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Business process change

Business process change is often a major element of developing and/or implementing a new strategy.

Every organisation wants to improve the way it does business in order to produce things more efficiently and/or to
make greater profits. A change to a business process might lead to a competitive advantage or remove existing
competitive disadvantages by either reducing costs or differentiating the business.

For example, if a bank can reduce its mortgage approval period from 10 days to 1 day, then this could allow the
mortgage activity to stand out from rivals. In order to achieve this change the bank will have to redesign the approval
process (for example, by changing job roles, using more efficient IT systems etc.).

What is a business process?


At its most generic, a business process is any set of activities performed by a business that is initiated by an event,
transforms information, materials or business commitments, and produces an output.

Value chains and large-scale business processes produce outputs that are valued by external customers.

Other processes generate outputs that are valued by 'internal' customers and other users.

Processes typically:

have customers, internal and external

are independent of formal organisational structure

may cross organisational boundaries

should be linked to strategic objectives

exist in a hierarchy.

Organisations rely on a range of core and support processes to create value for their customers.

Every business has unique characteristics embedded in its core processes that help it achieve its goals and
create competitive advantage.

Strategic business processes, such as new product design or high-sensitivity customer care, provide unique
and durable business advantages to organisations.

Those processes that depend on people's intelligence, experience, knowledge, judgement and creativity are
the hardest for rivals to duplicate

Historical initiatives
Process change has been a driver of strategic developments for a very long time. Initiatives have included the
following:

1903 - Henry Ford


developed a new manufacturing process for cars and so revolutionised the industry.

1911 - Frederick Taylor published his work on 'scientific management'

Stressed how processes could be analysed scientifically to determine the best way of performing them and
the optimal type of employee for the job.

He was the forerunner of operational research, work analysis and time-and-motion studies.

1980s - Systems theory

Systems theory encouraged managers to see how each part of the organisation is connected to other parts,
to look at inputs and outputs and to consider linkages within the bigger picture.

1985 - Porter's value chain

Porter's value chain is discussed in detail here. Key ideas relevant to this discussion are as follows.

All activities are seen as being capable of adding value.

All activities involved with production and all support activities are shown on a single value chain. This
ensures that 'big picture' issues such as consistency are considered.

Activities are emphasised rather than departments. This results in a greater focus on activity based costing
and budgeting techniques, for example.

Linkages between activities are stressed.

1990 - Business Process Reengineering (BPR)

BPR is 'fundamental rethinking and radical redesign of business process to achieve dramatic improvements in
contemporary measures such as cost, quality and speed'.

Key features:

Managers must consider the bigger picture and how processes affect each other (e.g. a more complex
system of management reporting might slow down production).

Individual processes should be viewed as being integrated into a dozen or so major processes (e.g. a single
process might start with the initial order, go through production and product delivery and finish with after-
sales customer service).

IT should be seen as a major tool to improve/streamline/integrate processes.

Greater customer-focus.

A major problem was the difficulty in integrating IT systems with corporate processes resulting in some major failures
to implement schemes. Add to this employee distrust that BPR simply meant staff cuts it was no surprise that the
term fell into disuse during the late 1990s.

Mid 1990s - Software-based initiatives


Workflow systems software was originally concerned with automating and controlling the flow of electronic
documents.

Enterprise resource planning (ERP) systems developed this idea into representing a wide range of activities
as linked modules on diagrams. To some degree, by changing the diagrams managers could control
information flow and employee behaviour. These were used with most success in managing accounting,
inventory and human resource processes.

Both workflow systems and ERP approaches had a heavy emphasis on using IT to improve existing
processes rather than making radical changes.

The capability maturity model (CMM) was developed to show the different levels at which organisations use
IT to develop processes. Level 5 is the ultimate aim where processes are continuously improved in a
systematic way.

Mid 1990s - The Rummler-Brache Methodology

Rummler and Brache produced a framework that showed how different aspects of process development related to
each other.

They defined three levels of performance (organisational, process and job or performer level) and three
perspectives (goals and measures, design and implementation, management).

The CMM model showed how organisations evolve towards maturity and the Rummler-Brache framework
showed nine areas that need to be mastered/considered.

Quality based approaches

Quality initiatives and process development overlap in many aspects, including the following.

ISO9000 - the 2000 version stresses the role of quality processes rather than simply the production of
documentation to win accreditation.

Six sigma approaches stress how the success of processes can be measured by focusing on customer
satisfaction.

