improving quality and performance by transfroming from functional structure to process based structure at serenco company

HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITÉ LIBRE DE BRUXELLES SOLVAY BRUSSELS SCHOOL OF ECONOMICS & MANAGEMENT MBQPM5 PHẠM VĂN THUẬN IMPROVING QUALITY AND PERFORMANCE BY TRANSFROMING

HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITÉ LIBRE DE BRUXELLES

SOLVAY BRUSSELS SCHOOL OF ECONOMICS & MANAGEMENT

MBQPM5 PHẠM VĂN THUẬN

IMPROVING QUALITY AND PERFORMANCE

BY TRANSFROMING FROM FUNCTIONAL

STRUCTURE TO PROCESS - BASED

STRUCTURE AT SERENCO COMPANY

MASTER FINAL PROJECT MASTER IN BUSINESS QUALITY AND PERFORMANCE MANAGEMENT

Tutor: Jacques Martin

Ho Chi Minh City (2016)

Statement of Authentication

I certified that this report is my own work and this work has not been presented elsewhere for assessment All materials and resources used in this report have been properly acknowledged and referred

Acknowledgements

I would like to thank Professor Jacques Martin and other professors form Solvay Program for providing me good knowledge and materials about quality and performance

I would like to thank my classmates for their helps during class time and during my doing the assignment

I would also like to thank my colleagues at Serenco for their support me in getting information and reports

