Extract's Table of Contents:
Business Process Investment is a framework we developed to synthesize what we have learned about the focus, terms, tools, and claims of the various process movements in order to provide a comprehensive base for planning and decision making. The framework provides general classifications of types of business processes, of what we term process value builders, and of criteria for assessing process payoff, that is, the economic value of process change. Managers can use these classifications to map business process opportunities. We use them here to organize the diffuse examples across process movements of types of processes, approaches to process improvement, and measures of process benefit.
Types of business
process
Viewing processes as workflows or coordination tells us something about their objectives and interfaces, but it in no way indicates their relative importance to a firm's strategic vision or contribution to its competitive position or economic performance. Business Process Investment classifies processes along two dimensions, salience and worth. Salience refers to the role of the process. Identity processes define a firm to itself, its customers, and its investors; priority processes are the engines of everyday performance; background processes are essential to operations but do not contribute directly to strategic success; mandated processes are those a firm handles because it must, regulatory compliance being an obvious example; and folklore processes are those carried on long after their useful lives are over. Worth regards the process as either an economic asset that generates value or a financial liability that drains it, where value is defined not as benefits but as the real return on invested capital generated by any benefits. The Business Process Investment framework maps processes into the Worth/Salience matrix presented in Exhibit I-1. The matrix is the basis for targeting opportunities to create value by choosing the right process and selecting a process value builder to get the process right.
Process value builders
The aim of process change is to add value to a firm; adding value for customers often achieves this. Each of the process movements offers some insight into how to improve processes, but a comprehensive list of options has been lacking. For the Business Process Investment framework we compiled such a list
(Exhibit
I-2). Proven approaches to process change, "process value builders," include abandon, collaborate, franchise, hub, import, invent, outsource, preempt, productize, radicalize, self-source, streamline, and
worknet.
Process value metrics
Business Process Investment applies the economic value-added (EVA) framework, which measures after-tax cash flows generated by investments after deducting the cost of the capital used to create them, to measure the asset value, not just the benefits, of process improvement.
Business Process Investment answers questions every manager needs answered and that many of the process movements largely or entirely ignore.
- Do we know the true economics of this process, how much of the company's capital it ties up and the cost of that capital? Nearly all of the process movements lack an economic framework for responding to this question.
- Is this the right process to invest our time, effort, and money in? Does our focus on workflows lead us to choose background liability processes and overlook opportunities to invest in asset processes? It is this tendency that largely accounts for the process paradox.
- Are we assuming the solution-TQM, teams, reengineering, outsourcing-before we have examined the full range of options for building value in this process? The simultaneous strength and weakness of the individual process movements is their focused and often zealous advocacy of a clear solution to a particular problem; the danger lies in choosing a value builder before identifying the problem.
- Are we clear about measures of payoff, not just benefits? How will benefits-time savings, cost reduction, improved service-generate economic value-added?
Answering these questions and taking appropriate action is the first step toward avoiding the process paradox.
Business Process Investment is not a challenge to the process movements, but a more systematic and comprehensive investment strategy for exploiting their insights, experience, and techniques. The Glossary defines specific terms used in process investment; these are the key ones: Choosing the process to get right:
| Background Processes |
Identity Processes |
Priority Processes |
| Folklore Processes |
Mandated Processes |
Processes as Capital |
Getting the process right:
| Abandon |
Front-Ending |
Outsource |
| Collaborate |
Hub |
Value Builders |
| Franchise |
Import |
Worknet |
Exhibit I-2 Business Process Investment "Value Builders"
Abandon: Eliminate the process (Shell Europe abandoned travel expense account reporting)
Collaborate: Cultivate a culture and an ethos of cooperation in order to coordinate smooth and effective interactions between interdependent workers (Cemex taught its sales and production staff to work together to remove the barriers of understanding and functional priorities that impeded customer service)
Franchise: Market a process, with supporting expertise, for someone else to turn into a business (McDonald's provided franchises with complete process capability under the McDonald's organizational brand)
Front-end: Leave the major part of the process and supporting computer transaction processing systems as is, using computer workstations and telecommunications to add flexibility and new services at the front end and gradually erode the back end (Bell Atlantic invested $2.1 billion to front-end its customer ordering systems to provide near-immediate installation of new services)
Hub: Bring work and information to a single customer contact point at which a process can be handled in its entirety (Mutual Benefit reduced processing time from around three weeks to two to four hours by having a case manager handle all the steps involved in issuing a new policy)
Import: Adopt a process or process infrastructure from another industry (the State of Maryland issued benefits cards that enable holders to withdraw their welfare benefit payments from banking ATMs and to deduct food stamp usage from their accounts via credit card payment authorization terminals in supermarkets)
Invent: Create a new process by thinking in new ways, breaking away from conceptions of an industry "core" process (Dell Computer substituted catalogs, telephone ordering, customized assembly, and UPS delivery for physical stores and inventory in the retailing of personal computers)
Outsource: Move the process to a firm for which it is an identity asset process (Laura Ashley outsourced inventory management and distribution to FedEx)
Preempt: Use a process infrastructure to capture another industry's traditional business at a customer moment of value (British Airways usurped international hotels' control of distribution of their own product by adding hotel reservations to its airline reservation system)
Productize: Turn a process into a product that earns money (MCI Communications turned its own customer billing process for long-distance phone calls into a $2-billion-a-year product, "Friends and Family")
Radicalize: Raise the salience of a process in order to accelerate the degree and pace of organizational change, transform it, or do both (Ford instituted its "Quality is Job 1" slogan)
Self-source: Do it yourself or have the customer do it (banks installed ATMs; restaurants set up salad bars; management encouraged employees' use of laptop computers to produce their own presentation graphics and attractively formatted reports)
Streamline: Tighten linkages between activities and eliminate waste, steps, delays, costs, and people (Toyota used lean production manufacturing processes to reduce by one-half its space requirements, investment in tools, engineering hours, and on-site inventory)
Worknet: Provide communications infrastructures that enable individuals, groups, and outside firms to coordinate flexibly and collaboratively, and provide training, incentives, and team support for them to do so (Digital Equipment used networks as the base for worldwide, rapid building of teams for special projects and problem solving).
Understanding the underlying logic of Business Process Investment
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