The link between business process change and strategy


If we consider a top-down approach to strategic planning, then the goals and measures are laid out by the senior
managers as the organisation's strategy.

Each department or group is assigned only a portion of the corporate goals.

As the goals are delegated they become narrower and the measures associated with them become more
specific.

From the value chain a process is divided into sub processes and sub-sub processes and eventually into specific
activities.

Ideally, one or more measures for each activity are established.

The measurements determine if the process is working.


When we analyse a process or redesign a process we ask:

what the activity is contributing to the overall sub process or value chain to which it belongs?

how can we determine whether the activity is actually achieving its purpose?

Looking at the business in terms of activities and processes opens up scope for challenging the ways in which things
are done, and coming up with improvements, or sometimes more radical changes. The approach is often termed
business process improvement or re-engineering, the latter referring to more radical rethinking. The term 'Business
process redesign' is sometimes used as well. The range of opportunities includes the following:

if a process is relatively stable and the goal is to make incremental improvements, then the term 'process
improvement' is used.

at the other extreme if a major (core) process needs radical redesigning, then the term 'process re-
engineering' is used.

the term 'process redesign' is used for any processes that fall between these two extremes.

Processes should contribute to the overall strategy of an organisation and the individual process goals should align
with the strategic goals. For example, if the overall goal of the organisation is to become a quality leader in its
respective market, process goals such as 'shortest execution time' may lead to counter-productive behaviour by
process participants who receive incentives for finishing work fast - even if it does not meet the highest quality
standards.

Alternatively, the investigation and potential re-design of the way processes take place within an organisation
supports the lenses that Johnson, Scholes and Whittington termed, respectively, experience and ideas. An
investigation of current processes might suggest that process goals and measures may not be aligned with strategy.
This may be because the processes have diverged from their original specification or it maybe because the strategy
is not operationally feasible and the people undertaking the processes to implement it know this. Consequently,
processes are often modified by employees and managers to make them workable and eventually, strategy is
modified to accept this.

The re-design of processes may lead to incremental changes or it may lead to a significant strategic shift.
Opportunities discovered while focusing on specific processes may have very significant repercussions for strategy.
Harmon's process-strategy matrix
According to Paul Harmon a process-strategy matrix is a matrix formed by an estimate of:

the strategic importance of a process on the horizontal axis

the process complexity and dynamics on the vertical axis.

This matrix can be used to determined how to manage individual processes.

Assuming that 'low' is positioned at the bottom left corner:

processes that fall in the lower-left are of little complexity, do not change very often and do not have much
strategic importance. They should be automated if possible and given the minimum resources necessary for
efficient functioning

processes that lie at the upper-right are complex, dynamic and of high strategic importance. These are
usually the processes that provide the organisation with its competitive advantage and should be nurtured
accordingly.

The commoditisation of business processes and outsourcing


While there is an ongoing trend towards outsourcing in many areas, most organisations view processes as an in-
house activity.

This has been for a number of reasons.


There is a perceived lack of comparability between the firm's processes and the competences of outside
suppliers.

A lack of standardisation of processes making it difficult to assess whether the process will be improved by
outsourcing.

The high perceived costs of outsourcing compared to the difficult to assess benefits.

However, there is a trend towards increasing business process outsourcing (BPO)

Advantages and disadvantages of BPO

Claimed advantages of BPO include:

Cost savings (currently the main decision-making factor).

Improved customer care.

Allows management to focus on core activities.

Problems seen to date include:

problems finding a single supplier for complex processes, resulting in fragmentation

firms are unwilling to outsource whole processes due to the strategic significance or security implications of
certain elements

inflexible contracts and other problems managing suppliers

problems measuring performance

data security.

One solution is that some firms have set up shared off-shore captive service centres (off-shore in-house rather than
off-shore outsourced).

In deciding whether to outsource, the following key questions need to be addressed:

(1)What is the desired benefit of outsourcing?

Cost savings

To focus on the core business

To match industry best practice

To improve service levels.

(2)Which processes should be outsourced?

Repetitive, transaction-intensive processes are usually the best choices.


(3)How well is the process currently performed?

Outsourcing a process that currently exceeds competitor benchmarks would be unwise.

Note: the "usual" pros/cons of outsourcing discussed under corporate strategy - cost, quality, control, risk - still apply
here.

Improving the processes of an organisation


Process redesign, often called Business Process Re-engineering (BPR), Business Process Management (BPM) or
Business Process Improvement (BPI) takes a 'clean sheet' approach to the process, which is usually either broken, or
so slow that it is no longer competitive in delivering the company's value to its customer.

