Business Processes and Operating Models

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History of business process (not for the exam)

Phase Time Focus Business Technology Tools/enablers
Industrial Age 1750 – 1960s
  • Specialisation of Labor
  • Task Productivity
  • Cost Reduction
  • Functional Hierarchies
  • Command & Control
  • Assembly Line
  • Mechanization
  • Standardization
  • Record-keeping
  • Scientific Management
  • PDCA Improvement Cycle
  • Financial Modeling
1st Wave Process Improvement 70s - 80s
  • Quality Management
  • Continuous Flow
  • Task Efficiency
  • Multi-Industry Enterprises
  • Line of Business Organisation
  • Mergers & Acquisitions
  • Computerized Automation
  • Management Information systems
  • MRP
  • TQM
  • Statistical Process Control
  • Process Improvement Methods
2nd Wave - Process Reengineering 1990s
  • Process Innovation
  • “Best Practices”
  • Better, Faster, Cheaper
  • Business via the Internet
  • Flat Organization
  • End-to-end Processes
  • Value Propositions – Speed to Market, Customer Intimacy, Operational Excellence
  • Enterprise Architecture
  • ERP (Enterprise Ressource Planning)
  • CRM
  • Supply Chain Mgt
  • Activity Based Costing
  • Six Sigma
  • Buy vs. build
  • Process Redesign/ Reengineering Methods
3rd Wave - Business Process Management 2000+
  • Assessment, Adaptability, & Agility
  • 24X7 Global Business
  • Continual Transformation
  • Networked Organization
  • Hyper Competition
  • Market Growth Driven
  • Process Effectiveness over Resource Efficiency
  • Organisational Effectiveness over Operational Efficiency
  • Enterprise Application Integration
  • Service Oriented Architecture
  • Performance Management software
  • BPM Systems
  • Balanced Scorecard
  • Self Service & Personalization
  • Outsourcing, Co-Sourcing, In-sourcing
  • BPM Methods

Business processes are in the heart of information system and at the core of digitalization.

Business process

A business process is a sequence/arrangement of related tasks which, once completed, will lead to the accomplishment of a defined business goal. It's the manner in which work is organised, coordinated and focused in order to produce valuable products or services. It's a workflow of materials, information and knowledge.
It is important to underline that the steps of a business process are generally sequential but some steps can be done in parallel.
The business process is defined by three main characteristics:

  1. It has a starting and an ending point and is made out of steps organized in two ways: in sequence (one step comes after another) or in parallel (run simultaneously)
  2. It is a recurring activity (as opposed to "one-shot" project)
  3. It is dynamic (spans over time)

Some processes are more important because they enable the company to deliver their value. For instance, for an airline, their core processes can be separated in internal and external processes. Internal processes mean that nobody sees them or needs to know how they are organised, whereas the other are the ones that directly involve the customers and the suppliers. Internal is planning, scheduling, planning maintenance/allocation, marketing/advertising campaigns running is external. Food preparations is internal whereas in-flight experience is external or also check-in. Managing the bookings is external because it involves the customers, procurements, etc.

For example, in a hiring process, you would advertise the job, interview the candidates and then make a decision. In the case of the job recruitment process, you can imagine that several resumes can be reviewed by different people (steps in parallel). It can lead to higher efficiency.
Business processes are important because firms create value through them.

Why processes matter so much for information systems? It is precisely because they do require and generate a lot of information as they run. For a process to be efficient, information need to flow rapidly and reliably within the firm and even with suppliers, partners and customers. That's where digital technology is going to be obviously useful.

Business processes often cross-functional boundaries of an organization. For example, fulfilling a customer order involves a complex set of steps that require the close coordination of the sales, accounting and manufacturing functions. This is extremely challenging for many organizations that are very frequently structured as departments which often don't communicate with one another. Moreover, they also tend to cross-organizational boundaries as well: they involve suppliers and customers.

So many processes will therefore create the need for inter-organization or inter-functional integration.

That requires firms to develop the traversal perspective of what they do. Firms must turn from a functional view to a process-based organization. Firms must be able to integrate the whole tasks so that every concerned party is going to be involved in the fulfilment process (share information along the whole process).

