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- 1. 1 Introduction To Business Process Design 2 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 3 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
- 2. 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 4 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 Locational (Ex. flying from Denver to L.A.) Transactional (Ex. depositing money in a bank) The transformation model of a process Inputs Outputs Process 5 What is a Business Process?
- 3. 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 6 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
- 4. Process Customers Suppliers Resources Inputs Outputs 7 Process Types and Hierarchies Individual processes
- 5. 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 8
- 7. Marketing
- 8. Operations Accounting CEO Order Request Order Fulfilled Production planning Vertical process Horizontal process
- 9. Individual process Buying a TV commercial Illustration: Process Types and Hierarchies 9 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 10 Components of the Process Architecture Inputs and Outputs Flow units Information structure Resources
- 10. The network of activities and buffers Process Architecture 11 Components of the Process Architecture Inputs and Outputs Establish interaction between the process and its environment 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
- 11. 12 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.) ork Defining activities is crucial in process analysis Tradeoff between process and activity complexity Process Complexity Individual Activity Complexity 13 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
- 12. inefficiencies Information enables coordination! 14 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 15 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
- 13. We make a clear distinction between process design and implementation 16 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 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 17 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
- 14. 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 18 Improvement Time Incremental Improvement Radical Improvement Theoretical Capability Statistical Process Control Incremental vs. Radical Design Improvement
- 15. 19 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 20 Example 1 Flowchart of the existing claims process Client Local independent agent Approved glass vendor Claims processing center
- 16. Request additional information Pay Notify agent File claim Give instructions Forward claim Request quote Provide quote Pay 21 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 Long term relationships with glass vendors Savings of 30-40% on paid claims due to special discounts More consistent and reliable service Claims representative feels ownership of the process Does a better job
- 17. 22 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 23 Linking BPD to Strategy Strategy
- 18. 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? 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 24 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
- 19. 25 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 26 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?
- 20. 27 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 28 Value adding activities
- 21. 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 29 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
- 22. If you’re hooked on achieving process excellence, then Business Process Management (BPM) may be exactly what you’re looking for. This book gives you an introduction to the basics of BPM and shows you how to implement it in your organization to improve business performance. Discover why so many organizations are using BPM and how it enables new levels of business flexibility and operational excellence. Understand BPM technology and why it’s so powerful! ISBN: 978-0-470-28571-8 Client part number: 4AA1-3661ENW Book not for resale Save money, time, and resources Software AG Spec ial Edition Get smart about Business Process Management ! Find listings of all our books ! Choose from many different subject categories ! Sign up for eTips at etips.dummies.com BPM Basics Kiran Garimella Michael Lees
- 23. Bruce Williams A Reference for the Rest of Us!® FREE eTips at dummies.com® .14 Explanations in pl ain English “Get in, get out” inf ormation Icons and other na vigational aids Top ten lists A dash of humor a nd fun Find out more at softwareag.com/bpm notch paper bind Phoenix cover printer If you want to understand Business Process Management, this book is for you! Deliver more business value — faster Gain visibility into
- 24. your processes Implement process solutions quickly Model, simulate, and optimize process designs Build adaptive and flexible processes Build a business process architecture Software AG is the world’s largest independent provider of Business Infrastructure Software. Our 4,000 global customers achieve measurable business results by modernizing and automating their IT systems and rapidly building new systems and processes to meet growing business demands. Our industry-leading product portfolio includes best-in-class solutions for managing data, enabling service oriented architecture, and improving business processes. By combining proven technology with industry expertise and best practices, our customers improve and differentiate their businesses – faster. Software AG – Get There Faster Take care of all your business needs with For Dummies books!
- 25. Front Measurement: Real-time process visibility Portals: Integrated views of the work environment Modeling: Integrated representation of business and system processes and human workflow Metadata: Reference library of IT and process assets Simulation: What-if studies of a process model Analysis: Graphical and statistical studies of process performance Integration: Connectivity of people, information, services, systems, and processes Execution: Orchestration of processes in real time Suppliers: Each of the individuals, functions, systems, and entities that provide all inputs to a given business process. Input: The complete set of materials, information, space, equipment, energy, supplies and other items needed for the process to perform. Process: The transformation of inputs to outputs.
