Managing Process Innovation

Applying performance goals to business-process management drives growth and innovation.

When image document routing first appeared in the 1990s, the idea of applying computer technology to this kind of labor-intensive business process was considered cutting edge. Everyone in IT understood the potential of centralized computing for numerical computation and transaction processing, but few envisioned that this type of application would fit a broader set of distributed business processes.

Today, leading companies such as Southwest Airlines, British Petroleum, and Bank of America, are finding more innovative ways to automate their business processes. E-forms, process modeling, simulation, EAI, integration services, rules engines, event services, real-time monitoring, and process analytics are among the systems being applied to processes that include order management, billing, financial reporting, credit-card issuance, product returns, and dispute resolution.

Although these companies are still in the minority, more IT and operations executives are beginning to understand that their current technology does little to link the processes that run their companies to the transactions that result from those processes—transactions at the heart of corporate growth and profitability. This disconnect is rooted in a basic misunderstanding of the purpose of enterprise resource planning and the role of business-process management—relationships that we're now examining more carefully.

It's no secret that work gets done by people through business processes and that technology only supports those processes. Whether distributing goods to customers, collaborating with suppliers, or coordinating employee efforts, business processes add value to products and brands.

Yet most ERP systems have a functional focus and lack process models that explain business operations. As a result, when managers try to innovate or solve business problems—customer satisfaction is one of the most widespread—the "fix" is often myopic and transaction-centric. What's missing is good business-process management.

Business-process management provides methods to automate and/or improve activities and tasks for particular business purposes. Its goal is not only efficiency and productivity, but also control, responsiveness, and improvement. Control assures that company resources are aligned to execute strategies. Responsiveness and improvement support the competitive differentiation that enables a company to excel.

IT executives can assert control by basing the direction and flow of transactions on a predefined set of rules and work flows—for example, determining how a purchase order is acknowledged or merchandise is returned. Responsiveness enables individuals to react quickly to business events and maximize interactions, as when expediting a critical customer order across the customer-service and warehouse teams. As for improvement, you want to systematically measure and monitor processes; doing so will lead to innovation and optimal performance.

An integral part of business-process management is performance management, which is intended to steer the organization and its partners toward corporate goals. Performance management focuses on the collaboration and empowerment of all individuals in the business network or value chain. It enables them to work across strategic, tactical, and operational levels to align actions that produce rapid, effective responses to business challenges.

In the same way you define and document processes, you need to detail performance-management objectives. These objectives are the analytics used to measure all process-improvement projects. The metrics will provide the basis for an ongoing cycle of measurement, evaluation, and improvement. It's also critical that your company tie these process-improvement metrics to high-level performance-improvement goals, not low-level or transaction-oriented metrics.

Done right, performance management should shed light on why some processes don't function well and how to go about improving them. During analysis, the tools will provide the project teams with data to assess the productivity impact of proposed solutions. That data should also help business and IT departments arrive at a common understanding of particular business needs and their solutions. Collaboration between these groups is particularly important in good business process management.

Once you've addressed the overall issue of performance management and built the framework for a sustainable business-process management practice, you can begin to assess requirements for the IT systems that will support it. For this part of the project, five components are necessary: assessing current systems, building a business case, developing and communicating the plan, evaluating software and architecture options, and, lastly, deploying the initiative. Here is further detail on each of the steps.

First, conduct an independent assessment of the process you want to innovate and the systems that currently support it. Establish a benchmark for the current levels of efficiency and effectiveness, and then identify areas for improvement. Of course, you'll need to evaluate financial and operational requirements in this approach, including ROI and total-cost-of-ownership calculations.

Next, build a business case to demonstrate the value and results that the project will deliver, citing clear definitions of the value and cost of your program, as well as compelling productivity and financial reasons for going ahead. Address the cultural, business, and technology barriers to ensure you have support for your initiative.

Third, create a well-defined program and plan, and communicate it to the process owners and participants. The program will have to be articulated at different levels of the organization, so make clear to all stakeholders what's in it for them. The program should also show how the effectiveness of operations will improve through this process innovation.

After that, architecture and software needs should be identified in several ways. First, evaluate solutions with appropriate criteria to ensure that the program is timely and responsive to the organization. Consolidation in the business software market has changed the landscape of business-process management systems significantly. Ventana Research recommends that you evaluate all viable options including service-oriented architectures, but be wary of promises from vendors of single solutions that do only business-activity monitoring (BAM) or only process modeling—these products may not be functionally rich enough.

During your vendor evaluations, keep performance management capabilities in mind. Good business-process management requires both simulation and BAM tools. Simulation aids process design and modeling by letting designers preview how a process flows and look at how the logic, events, and rules will work together—before the process is rolled out into a production environment. Using such a tool, you should discover and remove bottlenecks and accurately predict process performance. The best process models allow multiple simulation scenarios to be performed across subprocesses. The engine should be able to track resource usage, including cost and time analysis, and monitor usage that exceeds preset thresholds.

