© 2005, Business Process Trends www.bptrends.com 1 Best Practices in the Governance of Business Process Management Paul Harmon Executive Editor Business Process Trends
Dec 23, 2015
© 2005, Business Process Trends www.bptrends.com 1
Best Practices in the Governance of
Business Process Management
Paul Harmon
Executive EditorBusiness Process Trends
© 2005, Business Process Trends www.bptrends.com 2
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 3
Process Integration in Nineties
SalesDepartment
ExecutiveManagement
Horizonally Integrated Business Process
That Delivers A Specfic Product to a Targeted Group ofCustomers
StrategyCommittee
© 2005, Business Process Trends www.bptrends.com 4
Today: Horizontal & Vertical Alignment
SalesDepartment
ExecutiveManagement
StrategyCommittee
VerticallyIntegrated
Measures,Managers, and
Resources
Employees & IT Applications andInfrastructure
Horizonally IntegratedProcesses
From Suppliers to Customers
© 2005, Business Process Trends www.bptrends.com 5
An Aside: Processes Come in Different Sizes
Value Chain
Business Process Business Process Business Process
ProcessProcess Process
Sub-Process Sub-ProcessSub-Process
Sub-Sub-Process
Activity Activity
Sub-Sub-Process
ArchitectureSCOR Framework
Process Redesign ProjectsBusiness Rule Projects
Six Sigma ProjectsIT Automation Projects
SAP Process Models
© 2005, Business Process Trends www.bptrends.com 6
A Second Aside: Process Change Efforts Vary
Process
NewProcess
ProcessNeeds MajorRedesign
ExistingProcess
ProcessNeedsImprovement
ProcessRedesign
ProcessImprovement
Clean SheetDesign
Process Change Patterns
- Conceptualize Process from Scratch
- Use BP Framework
- Develop Process Measurement System
- Redesign Process Management System
- Analyze Gaps in Value Chain
- Redesign Job/Incentives; Improve Training
- Automate Activities
- Reduce Time in or Between Activities
- Eliminate Non-Value Adding Activities
- Eliminate Defects
© 2005, Business Process Trends www.bptrends.com 7
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 8
Some Management Concerns
Specific Process
Value Chain
Plans & Goals
Process Automatedby IT Systems
Process Performedby Employees
Physical Plant and Hardware Used.
StrategyLevel
Business ProcessLevel
ImplementationLevel
ProcessManagement and
Measurement
Senior Management - Better Overview of What's Happening - Better Way to Plan for Change - Better Way to Assign Responsibilities
Middle Management (Including IT Mangers) - Better Overview of What's Happening - Better Way to Plan for Change - Clearer Priorities - Better Way to Assign Responsibilities
Supervisors and Change Specialists - Clearer Priorities - Better Understanding of Task - Better Way of Measuring Results
© 2005, Business Process Trends www.bptrends.com 9
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 10
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 11
An Organization Diagram
Customers
CaptialMarkets
LaborMarkets
ResearchCommunity
Shareholderspeople
technology
capital
Vendors
salescontacts
productdelivered
information ÷nds
service requests& complaints
materials
Competitioncompetitive products
General Environmental Influences:The US and world economies, government regulations,
and social trends
An OrganizationCustomers
orders
marketingcontacts
Market
© 2005, Business Process Trends www.bptrends.com 12
Defining the Key Internal Processes
Any OrganizationProduct/ServiceMarket
SupportProcesses
Management
Product needed
Product marketed
Manufacturing and Order Fulfillment Process
Sales & Marketing Process
R&D Process
Identify Need forProduct
Find, Concieve orInvent Product
Design or DevelopProduct
Launch Product
Process ProductOrders
Fill Product OrdersShip/Distribute
Product
Service Product Customers
Ready Product forDelivery
Close ProductOrders
Support Product
Develop Demandfor Product
Obtain Orders forProduct
Maintain ProductCustomer Relations
Product ordered
Product sold
Productshipped
Resources
© 2005, Business Process Trends www.bptrends.com 13
Michael Porter’s Value Chain
New ProductDevelopment
Operations DistributionMarketingand Sales
Service
Procurement
Technology Development
Human Resource Management
