The idea of business process management (BPM) is to focus on business processes. It puts business processes at the centre of an organisation and captures the relationships between business processes and various aspects of the organisation, such as IT systems, customers and employees. To do this BPM must span areas such as:
The broader picture using Rummler’s framework
To help us understand the complexity of a modern organisation we will use Rummler’s framework. The framework enables us to visualise how stakeholders, customers, competitors, partners, suppliers, performance management and the business environment all influence the strategic goals of the business and its key performance indicators (KPIs). We will use KPIs to measure the performance of business processes.
Video 1-1- The broader picture using Rummler’s framework
So we said that in order to manage the complexity of modern organisations we need to understand its constituent business processes. And we say that business processes take the assets from within and outside the organisation, chain a number of activities originating from different functions within the organisation, in order to produce value for customers, or at least that is the expectation. However, there is more than producing value for customers. So, let’s use Rummler’s framework to extend our conceptualisation of an organisation.
Accordingly, another important aspect of an organisation is the role played by competitors, that also tap into the same resources of the organisation in order to generate value for the same customers.
We also need to take into account the business environment, so the economical situation, the regulatory framework, rules and norms and the culture. This will influence not only our organisation, but also the partners and the suppliers, as well as the competitors that operate in the same business environment.
And then, most importantly, we need to take into account the stakeholders of the organisation, because business processes are also meant to generate value for the stakeholders of the organisation, and value for a stakeholder is typically expressed in terms of the level of profitability of an organisation – how much profit can I generate through this investment, through my company.
Now, the way value is generated for the stakeholders is by planning the performance of the business processes, and then by managing such performance. Planning the performance entails setting the strategic goals of the organisation. We want to outsmart competitors; we want to increase sales; we want to reduce operational costs; we want to increase customer satisfaction. So these would be the strategic goals, to which we map key performance indicators – metrics, KPIs, that measure particular aspects of the performance or particular dimensions in the performance of business processes. So, for example, cost is a KPI that is related to the strategic objective of reducing operational costs. Cycle time is another KPI, so the duration of a business process that is related to efficiency of the operations. Or percentage of negative feedback that is related to the degree of customer satisfaction or dissatisfaction. Then the way we manage performance is by attaching or by setting target values for our KPIs, for example, the cycle time for approving a loan shouldn’t be more than two weeks, or the overall cost for running such a business process shouldn’t be more than €5,000. And then, we essentially measure the performance of our business processes to see how far they get, or how close they get to the KPI target values.
What do we do if we don’t meet our performance targets?
Strategic goals are set to enable a business to make its processes faster, cheaper and better and this is reflected in the KPIs agreed. Business process management plays a key role when these performance measures show there is room for improvement. Discover how in the context of our restaurant example.
Video 1-5- Process improvement
So that’s the idea of managing the performance of business processes. It’s not only about measuring such performance, but it’s also about improving the business processes continuously, in order to continuously meet our performance targets – targets that may shift over time, as competitors become more aggressive, as the business environment changes in which the organisation operates.
So, coming back to our restaurant example, let’s consider the business process for serving customers, and let’s assume that we are the restaurant owner. How would we improve this business process? Well, there are a number of options, also known as process changes, that we could implement in order to improve this particular business process. For example, we could outsource the process of serving drinks and food to the customers themselves, through a buffet. We could standardise the menu – every day there is a fixed menu or a set of options, eliminate the cooking, so saving on cooks, or we could automate the ordering step, we could eliminate waiters, we could re-sequence the delivery of food, or we could invest in new infrastructure.
Clearly, the type of business-process change that we need to implement depends on the strategic objective that we want to achieve. So, for example, if it is about increasing operational efficiency meaning decreasing the cycle time, the duration of the business process, we could look into options such as automating the ordering step, or re-sequencing the distribution of food. If we want to increase customer experience, we may invest in new infrastructure, or doing something particular, something fancy. If we want to reduce the operational cost, then we could outsource the ordering to customers, and then we save on waiters, or we save on staff wages, or we could standardise the menu, so we save on the costs of cooking.