Chapter 2: Business Processes

Business Pressures

result of today's competitive business environment

To sustain BPI efforts over time, organizations can adopt business process management (BPM)

a management system that includes methods and tools to support the design, analysis, implementation, management, and continuous optimization of core business processes throughout the organization. -BPM integrates disparate BPI initiatives to ensure consistent strategy execution.

strategic information systems (SIS)

a competitive advantage by helping an organization implement its

Strategies for a competitive advantage...

cost leadership, innovation, customer oriented, differentiation, operational effectiveness

Regardless of the specific methodology you use, a successful BPI project generally follows five basic phases:

define, measure, analyze, improve, and control (DMAIC)

Gartner (www.gartner.com), a leading IT research and advisory firm, states that companies need to focus on

developing and mastering BPM skills throughout the organization.

support activities

do not add value directly to the firm's products or services. Rather, as their name suggests, they contribute to the firm's competitive advantage by supporting the primary activities.

BPI Measure Phase

e BPI team identifies relevant process metrics, such as time and cost to generate one output (product or service), and collects data to understand how the metrics evolve over time -BPI team needs to combine operational process data already stored in the company's IS systems with other data sources, such as customer and employee observations, interviews, and surveys

Technology Pressures

echnological innovation and information overload.

"bring your own device (BYOD)." (tech pressures)

efers to the policy of permitting employees to bring personally owned mobile devices (laptops, tablet computers, and smartphone -tech innovation -increase worker productivity

Two fundamental metrics that organizations employ in assessing their processes are ...

efficiency and effectiveness

competitive advantage

refers to any assets that provide an organization with an edge against its competitors in some measure such as cost, quality, or speed -helps an organization control a market and accrue larger-than-average profits -strategy

primary activities

relate to the production and distribution of the firm's products and services. These activities create value for which customers are willing to pay.

Business Process 3 Elements

- Inputs: Materials, services, and information that flow through and are transformed as a result of process activities - Resources: People and equipment that perform process activities - Outputs: The product or a service created by the process

process modeling

which is a graphical depiction of all of the steps in a process. -Process modeling helps employees understand the interactions and dependencies among the people involved in the process, the information systems they rely on, and the information they require to optimally perform their tasks

Organizational Responses

- strategic systems: provide organizations with advantages that enable them to increase their market share and profits to better negotiate with suppliers and to prevent competitors from entering their markets -customer focus -make to order mass customization -e-commerce

Given the importance of business and IT alignment, why do so many organizations fail to implement this policy? The major reasons are the following:

-Business managers and IT managers have different objectives. -The business and IT departments are ignorant of the other group's expertise. -A lack of communication.

IT is instrumental in organizational efforts to "go green" in three areas:

-Facilities design and management -Carbon management -International and U.S. environmental law

Manufacturing companies typically perform five primary activities in the following sequence:

-Inbound logistics (inputs) -Operations (manufacturing and testing) -Outbound logistics (storage and distribution) -Marketing and sales -Services

Examples of Accounting Business Processes

-Managing accounts payable -Managing accounts receivable -Reconciling bank accounts -Managing cash receipts

Example of Globalization

-Multinational corporations operate on a global scale, with offices and branches located worldwide. Many automobile manufacturers use parts from other countries, such as a car being assembled in the United States with parts coming from Japan, Germany, or Korea. The World Trade Organization (WTO; www.wto.org) supervises international trade. -Regional agreements such as the North American Free Trade Agreement (NAFTA), which includes the United States, Canada, and Mexico, have contributed to increased world trade and increased competition. -The European Union (EU) is an economic and political union of 28 countries that are located in Europe. Note: As of early 2017, the United Kingdom remained in the EU. Under the terms of Brexit, the U.K. will be able to formally leave the EU in March 2019. -The rise of India and China as economic powerhouses has increased global competition.

There are six characteristics of excellent alignment:

-Organizations view IT as an engine of innovation that continually transforms the business, often creating new revenue streams. -Organizations view their internal and external customers and their customer service function as supremely important. -Organizations rotate business and IT professionals across departments and job functions. -Organizations provide overarching goals that are completely clear to each IT and business employee. -Organizations ensure that IT employees understand how the company makes (or loses) money. -Organizations create a vibrant and inclusive company culture.