Business processes matter because they are going to exhibit a certain level of performance. Business processes' performance can be measured through four notions:

  1. The input: amount of resources consumed per unit of time
  2. The throughput: rate of production or the rate at which something can be processed
  3. The latency: time delay between the cause and the effect of some physical or informational change in a system
  4. The output: quantity of goods/ amount of service delivered per unit of time

Every company, every organization and every business model can be seen as collections of business processes. To a large extent, the performance of a business depends on how well its business processes are designed and coordinated. A company's business can be a source of competitive advantage if they enable the company to innovate or to execute better than its rivals. It is important to note that technology can support a process but is never a process in itself.

Some business processes in organizations are considered as core business processes. Core business processes are those that are “essential” to the firm (in opposition to those that are more “marginal”) and are those o which companies base their value proposition. They can formally be defined as "small, stable, set of processes necessary for the firm to deliver its value and respond to market opportunities". There are two types of processes: External and Internal processes.

External processes directly involve interactions with customers or suppliers (e.g. The boarding process of an airline company involves direct interaction with the passengers -customers-, which makes it an external process).

Internal processes run only within the firm, without any interactions with external stakeholders (e.g. customers don’t see how airlines employees are trained so staff training is an internal process).

Let's take the example of a grocery shop.

Internal processes External processes
Warehousing Customer services
Cleaning services Promotions
Staff shifts, recruitment process Advertising
Pricing Check-out
Market research Shelves and store design
Accounting management Sanitary rules
Shelves refilling Food delivery
Payroll In-stores experiences
Maintenance of facilities Self-scanning maintenance

Note1 - the technology itself cannot be a process!
Note2 - every process described should have a clear start and ending point. This to be able to differentiate a process from simply an activity as a whole.
Note3 - a process is dynamic and recurring. For example, building a new plant or developing a new tool is a project, not a process.

Same example for the ULB

Internal processes External processes
Scheduling Admissions and registrations
IT maintenance/development Outsourcing contract management (cleaning, food, etc.)
Teaching provision management Marketing and advertising
Financial management Community management (Facebook, Instagram, etc.)
Facility management Accommodation services
Recruitments/ onboarding Campus activities
Partnerships management Teaching
Research Service to the community
Payroll Campus recruitment
Social student services
Management of exchange programs

Daily business processes generate a lot of data (e.g. when you hire a new employee, you give them an employee id, you set their salary in the payroll system etc...) and to be efficient, they must guarantee the quick and reliable flow of this newly generated information within the firm, with suppliers and with customers as well. Clearly, information systems provide the means to capture, store and manage all this data, which is why they often come up, when digitalization is discussed in a professional context. It is worth noting that universities have 3 purposes : Research, teaching and Serve the community.

Same example for airline companies

Internal processes External processes
Planning and scheduling (routes and lines) Marketing campaigns running
Plane maintenance and allocation Inflight experiences and services
Bookings Bookings
Food preparation Check-in
Employee management Boarding process
Weather forecasts Loyalty program
Allocate resources
Baggage handling

Operating model

The operating model of a company is the necessary level of business processes integration and standardization for delivering goods to customers. [1] It can be seen as a choice by the company on how the different business units will work together and which strategies will be pursued. An operating model is defined following two axes:

1.The level of processes standardization (BPS), which measures how well processes are precisely defined, regardless of who executes it and where it is executed. Process standardization describes the establishment of a set of rules governing how people in an organization are supposed to complete a given task or sequence of tasks. The main benefits of standardization for companies are:

  • Increased productivity
  • Efficiency: if you standardize it is for the better and done in such a way that is the most efficient possible version of that process.
  • Predictability : if everybody does exactly the same thing, you can expect the same inputs are always going to generate the same outputs.

2.The level of processes integration (BPI), which measures to what extent an organization harmonized the formats and key definitions that are supporting its processes and how much data is shared across and between the company's business processes and units. And how much is the data harmonized and shared across processes. The integration allows the company to achieve superior performance and quality. As a matter of fact, if your processes are well integrated, well communicating with one another, information flows very smoothly between them. You don't need to re-encode the same information, to reacquire the same information or to reprocess it all the time, which eliminates redundancies and useless steps in this process (which is already a source of efficiency and higher performance). You can then achieve superior quality in what you do because what you are doing is going to be better informed based on the data coming from another process. Integration is as such really about joining forces in an organization!

According to Ross, Weill & Robertson, the two axes define 4 types of operating models :

Level of integration High Coordination Unification
Low Diversification Replication
Low High
Level of standardization

Companies adopt different models at different levels. For example, they might adopt one operating model at the enterprise level, but then a different model at the division, business unit, region, or other level.

