Every Manager's Guide to Business Processes:

• What Is a Business Process?

The process paradox is succinctly summarized in a report of a study conducted in 1993 by McKinsey and Company of business process reengineering projects in 100 companies. 

In all too many companies, reengineering has been not only a great success but also a great failure. After months, even years, of careful redesign, these companies achieve dramatic improvements in individual processes only to watch overall results decline. By now, paradoxical outcomes of this kind have become almost commonplace. A computer company reengineers its finance department, reducing process costs by 34%-yet operating income stalls. An insurer cuts claims process time by 44%-yet profits drop. Managers proclaim a 20% cost reduction, a 25% quality improvement-yet in the same period, business-unit costs increase and profits decline. (Gene Hall, Jim Rosenthal, and Judy Wade, "How to Make Reengineering Really Work", Harvard Business Review, November-December 1993, 119.)

There are many other testaments to the process paradox. General Motors and IBM, for instance, won through the implementation of total quality management initiatives the prestigious Baldrige award for quality at the very time that their economic and competitive performance was plummeting. And the insurance company that launched its reengineering movement with an initiative that reduced its policy issuing process from three weeks to two to four hours wound up insolvent and was taken over by state regulators a few months later.

Stated simply, the process paradox is that immense benefits do not necessarily translate into business value. Less paradoxical, but equally alarming in terms of wasted resources and disappointed expectations, is the widely acknowledged proportion of reengineering projects that fail: 50-70%. Surveys of total quality management programs suggest a comparable failure rate.

Taken together, the process paradox and rate of implementation failure constitute a dire warning. The reasons business managers must come to grips with the details of business processes are obvious: given the benefit side of paradox-the potential levels of improvement in costs, time, and staffing-no manager can afford to overlook process improvement opportunities; managers must first know how to choose the right process if they are to get the process right (every explanation of the process paradox ties failure to widespread inability to identify, and therefore invest in, process improvement that has a positive impact on overall business, economic, and organizational health); if theirs are not to number among the more than half of process improvement projects that fail, with attendant wastes of effort and money, managers, having chosen the right process, must be able to get it right.

This book advises managers to choose first the right process to get right and then an appropriate process value builder, a program of action that ranges from abandoning the process, to streamlining it, to outsourcing it, to making it a product, to turning it into a franchise, or to using it to preempt competitors in other industries. It treats processes not as workflows, but as invisible economic assets and liabilities. Some will be identity processes that define a firm and determine how investors and customers view it, some will be priority processes, others will be what we term background processes, necessary to business operations, but not directly involved in the creation of economic value. Much of the process paradox derives, we believe, from the tendency of reengineering aficionados to select background liability processes for repair and equate benefits with value. Every Manager's Guide to Business Processes explores the full range of process movements, grouping definitions in a manner that corresponds to our Business Process Investment framework. The list of process value builders included here in the definitions of terms, for example, is to our knowledge the first systematic summary of the specific proven options available to firms for process improvement. This book presents a comprehensive and focused review of what business managers need to know to make informed decisions about process investment that generates competitive advantage, organizational responsiveness to the forces of change, and economic value.

What Is a Business Process?

There are two somewhat different interpretations of business process among the process movements. One is of a process as a workflow, a series of activities aimed at producing something of value, the other, of a process as the coordination of work, whereby a set of skills and routines is exploited to create a capability that cannot be easily matched by others.

Annotated observations pertaining to both interpretations are presented below. From the workflow tradition we have the following. 

• "We define a business process as a collection of activities that takes one or more kind of inputs and creates an output that is of value to the customer" (Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution [New York: HarperBusiness, 1993], 35). This, the industrial engineer's conception of process, neglects entirely leadership, cultural, incentive, management development, and other processes that lack well-defined inputs, outputs, and activities. One of the shortcomings of business process reengineering is that its emphasis on processes with well-defined workflows can lead managers to overlook processes of far greater consequence to their firms' economic and organizational health. Recall General Motors' failures in leadership and labor relations processes, which offset its many investments in new manufacturing processes. 
  
  
• "A process is a structured, measured set of activities designed to produce a specified output for a particular customer or market.... A process is thus a specific ordering of work activities across time and space, with a beginning, an end, and clearly identified inputs and outputs: a structure for action" (Thomas H. Davenport, Process Innovation: Reengineering Work through Information Technology [Boston: Harvard Business School Press, 1993], 5). This, too, is the industrial engineering conception; what about crisis management, team building, and other processes that are neither structured nor measurable?

