Transcript Chapter 1 - Introduction

Introduction To Business
Process Design
Chapter 1
Business Process Modeling, Simulation and
Design
1
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
2
What is a Business Process?
1. A pragmatic definition
A Business Process describes how something is done in
an organization
In general terms…
Business - Organizational entity that deploys resources to 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
3
What is a Business Process?
2. Traditional Process definition in OM literature
A process specifies the transformation of inputs to outputs
Inputs
Process
Outputs
The transformation model of a process
Different types of transformations
• Physical (Ex. raw material  finished product)
• Locational (Ex. flying from Denver to L.A.)
• Transactional (Ex. depositing money in a bank)
• Informational (Ex. accounting data  financial statement)
4
What is a Business Process?
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
Inputs
Process
Outputs
The transformation model of a process
5
What is a Business Process?
3. 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
Resources
Process
Suppliers
Inputs
Outputs
Customers
6
Process Types and Hierarchies
1. Individual processes
– Carried out by a single individual
Make up
2. Vertical or Functional processes
– Contained within one functional unit or department
Make up
3. Horizontal or Cross Functional processes
– Spans several functional units, departments or
companies
7
Illustration: Process Types and Hierarchies
CEO
Marketing
Operations
Accounting
Buying a TV
commercial
Order Request
Individual process
Production planning
Vertical process
Order Fulfilled
Horizontal process
8
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
9
Components of the Process Architecture
Inputs and Outputs
Flow units
Information structure
Process
Architecture
Resources
The network of
activities and buffers
10
Components of the Process Architecture
Inputs and Outputs
• Establish interaction between the process and its environment
• Identify the process boundaries  easy 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
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.)
• Different types of jobs  different paths through the network
• Defining activities is crucial in process analysis
– Tradeoff between process and activity complexity
Process Complexity
Individual Activity Complexity
12
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
inefficiencies
– Information enables coordination!
13
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
14
The Essence of Business Process Design
“How to do things in an efficient and effective way”
• An efficient process which does not deliver customer value is useless
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
We make a clear distinction between process design and implementation
15
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
• Division of labor rationale: by focusing on fewer tasks 
– Workers’ skill level goes up  work faster
– 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
16
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 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
17
Improvement
Incremental vs. Radical Design Improvement
Theoretical
Capability
Incremental
Improvement
Statistical
Process
Control
Radical
Improvement
Time
18
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
1.
2.
3.
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
19
Example 1
Flowchart of the existing claims process
Request additional information
Pay
Notify agent
Client
Give instructions
File claim
Local
independent
agent
Forward
claim
Claims
processing
center
Request quote
Provide quote
Pay
Approved
glass
vendor
20
Example 1
Explanation of existing claims process
1.
2.
3.
4.
5.
Client notifies a local agent that she wishes to file a claim. She is given a claims
form and is told to obtain a cost estimate from a local glass vendor.
When the claims form is completed the local agent verifies the information and
forwards the claim to a regional processing center.
The processing center logs the date and time of the claim’s arrival. The data is
entered into a computer-based system (for record keeping only) by a clerk. The
claim is then placed in a hard copy file and passed on to a claims representative.
a) If the claims representative is satisfied with the claim it is passed along to
several others in the processing chain and eventually a check is issued and sent
to the client.
b) If there are problems with the claim the representative mails it back to the
client for necessary corrections.
When the client receives the check she can go to the local glass vendor and
replace the glass.
21
Example 1
New Design Recommended by the Team
Call in claim
Client
Claims
processing
center
Notify
Schedule repair
Pay
Approved
glass
vendor
22
Example 1
Procedural changes to the new process
•
•
The Claims representative is given final authority to approve
the claim.
Long term relationships with a limited number of glass
vendors enables the insurance company to leverage its
purchase power to pre-negotiate low prices.
 Clients no longer have to collect estimates.
 Vendors are certified for quality, price, reliability, etc.
•
The Client now contacts the claims representative directly
instead of going via a local agent.
23
Example 1
Structural changes to the new process
•
•
•
A new 24 hour hotline enables the client to speak directly to
a claims representative at the regional processing center.
The claims representative gathers data over the phone, enters
the data into the computer and resolves any issues on the
spot. He tells the client to expect a phone call from a certain
glass vendor to arrange the replacement.
The claims information is immediately available for
accounting via a LAN system and they can start processing
the check and send it to the vendor.
24
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 involved in the process  lower op. costs
Long term relationships with glass vendors
 Savings of 30-40% on paid claims due to special discounts
 Consolidated monthly payments  lower handling costs
 More consistent and reliable service
•
Claims representative feels ownership of the process
 Does a better job
25
Linking BPD to overall Business Performance
• Overall business performance?
– Detailed definition is company specific
– Generally, performance must be measured against the stated objectives
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
Maximize revenues and
minimize costs
Must use resources efficiently while
understanding customer needs
Satisfying customer needs in an efficient way
Well designed business processes
26
Linking BPD to Strategy
 Strategy
 A unifying theme that helps align decisions made in an organization
 Guides a business towards its stated goals
•
Two strategy levels
1. Corporate strategy – Which industry should the business be in?
2. Business strategy – How should we compete in a given industry?
•
Intensified competition in all industries  a prerequisite for
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
27
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
28
Linking BPD to Strategy
•
Strategic fit


•
Market driven strategy to achieve strategic fit
1.
2.
•
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
Identify desired strategic position
Design processes to support this position
• Flexibility, adaptability
• Time to market considerations
Process driven strategy to achieve strategic fit
1.
2.
Identify process capabilities offering a competitive advantage
Leverage these capabilities to reach a desirable strategic position
29
Why are Inefficient Processes Designed?
• 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
30
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:
Value-Adding
Value-Adding
Activity
Non-Value Adding
Handoff
Delay
Rework
Business Value Adding
Control
Policy compliance
Activity
Non-Value Adding
Handoff
Delay
Rework
Control
Policy compliance
31
Activity Classification and BPD
•
Value adding activities
– 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
32
Activity Classification and BPD
•
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
33