The following is an excerpt from Business process change: A guide for business managers and BPM and Six Sigma professionals,...
2nd Edition, by Paul Harmon; copyright 2007. It is reprinted here with permission from Morgan Kaufmann, a division of Elsevier. Read the full chapter, "Business process change: A guide for business managers and Six Sigma professionals."
This chapter provides a brief history of corporate business process change initiatives. Individuals working in one tradition, whether business process reengineering (BPR), Six Sigma, or enterprise resource planning (ERP), often imagine that their perspective is the only one, or the correct one. We want to provide managers with several different perspectives on business process change in order to give everyone an idea of the range of techniques and methodologies available today.
In the process we will define some of the key terms that will occur throughout the remainder of the book. People have always worked at improving processes. Some archaeologists find it useful to organize their understanding of early human cultural development by classifying the techniques and processes that potters used to create their wares. In essence, potters gradually refined the pot-making process, creating better products, while probably also learning how to make them faster and cheaper.
The Industrial Revolution that began in the late 18th century led to factories and managers who focused considerable energy on the organization of manufacturing processes. Any history of industrial development will recount numerous stories of entrepreneurs who changed processes and revolutionized an industry. In the introduction we mentioned how Henry Ford created a new manufacturing process and revolutionized the way automobiles were assembled. He did that in 1903.
In 1911, soon after Henry Ford launched the Ford Motor Company, another American, Frederick Winslow Taylor, published a seminal book: Principles of Scientific Management. Taylor sought to capture some of the key ideas that good managers used to improve processes. He argued for simplification, for time studies, for systematic experimentation to identify the best way of performing a task, and for control systems that measured and rewarded output. Taylor's book became an international bestseller, and many would regard him as the father of operations research, a branch of engineering that seeks to create efficient and consistent processes. From 1911 on, managers have sought ways to be more systematic in their approaches to process change.
New technologies have often led to new business processes. The introduction of the train and the automobile, and of radio, telephones, and television, have each led to new and improved business processes. Since the end of World War II, computers and software systems have provided a major source of new efficiencies. Two recent developments in management theory deserve special attention. One was the popularization of systems thinking, and the other was the formalization of the idea of a value chain.
Organizations as systems
Many different trends led to the growing focus on systems that began in the 1960s. Some derived from operations research and studies of control systems. Some resulted from the emphasis on systems current in the computer community. Today's emphasis on systems also arose out of contemporary work in biology and the social sciences. At the same time, however, many management theorists have contributed to the systems perspective. One thinks of earlier writers like Ludwig von Bertalanffy, Stafford Beer, and Jay W. Forrester and more recent management theorists like John D. Sterman and Peter M. Senge.
In essence, the systems perspective emphasizes that everything is connected to everything else and that it's often worthwhile to model businesses and processes in terms of flows and feedback loops. A simple systems diagram is shown in Figure 1.1.
The idea of treating a business as a system is so simple, especially today when it is so commonplace, that it is hard for some to understand how important the idea really is. Systems thinking stresses linkages and relationships and flows. It emphasizes that any given employee or unit or activity is part of a larger entity and that ultimately those entities, working together, are justified by the results they produce.
Figure 1.1: A business entity as a system
To make all this a bit more concrete, consider how it is applied to business processes in the work of Michael E. Porter.
Sytems and value chains
The groundwork for the current emphasis on comprehensive business processes was laid by Michael Porter in his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance. Porter is probably best known for his earlier book, Competitive Strategy, published in 1980, but it's in Competitive Advantage that he lays out his concept of a value chain—a comprehensive collection of all of the activities that are performed to design, produce, market, deliver, and support a product line. Figure 1.2 shows the diagram that Porter has used on several occasions to illustrate a generic value chain.
Figure 1.2: Michael Porter's generic value chain
Although Porter doesn't show it on this diagram, you should assume that some primary activity is initiated on the lower left of the diagram when a customer orders a product, and ends on the right side when the product is delivered to the customer. Of course it may be a bit more complex, with marketing stimulating the customer to order and service following up the delivery of the order with various services, but those details are avoided in this diagram. Figure 1.2 simply focuses on what happens between the order and the final delivery—on the value chain or large-scale business process that produces the product. What's important to Porter's concept is that every function involved in the production of the product, and all of the support services, from information technology to accounting, should be included in a single value chain. It's only by including all of the activities involved in producing the product that a company is in position to determine exactly what the product is costing and what margin the firm achieves when it sells the product.
