© 2005, Business Process Trends 1 Best Practices in the Governance of Business Process Management Paul Harmon Executive Editor Business.

© 2005, Business Process Trends www.bptrends.com 1

Best Practices in the Governance of

Business Process Management

Paul Harmon

Executive EditorBusiness Process Trends


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


Process Integration in Nineties

SalesDepartment

ExecutiveManagement

Horizonally Integrated Business Process

That Delivers A Specfic Product to a Targeted Group ofCustomers

StrategyCommittee


Today: Horizontal & Vertical Alignment

SalesDepartment

ExecutiveManagement

StrategyCommittee

VerticallyIntegrated

Measures,Managers, and

Resources

Employees & IT Applications andInfrastructure

Horizonally IntegratedProcesses

From Suppliers to Customers


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


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


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


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


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


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


An Organization Diagram

Customers

CaptialMarkets

LaborMarkets

ResearchCommunity

Shareholderspeople

technology

capital

Vendors

salescontacts

productdelivered

information &dividends

service requests& complaints

materials

Competitioncompetitive products

General Environmental Influences:The US and world economies, government regulations,

and social trends

An OrganizationCustomers

orders

marketingcontacts

Market


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


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


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


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


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


SCOR MODEL: Level 1

SupplyChain

DeliverMakeSource

Plan

Return


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


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


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


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


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







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


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




MeasureProcess





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


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


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


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


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.


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.







A Process Includes Its Management

Process

Measure

Manage

plan control

PeopleImplement

Process

SoftwareImplements

Process


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


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


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


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?

*


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


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


For More Information

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trends, directions and best practices in Business Process Management

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© 2005, Business Process Trends 1 Best Practices in the Governance of Business Process Management Paul Harmon Executive Editor Business.

Documents

business process architecture

business process reengineering

process integration

process change efforts

traction slide

value chains slide

organization management

organization diagram