IST Information and Organizations Paper 8 to 10 pages
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business_process_overview.pptx1
Introduction To Business Process Design
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Overview
What is a business process?
Three definitions
Process types and hierarchies
Components of process architectures
The essence of Business Process Design (BPD)
Why is BPD important?
BPD and overall business performance
BPD and strategy
Why do inefficient processes exist?
Activity classification and BPD
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What is a Business Process?
A pragmatic definition
A Business Process describes how something is done in
an organization
In general terms…
Business - Organizational entity that deploys resources to provide customers with desired products and services
Process (Merriam-Webster’s Dictionary)
(i) A natural phenomenon marked by gradual changes that
lead to a particular result
(ii) A natural continuing activity or function
(iii) A series of actions and operations conducing to an end
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What is a Business Process?
2. Traditional Process definition in OM literature
A process specifies the transformation of inputs to outputs
Different types of transformations
Physical (Ex. raw material finished product)
Locational (Ex. flying from Denver to L.A.)
Transactional (Ex. depositing money in a bank)
Informational (Ex. accounting data financial statement)
The transformation model of a process
Inputs
Outputs
Process
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What is a Business Process?
The Process View
Any organization entity or business can be characterized as a process or a network of processes
Based on the simple transformation model of a process
Has its origin in the areas of manufacturing and quality
The transformation model of a process
Inputs
Outputs
Process
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What is a Business Process?
A more comprehensive process definition
A business process is a network of connected activities and buffers with well defined boundaries and precedence relationships, which utilize resources to transform inputs into outputs with the purpose of satisfying customer requirements
Process
Customers
Suppliers
Resources
Inputs
Outputs
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Process Types and Hierarchies
Individual processes
Carried out by a single individual
2. Vertical or Functional processes
Contained within one functional unit or department
3. Horizontal or Cross Functional processes
Spans several functional units, departments or companies
Make up
Make up
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Marketing
Operations
Accounting
CEO
Order Request
Order Fulfilled
Production planning
Vertical process
Horizontal process
Individual process
Buying a TV commercial
Illustration: Process Types and Hierarchies
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Process Types and Hierarchies
Core cross-functional processes often have highest improvement potential
Core processes – essential for meeting market place demand through a specific strategy
Especially high improvement potential if a significant amount of non-manufacturing/service related activities
Reasons
Difficult to coordinate
Have not kept up with improvements in manufacturing
Difficult to detect waste and inefficiencies
Often as little as 5% of the time considered adding customer value
Customers more likely to abandon business because of “poor” service than “poor” products
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Components of the Process Architecture
Inputs and Outputs
Flow units
Information structure
Resources
The network of activities and buffers
Process
Architecture
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Components of the Process Architecture
Inputs and Outputs
Establish interaction between the process and its environment
Identify the process boundaries easy to identify the Input consumed from the environment in order to produce the desired Output
Process inputs and outputs can be
Tangible (Ex. raw material, cash, products, customers)
Intangible (Ex. Information, time, energy, services)
Flow units
A flow unit is a transient entity or a job that proceeds through the network of activities and buffers and exits the process as a finished output
Typically, the identity of a flow unit changes across the process
Examples of common flow units: materials, orders, files, documents, customers, products, cash, transactions…
Flow rate – The number of jobs flowing through the process per time unit
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Components of the Process Architecture
The network of activities and buffers
The work performed on a job moving through a process can be divided into an ordered sequence of activities
The buffers represent storage or waiting points where the job waits before moving to the next activity (queues, waiting rooms, etc.)
Different types of jobs different paths through the network
Defining activities is crucial in process analysis
Tradeoff between process and activity complexity
Process Complexity
Individual Activity Complexity
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Components of the Process Architecture
Resources
Tangible assets utilized to perform activities in a process
Can be divided into:
Capital assets – real estate, machinery, equipment, IT systems…
Labor – people and their knowledge and skills
Resources are utilized while inputs are consumed
Information structure
Specifies the information required for making decisions and performing activities in a process
Limited information availability is a common cause for process inefficiencies
Information enables coordination!
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Workflow Management Systems
Management of administrative processes in the field of Information Systems is often referred to as workflow management
Workflow management systems
Control actions taken on documents moving through a business process
Workflow management software/systems are used to control who does what to a specific document
Using our comprehensive process definition
Process = Workflow
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The Essence of Business Process Design
An efficient process which does not deliver customer value is useless
“How to do things in an efficient and effective way”
A well designed process does the right things, right!