To figure out which of the four quadrants your company or business unit mostly belongs, Ross, Weill, and Robertson suggest asking two questions:

1. To what extend is the successful completion of one business unit’s transactions dependent on the availability, accuracy, and timeliness of other business units’ data?

2. To what extent does the company benefit by having business units run their operations in the same way?

This helps you figure out your business process integration requirements and your business process standardization requirements.

1. Coordination: “Unique business units with a need to know each other’s transactions”
You integrate processes but you don’t standardize them. Independent businesses, serving the same customers, therefore they need to share data. This type of operating model will generally be put in place when at least one of the following items are shared among the business units: customers, products, suppliers, and partners. At the crux of the coordination model is the customer service. For example, portfolio company which has different activities but the different activities serve the same customers.You need to speak with the customers about everything you do with them. Therefore they need to share data (to be integrated).

  • HIGH integration
  • LOW standardization

i.e.Commonwealth Bank of Australia, MetLife, Solvay S.A.

2. Diversification: “Independent business units with different customers and expertise”
Businesses that are diversified by nature and that typically cannot/don’t want to achieve a high level of standardization neither integration.

  • Different type of businesses can be in this model but it’s typical in portfolio companies that run very different businesses and activities. It doesn’t make sense to be standardized because they don’t do the same things and they have a different value proposition.
  • They are not integrated (don’t share data) as well because the different branches/activities don’t have, actually, the same customers. Generally, processes need to be integrated at the moment they serve the same customers / same customer groups. Nevertheless, companies might share services in order to achieve economies of scale.
  • Despite autonomous business management, value through the entire enterprise can be accomplished thanks to the synergies between the related business units.
  • LOW integration
  • LOW standardization

i.e. ING

3. Unification: “single business with global process standards and global data access”
Typical of companies that have processes standardized across activities and that are integrated as well. This creates interdependencies between the different business units. All the IT decisions are made at an unique centralised level.

  • HIGH integration
  • HIGH standardization

i.e.: Southwest airlines, Colruyt, UPS Package delivery

4. Replication: “independent but similar business units sharing best practice”
Typical in companies which run similar businesses in different places. Companies which work with branches or retail stores. For example, any branch of Delhaize will do the same thing and work in the same way, but they share different customers, so they don’t share data across customers. Transactions among the business units are also totally independent.

  • LOW integration
  • HIGH standardization

If you choose integration, that means you want information and data to be shared between different branches, departments or lines of business so you will need IT to be put in place in such a way that enables that data flow. For standardizing, you’ll have to go with technology that can standardize.

i.e.: Franchise stores are independent but must follow the guidelines of the brand they represent; Mc Donald's, Burger King,... Marriott (not the same places), Big retail stores (7-Eleven, Delhaize, Colruyt, etc.), Banks some years ago where branches were really independent but they were actually doing the same thing. Every Marriott and every Delhaize do the same things, they offer you the same service and products, they work in the same way. But, they serve different customers. For instance: in you went to your ING branch some years ago and you ask for your accounts, you will receive them. If you go to another uncommon ING branch (not those you usually go), they didn’t have the possibility to give it. It is explained by the fact that data was not shared a few years ago. Now, it has changed in the bank industry (data is now shared) but in other industries not (different branches continue to serve different customers that’s why data do not exchange anymore).

Defining the right operational model is important because it will assign a different role to the IT and operations systems in the firm (e.g. for a company with a coordination operating model, it would be necessary for IT to allow for data sharing, but not so much for a company with a diversification model). Any position on the chart is defensible and can be optimal, given the type of organization. It really depends on what business the company is in, on how diversified its activities are, how different target customers, target groups that the company is serving are. This is really what is going to define what should be the best model for the company. The problem is that most organizations do not have a clear and formal view on that. They actually have not made an explicit choice along these two dimensions. And, if the company does not make a deliberate choice, it has a high chance of trying to implement a piece of software that does not correspond to what is the underlying operating model of the organization. Furthermore, defining the right operating model have an impact on the growing strategy of the firm. Coordination and Unification thanks to their high integration facilitate organic growth. However, acquisitions are more challenging because they require the reconciliation of all data. As for Diversification and Replication, acquisitions are simply done by replacing the systems and processes.

