Moving the blog

I am moving the blog to a dedicated spot in my bpm journal website. It has really been a playpen website upt to now, but I’ve decided to put it to good use. Here is the new URL for the Performance Focussed Process-Centric Organizations blog. Please update your RSS feed if you’ve been following it up to now

Do processes matter?

The question is often asked why you would need BPM software if your business already has implemented ERP and business specific applications. What makes a process important and why does it matter?

If you are in a competitive market, then it does matter. Porter recognised this in the mid eighties and wrote Competitive Advantage: Creating and Sustaining Superior Performance. In this book Porter shows that competitive advantage depends on all of the specific activities needed to create products and services and on the way the company organised those activities together into processes and ultimately into value chains. Porter’s concept of value chains links business processes across the organisation into measurable, end to end actions that define the way the organisation delivers its value proposition.

These value chains are the entities that make companies unique. It is the specific way that they transform their input into products or services that are deemed “valuable” by their customers.

The Geary Rummler diagram above describes Value Chains or Core Business Processes in the context of resources, customers and markets, competition, social and regulatory environments and the internal “silo” structure of most organisations. The structure of the internal functions may differ from business to business but the fundamental principles remain the same. The Value Chain of Core Business Processes drives each organisation’s unique competitive advantage. All businesses operate in this framework even though the internal structure may differ.

Customer expectations are based on how effective and efficient these processes work. Effective processes help organisations in fast growth scenarios whereas efficient processes optimise resources without compromising service levels in slow growth or recessionary business cycles. Customer retention in these recessionary cycles is as important as finding new customers while servicing them with fewer resources.

Business Process Management becomes a strategic initiative in this framework. It becomes a planned approach to understand, maintain and improve the Value Chain that is at the core of the business. Business Process Management (BPM) focuses on understanding the Value Chain by:

• documenting (mapping and modelling) the core business processes;
• maintaining these processes through automation, process controls and integration; and
• improving the Value Chain by analysing process performance indicators, implementing process changes in an agile process management environment and measure the results of those changes in a continuous improvement effort.

Porter’s Value Chains evolve with and organisation as business models, conditions and the competitive landscape change. It requires a flexible environment and processes can’t be “cast in concrete” as many failed ERP implementations show. The challenge is not with the transactional capability of the ERP solution, but rather its ability to adapt to changing business processes that are often external to the control of the business. The competitive advantage of most of the successful businesses today is not in the capability of their ERP but in their ability to deliver valued products and services through flexible, adaptive and unique processes.

Processes do matter and so does the technology that supports them. Many processes can be maintained without systems but the November 2008 Aberdeen Research Report – BPM and Beyond : The Human Factor of Process Management – reports that Best in Class organisations that have implemented BPM systems achieved a 53% improvement in process consistency, compared to a 13% improvement for the Industry Average and a 13% decline for Laggards.

The same report reveals the strategic nature of processes in the Value Chain as business executives listed the following as the top priorities that drive the focus on process management:

• 45% – Need to reduce operational cost;
• 41% – Need to improve process agility and innovation;
• 26% – Challenge of managing multiple disparate information systems;
• 22% – Pressure to improve customer service; and
• 17% – Pressure to increase sales and drive new business.

Processes do matter. It is the only leverage that a business has to distinguish itself from competitors, operate in a compliant efficient way and deliver the unique value proposition that will keep it in business in time to come.

Preserving Capability and Agility

I am taking the headline from a newspaper article in the Tuesday 10^th February 2009 edition of the Australian Financial Review. I couldn’t have said it better. It is an article by Fiona Balfour, former CIO of Qantas and Telstra, on how to best manage IT projects and applications in tough times when budgets are under scrutiny. It is paid subscription to the newspaper, so I will paraphrase the article. Fiona says that in addition to being budget conscious, IT leaders must also preserve capability and organisational competitive agility and it requires a focussed plan. She highlights 3 typical types of IT investment projects:

• Major Strategic that are generally multi-year and they deliver significant competitive and /or operational advantage to the organisation. These projects are formally managed and are focussed on a combination of a variety of benefits – cost savings, cost reductions or cost avoidance and revenue growth as well as some competitive elements – such as improving customer service. They might also serve to reduce operational or regulatory risk.
• Non-strategic projects that add or evolve functionality of existing investments.
• Then, finally, application maintenance that includes “break/fix”, upgrades, preventative maintenance and minor enhancements.