Corporate Management
Marg
inS
up
po
rt P
roce
sse
sC
ore
Busi
ne
ss P
roce
sse
s
Finance and Accounting
From Michael Porter, Competitive Advantage, Harvard, 1985
© 2005, Business Process Trends www.bptrends.com 14
Unisys Corp. Functions and Value Chains
UnisysSenior
Management
Marketing FinanceSales ServiceManufacturingNew ProductDevelopment
Strategy Committee
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 15
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 16
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 17
SCOR MODEL: Level 1
SupplyChain
DeliverMakeSource
Plan
Return
© 2005, Business Process Trends www.bptrends.com 18
The Level 1 SCOR Notation
S1 M1 D1 S1
S1 D1 S1M1 D1
Key OtherRM Suppliers
EuropeanRM Supplier
RMSuppliers
ALPHAAlpha
RegionalWarehouse
Customer
DR1 SR1 DR1 SR1
SR3DR3
P1
P2
P3
P4
P1
P2
P3
P4
P1
P2 P4
S2 M2
DR1
D2
SR1
S2
© 2005, Business Process Trends www.bptrends.com 19
SCOR’s Level 1 Scorecard
PerformanceAttribute
Performance Attribute Definition Level 1 Metric
Supply Chain DeliveryReliability
The performance of the supply chain indelivering: the correct product, to the correctplace, at the correct time, in the correctcondition and packaging, in the correctquantity, with the correct documentation, tothe correct customer.
Delivery Performance
Fill Rates
Perfect Order Fulfillment
Supply ChainResponsiveness
The velocity at which a supply chain providesproducts to the customer.
Order Fulfillment Lead Times
Supply ChainFlexibility
The agility of a supply chain in responding tomarketplace changes to gain or maintaincompetitive advantage.
Supply Chain Response Time
Production Flexibility
Supply Chain CostsThe costs associated with operating thesupply chain.
Cost of Goods Sold
Total Supply Chain ManagementCosts
Value-Added Productivity
Warranty / Returns ProcessingCosts
Supply Chain AssetManagementEfficiency
The effectiveness of an organization inmanaging assets to support demandsatisfaction. This includes the managementof all assets: fixed and working capital.
Cash-to-Cash Cycle Time
Inventory Days of Supply
Asset Turns
Cu
sto
mer
Fac
ing
Att
rib
ute
sIn
tern
al F
acin
g A
ttri
bu
tes
© 2005, Business Process Trends www.bptrends.com 20
SCOR Benchmarks Provide Instant ROI
50%
$30M Revenue
$30M Indirect Cost
35 days
97 days
0%
63%
Supply Chain SCORcard Industry Benchmarks
Overview Metrics SCOR Level 1 Metrics Actual Parity Advantage Superior Value from Improvements
Delivery Performanceto Commit Date
85% 90% 95%
Fill Rates 94% 96% 98%
EX
TE
RN
AL
Supply ChainReliability
Perfect OrderFulfillment
80% 85% 90%
Order FulfillmentLead Times
7 days 5 days 3 days
Flexibility
Responsiveness
Production Flexibility 30 days 25 days 20 days
Total SCMManagement Cost
19% 13% 8% 3%
INT
ER
NA
L
Cost Warranty Cost NA NA NA NA NA
Value Added EmployeeProductivity
NA $156K $306K $460K NA
Inventory Days ofSupply
119 days 55 days 38 days 22 days NA
AssetsCash-to-Cash Cycle
Time196 days 80 days 46 days 28 days
Net Asset Turns(Working Capital)
2.2 turns 8 turns 12 turns 19 turns NA
Supply ChainResponse Time
82 days 55 days 13 days
45 days
$7 M Capital Charge
Key enabler to cost andasset improvements
$30M Revenue
© 2005, Business Process Trends www.bptrends.com 21
Process Portfolio Management
ProcedureSimple Algorithm
ComplexNegotiation,
Design orDecisionProcess
Somebusiness
rules
Many businessrules. Expertise
involved
Pro
cess
Co
mp
lexi
ty a
nd
Dyn
amic
s
Lo HiStrategic Importance
Lo
Hi
Must Be Done, ButAdds Little Value toProducts orServices
Very Important toSuccess, High ValueAdded to Products or
Services
MajorRedesingProjects
SoftwareAutomation
Projects
OutsourcingProjects
Six Sigma-BasedProcess
ImprovementERP-Based
ProcessAutomation
© 2005, Business Process Trends www.bptrends.com 22
Business Process Outsourcing (BPO)
Process 1 Process 2 Process 3
Process 4
Process 4
A specificdatabase orapplicationfunction isoutsourced
A whole set ofrelated IT
functions areoutsourced
A process isoutsourced,
including bothpeople and IT
functions
Process 5 Process 6
A major business process, with allits IT, people and management
responsibilities is outsourced to abusiness partner.