Academic tutor and practical tutor’s comments

Table of Contents

INTRODUCTION 1 

1.  Company Overview 1 

2.  Challenges for STECH 4 

3.  Project objectives and scopes 4 

Chapter 1 ANALYSING THE CURRENT SITUATION OF STECH 6 

1.  The organization structure analysis 6 

2.  Process management analysis 9 

3.  Analysis the business results in quality and performance 10 

Chapter 2 – ORGANIZATION TYPES AND THE CHOICE OF STECH 13 

1.  Types of Organizational structure 13 

2.  The choice for STech 18 

3.  The roadmap for transforming from functional to process - based structure 19 

Chapter 3 – STRATEGY ANALYSIS, DEVELOPMENT AND PLANNING 20 

1.  Strategy Analysis 20 

2.  Strategy development 24 

2.1   Strategy statement 24 

2.2   The strategy map 25 

Strategy map comments 26 

3.  Planning 27 

Chapter 4 – DESIGN CORE PROCESSES 28 

1.  Develop core processes 28 

2.  Process flow chart 34 

Chapter 5 - RE-DESIGN THE ORGANISATIONAL STRUCTURE 37 

1.  Changing the organization structure 37 

2.  Change in roles and responsibilities 38 

3.  Aligning processes and organizational structure 39 

Chapter 6 – PROCESS IMPLEMENTATION PLAN 41 

1.  Implementation process 41 

2.  Development of process management tools 41 

Chapter 7 – MEASUREMENT & DASHBOARD 43 

1.  Performance management approach 43 

2.  Process measurement 44 

3.  Performance summary report 51 

CONCLUSIONS 52 

1.  The application and usefulness of the project 52 

2.  What are the next steps 52 

List of Abbreviations

ERP Enterprise Resource Planning

List of pictures

Figure 1: Current organization structure of Serenco   2 

Figure 2: New organization structure of STech   6 

Figure 3: Current process structure   9 

Figure 4: example of functional structure   13 

Figure 5: example of Divisional structure   14 

Figure 6: Example of matrix organization   16 

Figure 7: example of process-based organization   17 

Figure 8: Transition model for Serenco   19 

Figure 9 – Porter five forces model   23 

Figure 10: The strategy map of sTech   25 

Figure 11: General process mapping   32 

Figure 12 – Detail Process mapping   33 

Figure 13 - Sales process flow chart   34 

Figure 14 - Purchasing process flow chart   35 

Figure 15 - Customer support process flow chart   36 

Figure 16 - New organizational structure for sTech   37 

Figure 17 - Processes - based structure   39 

Figure 18 - Performance management approach   43 

Figure 19 - Process ID card for sales process   44 

Figure 20 - Process metric for sales process   45 

Figure 21 - Process ID card - Order fulfillment   46 

Figure 22 - Process metric for order fulfillment - on time delivery   47 

Figure 23 - Process metric for order fulfillment – Cost effective   48 

Figure 24 - Process ID card - Customer support   49 

Figure 25 - Process metric - Customer service process   50 

List of tables

Table 1: List of products and services   3 

Table 2: List of customer   4 

Table 3: Current management team   8 

Table 4: Financial report   11 

Table 5: On time delivery report   11 

Table 6 - Quaterly reports (Q1)   51 

From the year of 2014, to adapt to the tough market, the company top management had reorganized company structure and products The company has three main product categories which organized in three SBUs:

- SBank: The key business unit of Serenco which providing banking software

and services for local market

- sTech: Focuses on IT Infrastructure services such as network installation,

Surveillance system, Alarm system,

- sSoft: Focuses on providing software outsourcing service to foreign market

(US & Japan)

Each of the three SBUs have different products, different customer sectors and have its own strategy to develop

Serenco also have a Support Division to provide support services to all three SBUs, including:

- Accounting & financial service

- Administrative and human resource

- Planning and marketing

Serenco organization chart:

Figure 1: Current organization structure of Serenco 1.2 Overview of sTech

STECH is Business Division of Serenco, was founded in 2007 and mainly focused on IT trading and services The main services of STECH are designing and building IT infrastructure for its clients includes Networking, Surveillance system and Alarm system Almost 60% of its customers are banks, the rest are construction companies and small enterprises STECH has about 30 suppliers including manufacturers like IBM, Cisco, Av-gad, etc and local distributors like FPT Distribution, ADG, The annual revenue of STECH is about 40 billion VNĐ ( ~ 2 Million USD) and the Net Profit is about 5% of revenues (100.000 USD)

STECH Hartware & IT service

SUPPORT Marketing, sales support and Back office

Business main objectives:

- Delivery high quality service

- Increase customer satisfaction

- High profit (20% increase in profit every year)

Strategy

- Improving processes and management to provide excellence service to customers

Product and services

# Products & Service % of total revenues

1 Server, Network devices, Security devices… 20%

2 Computer, laptop, office machines… 30%

1 Networking design and installation 15%

2 Design & installation of Surveillance, Alarm

Table 2: List of customer

2 Challenges for STECH

Like other IT companies in Vietnam, STech is also facing big challenges in keeping the company survival and development The challenges for sTech are:

- Gross margin has gone downed in the past three years because of tough competition and high operation cost

- STech is still based on traditional products and services which have low valued added

- The business environment is changing very fast and it requires sTech to be more adaptable and flexible if it wants to survive

3 Project objectives and scopes

- Improving the company performance to help the company become profit again

3.2 Scopes of the project

Reengineering and transforming an organization structure is not an easy work

It needs a lot of time and resources to help the transformation success Therefore, in this project, we just focus on one SBU and on the first period of the transforming journey

- Redesign the business processes of STech for Hardware Trading and IT services

- Implement the new processes and organizational structure to sTech

- Develop measurement and performance reporting for monitoring sTech performance

Chapter 1 ANALYSING THE CURRENT SITUATION OF

STECH

1 The organization structure analysis

STech is organized in functional structure with three departments: Sales, Purchasing and Technical The support activities are located in Support division with three departments: Accounting, Administration & Human resource, Marketing & Planning The company structure supporting sTech business as below:

Figure 2: New organization structure of STech

EXECUTIVE BOARDS

Accounting Department Sales Department

Purchasing department Admin & HR Department

Technical Department Marketing & Planning

Each department is managed and controlled by a departmental manager and they report to director of sTech

List of management team:

# Position Responsibilities

I STech’s department

1 Sales manager - Responsible for sale revenue

- Customer development

- Manage and develop sale team

- Control sale process

- Review contract before submit to director to sign off

2 Purchasing manager - Manage all suppliers

- Responsible for purchasing process

- Responsible for inventory and delivery

- Supplier development

3 Technical Manager - Manage technical team

- Responsible for technical design and installation

- Technical support

II Support department

1 Chief Accountant - Manage account department

- Responsible for the correction of accounting booking

- Manage & control financial

- Manage receivable and payable

- Planning for training, resource development

3 Marketing & planning

Manager

- Develop marketing plan

- Implement marketing activities

- Planning and reporting for Serenco

Table 3: Current management team Comments:

By investigating the organization structure and management, we can see many issues in term of organization and management of sTech includes:

- The organization structure is organized in functional structure where its functions are grouped in department Each department is managed and controlled in by a department’s manager Departmental managers nearly have full power to their employees This structure had help sTech develop

at the first time, but now it becomes an obstacle for the development of sTech

- Some key functions of sTech (Marketing, financial…) are in Support division and not controlled by sTech’s Director It has caused many issues

in management and providing best service to customers

- Measurement and reporting are mainly based on department’s objectives and they are all aligned with the objectives of sTech

2 Process management analysis

Current state of processes management of sTech:

Figure 3: Current process structure

(Purchasing Manager)

Call for quotation

Select Suppliers

Make contract

Goods receive and stocking

Delivery to customers

Technical process

(Technical Manager)

Planning for install

Implementation

Acceptanc

e sign off

Technical support

Accounting process

(Chief Accountant)

Inventory Accounting

Payable accounting

Receivable accounting

Admin-HR process

(Sale Manager)

Administrti

on

HR process

marketing process

(Sale Manager)

Planning process

Marketing process

Excecutive Board

sTech Director Support Director

Comments:

- sTech’s business processes are separated in sub-processes that controlled

by different departments Department managers will be responsible for the quality and performance of their processes This situation has caused many issues because department managers have different objective and they don’t look forward to the final results when products or services delivered to customers

- There are huge barriers between department that prevent work flows and information flows between departments There are always a lot of arguments and problems between departments when information transfers from one department to another

3 Analysis the business results in quality and performance

During the last three years, sTech have been geeting poor result both in financial and service quality These results showed on the company reports:

3.1 Financial performance report in last 3 years

- The revenue keeps growing every year, but the growth is slowing down

- Although the revenue is increase, but the gross margin reduces, so the net profit goes down

3.2 On time delivery by product group

Years/Quarters Total

delivery

On time Delivery Percentage

Comments:

- The rate of on-time delivery has the same over the past three years despite

of the efforts of sTech’s management team in improving the processes

- The low rate in on time delivery of IT services has caused not only reduction the quality but also increasing the implementation cost especially cost for engineers

- Improving the on time delivery will improve the service quality and improve the business performance of sTech

Chapter 2 – ORGANIZATION TYPES AND THE CHOICE

OF STECH

1 Types of Organizational structure

The company structure has changed rapidly to adapt with the changing business environment There are five typical types of organization structure:

1.1 Functional structure

Functional organizational structures are the most common A structure of this type groups individuals by specific functions performed Common departments such as human resources, accounting and purchasing are organized by separating each of these areas and managing them independently of the others

Example of Functional structure:

Figure 4: example of functional structure

Advantages Disadvantages Works best when

- Reinforces

specialized skills and

resources

- Short-term focus on routine tasks

- Business perspectives

- Business environment

is stable and predictable

CEO

Marketing

Manager

Sales Manager

PurchasingManager

Technical Manager

Accounting Manager

- Organization is small and medium in size

- Quality is maintained through routine tasks

1.2 Divisional structure

Divisions are mini-companies built around particular products or regions A car company could have one division for SUVs, one for luxury cars, and another for economy vehicles, for example Each division contains all the functions necessary to handle business for that region or product line Because everyone in the division shares a common goal, such as boosting sales for their products, there's more cross-function cooperation The downside is that every division duplicates the same functions - sales, marketing and manufacturing - which is often wasteful