The responsibility of IT managers to provide solutions that will preserve capability with fewer employees serving the same number of customers as well as remain flexible in changing market conditions requires those managers to consider the processes that drive their businesses. Business Process and Performance Management (BPPM) links the operational enterprise workflow capabilities of products like FlowCentric to strategic performance management requirements to steer businesses through these though times.

BPPM projects should typically be high priority initiatives in times like this as it supports all the major objectives set by Fiona as major strategic projects. BPPM projects define the required process performance measures upfront and then set out to achieve those through enterprise workflow automation and constant process monitoring. It optimises the use of scarce people resources and reduces process lag time in email inboxes waiting for actions. It notifies and escalates tasks and informs managers when service levels to customers are not met. It actively manages business processes on autopilot with the necessary feedback systems to those in charge.

It is really the only way I can see how organisations can preserve capability, remain agile and work within organisational and regulatory requirements.

Interestingly enough, the same newspaper has an interview with Mr. Barry Simpson, CIO for Coca Cola Amatil in Australia, and he suggested that they are looking to accelerate some of their IT projects that give them strategic advantage in an attempt to turn up the heat on competitors. “When business is though, and the economy is though, that’s when strong companies get stronger. This is when you want to be investing in business to drive that growth and to take advantage of weakened competitors”.

Definitely a strategy that could also benefit from BPPM.

BPPM in an economic downturn

As mentioned in a previous post in this blog, Business Process and Performance Management (BPPM) support the business value drivers that determine the valuation of a business in the long term. I listed 6 drivers from Jack Alexander’s book and 3 of them are crucial in an economic downturn as we see it now. We can’t do too much now around sales growth, but we can actively manage those processes that impact on the operational effectiveness, capital management and those intangibles that have an impact on the value of a business.

Operational effectiveness is crucial to the survival of businesses  even though growth is slowing down, access to operating capital is restricted and many of the larger organisations cut jobs to balance the books. The challenge remains that the business continues, customers have the same expectations and processes need to deliver the at even higher services levels to capture those customers from competitors. Operational effectiveness does not only address faster, better and without the quality requirements, but it also impacts operational risk where organizations are exposed to higher levels of risk due to increased workload on those that remain, new skills that need to be acquired to do the jobs of those that left and the new compliance requirements, specifically in the financial sector. Focusing on improving business process performance through business process management will highlight those areas of increased exposure that can be supported through a BPMS. Defining Process Performance Indicators for customer facing and business critical processes will allow organisations to track lead process indicators that will provide guidance on how to effectively manage these changing circumstances.

Effective Capital Management and managing those intangibles in a business that drive the business value in the long term can be supported by improved business process and performance management systems. It will provide consistency, transparency, business rules that can be adapted to the requirements of the changing environment and a governance framework that give management teams some level of comfort during the current economic challenges.

Business Rules impact Business Performance

“Hindsight is an exact science” the saying goes. Nothing is more true in the turmoil that we’ve seen in the financial markets in the past few weeks. Taking “toxic” financial assets and turning them into derivative investment assets seem to be the root cause of the current financial crisis. Major players in that market, for example Lehman Bros., collapsed and the performance in that segment in the market lead to overall panic that now cripples financial institutions that were not even involved in these “toxic” assets. “Toxic assets” is a new term to me as we always just described it as the outcome of a bad investment deal or decision. No one has offered to bail out my toxic assets, but I suppose mine doesn’t impact the world economy as the current situation that we face.

The financial services industry is probably the most regulated in the world, and still they got it wrong. There are rules and regulations to manage anything and everything but it seems that the business rules weren’t “integrated” with the business processes. Legislation and regulation worked in isolation from the operational processes that manage those businesses. It was possible to design and launch investment products that sold the financial risk as an opportunity and it was able to circumvent the rules that were in place for conventional products.

