Best Practices
in the Governance of
Business Process Management
Paul Harmon
Executive Editor
Business Process Trends
© 2005, Business Process Trends
www.bptrends.com
1
The Gradual Revolution in Management Thinking
• In the aftermath of the Industrial Revolution managers followed
Adam Smith, Henry Ford, and Frederick Taylor subdivided tasks to
achieve productivity
• In the Seventies computers were used to reinforce departmental or
functional specialization
• Starting in the Eighties, with Michael Porter, Edwards Deming, and
Geary Rummler, the tide began to reverse and managers began to
think in terms of value chains and processes
• In the Nineties IT gurus joined in with Business Process
Reengineering, Workflow, and, more recently BPM Systems and
executives like Jack Welch promoted Six Sigma
• Today we are witnessing a shift from management based on
departments to management based on processes. For most
companies its just begun, but its steadily gaining traction
© 2005, Business Process Trends
www.bptrends.com
2
Process Integration in Nineties
Executive
Management
Strategy
Committee
Sales
Department
Horizonally Integrated Business Process
That Delivers A Specfic Product to a Targeted Group of
Customers
© 2005, Business Process Trends
www.bptrends.com
3
Today: Horizontal & Vertical Alignment
Executive
Management
Strategy
Committee
Sales
Department
Horizonally Integrated
Processes
From Suppliers to Customers
Vertically
Integrated
Measures,
Managers, and
Resources
Employees & IT Applications and
Infrastructure
© 2005, Business Process Trends
www.bptrends.com
4
An Aside: Processes Come in Different Sizes
Value Chain
Architecture
SCOR Framework
Business Process
Process Redesign Projects
Business Rule Projects
Six Sigma Projects
IT Automation Projects
SAP Process Models
Business Process
Process
Process
Process
Sub-Process
Sub-Process
Sub-Process
Sub-Sub-Process
Sub-Sub-Process
Activity
© 2005, Business Process Trends
Business Process
www.bptrends.com
Activity
5
A Second Aside: Process Change Efforts Vary
Process Change Patterns
New
Process
Clean Sheet
Design
- Conceptualize Process from Scratch
- Use BP Framework
- Develop Process Measurement System
Process
Needs Major
Redesign
Process
- Redesign Process Management System
Process
Redesign
Existing
Process
- Analyze Gaps in Value Chain
- Redesign Job/Incentives; Improve Training
- Automate Activities
- Reduce Time in or Between Activities
Process
Process
Needs
Improvement
Improvement
© 2005, Business Process Trends
- Eliminate Non-Value Adding Activities
- Eliminate Defects
www.bptrends.com
6
A Third Aside: The Two Major BPM Audiences
• Business Managers and Six Sigma Practitioners
–
–
–
–
–
Architectures – SCOR
Six Sigma Programs
CMM
Process Modeling Tools
Redesign Methodologies
• IT Managers and Systems Practitioners
–
–
–
–
ERP Systems
BPM Systems
BAM Systems
Software Development Methodologies
© 2005, Business Process Trends
www.bptrends.com
7
Some Management Concerns
Strategy
Level
Plans
& Goals
Business Process
Level
Value Chain
Process
Management and
Measurement
Implementation
Level
Senior Management
- Better Overview of What's Happening
- Better Way to Plan for Change
- Better Way to Assign Responsibilities
Specific Process
Process Performed
by Employees
Middle Management (Including IT Mangers)
- Better Overview of What's Happening
- Better Way to Plan for Change
- Clearer Priorities
- Better Way to Assign Responsibilities
Process Automated
by IT Systems
Supervisors and Change Specialists
- Clearer Priorities
- Better Understanding of Task
- Better Way of Measuring Results
Physical Plant and Hardware Used.
