transactions.

4) The Role of Stakeholders in Corporate Governance – This norm describes the role the stakeholders can play in governing a corporation i.e. employee and unions. It is suggested that board members and management should respect the lawful rights of the stakeholders and ensure that they get chance to participate in the governing process. Stakeholders should be involved in the corporate loop and have access to the relevant information on a regular basis.A sustainable growth will be achieved where employees and management work together for achieving their goals in a cooperative manner. Creditor’s protection is also covered under this principle.

5) Disclosure and Transparency – These days corporations are required to disclose their financial reports, shareholders information, voting rights, management policy, goals, risks and stakeholders information to the government and the investors. This measure implemented with strictest accounting standards build confidence in the market and promote transparency. Auditing should be done by responsible and independent auditors.

6) The Responsibilities of the Board – This principle simply tells that the executives and board members should be fair, honest and just in all the aspects of company’s operations. They should work together with stakeholders and shareholders towards generating wealth, job and economic development.

Despite these principles, the executives figure out their own way of governing the corporations. Some companies are more democratic in nature while others are more dictatorial but the corporate governance framework provide an insightful and fruitful knowledge of managing a corporation which can be very helpful to the future executives and business leaders.

Siddharth Sehgal

References

1. "OECD Principles of Corporate Governance." OECD. Web. 8 Mar. 2012. <http://www.oecd.org/dataoecd/32/18/31557724.pdf>.

2. Colley, John L. What Is Corporate Governance? New York: McGraw-Hill, 2005. Print

3. Kim, Kenneth A., and John R. Nofsinger. Corporate Governance. Upper Saddle River, NJ: Pearson/Prentice Hall, 2007. Print.

4. Brancato, Carolyn Kay., and Christian A. Plath. Corporate Governance Best Practices: A Blueprint for the Post-Enron Era. New York, NY: Conference Board, 2003. Print.

5. Iskander, Magdi R., and Nadereh Chamlou. Corporate Governance : A Framework for Implementation. Washington, D.C.: World Bank, 2000. Print.

ROI

Return on Investment

Okay, let’s face it; all of us would like to have return on our investment especially if it concerns personal money matters. ROI is more than that and it applies to many aspects to day to day life and business. ROI is a perform measure used to evaluate the efficiency of an investment. ROI also has social application which is used by municipalities and other government entities. (1)

Let’s look at governments who for decades have invested heavily in the billions of dollars in IT and have measured the performance of IT initiatives with quantifiable, financially based outcomes, such as reduced transaction costs or cost avoidance. Financial measures should be used in government, but they seldom represent the full range of returns generate public investments in IT. Most agree that based upon well-grounded measures, IT in many ways with its programs and services have been more effective and less expensive as a result of the investment. The US government on a yearly basis has been tightening its belt by reducing funding and why is that? Some in congress are not convinced that IT is the answer in its current venue and it needs to be revamped to better serve the public, such as increased security or transparency. This has created a challenge and hard to measure. For governments "Value creation can therefore come as much from increasing the integrity and transparency of government as from reducing costs through activities such as online tax processing, license application and renewals, obtaining information, filing forms, etc. The public value propositions for these investments go beyond the important but obvious cost and time savings to include attention to service quality, access, and equity, to name a few. This take on value also includes many stakeholders, each with special interests and expectations from government; many kinds of public interests require an expansive way to view public value." (2, 3)

So in the meantime the US government has made strides in the past five years for its citizens by allowing for government documents to be downloaded easily reducing the amount of government time spent on fulfilling Freedom of Information Act (FOIA) requests. The government voluntarily puts data on its website (proactive disclosure) and makes it easy to use; citizens/reporters can find the information on their own, without needing to fill out a FOIA request. Clerks (and others) who work on fulfilling FOIA requests become enabled to spend their time working on other tasks. This in turn this has provided the government return on investment. Even the Canadian government has followed suit by proving its citizens with something called the Open Data and has saved over $3.2 billion. Canada had help from its citizens acting as proactive police to data being published. Bringing issues with data provided many illegal operations within the county which were stopped and money saved to the tax payers. (3, 4).