- 26. Output: Everything that emerges from the process; primary output is what’s desired by the customer; secondary output is waste and non-value added by-products. Customers: The individuals, functions, systems, and other entities that demand and consume process output. Adaptive and flexible processes End-to-end process visibility and control Automation of standard, repeatable processes Process performance simulation and optimization Role-focused composite applications BPM Fundamentals BPM Approach Measure First – Then Improve Functional Modules of BPM Defining “Process” Suppliers – Input – Process – Output – Customers S I P O C 1. Identify business objectives and select Key Performance Indicators. 2. Measure where you are now. 3. Determine what’s working and what isn’t. 4. Fix and improve problem areas. 5. Calculate value creation —
- 27. and celebrate! BPM Basics For Dummies® BPM Basics For Dummies® For Dummies: Bestselling Book Series for Beginners 285718 cs.qxp 1/9/08 8:39 AM Page 1 W ile y, th e W ile y Pu bl is hi ng lo go
- 35. rm at io n ab ou t W ile y Pu bl is hi ng , c al l 1 -8 00 -7 62 -2 97 4.
- 36. For Dummies: Bestselling Book Series for Beginners Back Business Analytics System Analytics Process Analytics Service MonitoringB us in es s A ct iv ity M on ito ri ng
- 37. Business architecture: The overall structure of the goals and objectives of the organization’s customers and stakeholders, and the strategies, roles, and responsibilities needed to achieve them. Business Activity Monitoring Monitor and respond to process activities in real time Process Modeling A representation of how activities operate or should operate Process architecture: The methods, practices, and procedures by which the people in the enterprise transform available resources and capital to add value for the customers and stakeholders and achieve the business goals and objectives. Management architecture: How the actions and behaviors of people and systems, as well as the flow of information over time, are directed in exercising the processes to achieve the business goals. Educate Measure Prototype Justify
- 38. In iti at e Im pl em en t M at ur e Scope Process Design & Execution Application Composition Processes & Applications Partners PackagedApplications Application ServersDatabases Mainframes
- 39. Enterprise Integration B2B EnterpriseService Bus Legacy Modernization Registry & Repository Roles & Responsibilities Policy Design & Enforcemnet Lifecycle Management SO A G overnance Identify Need Evaluate Solution
- 40. Define Design Develop Deploy Define Project Roll-out Project Optimize Results Business Architecture Process Architecture Management Architecture Technology Architecture BPM Capability Delivery Process Methodologies
- 41. Project Management Integration Competency/Center of Excellence Support Monitor Train BPMS Technology Ecosystem The BPM Architecture BPM Implementation Plan BPM Basics For Dummies® BPM Basics For Dummies® 285718 cs.qxp 1/9/08 8:39 AM Page 2
- 42. BPM Basics FOR DUMmIES ‰ by Kiran Garimella, Michael Lees, and Bruce Williams Software AG Special Edition 01_285718 ffirs.qxp 1/8/08 2:19 PM Page i BPM Basics For Dummies®, Software AG Special Edition Published by Wiley Publishing, Inc. 111 River Street Hoboken, NJ 07030-5774 Copyright © 2008 by Wiley Publishing, Inc., Indianapolis, Indiana
- 43. Published by Wiley Publishing, Inc., Indianapolis, Indiana No part of this publication may be reproduced, stored in a retrieval system or transmitted in any for m or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing, Inc., 10475 Crosspoint Blvd., Indianapolis, IN 46256, (317) 572-3447, fax (317) 572-4355, or online at www.wiley.com/go/permissions. Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/or its affiliates in the United States and other countries, and may not be used without written permission. Software AG and the Software AG logo are trademarks or registered
- 44. trademarks of Software AG, Inc. in the United States and other countries. All other trademarks are the property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book. LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETE- NESS OF THE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CREATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITU- ATION. THIS WORK IS SOLD WITH THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES. IF PRO- FESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER
- 45. NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZATION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCE OF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSES THE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS IT MAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THIS WORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRIT- TEN AND WHEN IT IS READ. For general information on our other products and services, please contact our Customer Care Department within the U.S. at 800-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. ISBN: 978-0-470-28571-8 Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1
- 46. 01_285718 ffirs.qxp 1/8/08 2:19 PM Page ii About the Authors Dr. Kiran K. Garimella is Vice President of BPM