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Problem
Automating business processes is essential to keeping a competitive edge, but can make your company inflexible.
In his 2001 book, Jack: Straight from the Gut, former General Electric Co. chief executive Jack Welch wrote, “The most valuable opportunities for establishing competitive differentiation are in how a product or service is created, sold, delivered and supported.” Few would disagree. Every effective business has processes that monitor the “how” of creating and getting products and services to market, and the efficiency of those processes can mean success or failure.
The need to manage business processes has been around ever since people began trading bushels of maize for buffalo hides. But it wasnt until the rise of information technologies, and especially enterprise-wide systems such as ERP, CRM and supply-chain management, that the effort to automate these processes began in earnest. And yet, while automation can improve processes, too often the software involved provides little flexibility. “Its a lot like pouring cement,” says Eric Austvold, an analyst at AMR Research. “At the time you pour it, its fluid and you can make changes to it. But once it sets, its like concrete, handcuffing companies to specific ways of doing business.”
The goal is to reap the benefits of stream-lined IT automation, while remaining open to change. To remain competitive, ones processes must not only be efficient, they must also be capable of dynamic reconfiguration when new events occur—such as the decision to outsource a business function, buy a smaller company or launch a new e-business initiative.
This is where business process modeling comes in. If you havent been inundated with pitches from vendors yet, modeling is a method for diagramming your processes and their related resources, such as people and equipment. These diagrams of end-to-end sequences can be used to record and evaluate how youre doing business today, and to rethink and envision how it might be done tomorrow.
Business process modeling allows companies to build these diagrams in software, letting CIOs, consultants, business analysts and others change the processes around, or automate them, and then simulate their performance. The objective: to design processes that make the most of existing resources, cut the fat from your current functions and speed time to market, but that remain malleable, too.
Take a simple set of steps such as processing an invoice. Person A is supposed to approve the invoice and forward it to Person B, who processes payment and sends notification to Person C. But if a company decides to streamline this process—having A “okay” an automatic payment, notifying C—such a modification could be accomplished by simply tweaking the model, and the application would cut B from the chain. In addition to modeling the new sequence, some software can actually define each step in the new process and present it to the next person in the chain.
At Principal Residential Mortgage Inc., CIO John Ievalts uses a modeling tool from IBM that has allowed the company to reduce, for example, a 14-step loan process to just two steps. “Before, it was paper files,” says Ievalts. “To get one function done, a folder had to be routed through any number of people.” Ievalts and his team were able to model a new system in which forms and documents would be scanned and distributed digitally, allowing multiple employees to work simultaneously on the same file. By simulating the effect of moving mortgage applications through the new workflow, Ievalts quickly determined how much volume the system could handle before bottlenecks arose. The result? The company cut its labor- and paper-intensive post-closing mortgage process time by an average 53 percent, achieved a 34 percent increase in efficiency and realized an estimated annual savings of $4 million. Ievalts is continuing to model other parts of the mortgage process.
Ask your line managers:
- How do you document your processes?
Ask your finance department:
- How much could we save by speeding up workflows?
Tell your executive team:
- Making our processes more flexible can help us keep our competitive edge.
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Next Page: The strategy of using good modeling and the pitfalls of specialized software.
Strategic Advice
Strategy
Modeling can help you get smarter about your processes, but specialized software is really only warranted for complex processes.
Does your company really need a modeling tool? Business process management can certainly be done without one, and if your companys processes arent particularly complicated or dont change very often, you may not need one. The big initial gains for modeling users are cost savings and time to market, so if more speed isnt an issue, and your processes are already lean, you most likely dont need a modeling tool.
If paper seems too primitive, you can always create a model with such programs as Microsoft Visio or even Microsoft Word—and for smaller companies that may be the way to go. But for companies whose complex process information needs to be shared—with, say, SEC regulators for Sarbanes-Oxley compliance, or the executive team in charge of merger strategies—it may make more sense to go with a product that not only simulates proposed process changes but can also generate reports detailing the bottom-line savings.
How does it work? First you map out your “as is” process, the process as it currently exists. This means gathering data from people actually performing the process youre evaluating to learn exactly how things are done—your companys order-fulfillment sequence, for example. Once the “as is” process is documented, you can figure out where improvements might be made.
For any “horizontal” processes that cut across business unit boundaries, this requires collaboration from a number of departments, including the line-of-business people whose process youre modeling; the finance department, which understands the costs of the process and related assets; human resources, which can offer insight into which employees should be assigned to specific tasks; and adjacent departments that will at some point be affected by the new workflow. (If youre modeling your companys entire sales process, its probably best to include the marketing people in the discussion, or youll likely be leaving out critical steps.) Simulating work through the “to be” process allows you to determine how much volume the process can handle, and where bottlenecks might occur. Once youre satisfied with the new scenario, modeling tools let you analyze the gap between the current and future models.
When Hewlett-Packard Co. merged with Compaq, in 2002, modeling helped executives figure out how best to integrate a wide variety of the companies previously separate processes. Starting with the supply chain, the executive team mapped out the processes used by each company, decided which would stay and which would go, and then created a new process model for the merged corporation. Says Joe Francis, H-Ps senior director of IT business process management: “We would put them up side by side and ask the question, Which one is the better fit in each area? And you do that process by process, and then in the end we reintegrated that information into one coherent process.” With its supply-chain integration initiative complete, H-P now plans to model every process in the company to address new customer-focused strategies.
Ask your business unit heads:
- Do you have any processes that could be made easier through modeling?
Ask your COO:
- What are our critical processes, and could they benefit from more speed?