A robust simulation tool will allow you to deploy new versions of processes without interrupting those already in use and the best solutions allow controlled migration from old processes to new ones. This capability is critical not only for safety reasons but also for benchmarking and measuring results.

Business-activity monitoring aggregates, analyzes, and presents relevant and timely internal information as well as data involving your customers and partners. BAM solutions can alert individuals to changes in the business that may require action from them. Once again, the purpose is to produce rapid insight into process innovations by identifying issues in real time, improving process performance, and reducing operating costs.

Most BAM solutions provide postprocess metrics, such as when and how many times the process was executed and which user performed which tasks. Some go further to provide visual representations of business activity with maps, technical drawings, charts, blueprints, or graphs.

However, keep in mind that real-time process monitoring requires considerable development and integration work. Consider tying these activities to your company's performance management objectives, measuring and tracking them in an active, balanced scorecard. This may look like a project inside a project, but it's well worth the effort. After all, how will you know if you're aligning current process activities to your performance objectives if you don't properly score the results?

Once you've evaluated all software and architecture options, the fifth and final step is to roll out your solution and ensure widespread adoption of your business-process management initiative. To succeed, you must understand how to minimize interruptions to your current business processes, culture, and technology usage.

Make sure you don't skip any of these steps—especially the second, where you benchmark your current process performance and build a business case. Doing so will enable you to showcase the value of your innovation after adoption. Following these steps will increase efficiency and effectiveness, and improve the alignment of your operational processes. Through a simple organizationwide approach, you can transform your people, processes, and systems in an efficient manner that ultimately will be reflected on the company's bottom line.

Colin Snow, VP and research director for Ventana Research, is the leader of the company's Operational Performance Management practice.

What Matters Most

To measure and monitor business activities, software has to perform analysis and integration with underlying systems. Business-process management software must also allow for rules and definitions of business processes and for monitoring and leveraging work-flow exceptions. Findings from Ventana Research's recent Operational Performance Management Research Study indicate that all of these capabilities are critical.

In the survey, more than 1,300 business- and IT-management respondents were asked to rank in importance six major software capabilities for measuring and monitoring business activities and processes. The most highly valued capability was "integrate data and application sources," with 61% of respondents saying that integration is somewhat or very important. More than half the respondents scored all capabilities as important except "define work flow," which drew 48% of responses.

To determine what software capabilities are important to them, companies must know how specifically and widely to measure their business activities and processes. The level of sophistication required will determine capabilities such as work flow, rules, or defining and visualizing business processes. The basic set of software capabilities for integration and analysis are available in most enterprises with business-intelligence solutions, but the additional capabilities outlined in the survey must be included for successful business-process management.

What's Driving Process Innovation?

For many enterprises, the first driver of business-process innovation was the need to improve operational efficiency. Today, the focus has expanded in two directions.

First, regulatory-compliance mandates from the Sarbanes-Oxley Act and the European Union are forcing companies to document processes and procedures in financial reporting, product design, supply chains, and service delivery. In addition, companies are looking for ways to make operations more effective, particularly by automating operational decision-making. This requires systems that can analyze, select, and execute several courses of action. To perform such operations, the systems need to apply explicit policies and procedures—as enforced by rules engines—and execute in a hands-off fashion. Here are examples of how specific industries might deploy automated process innovations:

• Insurance: consumer underwriting, pricing
  
  
• E-commerce: promotional-offer personalization
  
  
• Retail: inventory replenishment
  
  
• Transportation: asset deployment
  
  
• Brokerage: trading, fraud detection, pricing
  
  
• Energy: service-delivery management
  
  
• Telecom: provisioning optimization
  
  
• Government: fraud detection, security

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Action Plan

Achieving optimal performance from operational processes is essential to an organization's business-process innovation efforts. Follow these guidelines to align process with business objectives:

• To begin a process-innovation project, start with these performance-management principles:

• Develop a performance plan that describes how your operational processes contribute to strategic goals.
  
  
• Determine the key analytics that you'll use to measure all process improvements.
  
  
• Set priorities for improving operational processes that will advance your strategic objectives.

When these guidelines are in place, begin to assess requirements for the IT systems that will support your project. Ventana recommends taking the following five steps:

• Assess your core strategic and operational processes.
  
  
• Build a business case to demonstrate the value and results (through benchmarking) that the project will deliver.
  
  
• Create a well-defined program and plan, and communicate it to all process owners and participants.
  
  
• Evaluate solutions by considering both users' needs and performance management requirements.
  
  
• Model, simulate, and deploy your solution.

Once you've determined these requirements, continue to measure your process with a performance scorecard. Your metrics will compare the degree of improvement against the benchmarks and simulations. Applying the metrics rigorously will guide your ongoing actions toward greater productivity and stronger financial results.

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