DiscreteFunction
Outsourcing
Discrete BPOutsourcing
Significant BPOutsourcing
© 2005, Business Process Trends www.bptrends.com 23
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 24
Basic BP Management Model
Plan & Organize
Process Set goals and expectiations Establish plans and budget Provide resources & staff Implement process
Monitor & Control
Process Monitor process Reinforce success Diagnose deviations Take necessary corrective
actions
Expectations,Plans & Resources
Results
Data AboutResults
Goals/Measures
Job Functions of a Manager Responsible for a Process
Inputs
Changes in Goals and Plans
Feedback
ProcessExecuted
Process Measures
© 2005, Business Process Trends www.bptrends.com 25
Aligning Managers and Measures
SOURCEPROCESS
S2 SourceMTO Products
S2.2 Recieve Product
MeasureProcess
Monitor &Plan &
ReportingRelationship
MeasureProcess
Monitor &ControlProcess
Manager Responsible for Process
Plan &OrganizeProcess
Monitor &ControlProcess
Manager Responsible for Process
Plan &OrganizeProcess
MeasureProcess
Monitor &ControlProcess
Manager Responsible for Process
Plan &OrganizeProcess
© 2005, Business Process Trends www.bptrends.com 26
Coordinating the Management of Processes
CEO
Executive Committee
ProcessManagementTeam
DeliveryDepartment
ManufacturingDepartment
SalesDepartment
Customer
Process ArchitectureCommittee
Sales SupervisorManf.
SupervisorDelivery
Supervisor
Widget Value Chain
SalesProcess
DeliveryProcess
ManufacturingProcess
VPDelivery
VPManufacturing
VPSales
SVP WidgetProcess
WidgetProcess
© 2005, Business Process Trends www.bptrends.com 27
Kaplan and Norton’s Balanced Scorecard
ECI's Balanced Business Scorecard
Customer Perspective
Financial Perspective Internal Business Perspective
Innovation & Learning Perspective
Goals
Survive
Succeed
Prosper
Measures
Cash flow
Quarterly sales growth & operatingincome by division
Increased market share and ROE
Goals
Technologycapability
Manufacturingexperience
Designproductivity
New productintroduction
Measures
Manufacturing geometry vs.competition
Cycle time, Unit cost, Yield
Silicon efficiency, Engineeringefficiency
Actual introduction schedule vs. plan
Goals
Technologyleadership
Manufacturinglearning
Product focus
Time to market
Measures
Time to develop next generation
Process time to maturity
Percent of products that equal 80%sales
New product interdiction vs.competition
Goals
New products
Response supply
Preferred supplier
Customerpartnership
Measures
Percent of sales from new products,Percent of sales from proprietaryproducts
On-time delivery (defined by customer)
Share of key accounts' purchases,Ranking by key accounts
Number of cooperative engineeringefforts
© 2005, Business Process Trends www.bptrends.com 28
Extending The Balanced Scorecard
VISIONStatement of
company missionand vision
STRATEGYIf the Vision is to be realized,
what strategies must thecompany adapt?
How will we differ in termsof:
Shareholders
Customers
Internal Managers ofProcesses
Ability to Innovate andGrow
GOALSIf the Strategy is to succeed,what are the critical success
factors that we mustachieve?