As noted earlier, these primary activities are buttressed by support activities. Support activities consist of the following:

-The firm's infrastructure (accounting, finance, management) -Human resources management -Product and technology development (R&D) -Procurement

As work progresses in this sequence, value is added to the product in each activity. Specifically, the following steps occur:

-The incoming materials are processed (in receiving, storage, and so on) in activities called inbound logistics. -The materials are used in operations, in which value is added by turning raw materials into products. -These products are prepared for delivery (packaging, storing, and shipping) in the outbound logistics activities. -Marketing and sales sell the products to customers, increasing product value by creating demand for the company's products. -Finally, the company performs after-sales service for the customer, such as warranty service or upgrade notification, adding further value.

BPI focuses on delivering quantifiable results—

-and if a business case cannot be made, the project is not continued. -All employees can be trained to apply BPI techniques in their own work to identify opportunities for improvement. -Thus, BPI projects tend to be performed more from the bottom up -take less time overall, and even if they are unsuccessful, they consume fewer organizational resources than BPR projects

bPR in contrast to BPI

-involve top-down change mandates - consider if if incremental improvements through BPI are no longer possible, or if significant changes occur in the firm's business environment

Process Simulation software during analysis advantages

-it enables a process manager to quickly simulate a real situation (e.g., with a certain number of people undertaking activities) for a specific amount of time (e.g., a working day, a week, or a month), predictive -allows the manager to create multiple scenarios -an also provide a number of outputs regarding a process including the time used by all resources to execute specific activities, the overall cycle time of a process, the identification of resources that are infrequently used, and the bottlenecks in the process

business process improvement (BPI)

-less confusing than BPR -focuses on reducing variation in the process outputs by searching for root causes of the variation in the process itself (e.g., a broken machine on an assembly line) or among the process inputs (e.g., a decline in the quality of raw materials purchased from a certain supplier) -perfomred by teams with one expert, direct -customers buying outputs, indirect

Porter's model identifies five major forces that can endanger or enhance a company's position in a given industry.

1. the threat of entry of new competitors, entry barrier 2. bargaining power of suppliers 3. he bargaining power of customers (buyers 4. threat of substitute products or services 5. The rivalry among existing firms in the industry

BPI Define Phase

BPI team documents the existing "as is" process activities, process resources, and process inputs and outputs, usually as a graphical process map or diagram. -The team also documents the customer and the customer's requirements for the process output, together with a description of the problem that needs to be addressed.

Michael Porter's competitive forces model

1985 -est-known framework for analyzing competitiveness

One critical social problem is the state of the physical environment...

A growing IT initiative, called green IT, addresses some of the most pressing environmental concerns

Competition is also being affected by the extremely low variable cost of digital products..

That is, once a digital product has been developed, the cost of producing additional units approaches zero.

customer satisfaction

The result of optimizing and aligning business processes to fulfill customers' needs, wants, and desires.

Productivity

The result of optimizing each individual's work processes.

cost reduction

The result of optimizing operations and supplier processes.

quality

The result of optimizing the design, development, and production processes.

Cycle and fulfillment time reduction

The result of optimizing the manufacturing and logistics processes.

Differentiation

The result of optimizing the marketing and innovation processes.

Information Overload (tech pressures)

To make decisions effectively and efficiently, managers must be able to access, navigate, and use these vast stores of data, information, and knowledge. Information technologies, such as search engines (dis -scoietal/political/legal pressures

Six Sigma

a popular methodology for BPI initiatives. - Its goal is to ensure that the process has no more than 3.4 defects per million outputs by using statistical methods to analyze the process. (A defect is defined as a faulty product or an unsatisfactory service. -made in 19809 by motorola -good for manufacturing environments -used in finance and health too

business activity monitoring

a real-time approach for measuring and managing business processes. - to monitor their business processes, identify failures or exceptions, and address these failures in real time. - tracks process operations and indicates whether they succeed or fail -it creates valuable records of process behaviors that organizations can use to improve their processes.

value chain

a sequence of activities through which the organization's inputs, whatever they are, are transformed into more valuable outputs, whatever they are

business process reengineering

a strategy for making an organization's business processes more productive and profitable. -The key is for enterprises to examine their business processes from a "clean sheet" perspective and then determine how they can best reconstruct those processes to improve their business functions - Michael Hammer and James Champy -propeleld by automation and standardization

