Innovating Business Processes for Profit: How to Run a Process Program for Business Leaders

Copyright © 2015 Richard G. Stoneham.

All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews.

Art Credit: Pippa Stoneham

Balboa Press

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Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

ISBN: 978-1-4525-2660-7 (sc)

ISBN: 978-1-4525-2661-4 (e)

Balboa Press rev. date: 05/01/2015

CONTENTS

Prologue

Chapter 1 - Strategic Considerations — Supporting the Business

What do we mean by ‘process’?

Strategic drivers

Why spend valuable time on processes?

Background concepts

Supporting management strategies

Achieving high performance

Chapter 2 - Managing the Process Program — Implementing the Strategy

Program management

Roles and responsibilities

Program cycle

Chapter 3 - Managing Projects — Planning and Delivering the Change

Project organisation

Project phases

Preparing the process project

Chapter 4 - Mapping the AS IS — Gaining Insight

Why not go straight to a new process?

Process vs procedure

Levels of analysis

The AS IS process

AS IS tools, templates and techniques

Chapter 5 - Process Innovation — Realising the Potential

Process innovation vs process improvement

Lessons from the BPR era

BPM in the 21st Century.

Roles and processes

Chapter 6 - Creating the TO BE process design — Innovating the Process

The TO BE team

Pitfalls to avoid

Critical success factors

Critical path and dwell time; constraint activities

TO BE design subprocess

Chapter 7 - Automating Processes — Using Technology to Advantage

Evolution of business process computer systems

Using BPMS

Pitfalls developing business process computer systems

Chapter 8 - SYSTEM design — Computerising the TO BE

Computerisation strategy

Rework TO BE to SYSTEM design

Develop Integration Strategy

Chapter 9 - Business Requirements — Detailing the Procedure, Specifying the System

Write procedure/business requirements document

Diagram process

Develop screen paints or prototypes

Present to executive groups

Process procedural design principles and techniques

Organisation and method

Additional Tools

Chapter 10 - Application Development — Building the System

System configuration

BPMS and the technical architecture

Testing

Stakeholder Reviews

Documentation

Chapter 11 - Managing Change — Changing How People Do the Work

Change Management

Organisational barriers to process innovation

Dealing with barriers — it’s about people

Inoculating barriers

Leadership of change

Chapter 12 - Process Organisation — Do We Need To Restructure?

Restructuring for processes

When to restructure

Process Roles

Chapter 13 - Implementation — Tight Discipline Needed

Implementation planning and pilot

Rollout

Chapter 14 - Costing, — How Process Analysis Enables Better Cost Management

Activity-Based Costing (ABC)

Activity-Based Management (ABM)

Lean Accounting

Throughput Cost Accounting (TCA), based on the Theory of Constraints (TOC)

Chapter 15 - Process Improvement — Continual Refinement

Chapter 16 - The Goal, the Benefit and the Risks

The goal

The benefit

The risks

Chapter 17 - The Future of Processes — Evolution or Revolution?

Penetration of BPMS

The Future

Chapter 18 - Next — What Are You Going To Do Now?

Appendix A - Portfolio Management

Appendix B - Project Outline

Appendix C - Project Terms of Reference

Appendix D - Process Profile

Appendix E - Process Definition

Appendix F - Subprocess Activity Template

Appendix G - Activity Profile

Glossary

References

PROLOGUE

Many years ago I project managed a ‘downsizing’ for the company I worked for. Over a hundred people found they had lost their jobs by the time the project was completed. How were these unfortunate people picked? Essentially, the senior managers met in a room and nominated those who would go, without proof they were the right people, without any form of analysis of their work. I do give credit to the experiential judgement which many senior managers exhibit, so perhaps the right people were picked, but the result of this exercise was that over the next year or so, contractors and new employees were brought in to fill resource gaps and other employees worked excessive hours—because the amount of work had not decreased.

By the end of the year I was convinced there had to be a better way for an organisation to determine the right resourcing for the work it had to do and it had to find better ways of doing the work so that fewer people were needed. If that were possible, we would have avoided employing supposedly too many people in the first place, and consequently, avoided the misery of downsizing. What was needed was a method of finding the best work methods and the right numbers of people with the right skills to undertake that work. And we had to be able to prove we had the right numbers to resist arbitrary cost-cutting exercises; although, such macho decisions will undoubtedly continue to be made in some cultures.