Figure 5: example of Divisional structure

CEO

Division

product X Product Y Division

Division Product Z

Advantages Disadvantages Works best when

- Key independencies

and resources within

the division are

coordinated toward an

overall outcome

- There is heavy duplication of resources, skills and

expertise as each division has its own functions

- The organization is very large in size

- Business environment is dynamic and always

in flux

- Multiple products and customer types exist

1.3 Matrix structure

The matrix structure is often overlaid on top of a company's functional

structure to tackle projects that involve multiple departments Project managers recruit staff for their teams from different departments so that all

the necessary functions work on it together This offers companies flexibility

and a better use of resources than a purely functional model The downside

is that authority and the chain of command become more confused, as team

members answer to both the project manager and their department supervisor

Figure 6: Example of matrix organization

Advantages Disadvantages Works best when

- Employees may face unclear roles and inconsistent job demands

- The organization is very large

- Business environment is uncertain and unpredictable

- High level of technological

interdependency across functions exist

- The goals is product specialization and innovation

1.4 Process-based structure

The process structure divides up the organization around processes, such as

research, manufacturing and sales Unlike a purely functional structure, a

process-based organization considers how the different processes relate to

each other and the customer The sales process doesn't begin until the

manufacturing process produces something to sell; manufacturing, in turn,

waits on research and development to create the product Process-based

structures are geared to satisfying the customer the end result of all the

processes but they only work if managers understand how the different

processes interact

Figure 7: example of process-based organization

Advantages Disadvantages Works best when

- Duplicates scare resources

- Command-control

- Business environment

is uncertain and changing

- Organization is moderate to large in size

- High oriented goals

customer Noncustomer routine and highly interdependent

workflow and technologies required

2 The choice for STech

sTech is currently facing many issues in business performance and it needs

to be restructured to solve all these issues This is because:

- Business environment is now changing very fast, so functional structure

become an obstacle for the

- Communication and collaboration are becoming key factors for improving

service quality

Beside, Top management have defined the strategy of sTech is improving

processes and management to provide excellent products and services To

make this strategy in action, sTech has to change the organization structure

and process-based structure is the best choice Some reasons for this

choice:

- Process-based structure will help sTech to adapt to the rapidly change and

uncertain business environment

- New structure will enable the trends to customer-oriented organization; this

is the key factor for quality improvement and gaining customer satisfaction

- Processes – based will help sTech to better use resources and reduce the

operation cost, hence increasing competition ability and getting better

business performance

3 The roadmap for transforming from functional to process - based structure

Transitioning an organization from functional structure to process-based structure is not easy The company has to choice the right approach and methodology to make the transitioning success

In the case of sTech, we use the transition model below:

Figure 8: Transition model for Serenco

In the following chapters, we will go in details all these 6 steps in the transforming process of sTech

Strategy Analysis

Identify core business processes

Transition organisational forms

Process Measurement & reporting

Development of process management tools

Chapter 3 – STRATEGY ANALYSIS, DEVELOPMENT AND

2 High wage rate Any changes in wage rate will directly affect

to the cost of products and services and then reduce the company profit

2 New trend in clouds

services

The development of cloud services has changed the demand for IT services The demands for Server installation and data center setup have reduced when customers move their data into cloud servers

SWOT Analysis

1) STech has very good

relationships with suppliers

2) STech’s employees are high

commitment and good working

attitude

3)

1) Government policy to encourage IT outsourcing will bring more chances to offer new services

2) Customers focus more on service quality than the personal relationship

3) The dramatically increase in the FDI sector giving more chances for sTech

1) The organization structure is in

old style and unable to adapting

to the market changes

2) There’re no strategic products

that could help the company to

struggle with unstable market

3) All employees are lack of soft skill

like English, presentation skill,

communication skill, etc…

1) Market becomes more difficult and customer cut-down budget

on IT

2) Poor performance of banking industry will lead to reduction in revenue and margin from this sector

3) Cloud services will replace traditional IT services and customers will not have to buy servers or develop their own data center