Financial Success Factors
Customer SuccessFactors
Process Success Factors
Innovating & LearningSuccess Factors
Balanced ScorecardCritical Measurements tomonitor to assure that our
goals are met
Financial Measures
Customer Measures
Process Measures
Growth Measures
© 2005, Business Process Trends www.bptrends.com 29
Extending It Further
Improve Shareholder Value
Revenue Growth Strategy Productivity Strategy
share price return on capital employed
Build the Franchise Increase Value toCustomers
Improve Cost Structure Improve Use ofAssets
Operational Excellence
Cutomer Intimacy
Product Leadership
Build FranchiseThrough Innovations
Increase CustomerValue Through
Customer ManagementProcesses
Achieve OperationalExcellence Through
Operations andLogistics Processes
Become a GoodCorporate Citizen
Through Regulatoryand Environmental
Processes
Employee Competencies Technology Corporate Culture
Financial Perspective
Customer Perspective
Internal Process Perspective
Learning & Growth Perspective
customer profitabilityrevenue from new
sourcesoperating cost per unit
produced asset utilization
© 2005, Business Process Trends www.bptrends.com 30
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 31
An Overview of SEI’s CMM Maturity Model
The process is ad hoc. Fewactivities are explicitlydefined and success
depends on individual effortand heroics.
Basic project managementprocesses are established to
track cost, schedule, andfunctionality. The necessary
discipline is in place torepeat earlier successes
The process for bothmanagement and
engineering is documented,standardized and integrated
by an organizationmethodology
Detailed measures of theprocess and product quality
are collected. Both theprocess and products are
quantitatively understood andcontrolled.
Continuous processimprovement is enabled by
quantitative feedback for theprocess and from pilotinginnovative new ideals and
technologies.
1. Initial
2. Repeatable
3. Defined
4. Managed
5. Optimizing
Organizations with an immature mastery of their processes.
Organizations with an mature mastery of their processes.
Entrepreneurial organizations and newdivisions that do things any way they can to
get started.
As organizations become more mature they begin toconceptualize business processes and seek to organizethem, repeat successes and measure results.
Most organizations are between levers 2 and 3. Theyhave processes documented and standardized but in
many cases manager's goals are only loosely linked toprocess goals.
Only a few organizations have an organization wideunderstanding of how processes relate and have
their corporate strategies and goals aligned, via themanagement hierarchy to specific process activities.
Organizations at this level routinely expect managers and employees to work together toimprove processes. They understand their processes well enough that they can conduct
systematic experiments to determine if changes will be useful or not.
© 2005, Business Process Trends www.bptrends.com 32
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 33
A Process Includes Its Management
Process
Measure
Manage
plan control
PeopleImplement
Process
SoftwareImplements
Process
© 2005, Business Process Trends www.bptrends.com 34
The Level 1 SCOR Notation
S1 M1 D1 S1
S1 D1 S1M1 D1
Key OtherRM Suppliers
EuropeanRM Supplier
RMSuppliers
ALPHAAlpha
RegionalWarehouse
Customer
DR1 SR1 DR1 SR1
SR3DR3
P1
P2
P3
P4
P1
P2
P3
P4
P1
P2 P4
S2 M2
DR1
D2
SR1
S2
© 2005, Business Process Trends www.bptrends.com 35
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 36
Rummler’s Human Performance Model
ExpenseReports
Updated ExpenseReport Ledger
Consequences
Feedback
Activity Support
4. Consequences
Feedback
Activity:Enter Expense
Reports
Process Defined
activitymeasures
Activity Specifications
Skill, Knowledge & Capability
*
Geary Rummler & Alan Brache, Improving Performance, Josey-Bass, 1985
© 2005, Business Process Trends www.bptrends.com 37
A More Detailed Human Performance Model
ExpenseReports
Updated ExpenseReport Ledger
Consequences
Feedback
1. Activity Support
- Can the performer easily recognize theinput requiring action?- Can the activity be done withoutinterference from other activities?- Are adequate resources available forperformance (time, tools, staff, information)?
4. Consequences
- Are consequences aligned to support thedesired performance?- Are consequences meaningful from theperformer's perspective?- Are consequences timely?
5. Feedback
- Do performers receive informationabout their performance?- Is the information they receive: 1)relevant? 2) accurate?3) timely? 4) specific? 5) easy tounderstand?
Activity:Enter Expense
Reports
0. Process Defined
- Define the steps in the activityor process.- Define who will do what
activitymeasures
3. Activity Specifications
- Do activity standards exist?- Does performer know the desired output &standards?- Do performers consider the standardsattainable?
2. Skill, Knowledge andCapability
- Do the performers have the necessaryskills & knowledge to perform?- Do the performers know why desiredperformance is important?- Are the performers physically, mentally &emotionally able to perform?
*
© 2005, Business Process Trends www.bptrends.com 38
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 39
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 40
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