Modeling Knowledge-Based Processes (The Sequel)

Author: Cherie Wilkins

In our last blog, PDL partner Rick Rummler put forth our view that processes that are primarily performed by knowledge workers can be effectively modeled and that we take umbrage with those who claim that this is not possible and not useful. Rick used the relatively simple meal planning process to illustrate his points. In this blog I thought I would regale you with my experiences at an investment banking client as a way of further proving our point that the mapping of these processes is both possible and valuable. 

The bank was very successful, but needing to grow and expand into other regions. The CEO wanted a model that was scale-able and manageable. After our initial assessment, we focused first on a redesign of the Customer Acquisition and Relationship Management process. This improvement project was staffed with the executive team as a way of indoctrinating them to “process thinking.” A high percentage of this process was knowledge work. We created a cross-functional map of the process. After 2 weeks of analysis and should design, the team was able to implement several improvements addressing capacity and client satisfaction.

The heads of both the Equity and Fixed Income investment groups participated as a part of the design team. While they were quite enthusiastic about the experience and improvements, they had a very different reaction when I approached them about mapping the Securities Selection processes.

“We pick stocks. That is not a process, it is an art. It can’t be mapped. Besides, our performance is very good and we don’t need to improve it.”

I ask for them to indulge me in trying to map the process of Equity selection. Then we would review the results and see if it brought them any insight. Allow me to recreate a bit of what I did:

CLW: “So what is the end result of the Equity Selection process?”

Equity Director (ED): “We know what stocks we will put in our client’s portfolios.”

CLW: “The sets of stocks that you will put in client portfolios – what do you call them?”

ED: “The model portfolio.”

CLW: “Okay, where does the process begin? What do you start with?”

ED: “The entire known universe of equities.”

CLW: “And getting from the universe to the model portfolio is all art? No science?”

ED: “Well, there are algorithms that we use for screening.”

CLW: “The analysts apply these algorithms?”

ED: “No we use a system. The database manager runs the screens against our criteria and algorithm.”

CLW: “And what is the result of that screen?

ED: “Candidates for the analysts to research.”

CLW: “So we go from the known universe to a candidate list? That sounds like a significant milestone on the way to creating the model portfolio.”

ED: “I suppose it is.”

CLW: “Could you measure the performance of the candidate list over time and get insight into the changes you make to criteria and the algorithms?” Would that be interesting to know?

ED: “Absolutely.”

CLW: “Once the analysts do their research, do they then recommend the stocks for the model portfolio?”

ED: “Yes, but I make the final selections and they don’t all get into the model.”

CLW: “Do you have a name for their recommendations?”

ED: “All of their recommendations are our Emphasis List.”

CLW: “Hmm, sounds like another good milestone. Are there any lists between that and the candidate list?”

ED: “Well the analysts each have a follow list, a smaller subset of the candidates which they are following and pulling data on.”

CLW: “So it sounds like we have a sub-process that gets us from the universe to the candidate list, another sub-process that gets us from candidates to a follow list, the next sub process that gets us from the follow list to the emphasis list, and finally a sub-process that takes us from emphasis to model portfolio. Yes?”

ED: “Yes – that is a good way to look at it, but what happens in those “sub-processes” as you called them is mostly art.”

CLW: “Possibly, but can I go spend some time with a few analysts and the database manager?”

ED: “Sure, I’ll set that up.”

A couple of weeks later, we had ourselves a 42 step process map. We also had documented criteria for screening, standards for research, 2 new templates that were to be implemented (one for a detailed research report and one for communicating the model portfolio), and (trumpets sounding) a set of metrics that gave insight into all the decisions and choices that are made along the way from the universe of equities to the model portfolio – allowing for learning, management and improvement.

The director admitted that he would never have believed that this could be done and that he was pleased with the improvements.  Click here to view the final high level view of the process that we mapped.

So, in the case of both the Client Acquisition and Relationship Management process and the Equities Selection process, knowledge work was able to be modeled, improved and made more transparent to managers. Hence, my umbrage with the contrarians in the field!