"A process is a set of linked activities that take an input and transform it to an output" (Henry J. Johansson et al., Business Process Re-engineering: Breakpoint Strategies for Market Dominance [New York: John Wiley & Sons, 1993] ). 

• "A business process is most broadly defined as an activity that carries out a series of steps, which produces a specific result or a related series of results" (Daniel Morris and Joel Brandon, Reengineering Your Business [New York: McGraw-Hill,1993] ) .
  
  
• "We assume that all processes can be thought of as a set of activities (e.g., 'steps,' 'tasks,' or 'subprocesses')" (Thomas W. Malone, Kevin Crowston, Jintae Lee, and Brian Petland, "Tools for Inventing Organizations: Toward a Handbook of Organizational Processes", working paper #141, MIT Center for Coordination Science, Sloan School of Management, Cambridge, Mass., May 1993). 
  
  
• "Process: a series of operations linked together to provide a result that has increased value.... Process improvement: activities employed to detect and remove common causes of variation in order to improve process capability." (Warren H. Schmidt and Jerome P. Finnegan, The Race without a Finish Line: America's Quest for Total Quality [San Francisco: Jossey-Bass, 1992], 350-51). Note here a distinguishing feature of the total quality management movement: a focus on removing variation and ensuring that process outputs meet a target.

These observations and definitions highlight the emphasis of this interpretation of process on the existence of clearly delineated inputs and outputs, most obviously products, the target of the total quality management movement (TQM), and services and transaction processes that involve managing extensive paper flows, the principal targets of business process reengineering (BPR).

Now consider these contrasting observations and definitions steeped in the interpretation of process as coordination. 

• "The real sources of advantage are to be found in management's ability to consolidate corporate -wide technologies and production skills into competences that empower individual businesses to adapt quickly to changing opportunities" (C.K Prahalad and Gary Hamel, "The Core Competence of the Corporation", Harvard Business Review, May-June 1990, 81).
  
  
• "A distinctive competence is a set of differentiated skills, complementary assets, and organizational routines which together allow a firm to coordinate a particular set of activities in a way that provides the basis for competitive advantage in a particular market or markets" (David J. Teece, Gary Pisano, and Amy Shuen, "Dynamic Capabilities and Strategic Management", working paper #90-8, Consortium on Competition and Cooperation, Center for Research in Management, University of California, Berkeley, 1992, 22).
  
  
• "Rather than tracking the flow of materials or data, business processes chart the coordination of action between people (and sometimes machines) involved in an activity" (Fernando Flores, "Offering New Principles for a Shifting Business World" [Business Design Associates, Emeryville, Calif.,1991], 21). 

The difference between these interpretations is to some extent one of relative emphasis on process improvement. Moreover, one builds on the other. The interpretation of process as coordination complements that of process as workflows and activities, adding consideration of teams, collaboration, and coordination and an emphasis on factors that yield a "dynamic organizational capability" or "core competence" that is not easily matched by competitors. It equates business process with a combination of technologies and skills. That many of the definitions of business process within what might be termed the coordination (in contrast to the workflow) tradition tend to be academic and even a little elliptic can lead to their insights being overlooked.

At one level, the precise definition of business process may not matter. Indeed, to the foregoing definitions we can usefully add a third, more commonsensical definition: "any aspect of organizational functioning to which the word process can meaningfully be added". Given how commonsensically important leadership and capital resource allocation processes are, for example, why adopt a definition of them that excludes them from a firm's opportunity list?

Regardless of definition, business process implies (1) organization of work to achieve a result; (2) multiple steps and coordination of people; (3) an element of design or implementation that renders a business process as distinctive a competitive asset as research and development or product development, a "firm-specific asset" (in the words of institutional economists), "core competence," or "dynamic capability"; and (4) management as the enabler and sustainer of process advantage.

What matters about the choice of definition is that it is attended by a whole set of preconceptions and expectations that can strongly influence managers' thinking. Business process reengineering devotees, for example, are naturally inclined to think of investment opportunities as processes characterized by complex administrative workflows and to view improvement in terms of radical rethinking and streamlining with the aid of information technologies such as groupware, image processing, and front-end workstations. They likely have not even considered other types of processes and other types of process value builders. Managers familiar with and committed to total quality management, on the other hand, may not be aware of the process value builders reengineering has so successfully exploited, hubbing, for example (i.e., enabling a single case manager to handle electronically an entire customer service transaction as an alternative to moving paper through a series of departments). In both instances what we have is a specific interpretation of process blocking broader process insight.