From diversification to unification: an example

A packaging company operating in different countries with different processes and with different IT systems and IT departments across each country. They realized they were running across different branches the same processes; they were selling their services, entering the order, RD pipeline to bring new products, aftersales. Those processes were the same everywhere but in different versions and supported by different pieces of software. They decided deliberately to shift to unification to analyze the data on a central lever and better serve the customer. They decided on a new software ERP (support the unification type) to support that decision and the software new standard data definitions and formats which meant that they had do have one product list and they needed to standardize, prices, the way you manage orders etc.

In-class exercices :

Burger King: replication

  • High degree of standardization: every BK prepare burgers in the same way, recipes are the same in every BK, process are optimized to make sure that every BK makes exactly the same thing
  • Low level of processes integration: not a lot of data shared

Colruyt: unification

  • High degree of standardization: processes are highly standardized at Colruyt across stores because they are running in the same way, same prices, same products
  • High degree of integration: data are shared through the royalties program (really a point that enables us to conclude that there is a high level of unification), share data between inventories (about the price also)

Belfius: unification

  • High degree of standardization: be careful, having several activities (insurance, banking, mortgage, ...) and several types of clients (wealthy or poorer) doesn’t mean that it’s not standardized! To know if there is standardization, you have to ask if two branches of Belfius will act in the same way in front of the same product and the same customer and here, the answer is yes because Belfius is standardized, branches also have really a clear structure. However, each bank can have some personalisation in the service (not everything is totally black or white) but in general, the processes are standardised.
  • High degree of integration: Share data (see transactions of other banks), you can go to a Belfius in another city and they also have you in their databases.

Solvay SA: coordination

  • Low degree of standardization: Solvay SA is a portfolio company so it has a large portfolio of different activities (polymer, soude, etc.). Therefore, we can exclude unification. These activities are located in several places in the world so the process is not necessarily standardized.
  • High degree of integration: Are the business units serving the same customers group (same type of companies)? Yes to some extent, there are some customers that Solvay serves with different types of products from different part of the company. They have to be coordinated (and share data). But there is also a large group of clients which deals with Solvay only for 1 product. In that case, it’s not necessary to have a global view and to be standardized (and so don’t need to share data)→ We are a bit between coordination and diversification. But they most likely have a coordination model.

The foundation for execution

The foundation for execution refers to the automation of routine business tasks. This is very useful, as it will ensure reliability in key processes within the firm and allow people to focus on increasing profits. Companies that have implemented standardized and digitized processes are more agile and are also able to respond more quickly to changes. This is especially important because globalization and constant new regulations require the ability to adapt. An effective foundation for execution can only be achieved if the operating model of the company is rightfully defined.

Under the same regime, the same employees, two companies may or may not work. An essential difference is the informatization of their core processes. IT brings to the company more efficiency, ease and satisfaction, and less risk and cost. Automated processes are indeed much more predictable and controllable than when a human brain runs them.

Problems Answers
  • lengthy administrative processes
  • lack of agility
  • difficulties in IT
  • multiple processes for few activities
  • multiple answers for few questions
  • too much time spent manipulating data
  • Operating model: integration and standardization
  • Enterprise architecture: long term view
  • IT engagement model: coordination between business and IT

Things to keep in mind

There are a few key takeaways to remember on this topic.

1: Businesses, organizations and so on are actually delivering value by running processes.

2: Among those processes, some of them are really core = essential to operate and create value.

3: The performance of a business depends on how well its business processes are designed and coordinates. Business processes are thus at the core of a firm's performance, strategy, organisation and information systems.

4: A company's business processes can be source of competitive advantages if they enable it to innovate or to execute better than its rivals.

5: These processes can be standardized and integrated to a certain extent and that defines the operational model of the company. It is thus important to make an explicit choice between the level of integration and standardization because if we do not make a deliberate choice, then we have a high chance of trying to implement a piece of software that does not correspond to what is the underlying operational model. This third point is particularly important since it is going to determine the job and the mission assigned to I.T. So, in short: choose an IT-system/software that matches your business/operational model in the best way possible.

6: There is no best model. Every position is defendable and can be optimized in a good way.

Where to go?

Main page Theory - Previous Session Introduction - what the heck is digital? - Next Session Data Modeling and Governance

  1. "Enterprise Architecture as Strategy", HARVARD BUSINESS SCHOOL PRESS, Jeanne W. Ross Peter Weill David C. Robertson