© 2005, Business Process Trends
www.bptrends.com
8
Process Management and Organization Management
•
•
•
BPM as a Management Philosophy
– Senior Executives
– KPIs
BPM as a Way of Organizing the Company
– Middle Managers
– Reporting Relationships
– BPM Architecture and Dashboards
The Management of Specific Processes
– Supervisors
– Improving Specific Processes
– Managing the Employees Executing the Processes
© 2005, Business Process Trends
www.bptrends.com
9
Three Levels of Governance
• Executives – Organization Performance &
Responsiveness
• Line and Process Managers – Value Chain/Process
Performance and Priorities for Improvement
• Process Supervisors – Efficient & Effective Organization
of Subprocesses and Activities
© 2005, Business Process Trends
www.bptrends.com
10
An Organization Diagram
General Environmental Influences:
The US and world economies, government regulations,
and social trends
Labor
Markets
information &
dividends
people
Shareholders
service requests
& complaints
Captial
Markets
capital
An Organization
sales
contacts
Research
Community
Market
marketing
contacts
Customers
Customers
technology
orders
product
delivered
Vendors
materials
Competition
© 2005, Business Process Trends
www.bptrends.com
competitive products
11
Defining the Key Internal Processes
Resources
Product/
Service
Market
Any Organization
Management
Product needed
R&D Process
Product marketed
Product sold
Identify Need for
Product
Sales & Marketing Process
Find, Concieve or
Invent Product
Develop Demand
for Product
Obtain Orders for
Product
Maintain Product
Customer Relations
Design or Develop
Product
Manufacturing and Order Fulfillment Process
Ready Product for
Delivery
Launch Product
Process Product
Orders
Support
Processes
Fill Product Orders
Close Product
Orders
Ship/Distribute
Product
Service Product Customers
Product
shipped
Support Product
Product ordered
© 2005, Business Process Trends
www.bptrends.com
12
Michael Porter’s Value Chain
Support Processes
Corporate Management
Human Resource Management
Finance and Accounting
Technology Development
Core Business Processes
New Product
Development
Operations
Distribution
Margin
Procurement
Service
Marketing
and Sales
From Michael Porter, Competitive Advantage, Harvard, 1985
© 2005, Business Process Trends
www.bptrends.com
13
Unisys Corp. Functions and Value Chains
Unisys
Senior
Management
Strategy Committee
Marketing
Sales
Finance
New Product
Development
Manufacturing
Service
Value Chain: Systems Integration
Value Chain: Outsourcing
Value Chain: Network Services
Value Chain: Core Services
Value Chain: Enterprise Server Technology
Other Value Chains
© 2005, Business Process Trends
www.bptrends.com
14
Defining a Business Process Architecture
• The key tool for process management
• A high-level overview of the value chains and key
processes that make up the organization
• An alignment of strategic goals, value chains and key
processes
• A clear-cut way to monitor the performance of the
value chains and processes (KPIs)
• A BP Architecture is NOT an IT EA Architecture
© 2005, Business Process Trends
www.bptrends.com
15
Available Business Process Frameworks
• BP Frameworks are often called Operation Reference
(OR) Frameworks
• A BP or OR Framework is a template for a BP
Architecture
• The Supply Chain Council’s SCOR Framework
• The TeleManagement Forum’s eTOM/NGOSS
Framework
• Hewlett Packard’s Framework Suite
• The VCOR Initiative
© 2005, Business Process Trends
www.bptrends.com
16
SCOR MODEL: Level 1
Supply
Chain
Plan
Source
Make
Deliver
Return
© 2005, Business Process Trends
www.bptrends.com
17
The Level 1 SCOR Notation
P1
P1
P3
P2
European
RM Supplier
S2
P3
P4
M2
P1
P2
P4
P2
P4
D1
S1
D1
S1
DR1
SR1
DR1
SR1
DR3
SR3
D2
S2
DR1
Key Other
RM Suppliers
S1
M1
RM
Suppliers
© 2005, Business Process Trends
D1
SR1
M1
S1
ALPHA
www.bptrends.com
Alpha
Regional
Warehouse
Customer
18
SCOR’s Level 1 Scorecard
Customer Facing Attributes
Performance
Attribute
Performance Attribute Definition
The performance of the supply chain in
delivering: the correct product, to the correct
Supply Chain Delivery place, at the correct time, in the correct
Reliability
condition and packaging, in the correct
quantity, with the correct documentation, to
the correct customer.
Supply Chain
The velocity at which a supply chain provides
Responsiveness
products to the customer.
Supply Chain
Flexibility
The agility of a supply chain in responding to
marketplace changes to gain or maintain
competitive advantage.
Level 1 Metric
Delivery Performance
Fill Rates
Perfect Order Fulfillment
Order Fulfillment Lead Times
Supply Chain Response Time
Production Flexibility
Internal Facing Attributes
Cost of Goods Sold
Supply Chain Costs
The costs associated with operating the
supply chain.
