What exactly is a business process?

(February 2004)

• Overview: definition drives focus and action
• A routine
• Recurrent
• Replicable
• Consequential
• Leveragable
• Well-coordinated

  ---

Overview: definition drives focus and action

The aim of this short article is to provide a discussion and definition of just what a business “process” is. This is an area of long and wide neglect in the business process management field, which has many variants and subsets of BPM: examples include workflow automation, total quality management (TQM), reengineering, Six Sigma, straight-through processing, process modeling, business logic analysis, UML (Unified Modeling Language), swimlane diagrams, supply chain management, and business process outsourcing. In general, none of these standard BPM conceptions resonate with business managers, because they look at processes as tasks, workflows and activities to be streamlined (e.g., TQM, reengineering) or automated. They do not capture the dynamics of collaborating, managing change, designing, coordinating, and organizing. They present a very narrow picture of the organization as procedures; this excludes from its view communication processes, motivation processes, management succession processes, innovation processes and many others. It provides a linear view of processes as sequential procedures. For many business managers, the result is a puzzling contradiction; intuitively they recognize that “process” really is fundamental to business effectiveness and innovation but when they hear the BPM messages, they ask “Is that really all there is?”

The effectiveness of business process management will largely depend on the effectiveness of its conception of business process in terms of energizing business people. It definitions must point to reliable and robust frameworks for the prioritization of business process investment, methods, and choice and application of tools and methods. Most of all, its definitions determine the balance between automation of workflows and leveraging of people in the process flow.

Three historical forces are rapidly converging to move business process management higher and higher on the executive agenda:

• The recognition that the core of organizational effectiveness rests on coordination of work, workers and relationships. Business process “management” is fundamentally the design and implementation of coordination mechanisms. The most striking successes here have been the shift in supply chain management from procurement and administration marked by win-lose contracting between suppliers and customers to the design of value networks marked by sharing of information, collaborative forecasting, and long-term cooperative agreements. The payoff has been a 40% reduction in the United States in the fraction of Gross Domestic Product tied up by inventory and logistics costs. Firms like Dell and Wal-Mart moved to and maintained industry dominance through process.
  
  
• The equally marked shift in corporate finance from a focus on profits as the famous bottom line on the income statement to efficient and effective use of financial capital. This movement, often broadly termed shareholder value or economic value added, has been obscured by the many recent frauds, dubious accounting practices and “creative” manipulation of just about every area of the balance sheet and income statement. That said, it is the driver of modern finance in general and of process sourcing in particular, in that it encourages reduction in the capital tied up by such processes as distribution, administration, and many aspects of manufacturing. Outsourcing and co-sourcing then become strategic investment and alliance planning.
  
  
• Information technology is at last close to achieving its long-term aims of integration via building blocks that can be separately developed, combined and reused. Loosely categorized as object-methods and Web Services, this new generation of IT is rapidly facilitating a wide range of business process automation opportunities, including workflow management, business rule repositories, and straight-through processing plus support for the humans who work together interdependently in the process flow and interact with customers and partners, through “collaboration” technologies.

This is the good news – massive business opportunity, proven economic and organizational payoff, and IT enablement of new process designs in customer service, logistics, collaboration and alliances. Here’s the bad news: as with business process reengineering there is likely to be a backlash against BPM because it has very little coherent conception of “process” and hence of business process “management.” That is especially the case at the extremes of the BPM-as-automation movement. Here are two short examples:

• BPM Is the “streamlining the system of delivering a document to the appropriate recipient and determining where and when the document is sent next. For example, a mortgage application might travel from a retail lender to a wholesale lender. BPM software ensures that the right audience sees it at the right time.”
  
  
• “As enterprise processes become more automated, and more and more interconnected, one piece of technology refuses to go away: the human being.”

Is this really all BPM amounts to?

These fairly typical quotes illustrate one of the major flaws in much of the academic, methodological, technical and consulting work that has the term” process” in it is its arid, misleading and even banal definition of process. Their conception of process predefines and limits the opportunities they open up and the solutions they provide. In particular, reengineering – as its very name suggests – looks at processes as workflows with lots of diagrams with arrows connecting tasks. It is a very linear view of process that reifies it. It focuses its view of the process and process solution on a narrow range of processes, with plenty of workflows, tasks, documents and procedures, Unsurprisingly, it then concludes that these are the ones to reengineer. The article and book on BPR that launched Michael Hammer from engineering professor to reengineering prophet are largely based on two case examples: reengineering the policy-issuing process in an insurance company, named in the first article and never once named in Hammer and Champy’s Reengineering the Corporation – it had gone belly up – and Ford’s reengineering of accounts payable. Mutual Benefit – the actual insurance firm – got a process right but it did not get the right process right.