I carried on in senior management roles and learned much about what it meant to take responsibility for business goals, strategies and problems. I did ‘enterprise transformation’ work and discovered that processes were behind all work undertaken by any enterprise. That seems obvious, but typically, organisations did not actually think that way. At that time there were Quality Departments that defined these processes, but they were typically working at far too low a level to interest senior management and so were disconnected from strategic thinking.

I worked on major processes. The organisation I worked for was spending large amounts of money on bidding for large contracts and the number of wins was so low that the organisation was considering ways of reducing bid costs. What it really needed to do was avoid unsuccessful bids but it was in danger of reducing good bids as well. So we worked on the bid process and people got excited by what we did. The result was fewer bids and just as many wins, so we avoided spending a lot of money.

The key to this success was working at a high enough level that stakeholder business managers could identify with what was going on, and consequently produce really clever ideas for redefining the process. This was process innovation, not just improvement. And so I learned to differentiate between the business activity level, which business stakeholders could easily relate to, and the task or procedural level, which was really only of interest to the people who did specific tasks—and at the task level few people took an interest (or were encouraged to take an interest) in the whole process.

Process innovation is done at the activity level, further improvements are made later at the task level when procedures are defined but the benefits of process innovation—in terms of improved customer service and resource savings—are much more important than the benefits of the improvements.

I find today that few organisations understand this simple principle. The domination of information technology (IT) leads participants to focus on business requirements for the IT systems, and business requirements are necessarily written at the task level. And so the opportunity to innovate processes at the business activity level is often missed. Many will deny this, citing the different levels of process analysis, but my observation is that the time pressure on large IT system projects results in a rush to the business requirements stage and process innovation is, at best, sporadic and dependent upon the talents of skilled individuals.

Some senior leaders think processes are something to do with quality and need to be defined by operational managers and are therefore not of strategic importance. This is because they have not seen process work done above the task level. With generational change amongst business leaders they have come to realise business processes are strategically important, but they do not necessarily know how processes are best designed—they have to rely on others to manage this for them.

The IT industry recognised that business was looking for process solutions that would reduce resource costs, and over the last couple of decades has developed a new class of applications called Business Process Management Systems (BPMS) which deliver people-centric process automation and workflow management. Included in BPMS suites are tools for process analysis, but the previous point applies—although BPMS allow process analysis at multiple levels, the emphasis is on getting to business requirements at the task level, which form the instructions for the system configuration.

I believe there is a need for senior business leaders to understand how to own and lead process programs in order to deliver process innovation, which generates significant business benefits. This book is for those senior executives and aspirational managers in service organisations who need to lead successful process programs. It is an area of expertise that is a key driver for excellence in organisational management.

The phrase ‘for profit’ is used in the book title. This does not limit the relevance of the book to leaders in commercial organisations, the phrase ‘for organisational gain’ is equally applicable for government, educational and not-for-profit organisations. Indeed at the time of writing there is great focus on process work in such organisations, and the benefits for them are considerable.

There are some very erudite business process management books available in the market. However, they are intensive and more likely to be read by Business Process Management (BPM) professionals. The intent of this book is to provide a more accessible source for busy executives and managers who are interested in BPM, but only as one aspect of their responsibilities, and who need enough understanding to be able to own and manage BPM programs effectively. At the same time, there is practical guidance and templates in this book to enable managers to set up and run BPM projects within a BPM program.

I want to emphasise that whilst IT systems are often used to supposedly implement processes, what they really often do is implement tasks or functions, not end-to-end processes. Computer systems are not processes, they are merely the tools for implementing processes. Books about process design are often written from an IT viewpoint and I believe that is the wrong starting point. I don’t wish to denigrate or diminish IT, it is vitally important to the modern enterprise, but my concern is to ensure that the IT system implements the best processes for the organisation.

This book does discuss how business people should interact with IT people and Business Process Management Systems (BPMS), but it is not a book about technical IT work or the BPMS technologies as such. Having said that, I know that business analysts and IT leaders can learn much from this book about how their clients think, or perhaps should think.

The book is divided into eighteen chapters (see Index). Senior leaders can skip some chapters, leaving them to their project leaders. At the same time the book can be dipped into as necessary, however I encourage the reader to read the first two chapters before jumping into later chapters.

Richard Stoneham

November 2014

CHAPTER 1

Strategic Considerations — Supporting the Business

Business processes are the business; they are how an organisation delivers products or services to its customers. Without processes there is no basis for a commercial business or public service. A business leaders’ and managers’ job is to ensure processes are designed and implemented that enable the organisation to deliver the right product or service to the customer at the right level of quality and customer value in the most efficient and cost-effective manner. Products or services need differentiation and credibility in the market, customer experience and perception of value are crucial to an organisation’s reputation and survival.