It’s not that ROI is not expected by everyone but sometimes it is not readily recognized immediately and it could take years for investments emerge. Many governments including the US government which has invested many billions of dollars, as a matter of fact almost $70 billion as late as 2010 with a projected increase of 3-5% annually expects to see some type of ROI on it $70 billion. (4, 5)

Dan Prabhu

Sources:

http://www.investopedia.com/terms/r/returnoninvestment.asp#axzz1nryoo5gf

http://www.ctg.albany.edu/publications/issuebriefs/proi

http://www.eida.gov.ae/userfiles/Public_Value_and_ROI__in_Government_Projects.pdf

http://www.govloop.com/profiles/blogs/governments-roi-for-open

http://eaves.ca/2010/04/14/case-study-open-data-and-the-public-purse

Business Process Modeling Basics

Business Process Modeling (BPM) in system engineering is the activity of representing an enterprise’s processes in a method that analyzes and improves the current process. Also, another more simple definition for BPM is a method for improving organizational efficiency and quality. BPM is implemented by business analysts and managers who are pursuing improvement to process efficiency and quality. Information Technology (IT) may be required for the process improvements identified by BPM, although IT is a common driver for the need to model a business process, by creating a process master. In order to establish the improved business processes, change management programs are typically started. In addition, advances in technology assist with the vision of BPM models becoming fully executable are coming closer to reality (Wikipedia).

Now that a formal definition of BPM has been given, here is some history about business process models. ‘Business’ in Business Process Modeling is interchangeable with organization. Business Process Modeling began in the late 1700s during the ‘division of labor’ when manufacturing moved from the cottage industry into factories, and BPM has also evolved through different stages and names (Businessballs). The following techniques came into existence in the 20th century to model business processes: flow chart, functional flow block diagram, control flow diagram, Gantt chart, PERT diagram, and IDEF. The Gantt charts were the first to emerge about 1899 and flow charts in the 1920s. The modern methods to model business processes are the Unified Modeling Language (UML) and Business Process Model and Notation (BPMN). UML is a modeling language in the field of object oriented software engineering. UML was created by the Object Management Group (OMG) in 1997. UML is the industry standard for modeling software – intensive systems. BPMN is a graphical representation for specifying business processes. BPMN supports business process management for technical and business users, it provides a notation that is simple and can be used in complex semantics. BPMN was created by Business Process Management Initiative in 2004 and is maintained by OMG since 2005. BPMN is a standard for business process modeling. All of these modeling tools use graphical representations and notations to model business processes. These methods only represent a small list used to document business processes throughout the years.

Here are a few examples of business process models:

1. Gantt chart

http://upload.wikimedia.org/wikipedia/commons/5/57/GanttChartAnatomy.svg

2. Flow chart

http://upload.wikimedia.org/wikipedia/commons/3/37/Flowchart_Showing_Driving_to_a_Goal.png

3. UML

http://upload.wikimedia.org/wikipedia/commons/1/1d/Use_case_restaurant_model.svg

4. BPMN

http://upload.wikimedia.org/wikipedia/commons/c/c0/BPMN-DiscussionCycle.jpg

S. Williams, who was in the field of systems engineering, introduced the term “business process modeling” in 1967 in the article “Business Process Modeling Improves Administrative Control”.The techniques for understanding physical control systems can be used to understand business processes. The term became popular in the 1990s. The presentation of the first visually oriented tools for business process modeling and implementation came in about the year 1995. BPM tools offer business users the ability to model business processes, and implement and execute the models as well as refine the models based on the data entered (Wikipedia).

The business model, business process, and the workflow are some topics that are involved in BPM. The business model is an outline for creating economic, social, and other systems of value. A business model represents parts of a business which include the following: purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. In other words, the approach a company takes to do business in order to sustain itself is another way of describing a business model. A business process is related, structured activities that produce a specific service or product for customers (Wikipedia).

The three main types of business processes are the following:

1. Management processes (govern operation of a system – Corporate Governance and Strategic Management)

2. Operational processes (constitute core business and create primary value stream – Purchasing, Manufacturing, Marketing, and Sales)

3. Supporting processes (support core processes – Accounting, Recruitment, and Technical support)

Workflow is the representation of a sequence of operations that is declared as work of a person, simple or complex mechanism, group of persons, organization of staff, or machines (Wikipedia).

The purpose of BPM is to have a final output that is an improvement in the way that the business process works. The two main types of business process models are the ‘as is’ or baseline model which is the current situation and the ‘to be’ model which is the intended new situation. These two types are used to analyze, test, implement and improve the process. When modeling, the aim is to illustrate a complete process, enabling managers and staff to improve the flow and restructure the process. Value for the customer and reducing cost for the company is the essential outcome for a BPM project, which also leads to increased profits for the company. Some secondary consequences rising from successful BPM can be increased competitive advantage, market growth, and better staff morale and retention. BPM is an effective tool, but remember the tool does not produce results. In the end, what matters is how the tool is used (Businessballs).

By: Reginald Fowler

References:

1. Wikipedia

http://en.wikipedia.org/wiki/Business_process_modeling

2. Businessballs

http://www.businessballs.com/business-process-modelling.htm

3. YouTube

What is BPM?

Business Process Modeling

Business Modeling Process Risk