South Africa’s exposure to the financial crisis was limited by a number of factors but the introduction of the National Credit Act in 2007 was probably one of the biggest. Instead of creating products that would make it possible to obtain credit beyond the creditworthiness of an individual, the NCA forced financial institutions to implement more comprehensive and stricter business rules. This limits the “toxic” assets in South Africa. Asian banks seem to have their business rules in place and also had limited exposure to the “toxic” assets. Australia, on the other hand, allowed a “No docs” mortgage loan where individuals could borrow money with a 30% deposit and proof of income. Very slack business rules.

I am pretty sure that we will see a renewed interested in improved integration of a new set of business rules into the new product development process of financial institutions across the world. Sustainable business performance can only be achieved through appropriate and agile business rules integrated with appropriate and agile business process.

The Business Drivers

Shareholders employ managers with specific skills to run businesses on their behalf. Their expectation is that the management teams will increase the value of their interest and generate wealth. It is as simple as that. Non-profit organisations have the same requirements in many instances where the management teams are required to maximise the available funds to the benefit of the beneficiaries. The overall objective remains to increase the value of the organisation.

To create sustainable increasing shareholder value can only really be achieved by managing the business performance on an ongoing basis. It requires a strategic approach to identify the functions required in the business to consistently deliver the desired business outputs that will in turn increase the value of the business. It requires the identification of the business critical outputs of each function and the subsequent continuous monitoring of those outputs. It is business performance management that ensures sustainable increase in shareholder value of an organisation.

There are 6 business value drivers identified by Jack Alexander in his book Performance Dashboards and Analysis for Value Creation that are under management’s control to influence.

• Sales Growth
• Relative Pricing Strength
• Operating Effectiveness
• Capital Management
• Cost of Capital
• Intangibles, Credibility, Future Expectations

These business value drivers can be influenced through a pro-active performance management approach. Improving the business performance can be achieved through a number of mechanisms both hard and soft in the organisation. Business processes are one of the tangible mechanisms that can easily be addressed to impact business performance. Pro-active process management impact most of the value drivers in a direct fashion. It can influence sales growth, drive and manage operating effectiveness, assist with capital management and manage intangibles.

Business Process Management is the one business methodology that can have a significant impact on business performance and value. I will address the concept of effective performance management through business process management in future posts.

The future of BPM is BPPM

BPM is one of those acronyms that have different meanings to different interest groups in the same market. Business executives and managers commonly refer to Business Process Management or Business Performance Management as BPM. But they are distinctly different concepts. Or so we have believed up to now. We’ve had different consultants, methodologies, supporting technologies and we’ve even been reading different books on these subjects. But are these really different sides of a coin? Or are they different perspectives on how to achieve the same business objectives.

Executives are not really interested in performance measures, dashboards and processes if it doesn’t assist them achieving their single most important goal. Improve overall business performance. That is really the task assigned by company shareholders to the management team that they employ that manage the business on their behalf. That is really the only overall objective that a CEO, President or Managing Director drive in an organization. Continuous improvement not only in terms of shareholder value, but also in overall financial performance, customer relations and satisfaction and employee productivity to name a few. These principles also apply to non-business environments like charities, public sector and non-profit organizations. BPM, in both flavors, is equally as important in these organizations as their business counterparts even though BPM have business in the names of both acronyms.

In my experience as a business consultant, process practitioner, technology solution provider and businessman, I have not come across a single top executive that want to buy business intelligence tools, process management suites and business rules engines or portal technology. They all just want to manage the performance of their businesses and they try to use these methodologies and tools to achieve that. That is the only thing that they really want.

The objective of this blog is to provide some strategic perspectives on how to use BPM both from a performance and process perspective to provide a holistic management approach that accelerate continuous improvement by combining the two perspectives in Business Performance and Process Management or BPPM. The approach will show that performance management is the foundation of such a methodology and process management is the means to achieve the quickest sustainable results. Business Process Management is the best practical means to deliver on improved business performance requirements.

The blog also serves to structure the content and my thoughts for a book called “The Performance Focused Process-Centric Organization” or PFPC organization. I will provide regular posts over the next couple of months with some of the ideas and content of the book to get feedback on some of the opportunities and challenges with this approach.