Total Supply Chain Management
Costs
Value-Added Productivity
Warranty / Returns Processing
Costs
Supply Chain Asset
Management
Efficiency
© 2005, Business Process Trends
The effectiveness of an organization in
managing assets to support demand
satisfaction. This includes the management
of all assets: fixed and working capital.
www.bptrends.com
Cash-to-Cash Cycle Time
Inventory Days of Supply
Asset Turns
19
SCOR Benchmarks Provide Instant ROI
Supply Chain SCORcard
EXTERNAL
Overview Metrics SCOR Level 1 Metrics
Industry Benchmarks
Actual
Parity
Advantage
Superior
Delivery Performance
to Commit Date
50%
85%
90%
95%
Supply Chain
Reliability
Fill Rates
63%
94%
96%
98%
0%
80%
85%
90%
$30M Revenue
Responsiveness
Perfect Order
Fulfillment
Order Fulfillment
Lead Times
Supply Chain
Response Time
35 days
7 days
5 days
3 days
$30M Revenue
97 days
82 days
55 days
13 days
Key enabler to cost and
asset improvements
Production Flexibility
45 days
30 days
25 days
20 days
Total SCM
Management Cost
19%
13%
8%
3%
$30M Indirect Cost
Warranty Cost
NA
NA
NA
NA
NA
NA
$156K
$306K
$460K
NA
119 days
55 days
38 days
22 days
NA
196 days
80 days
46 days
28 days
$7 M Capital Charge
2.2 turns
8 turns
12 turns
19 turns
NA
Flexibility
INTERNAL
Cost
Assets
Value Added Employee
Productivity
Inventory Days of
Supply
Cash-to-Cash Cycle
Time
Net Asset Turns
(Working Capital)
© 2005, Business Process Trends
www.bptrends.com
Value from Improvements
20
Process Portfolio Management
Many business
rules. Expertise
involved
Some
business
rules
Hi
Outsourcing
Projects
Process Complexity and Dynamics
Complex
Negotiation,
Design or
Decision
Process
Major
Redesing
Projects
Software
Automation
Projects
Six Sigma-Based
Process
Improvement
ERP-Based
Process
Automation
Procedure
Simple Algorithm
Lo
Lo
© 2005, Business Process Trends
Must Be Done, But
Adds Little Value to
Products or
Services
Strategic Importance
www.bptrends.com
Hi
Very Important to
Success, High Value
Added to Products or
Services
21
Business Process Outsourcing (BPO)
Discrete
Function
Outsourcing
Process 1
Discrete BP
Outsourcing
Process 2
Process 3
Significant BP
Outsourcing
Process 5
Process 6
Process 4
Process 4
A specific
database or
application
function is
outsourced
A whole set of
related IT
functions are
outsourced
© 2005, Business Process Trends
A process is
outsourced,
including both
people and IT
functions
www.bptrends.com
A major business process, with all
its IT, people and management
responsibilities is outsourced to a
business partner.
22
Three Levels of Governance
• Executives – Organization Performance &
Responsiveness
• Line and Process Managers – Value Chain/Process
Performance and Priorities for Improvement
• Process Supervisors – Efficient & Effective Organization
of Subprocesses and Activities
© 2005, Business Process Trends
www.bptrends.com
23
Basic BP Management Model
Job Functions of a Manager Responsible for a Process
Changes in Goals and Plans
Plan & Organize
Process




Monitor & Control
Process
Goals/Measures




Set goals and expectiations
Establish plans and budget
Provide resources & staff
Implement process
Expectations,
Plans & Resources
Feedback
Monitor process
Reinforce success
Diagnose deviations
Take necessary corrective
actions
Data About
Results
Process Measures
Inputs
© 2005, Business Process Trends
Process
Executed
www.bptrends.com
Results
24
Aligning Managers and Measures
Manager Responsible for Process
Plan &
Organize
Process
SOURCE
PROCESS
Measure
Process
Monitor &
Control
Process
Manager Responsible for Process
Plan &
Organize
Process
S2 Source
MTO Products
Monitor &
Control
Process
Measure
Process
Reporting
Relationship
Manager Responsible for Process
Plan &
Organize
Process
Monitor &
Control
Process
Plan &
Monitor &
Measure
Process
S2.2 Recieve Product
© 2005, Business Process Trends
www.bptrends.com
25
Coordinating the Management of Processes
CEO
Process Architecture
Committee
Widget
Process
SVP Widget
Process
Process
Management
Team
Executive Committee
Sales
Department
VP
Sales
Manufacturing
Department
VP
Manufacturing
Sales Supervisor
Manf.
