|What is Process Improvement?
Your company's future depends on finding ways to get new products to market more quickly and at less cost while increasing customer satisfaction with your existing products and services.
Yet cost reduction and quality improvement are not sufficient to achieve greater market share. To be successful, your organization must also be able to quickly develop and provide innovative new products and services.
One of the major factors keeping companies from being innovative and optimally productive is the outdated and duplicative state of their business processes. Few companies take full advantage of the technological innovations of the past 20 years and most business processes reflect that. Where technology has been implemented, redundant processes have often been left in place without meaningful change. As Michael Hammer and James Champy assert in Reengineering the Corporation, "America's business problem is that it is entering the twenty-first century with companies designed during the nineteenth century." This results in higher production costs, excessive delays in converting sales orders into cash receipts, increased customer dissatisfaction, and a slower response to changing market condition.
Now the internet provides additional opportunties for improvement. By providing a common interface that can be accessed anywhere, through a browser, common data can now be securely utilized by people simulatneously anywhere in the world, and in real time. We are no longer chained to a corporate network, but can work remote or mobile. Companies who work together in a supply chain can merge their processes together, so that information is transferred electronically, instead of on paper, reducing time, cost, errors, and inneficiency. People from different organizations, variant levels of responsibility, and at different times can have various levels of permissions to have unique views of centralized data in ways never before possible. This enables things to actually become better, faster and cheaper.
Given the need to make informed decisions and the drive to optimize operations, business managers, analysts, and consultants can benefit from technologically advanced computer tools and structured methods to analyze and redesign processes. This is commonly known as business process improvement. One of the primary tools for improving business processes is dynamic modeling, which provides the framework and structured approach needed to determine what should be changed and how it should be changed.
Dynamic modeling allows you to capture the essence of very complicated systems in a computer model, then play "what-if" games to compare alternative futures (system performance under various scenarios) and measure the effect of the decisions you make. It points out areas most in need of change and encourages the prioritization of improvement possibilities. It lets employees see their ideas in action and makes it easier to demonstrate to managers the impact of proposed changes. Dynamic modeling is most commonly used when exploring alternatives for systems and processes that are complex, involve uncertainty, and have limited resources. Since most business processes meet that profile, dynamic modeling is the tool of choice for examining the results of proposed changes when improving or redesigning business processes.
The Need for Improvement
The challenge to every business is that in order to succeed, it must improve. There are many definitions of what improvement for a business might be: growth in income, increased profits, reduction of debt, or any other measurement factor. Since the need for improvement is so pervasive, one might assume it is a given. The reality is that determining how to improve a business is the endless debate in management circles. The main thrust of corporate management has traditionally been to increase profits through piecemeal changes in operations. More emphasis has been put on such concepts as continuous improvement, total quality management, systems thinking, and the development of people within the organization. But these are philosophical approaches to the problem and business philosophies have changed constantly in response to their failure to resolve the underlying problems.
In their quest for improvement, organizations are faced with such questions as:
Should we automate?
Can we improve the way we do business?
How much do our processes actually cost?
How should we reduce time-to-market?
Considering the rapidly changing global economy and the struggle to remain competitive, the answers to these changes and others like them are more important than ever. These answers cannot be found through philosophical methods. If they could, we would have stopped seeing new theories of management long ago.
Recently, attention has focused on redesigning business processes to make them more efficient and to serve as a basis for the insertion of new technology. Business processes provide an excellent opportunity for organizations to improve, since improvements in process throughput and productivity can add considerably to a company's bottom line.
Business Processes, Events, and Elements
Although businesses have traditionally been discussed in terms of functional units (for example, accounting, manufacturing, or human resources), they are actually composed of processes. Business processes are a series of logically related tasks undertaken to achieve a specified outcome, typically either a product or service. Processes represent how organizations actually work. They are complete cycles, such as:
New product development (concept origination, research, and prototype creation)
Product flow (purchasing, receiving, and manufacturing)
Customer acquisition (marketing, customer inquiry, and resolution)
Employee acquisition (hiring, training/promotion, and firing)
In business, most processes are organized around events, such as the receipt of an order, a request to purchase equipment, or an idea for a new product. Events occur at random but somewhat predictable intervals. They can be economic or noneconomic. Events drive the business.
Each process is a combination of elements (people, procedures, technology, materials, equipment, information, space, and energy) involved in an activity to achieve a goal. Business processes therefore represent the utilization and flow of elements, driven by events. The concept of "Do it right the first time or it will take twice as long to get it right the second time" applies as well to business processes as it does to engineering systems. In fact, for optimization and efficiency, the processes of a business should be analyzed and engineered in much the same manner as the products that the business was created to sell. Once processes have been optimized, the organization will have the structures in place to achieve its goals.
Why Not Just Automate?
Automating processes using information technology is known as technology insertion. For example, electronic funds transfer, imaging systems, client/server networking, electronic data exchange, and E-mail are examples of how technology is used to automate processes. Technology insertion can be a cure for poor process performance. However, there are two problems with how most organizations apply technology: the insertion of technology is often done in a vacuum, without sufficient data to support whether the automation will improve the process or not; and automating a process may not speed up a system as a whole. In other words, even if automation is the correct way to improve a particular process, it may have little effect if the entire system is not improved to account for those changes.