There is nothing in almost all of BPR about which processes should have the highest priority, what the economic justification for reengineering should be, and what to do about non-workflow, non-task-and-arrow processes. There is no distinction between process, task and function. The definition of “process” determines the conceptualization and application of process transformation and cuts out other possibilities. The workflow-based total quality management and reengineering movements tended to view process as “a collection of activities that take one or more kinds of inputs and creates an output that is of value to the customer.” (Hammer and Champy, Reengineering the Corporation, page 35) Yes, but what about the many organizational processes where the link to customer value is very indirect, such as those related to cost accounting, personnel services, contracting, office security, internal audit, facilities management or receivables management? What about “soft” processes of vital importance to the company, such as management succession, strategic planning, hiring, communication and reward processes?

The BPR mainstream also downplays the variety and complexity of business processes. Routinely, its leading proponents assert that a company has around 15-20 core processes. It is easy to show that a company like IBM has hundreds of processes each adding up to multi-million dollars of operating costs and hidden hundreds of millions in financial capital tied up by them. A vague one-page diagram and evangelism about the product development “process” obscures just how many processes this adds up to and how complex are their interlinks.

Business Process Management is the successor to BPR, with its own society and journal. It almost entirely views processes in terms of automation. One leading book, Business Process Management: the Third Wave, (Smith and Fingar, 2002) is built on “An Open Process-modeling Language Standard is the Enabler”, its “theoretical foundations” center on the “unification of data, computation and interaction”, and its tools include lamba calculi, BPML, process calculi, six sigma and XML. Most books with BPM or some variant of the phrasing in their title similarly treat processes in terms of data, statistical modeling and automation of procedures and business “rules.” The Third Wave looks very much like a revisit of the first and second” TQM and BPR. As with these earlier waves BPM is very much a movement: “This book heralds a breakthrough that redefines competitive advantage for the next fifty years. Don’t bridge the business-IT divide: Obliterate it!” (This seems a deliberate reference to the title of Hammer’s 1990 article, “Reengineering Work: Don’t Automate. Obliterate.” Oh, dear.) 

A final limitation of most process movements is that they have needed a paper tiger to attack. Typically, that is Frederick Taylor, portrayed as the heartless mechanic who tried to turn workers into robots. For Hammer and Co., it is Adam Smith whose division of labor apparently created the Misfortune 1000 of the 1950s through 1970s. (When you next visit your favorite gourmet restaurant try recommending that it abandon DoL. If the chef does not ask you to shut up, the sous-chef or pastry cook or sommelier or maitre d’ will.) More recently, BPR has become the paper tiger; its weaknesses are an easy target for the anti-shareholder value strategists and core competency advocates.

Here is a working definition of what a business process is and what it isn’t that aims at getting beyond the workflow conception and capturing the strategic dimensions of process investment. The specific wording is not important in itself unless it clarifies what and where the BPC opportunities and payoffs are – and are not. A process is:

· An organizational routine with clearly identified tasks and responsibilities.

• Recurrent: Recurrence simply means that people carry this out often and in large numbers.
  
  
• Replicable: The process can be transferred to multiple contexts and is not unique to a single company
  
  
• Consequential: How well the process is carried out has impacts on some aspect of company performance: customer service, revenues, costs, staff productivity, internal efficiency, etc.
  
  
• Leveragable: Improving the process can be used as the base for further improvements in company performance through linkages to other processes, rollout across the firm, or releasing constraints and resources.
  
  
• Well-coordinated: The fundamental element of a process is coordination – coordination of tasks, people, information, and procedures. Miscoordination underlies most process mishaps that lead to errors, delays, inefficiencies, high costs and customer dissatisfaction.

Agents not total automatic PROXY

This definition of process helps sharpen what BPC is all about and the value it creates for its process customers. BPC is a menu of offers with dimensions of value for each of the features of process briefly listed above.