Supervisor
Sales
Process
Manufacturing
Process
Delivery
Department
VP
Delivery
Delivery
Supervisor
Delivery
Process
Customer
Widget Value Chain
© 2005, Business Process Trends
www.bptrends.com
26
Kaplan and Norton’s Balanced Scorecard
ECI's Balanced Business Scorecard
Internal Business Perspective
Financial Perspective
Goals
Measures
Goals
Measures
Survive
Cash flow
Technology
capability
Manufacturing geometry vs.
competition
Succeed
Quarterly sales growth & operating
income by division
Manufacturing
experience
Cycle time, Unit cost, Yield
Prosper
Increased market share and ROE
Design
productivity
Silicon efficiency, Engineering
efficiency
New product
introduction
Actual introduction schedule vs. plan
Innovation & Learning Perspective
Customer Perspective
Goals
Measures
Goals
Measures
Technology
leadership
Time to develop next generation
New products
Percent of sales from new products,
Percent of sales from proprietary
products
Manufacturing
learning
Process time to maturity
Response supply
On-time delivery (defined by customer)
Product focus
Percent of products that equal 80%
sales
Preferred supplier
Share of key accounts' purchases,
Ranking by key accounts
Time to market
New product interdiction vs.
competition
Customer
partnership
Number of cooperative engineering
efforts
© 2005, Business Process Trends
www.bptrends.com
27
Extending The Balanced Scorecard
STRATEGY
If the Vision is to be realized,
what strategies must the
company adapt?
How will we differ in terms
of:
VISION
Statement of
company mission
and vision
GOALS
If the Strategy is to succeed,
what are the critical success
factors that we must
achieve?
Balanced Scorecard
Critical Measurements to
monitor to assure that our
goals are met
Shareholders
Financial Success Factors
Financial Measures
Customers
Customer Success
Factors
Customer Measures
Internal Managers of
Processes
Process Success Factors
Ability to Innovate and
Grow
Innovating & Learning
Success Factors
© 2005, Business Process Trends
www.bptrends.com
Process Measures
Growth Measures
28
Extending It Further
Improve Shareholder Value
Financial Perspective
share price
return on capital employed
Revenue Growth Strategy
Build the Franchise
revenue from new
sources
Productivity Strategy
Increase Value to
Customers
customer profitability
Customer Perspective
Improve Cost Structure
operating cost per unit
produced
Improve Use of
Assets
asset utilization
Product Leadership
Cutomer Intimacy
Operational Excellence
Internal Process Perspective
Build Franchise
Through Innovations
Increase Customer
Value Through
Customer Management
Processes
Achieve Operational
Excellence Through
Operations and
Logistics Processes
Become a Good
Corporate Citizen
Through Regulatory
and Environmental
Processes
Learning & Growth Perspective
Employee Competencies
© 2005, Business Process Trends
Technology
www.bptrends.com
Corporate Culture
29
A BP Group and a BP Process
• Most companies that are serious have a business
process group to coordinate their efforts and provide
special training and mentoring
• Many companies conclude that process change is its
own kind of process and develop and document
The Process Change Process
in the same way they do other processes.
© 2005, Business Process Trends
www.bptrends.com
30
An Overview of SEI’s CMM Maturity Model
Organizations with an mature mastery of their processes.
5. Optimizing
Organizations at this level routinely expect managers and employees to work together to
improve processes. They understand their processes well enough that they can conduct
systematic experiments to determine if changes will be useful or not.
Only a few organizations have an organization wide
understanding of how processes relate and have
their corporate strategies and goals aligned, via the
management hierarchy to specific process activities.
3. Defined
Most organizations are between levers 2 and 3. They
have processes documented and standardized but in
many cases manager's goals are only loosely linked to
process goals.
Basic project management
processes are established to
track cost, schedule, and
functionality. The necessary
discipline is in place to
repeat earlier successes
The process is ad hoc. Few
activities are explicitly
defined and success
depends on individual effort
and heroics.
© 2005, Business Process Trends
Detailed measures of the
process and product quality
are collected. Both the
process and products are
quantitatively understood and
controlled.