More formally…
BPD is concerned with configuring the process architecture to satisfy customer desires in an efficient way
Customers can be both internal and external
Internal customer requirements must be aligned with the desires of the external customers in the business strategy
We make a clear distinction between process design and implementation
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The Essence of Business Process Design
BPD often most valuable when considering complex cross functional processes
Challenging coordination issues
Process inefficiencies often related to handing off work from one station or person to the next – introduces delays and errors
The functional organization and division of labor paradigm dates back to Adam Smith and the late 1700’s
Division of labor rationale: by focusing on fewer tasks
Workers’ skill level goes up work faster
No time lost when workers switch between tasks
Workers well positioned to help develop better techniques and tools
Drawback: more complex coordination issues when
More complex products and services
Customers demand more variety
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Incremental Improvement vs. Process Design
Subtle difference – both approaches concerned with how to do things better
Complement each other
Incremental process improvement: (continuous improvement)
Change that brings a process closer to its normal operating standards
Does not question the fundamental assumptions and rules that define the current process design
Deductive approach
Business Process Design
Creative in its nature
Questions existing assumptions and rules
Requires new perspectives to generate innovative solutions with potential for breakthrough improvements
Inductive approach
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Improvement
Time
Incremental
Improvement
Radical
Improvement
Theoretical
Capability
Statistical
Process
Control
Incremental vs. Radical Design Improvement
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Example 1 – Claims Handling in a Large Insurance Company
Pilot project – claims handling for replacement of automobile glass
Springboard for later, more ambitious redesign efforts
Set up procedure
The CEO appoints an executive sponsor to lead the project
Team members are handpicked by the CEO and the sponsor
The team creates a flowchart of the existing process
Under the existing process the client may have to wait 1-2 weeks before being able to replace the damaged auto glass
Goal – A radical overhaul and improvement of the process to shorten the client waiting time
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Example 1
Flowchart of the existing claims process
Client
Local
independent
agent
Approved
glass
vendor
Claims
processing
center
Request additional information
Pay
Notify agent
File claim
Give instructions
Forward
claim
Request quote
Provide quote
Pay
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Example 1
Benefits with the new redesigned process
The client can have the glass replaced within 24 hours
As opposed to 10 days
The client has less work to do
Only one phone call, no need for a cost estimate
Problems are handled immediately when the claim is filed
Problems with lost or mishandled claims virtually disappear
Fewer people are involved in the process lower op. costs
Long term relationships with glass vendors
Savings of 30-40% on paid claims due to special discounts
Consolidated monthly payments lower handling costs
More consistent and reliable service
Claims representative feels ownership of the process
Does a better job
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Linking BPD to overall Business Performance
Overall business performance?
Detailed definition is company specific
Generally, performance must be measured against the stated objectives
Maximize revenues and
minimize costs
Must use resources efficiently while
understanding customer needs
Satisfying customer needs in an efficient way
Profit maximizing firms
Non-profit organizations
Overarching objective is usually to
maximize long term shareholder value
A common objective is survival and
growth while satisfying customer needs
Well designed business processes
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Linking BPD to Strategy
Strategy
A unifying theme that helps align decisions made in an organization
Guides a business towards its stated goals
Two strategy levels
Corporate strategy – Which industry should the business be in?
Business strategy – How should we compete in a given industry?
Intensified competition in all industries a prerequisite for success is to be highly competitive, i.e. to have an effective business strategy
True also for many non-profit organizations that compete for funds
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Linking BPD to Strategy
An effective business strategy is based on understanding the organization’s
Internal environment – its strengths and weaknesses
External environment – the opportunities and threats
Links between BPD and the internal environment
Weaknesses – often relate to poorly designed processes
Strengths – often relate to well designed processes
Links between BPD and the external environment
Prerequisite for designing effective processes is to understand the external environment (suppliers, customers and competitors) and its opportunities and threats
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Linking BPD to Strategy
Strategic fit
Match between the strategic position the firm wants to occupy in the external market and the internal capabilities to get there
Effective BPD is needed to achieve this fit
Market driven strategy to achieve strategic fit
Identify desired strategic position
Design processes to support this position
Flexibility, adaptability
Time to market considerations
Process driven strategy to achieve strategic fit
Identify process capabilities offering a competitive advantage
Leverage these capabilities to reach a desirable strategic position
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They are usually not designed - They just emerge
Circumstances and the process environment change and processes are incrementally adapted, but often without careful analysis of the overall effects
Examples: see Laguna & Marklund Section 1.4
Why are Inefficient Processes Designed?
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Activity Classification and BPD
A key issue in process design and analysis is classification of the process activities
Crucial in identifying waste and inefficiencies in existing processes
Two basic classification approaches:
Activity
Value-Adding
Non-Value Adding
Handoff
Delay
Rework
Control
Policy compliance
Activity
Value-Adding
Non-Value Adding
Handoff
Delay
Rework
Business Value Adding
Control
Policy compliance
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Value adding activities
Essential in order to meet customer expectations
Activities the customer would be willing to pay for
Involves doing the right things right
Performing the right activities
Doing them correctly, with high efficiency
Business value adding activities
Control activities
Do not directly add customer value but are essential to conducting business
Non-value adding activities
Activities the customer is not willing to pay for
Activity Classification and BPD
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Elimination of non-value adding activities is a key first step in redesigning business processes
Often achieved through task or activity consolidation
Task and activity consolidation reduces
Hand-offs
Need for control activities
Process complexity
Activity Classification and BPD