What do we mean by ‘process’?

You may say, ‘We know what a process is’. But do you? The real meaning of ‘process’ is the end-to-end stream of activities¹ that finish with delivery of value to the customer and reach back across the organisation to encompass all activities that contribute to that outcome, without regard to functional boundaries. Yet most ‘processes’ in organisations are defined within a function.

Scientific management has taught us to optimise the function we manage. Our careers are built on functional excellence. But what is optimal for a function is not optimal for the organisation as a whole. Indeed, a lot of wasted resource and cost, frustration, and political infighting are caused by this paradigm. Processes, on the other hand, are based on the idea that we need to optimise for the whole organisation and all participants contribute to the value created for the customer.

What a process is

Here are two definitions of process from renowned management authors:

‘A process is simply a structured, measured set of activities designed to produce a specified output for a particular customer or market.’ i

‘Process: an organised group of related activities that together create a result of value to the customer.’ ii

‘A result of value’ is a crucial aspect of any process output. If an output is not one of value to a customer why is it being performed at all? This question is important in testing process designs.

In this book ‘process’ means an end-to-end group of business activities that produces outputs of value to the customer. However, it can also mean activities producing outputs of value to the organisation in supporting and managing outputs of value to its customers; these are secondary, or support, processes. Note that it does not matter where in the organisation a process starts or ends, functional boundaries are not inhibitors to workflow

What a process is not

People talk about ‘process’ all the time, but are often referring to sub-processes or activities; that is, the parts of processes. In the process management context it is important to use ‘process’ in the broader sense so that the right result is achieved.

Processes do not include procedural detail. We will consider tasks² when we come to business requirements but before then we will only be describing business processes as comprising activities.

A process does not define job responsibilities, only how an individual or group contributes to the process outcome by completing activities. Job descriptions tend to talk about tasks, role descriptions about activities. The words are often treated as synonymous, but they are different.

What a process does

A process is a guide; it lends clarity to who does what, why, and in what order, but it does not specify how. It enables people involved in the process to understand their contribution to the customer outcome and how value is added, and accordingly, is about collaboration rather than the ‘pass the parcel’ behaviour common in functionally structured organisations.

Strategic drivers

Processes have been worked on for many years, particularly in the manufacturing sector, but in the modern service economy they have re-emerged as critical because of long-term strategic drivers, some of which are:

The rise of individuality in modern, middle-class, educated populations means services need to be tailored to the individual.

Customisation has superseded mass production or standard services, or rather modified them, for competitive advantage or the credibility of public organisations. Customisation means there are options and decisions as the process progresses. Commonly these are solved by human logic. However, as processes become more complicated and as different people may deal with options and decisions, inconsistencies creep in. Processes enable customisation with consistency.

Information explosion has led to a demand for flexibility of product or service. More and more information builds up in modern organisations. Information technology both supports this and causes this build-up. Processes are good at sorting which information is relevant for each activity.

Need for speed necessitates decision making on the spot, that is, immediate local decision making vs central decision making. This generates the need for guidelines to ensure decisions are made according to policy and strategy. This is a governance issue, if processes are not clear, the front-line people will not wait for a decision but will act as they see fit. To make the right decision they need to be adequately informed by the process, otherwise outcomes may be incorrect.

Improving quality is a means of promoting brand or reputation, which enables premium pricing or improved funding, which leads to growth in profit or political importance. Processes are essential to quality improvement.

Cost pressures arise due to increasing competition, or just keeping up with competition. Processes help reduce costs by removing the need for supervision; reducing rework and corrective actions; using the quickest method; enabling fast track options for some instances; simplifying by removing over-engineering; improving information flow; and perhaps other reasons.

Globalisation of markets with the internet, ecommerce and sophisticated information systems has resulted in increased competition, and opportunities. Organisations have to be better at what they do or they do not survive. Process is one critical way of getting better at what they do.

Rapid change with shorter and shorter product or service life cycles mean adaptability has to be built into systems and methods. Processes can easily be adapted at the activity level. There is more work at the task level but clarity at the activity level ensures this work is minimised.

Need for confidence in governance. Boards and executive teams need to be assured that governance systems are adequate and effective. Processes are a key instrument of governance as they provide guidelines and boundaries within which people do their work.

Complexity has resulted in central planning and control no longer working. Organisations are still trying out different organisational models but those that enable local decision making with central leadership and policy-making