As a result of Porter's work, a new approach to accounting, Activity-Based Costing (ABC), has become popular and is used to determine the actual value of producing specific products.
When Porter's concept of a value chain is applied to business processes, a different type of diagram is produced. Figure 1.3 illustrates a value chain or business process that cuts across five departmental or functional boundaries, represented by the underlying organizational chart. The boxes shown within the process arrow are subprocesses. The subprocesses are initiated by an input from a customer, and the process ultimately produces an output that is consumed by a customer. As far as I know, this type of diagram was first used by another management systems theorist, Geary Rummler, in 1984.
Geary Rummler was the second major business process guru of the 1980s. With a background in business management and behavioral psychology, Rummler worked for years on employee training and motivation issues. Eventually, Rummler and his colleagues established a specialized discipline that is usually termed Human Performance Technology (HPT). Rummler's specific focus was on how to structure processes and activities to guarantee that employees—be they managers, salespeople, or production line workers—would function effectively. In the 1960s and 1970s he relied on behavioral psychology and systems theory to explain his approach, but during the course of the 1980s he focused increasingly on business process models.
Figure 1.3: A business process cuts across traditional departments to combine activities into a single process flow (After Rummler, 1984)
At the end of the eighties Rummler and a colleague, Alan Brache, wrote a book, Improving Performance: How to Manage the White Space on the Organization Chart, that described the approach they had developed while consulting on process improvement during the course of the eighties. Rummler focused on organizations as systems and worked from the top down to develop a comprehensive picture of how organizations were defined by processes and how people defined what processes could accomplish. He provided a detailed methodology for how to analyze an organization, how to analyze processes, how to redesign and then improve processes, how to design jobs, and how to manage processes once they were in place. The emphasis on "the white space on the organization chart" stressed the fact that many process problems occurred when one department tried to hand off things to the next. The only way to overcome those interdepartmental problems, Rummler argued, was to conceptualize and manage processes as wholes.
Later, in the nineties, Hammer and Davenport would exhort companies to change and offered lots of examples about how changes had led to improved company performance. Similarly, IDS Scheer would offer a software engineering methodology for process change. Rummler and Brache offered a systematic, comprehensive approach designed for business managers. The book that Rummler and Brache wrote did not launch the BPR movement in the nineties. The popular books written by Hammer and Davenport launched the Reengineering movement. Once managers became interested in Reengineering, however, and began to look around for practical advice about how to actually accomplish process change, they frequently arrived at Improving Performance. Thus, the Rummler-Brache methodology became the most widely used, systematic business process methodology in the mid-1990s.
One of the most important contributions made by Rummler and Brache was a framework that showed, in a single diagram, how everything related to everything else. They define three levels of performance: (1) an organizational level, (2) a process level, and (3) a job or performer level. This is very similar to our levels of concern, except that we refer to level 3 as the implementation level to emphasize that an activity can be performed by an employee doing a job or by a computer executing a software application. Otherwise, our use of levels of concern in this book mirrors the levels described in Rummler-Brache in 1990.
Rummler and Brache also introduced a matrix that they obtained by crossing their three levels with three different perspectives. The perspectives are goals and measures, design and implementation issues, and management. Figure 1.4 illustrates the matrix. Software architects today would probably refer to it as a framework. The important thing is that it identifies nine different concerns that anyone trying to change processes in an organization must consider. Approaches that focus only on processes or on performance level measures or on process management are limited perspectives.
Figure 1.4: A performance framework (modified after a figure in Rummler and Brache's Improving Performance)
Notice how similar the ideas expressed in the Rummler-Brache framework are to the ideas expressed in the SEI Capability Maturity Model we considered in the introduction. Both seek to describe an organization that is mature and capable of taking advantage of systematic processes. Both stress that we must be concerned not only with the design of processes themselves, but also with measures of success and with the management of processes. In effect, the CMM diagram described how organizations evolve toward process maturity, and the Rummler-Brache framework describes all of the things that a mature organization must master.