Business process redesign methodology

Harmon recommends a five-stage generic business process redesign methodology:

Major redesign projects are usually managed by a steering committee and undertaken by a team that represents all
the functional managers involved in the change.
Evaluating the effectiveness of an existing process

Diagrams are particularly useful to see who is responsible for what and it is also easy to start identifying potential
inefficiencies and potential areas of improvement.

Are there any gaps or steps missing?

Is there duplication?

Are there overlaps, where several people or teams perform the same task or activity?

Are there activities that add no value?


Process redesign solutions

Once the potential areas for improvement have been identified, the next step is to decide how to address the issues
and make changes.

Diagrams can also be used at this stage to map out the proposed process changes.

As with any proposed changes in the organisation, the pros and cons need to be analysed, and any
changes that follow must be carefully planned.

Range of process redesign patterns

A process redesign pattern is an approach or solution that has often worked in the past. There are several patterns
that have proved popular in redesign efforts. For example:

Re-engineering - start with a clean sheet of paper and question all assumptions.

Value-added analysis - try to eliminate all non-value-adding activities. Porter's value chain model covered
in chapter 3 may be particularly useful here.

Simplification - try to simplify the flow of the process, eliminating duplication and redundancy.

Gaps and disconnects - a process redesign pattern that focuses on checking the hand offs between
departments and functional groups in order to assure that flows across departmental lines are smooth and
effective.

These options can be summarised in the following diagram.

Towards the left side, the kinds of problems companies face are outlined.

In the middle, we show a continuum that ranges from Process Improvement to Clean Sheet Design.
On the right, the ten popular patterns and interventions are shown, roughly aligned to the types of problems
they are most commonly used to solve.

Establishing redesign options

An analysis of the range of problems companies face is important since it reminds us that different types of problems
call for different types of interventions.

The first key distinction is the distinction between changing existing processes and creating completely new
processes.

A second distinction is the distinction between doing a major redesign of an existing process and simply
improving an existing process.

We can improve a process in a number of ways. We can look at it in terms of:

the process and ask whether we need some steps at all - or whether we can skip them or shortcut them

where value is added and where the activities involved are wasteful, e.g. any activity that involves storage or
waiting in a queue is essentially adding no value and is a target for elimination

where we might be able to combine or integrate activities, e.g. replacing a machine and a handling operation
with one that does both

starting with a blank sheet of paper and redesigning a way of converting inputs into outputs. This might be
relatively simple, e.g. in the paper processing in banking or insurance there may be considerable scope for
redesigning and simplifying the route that things take, making sure it is more direct and does not have
unnecessary repetition.

This analysis usually results in a number of possible redesign alternatives. In a similar manner to strategy evaluation
covered here (suitability, feasibility, acceptability), these redesign options need to be evaluated. Options are likely to
have varying degrees of feasibility due to such factors as money, culture, effect of change,etc.

Process measures

When new processes are implemented a good management system is the key to ensuring that the new process is
actually implemented effectively. The management of process activities is concerned with:

setting goals

assigning tasks

monitoring results

improving processes

taking corrective action as needed.

Generic software solutions and business process redesign


Competitive advantage
Firms seek to redesign processes to increase their competitive edge. By using generic software packages they may
be able to match the best practice of competitors who also use the software, but are less likely to outperform them.

Note: that there is a tension in the academic texts between those who believe that software packages define best
practise (e.g. Davenport) and others (e.g. Harmon) who feel they represent average practise.

ERP-driven redesign

As opposed to the BPR approach explained above, the ERP (Enterprise Resource Planning) - driven approach to
software solutions occur in reverse order. In effect, businesses start with the solution and then modify processes.

SAP, the main ERP vendor, provides comprehensive business maps (or 'process architectures') for different
industries offering a wide range of modules covering the processes involved in that industry. For example, the
insurance business map includes modules for claims notification, claims handling, claims accounting, etc.

Clients can choose the modules they require and then specify how they wish to link them together and how they wish
to control them. The ERP vendor will provide the underlying workflow engine that passes control from one process to
the next.

It is still possible to follow traditional redesign efforts (for example, by applying Harmon's 5 step process), but,
generally, companies tend to accommodate the way that they work around the application rather than the other way
around.

It can be argued therefore that this approach may be more appropriate to processes that are not complex. When
processes are complex, a fundamental redesign process should be used.