Tell your CFO:
- Modeling can help us document our financial procedures for regulatory compliance.
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Next Page: Involve employees in the modeling process.
Involve Employees
People
As with any new technology initiative, make sure your people understand what youre trying to accomplish.
Given the potential for disruption and layoffs inherent in any effort to rationalize business processes—witness the wrenching effects of the Business Process Reengineering of the early and mid-1990s—staffers may worry that any attempt to model processes could have similar effects. They have cause for concern. At its most effective, modeling can make it easier to automate certain functions and outsource others, both of which could lead to fewer local jobs.
AMRs Austvold admits that modeling can lay the groundwork for further “right-sizing,” but “not nearly of the same magnitude that we saw in the 1990s. Most organizations are running pretty thin as it is.”
To stave off uneasiness and win support for the initiative, META Group Inc. research analyst Robert Handler says its imperative to involve employees in the modeling process. “In order to make modeling really work, you have to implement some positive improvement, and make people feel part of the process change.” Its also important, he says, to foster good communication between IT and the business units in order to make sure everyone is on the same page. “When it comes to process work, the business people tend to be a lot more tolerant of ambiguity than the IT folks,” he says.
Modeling can also ensure that the skills of your best people are put to use most effectively. According to H-Ps Francis, incorporating employee skills is now a key focus of process modeling at H-P. Not having that information compiled before the merger, Francis says, created problems when the merger was complete, because managers no longer had a good handle on their employees abilities. “Had that information been integrated at the time of the merger, it would have accelerated a lot of decision-making,” he says. “It took some time to reconnect the dots afterward.”
Basic modeling tools arent very costly, but they can cause some expensive headaches. Be wary of “modelitis”—a syndrome where people model everything they see. METAs Handler says this is a common problem that can cause serious cultural friction: “You take people away from their jobs to find out what they do, but you dont do anything with that information.”
Handler relates the story of a corporation based in Washington state that embarked on an ill-fated enterprise-wide modeling initiative: The company spent two years and $20 million to create process models, but never set guidelines for how the modeling should be done—guidelines such as which programs to use and who to include in the process. The result was a conference room full of displays, like a grade-school science fair, with no way to tie them all together. “Two years and $20 million later,” he says, “and youve got a bunch of models that are useless.”
Tell your line managers:
- We need to include your staff members in this project.
Tell your human resources department:
- Lets identify our best people so we can make the best use of their skills.
Tell your IT department:
- We need to ensure our efforts dont diverge from the companys business goals.
Next Page: Process efficiency is a never-ending journey.
Never
-Ending Journey”>
Process
Confusing technology acronyms abound, so know what youre looking for.
Getting your arms around the terminology is a task unto itself. There are a dizzying number of acronyms, including BPA (business process analysis), BPMN (business process modeling notation), BPML (business process modeling language), BPQL (Business Process Query Language) and BPEL (business process execution language), to name a few.
BPMN is the notation language established by the Business Process Management Initiative (BPMI.org) to provide an industry standard for modeling processes. Its based on a number of other types of notation, such as iDesk, Swimlane and UML Activity Diagrams. BPMN is what allows you to make the visual diagrams of your “as is” and “to be” processes.
The code for these models is stored in a “business execution engine” which can output to two XML-based languages, BPML and BPEL. While BPMI has endorsed BPML, BPEL lends itself more readily to Web services. If youre looking to implement the new processes as a part of a broader business management initiative, and sharing them with disparate business units, partners and external customers, BPEL may be the way to go.
When choosing a vendor, remember that not all business process management (BPM) vendors offer modeling tools: Many rely on pure-play modeling firms. Those modeling firms, in turn, often have arrangements with the larger BPM vendors to handle the execution of the models. Increasingly, standardization makes the flow of data from one vendor to another a relatively simple task. Forrester Research suggests companies seek out vendors who are committed to BPMN and BPEL, while Gartner advises companies to choose tools that offer simulation (not all do) and that can easily integrate with other programs, such as Visio, as well as with one-stop shop vendors such as SAP, Oracle Corp. or IBM Corp. and content management technologies.
Also keep in mind that while the modeling tools themselves are relatively inexpensive—some cost about $50,000, including training—the ability to simulate and then actually automate certain parts of the process comes with a steeper price tag.
“If you want to get to the process automation level of modeling, the tuition is high,” says Ievalts of Principal Residential Mortgage. Expenses include creating the necessary infrastructure, hiring a development staff and the individual project costs. Make sure you understand the total cost of ownership before jumping in.
Of course, its extremely important to measure the results of the new process to make sure youre actually realizing the benefits you modeled. Francis says HPs return far exceeds its original investment in both manpower and technology. “Youre really at the head of the stream,” he says, “and the ROI is just huge.”
Modeling the companys Latin American supply-chain process alone yielded a cost reduction of $242,000 per month. Another modeling initiative resulted in retiring a legacy system. That move is expected to yield savings of $23 million per year.
Ultimately, however, the greatest payback from BPM is the ability to continually make incremental changes in processes, and to have these changes integrated efficiently in the software that end-users touch. The Holy Grail of BPM is continuous process modeling, the long-sought practice the Japanese call Kaizen. The result: Process efficiency becomes a never-ending journey, and employee productivity continues to achieve new heights.
Ask your CTO:
- How dependent are we upon Web services, and will that be the best way to share new processes?
Ask potential vendors:
- Does my service level agreement include simulation?
Tell your executive team:
- We need to measure the success of the process changes to make sure our processes actually improve.