BPM activities are often supported by business process management suites (BPMS)

an integrated set of applications that includes a repository of process information such as process maps and business rules; tools for process modeling, simulation, execution, coordination across functions, and reconfiguration in response to changing business needs as well as process-monitoring capabilities

business processes

an ongoing collection of related activities that create a product or a service of value to the organization, its business partners, and its customers -crosses functional areas in an organization

It is often valuable to use process simulation software during the...

analysis phase

Effectiveness

focuses on doing the things that matter; that is, creating outputs of value to the process customer—for example, high quality products.

Efficiency

focuses on doing things well in the process; for example, progressing from one process activity to another without delay or without wasting money or resources.

Market Pressures

generated by the global economy, intense competition, the changing nature of the workforce, and powerful customers -globalization: increases competition -changing workforce -powerful customers

BPI Control Phase

he team establishes process metrics and monitors the improved process after the solution has been implemented to ensure the process performance remains stable. -An IS system can be very useful for this purpose.

value chain model

identifies points for which an organization can use information technology to achieve a competitive advantage

After the firm creates products, these products pass through the value chains of . All parts of these chains are included in the value system. To achieve and sustain a competitive advantage, and to support that advantage with information technologies, a firm must understand every component of this value system.

istributors (which also have their own value chains), all the way to the customers

Simulating a process is extremely valuable for process managers because...

it is a risk-free and inexpensive test of an improvement solution that does not need to be conducted with real resources.

value system (industry value chain)

larger stream of activities in Porter value chain -ncludes the suppliers that provide the inputs necessary to the firm along with their value chains.

Three types of business pressures

market, technology, and societal pressures.

ccording to Porter's value chain model, the activities conducted in any organization can be divided into two categories:

primary activities and support activities.

Important components of BPM

process modeling and business activity monitoring

social responsibility

social issues that affect businesses and individuals range from the state of the physical environment, to company and individual philanthropy, to education -spend money, social cultural responsibility

competitive strategy

statement that identifies a business's approach to compete, its goals, and the plans and policies that will be required to carry out those goals

Business-information technology alignment (business-IT alignment) is the tight integration of the IT function with the organization's ...

strategy, mission, and goals. That is, the IT function directly supports the business objectives of the organization.

BPI Analysis Phase

the BPI team examines the "as is" process map and the collected data to identify problems with the process (e.g., decreasing efficiency or effectiveness) and their root causes -eam should also benchmark the process; that is, compare its performance with that of similar processes in other companies, or other areas of the organization. -The team can employ IT applications such as statistical analysis software or simulation packages in this phase.

BPI Improve Phase

the BPI team identifies possible solutions for addressing the root causes, maps the resulting "to be" process alternatives, and selects and implements the most appropriate solution -Common ways to improve processes are eliminating process activities that do not add value to the output and rearranging activities in a way that reduces delays or improves resource use. -

business environment

the combination of social, legal, economic, physical, and political factors in which businesses conduct their operations. Significant changes in any of these factors are likely to create business pressures on organizations -respond with activities supported in IT

One important pressure that businesses in a global market must contend with is

the cost of labor

globalization

the integration and interdependence of economic, social, cultural, and ecological facets of life, made possible by rapid advances in information technology. Today, individuals around the world are able to connect, compute, communicate, collaborate, and compete everywhere and anywhere, any time, and all the time; to access limitless amounts of information, services, and entertainment; to exchange knowledge; and to produce and sell goods and services

Although BPI initiatives do not deliver the huge performance gains promised by BPR, many organizations prefer them because

they are less risky and less costly

In the improve phase he organization must be careful, however, not to eliminate internal process controls—

those activities that safeguard company resources, guarantee the accuracy of its financial reporting, and ensure adherence to rules and regulations.

All parts of these chains are included in the value system. To achieve and sustain a competitive advantage, and

to support that advantage with information technologies, a firm must understand every component of this value system.

Although some enterprises have successfully implemented BPR, many organizations found this strategy..

too difficult, too radical, too lengthy, and too comprehensive. The impact on employees, on facilities, on existing investments in information systems, and even on organizational culture was overwhelming.