Mature organizations must align both vertically and horizontally. Activity goals must be related to process goals, which must, in turn, be derived from the strategic goals of the organization. Similarly, a process must be an integrated whole, with goals and measures, a good design that is well implemented, and a management system that uses the goals and measures to assure that the process runs smoothly and, if need be, is improved.
The Rummler-Brache methodology has helped everyone involved in business process change to understand the scope of the problem, and it provides the foundation on which all of today's comprehensive process redesign methodologies are based.
Prior to the work of systems and management theorists like Porter and Rummler, most companies had focused on dividing processes into specific activities that were assigned to specific departments. Each department developed its own standards and procedures to manage the activities delegated to it. Along the way, in many cases, departments became focused on doing their own activities in their own way, without much regard for the overall process. This is often referred to as silo thinking, an image that suggests that each department on the organization chart is its own isolated silo.
In the early years of business computing, a sharp distinction was made between corporate computing and departmental computing. A few systems like payroll and accounting were developed and maintained at the corporate level. Other systems were created by individual departments to serve their specific needs. Typically, one departmental system wouldn't talk to another, and the data stored in the databases of sales couldn't be exchanged with data in the databases owned by accounting or by manufacturing. In essence, in an effort to make each department as professional and efficient as possible, the concept of the overall process was lost.
The emphasis on value chains and systems in the 1980s and the emphasis on business process reengineering in the early 1990s was a revolt against excessive departmentalism and a call for a more holistic view of how activities needed to work together to achieve organizational goals.
The Six Sigma movement
The third main development in the 1980s evolved from the interaction of the Rummler- Brache approach and the quality control movement. In the early 1980s, Rummler had done quite a bit of consulting at Motorola and had helped Motorola University set up several courses in process analysis and redesign. In the mid-1980s, a group of quality control experts wedded Rummler's emphasis on process with quality and measurement concepts derived from quality control gurus W. Edwards Deming and Joseph M. Juran to create a movement that is now universally referred to as Six Sigma. Six Sigma is more than a set of techniques, however. As Six Sigma spread, first from Motorola to GE, and then to a number of other manufacturing companies, it developed into a comprehensive training program that sought to create process awareness on the part of all employees in an organization. Organizations that embrace Six Sigma not only learn to use a variety of Six Sigma tools, but also embrace a whole culture dedicated to training employees to support process change throughout the organization.
Prior to Six Sigma, quality control professionals had explored a number of different process improvement techniques. ISO 9000 is a good example of another quality control initiative. This international standard describes activities organizations should undertake to be certified ISO 9000 compliant. Unfortunately, ISO 9000 efforts usually focus on simply documenting and managing procedures. Recently, a newer version of this standard, ISO9000:2000, has become established. Rather than focusing so much on documentation, the new standard is driving many companies to think in terms of processes. In many cases this has prompted management to actually start to analyze processes and use them to start to drive change programs. In both cases, however, the emphasis is on documentation, while what organizations really need are ways to improve quality.
At the same time that companies were exploring ISO 9000, they were also exploring other quality initiatives like statistical process control (SPC), total quality management (TQM), and just-in-time manufacturing (JIT). Each of these quality-control initiatives contributed to the efficiency and quality of organizational processes. All this jelled at Motorola with Six Sigma, which has evolved into the most popular corporate process movement today. Unfortunately, Six Sigma's origins in quality control and its heavy emphasis on statistical techniques and process improvement has often put it at odds with other, less statistical approaches to process redesign, like the Rummler- Brache methodology, and with process automation. That, however, is beginning to change and today Six Sigma groups in leading corporations are reaching out to explore the whole range of business process change techniques. This book is not written from a traditional Six Sigma perspective, but we believe that Six Sigma practitioners will find the ideas described here useful and we are equally convinced that readers from other traditions will find it increasingly important and useful to collaborate with Six Sigma practitioners.
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