Technology applied to ineffective processes will be ineffective. The current Information Age has not had the expected impact on business operations, since applying technology has typically meant merely automating or speeding up existing processes rather than improving them. It has been estimated that of the $3 trillion U.S. corporations have spent on information technology in the past decade, about $1 trillion has been wasted since it has not had the desired effect. To be improved, processes need to be analyzed and redesigned, rather than just automated.
Why Continuous Improvement Isn't Always Enough
Most business processes were developed before modern computers and communication systems existed. As the Industrial Age progressed, systems and rules (both documented and undocumented) changed in response to the situations encountered. Instead of being designed using a structured, engineered approach, processes have mutated.
Change does not always equal improvement. And changing a process, while it might improve the process, may not improve overall performance. Continuously improving existing processes means that companies are often doing better what should never have been done at all (to paraphrase Peter Drucker). The problem is that while processes might be improved, they were never engineered in the first place.
Continuous Improvement is only appropriate for processes that are already operating reasonably effectively in a stable environment. Inefficient processes, performed because "that's the way we do it," must be redesigned from the ground up. To optimize processes, to make them efficient and effective as they can be, means the processes have to be reengineered, not just improved. This is the core of business process reengineering.
Business Process Reengineering
Although business process reengineering (BPR) is not a new practice (first coined by Hammer in 1990), it is more applicable than ever. The term BPR encapsulates the structured, analytical practices that have been used by many companies to redesign their processes to eliminate built-up redundancy and take advantage of current technology. BPR is the analysis and redesign of business processes. Organizations that are reengineering their processes need to answer questions about how they work: what they do, what it costs, how it can be changed, and what the effects of changes will be.
What BPR Isn't
As mentioned earlier, reengineering is not just automating and it is not continuous improvement. It is also not restructuring or downsizing. According to Hammer and Champy, "Downsizing and restructuring only mean doing less with less. Reengineering, by contrast, means doing more with less." Reengineering is not the same as reorganizing or flattening the organization, since the reengineering deals with process structure, not with organizational structures.
Total quality management (TQM) is not the same as reengineering. Quality programs are based on a company's existing processes, and TQM seeks improvement in quality through continuous incremental improvement.
BPR is also not Systems Thinking. According to Peter Senge, Systems Thinking is the "fifth discipline" that integrates the disciplines of working with mental models, building a shared vision, team learning, and personal mastery. Systems Thinking utilizes Systems Dynamics, a modeling methodology developed by Jay Forrester approximately 35 years ago as a method of examining public policy issues. While Systems Thinking can be an adjunct to the reengineering process (for example, to help identify goals and set policies), it works only at the highest levels (the"bird's-eye view). Process reengineering requires that processes be redesigned from the ground up. Before you implement changes in a process, you need to evaluate the quality of those changes and their impact on the process. You have to be able to drill down into the systems components and look at the detail of the individual interactions of the process elements. Only then can you evaluate the effects of implementing policies and determine staffing levels, equipment justifications, and whether automation would benefit the process.
BPR is not a philosophy, it is not a talking solution, nor is it a quick fix. While communication is an important aspect of BPR, talking about processes and process changes is not the solution. BPR requires more than just talk, it requires work. At its most basic level, BPR is about starting over -- discarding existing processes and replacing them with new ones. BPR requires the use of tools and techniques, combined with enabling technologies such as automation, to make changes throughout an organization. And it takes time and commitment: The successful procurement process reengineering efforts at Ford are often cited, but seldom mentioned is the fact that it took approximately five years to implement the associated changes.
Steps in the Reengineering Process
To reengineer its processes, an organization should follow these steps:
1. Develop a Business Vision and Objective Prioritize objectives and evaluate the organization's capacity for change.
2. Understand the Existing Process Dynamically model and measure the current system to provide a baseline and determine where problems lie.
3. Identify Processes to Redesign Focus on areas that are critical and have the most possibility for change.
4. Identify Information Technology Opportunities Brainstorm and simulate to determine where automation can appropriately be inserted.
5. Design and Prototype a New Process Redesign and streamline operations so that processes are integrated and workflow is simplified and accelerated. Then dynamically model the new process to determine its effects on performance measurements.
Process Reengineering Goals
As indicated earlier, business process reengineering is a structured approach that relies on dynamic modeling and performance measurement to determine which processes should be reengineered and to determine if proposed changes will have a productive impact.
The key performance goals, which measure whether processes are optimized, are:
Decrease cycle-time to bring it into alignment with customer's needs
Decrease costs and increase profits
Manage throughput based on customer requirements
Increase productivity and utilization of resources
Meeting these performance goals can result in significant changes in a company's financial picture. To achieve these goals, organizations need to change their existing processes to:
Eliminate nonessential steps
Improve workflow and insert technology where appropriate
Improve workflow to emphasize value-adding functions
Provide measurement and metrics for meaningful analysis and strategic planning
Also see Optimization