The process for both
management and
engineering is documented,
standardized and integrated
by an organization
methodology
2. Repeatable
1. Initial
4. Managed
Continuous process
improvement is enabled by
quantitative feedback for the
process and from piloting
innovative new ideals and
technologies.
As organizations become more mature they begin to
conceptualize business processes and seek to organize
them, repeat successes and measure results.
Entrepreneurial organizations and new
divisions that do things any way they can to
get started.
Organizations with an immature mastery of their processes.
www.bptrends.com
31
Three Levels of Governance
• Executives – Organization Performance &
Responsiveness
• Line and Process Managers – Value Chain/Process
Performance and Priorities for Improvement
• Process Supervisors – Efficient & Effective
Organization of Subprocesses and Activities
© 2005, Business Process Trends
www.bptrends.com
32
A Process Includes Its Management
Manage
Measure
plan
control
Process
People
Implement
Process
© 2005, Business Process Trends
Software
Implements
Process
www.bptrends.com
33
The Level 1 SCOR Notation
P1
P1
P3
P2
European
RM Supplier
S2
P3
P4
M2
P1
P2
P4
P2
P4
D1
S1
D1
S1
DR1
SR1
DR1
SR1
DR3
SR3
D2
S2
DR1
Key Other
RM Suppliers
S1
M1
RM
Suppliers
© 2005, Business Process Trends
D1
SR1
M1
S1
ALPHA
www.bptrends.com
Alpha
Regional
Warehouse
Customer
34
One of Rummler’s Rules
75% of potential improvement you can obtain from a
redesigning a process will come from changing
the way the process is managed
•
Geary Rummler, Serious Performance Consulting,
• ASTD Press, 2004
© 2005, Business Process Trends
www.bptrends.com
35
Rummler’s Human Performance Model
Process Defined
Activity Specifications
Activity Support
Expense
Reports
activity
measures
Activity:
Enter Expense
Reports
*
Updated Expense
Report Ledger
Consequences
Feedback
4. Consequences
Skill, Knowledge & Capability
Feedback
Geary Rummler & Alan Brache, Improving Performance, Josey-Bass, 1985
© 2005, Business Process Trends
www.bptrends.com
36
A More Detailed Human Performance Model
0. Process Defined
1. Activity Support
- Can the performer easily recognize the
input requiring action?
- Can the activity be done without
interference from other activities?
- Are adequate resources available for
performance (time, tools, staff, information)?
- Define the steps in the activity
or process.
- Define who will do what
3. Activity Specifications
- Do activity standards exist?
- Does performer know the desired output &
standards?
- Do performers consider the standards
attainable?
activity
measures
Expense
Reports
Activity:
Enter Expense
Reports
*
Updated Expense
Report Ledger
Consequences
Feedback
4. Consequences
2. Skill, Knowledge and
Capability
- Do the performers have the necessary
skills & knowledge to perform?
- Do the performers know why desired
performance is important?
- Are the performers physically, mentally &
emotionally able to perform?
© 2005, Business Process Trends
5. Feedback
- Do performers receive information
about their performance?
- Is the information they receive: 1)
relevant? 2) accurate?
3) timely? 4) specific? 5) easy to
understand?
www.bptrends.com
- Are consequences aligned to support the
desired performance?
- Are consequences meaningful from the
performer's perspective?
- Are consequences timely?
37
Rummler’s Rule Applies To All Level’s of Management
•
•
•
•
The biggest problem most organizations face is that
they don’t align bonuses and incentives with processes
Thus, it is common for employees, supervisors and
senior managers to get rewards for behaviors that do
not result in improved performance
Aligning incentives should be a major goal of every
business process change program
Jack Welch, the CEO of GE, made 40% of every
executive’s bonus dependent on the success of their 6
Sigma program
© 2005, Business Process Trends
www.bptrends.com
38
SUMMARY
• The challenge for managers is to learn how to manage
business processes
• We have too many technologies and not enough focus
on why we should do BPM in the first place
• We manage processes to improve corporate
performance
• Companies need to set goals, develop a strategy, and
then create a business process organization that can
organize and coordinate their BPM resources
© 2005, Business Process Trends
www.bptrends.com
39
For More Information
www.bptrends.com
The most comprehensive source of information and analysis on
trends, directions and best practices in Business Process
Management
pharmon@bptrends.com
© 2005, Business Process Trends
www.bptrends.com
40