A routine

A process must have some degree of structure; otherwise it is a decision. One of the barriers to process investment is that many companies lack such routines. The same process, such as handling a customer order or processing an account opening is done in different ways more as a task than as a process; the people carrying it out may gain autonomy and indispensability by the very fact that they themselves decide how to handle it. (At a university, power very much rests in the hands of the Dean’s secretary who allocates offices, for instance.) Part of the logic of BPC is that there are many tasks that can be turned into organizational routines – best practice processes: account opening, procurement, employee benefits, help desks and order fulfillment are commonplace instances. For example, many companies accumulate high overhead costs in small driblets: travel and expense reporting and processing, employee benefits management, procurement and handling of returns and many other fauna in the “process swamp.” As these are analyzed, streamlined, standardized and turned from tasks to routines, they become processes. They may then be handled in new ways: as software routines (credit scoring for loans used to be a “decision” handled by an experienced loan officer), as an interaction between a person and a portal (procurement hubs), or through BPC.

There are thousands, literally, of such routines in every business; they can and should be systematized. They can be because they are routines and should be because it makes no sense to have multiple versions, multiple levels of performance, cost, and ways of doing the very same thing; why not gain the advantage of a single, central purchase of process capability via BPC? Obvious examples include regulatory compliance reporting, billing, payment and collections, reverse logistics (handling of returns, disposal of overstock, etc.)

Recurrent

If a process is unusual and occasional, it does not make sense to build it; the issue is how best to source it. Large companies have in-house counsel that handle such matters as response to anti-Trust, discrimination suits or regulatory issues through outside individual experts and law firms. Without trivializing these complex and often high stake problems, it is worth noting that they are representative of the logic of BPC and indeed are a form of person-to-person BPC. The in-house counsel is firmly in charge of the process. When a need suddenly occurs, he or she invokes a BPC service (a costly one but an expert one). The counsel does not in any way delegate authority or responsibility to the outside parties but works closely with them. The outside law firms will include many processors – people, technology and procedures for handling a myriad of tasks, legal requirements, document filing and the like. One of the opportunities of BPC is to access comparable resources via comparable collaboration for comparable reasons. An example is M&A. There are so many processes that a merger and acquisition involves that it makes financial, business and organizational sense to seek out BPC services.

The above examples are recurrent but occasional. There are many that are recurrent and frequent – and just as expensive. The payoff comes from the recurrence and volume. If a process such as billing costs $50 to handle (a low estimate according to most surveys), including queries, contested items, processing of checks, and accounting, saving, say, $5 does not look like much and if it requires a major reengineering project to achieve it is pointless. But what if it does not require such organizational and financial investment, only a BPC agreement. For the typical company, the savings would be $5 x thousands of transactions in hundreds of locations – for million of dollars of payoff.

It is recurrence that lies behind the BPC industry; it enables providers to build a menu of offers that have a broad market and price them at a far lower cost that companies’ own costs (the $5 savings in this example is more likely to be $20) and that enables buyers to gain a substantial payoff with minimal investment, disruption and operating costs.

Replicable

Some processes are sufficiently unique to the company’s own needs, characteristics and competitive differentiation that they must be designed, managed and operated in house. They also require customized computer systems. Up until the late 1980s, such application development was the norm and the use of packages the exception. Now it is the other way round. ERP, CRM, EAI and Web services rely on a building block approach to systems development. Here, customized systems are built on modular components that are “tweaked” to meet the company’s specific needs. BPC follows the same trends. Of course, there will some processes and systems that must be tailored uniquely to the company. This is not the domain of BPC. But, by using BPC to handle the many more replicable processes it needs, the firm can both focus its own efforts and resources on the unique processes.

Consequential

A process has to be have some metric of quality, and impact to merit the term. For a small business, for instance, mailing processes do not pass this test. They are commonsense “jobs” taking up little time and there are few improvements that add value that impacts the business; it makes sense to use a Pitney Bowes postage stamp machine, preprinted envelopes, and USPS Express Mail and Fedex accounts but that is about it. By contrast, the exact same tasks really are processes for a large company. Mailing room subprocesses can be complex and consequential in terms of cost, pickup, tracking, delivery, recording incoming and sorting outgoing mail – even opening letters and packages can be a mailing room subprocess where improvements can generate substantial value, in terms of customer service, employee productivity, costs and staffing. Its workflows, tasks, and activities do not purely define a process; it includes a value dimension. As with this mailroom example, the value will vary widely across businesses and, again as here, individually small “background” processes may add up to an overall large BPC payoff.

Leveragable

Well-coordinated

Coordination is the basic difference between a task and a process. The entire history of organizational theory and practice centers on how best to coordinate work: by hierarchy and functional division of labor, through matrix organizations, by team-based arrangements – and by process.