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The Development of a Measure of Business Process Orientation
and the Relationship to Organizational Performance

by

Dr. Kevin McCormack
2232 Baneberry Dr.
Birmingham, AL 35244

Tel. 205-733-2096
Fax. 205-733-2094

Email: Kmccorm241@aol.com

April, 1999

Please do not copy or distribute
without permission from the author.

 

 

Abstract

Several concepts have developed during the last few years related to business processes, organizations and performance. Process centering, business process orientation, the horizontal corporation and the reengineered corporation have all been proposed as significantly impacting both long and short-term performance of an organization. This study defines and operationalizes the business process orientation (BPO) construct, develops and validates the measures of BPO and tests the consequences and impacts. Phase I of this study develops the domain of the construct of business process orientation and develops and validates the operational definitions, measures and a survey instrument of business process orientation. Phase II uses the validated survey instrument in a cross-industry, key informant study to test the relationships between business process orientation and its proposed impacts on an organization using the constructs of esprit de corps, overall business performance, inter-functional conflict and interdepartmental connectedness, all components of the Kohli and Jaworski (1993) market orientation framework. In this study, BPO is shown to significantly and positively impact internal organization factors and overall organizational performance.

Background

Several concepts have developed during the last few years relating to business processes, organizations and performance. Michael Porter introduced the concept of interoperability across the value chain as a major issue within firms (Porter 1981). Edward Deming developed the "Deming Flow Diagram" depicting the connections across the firm from the customer to the supplier as a process that could be measured and improved like any other process (Walton 1986). Thomas Davenport and James Short (1990) described a process orientation within an organization as a key component in the "New Industrial Engineering: Information Technology and Business Process Redesign." Michael Hammer also presented the business process orientation concept as an essential ingredient of a successful "Reengineering" effort. A Reengineering effort is a term used by Dr. Hammer to describe the development of a customer focused, strategic business process based organization enabled by rethinking the assumptions in a process oriented way and utilizing information technology as a key enabler (Hammer, 1993). Dr. Hammer offers Reengineering as a strategy to overcome the problematic cross-functional activities that present major performance issues to firms.

Purpose of the Present Study

This study attempts to sample and capture the domain of the Business Process Orientation (BPO) construct, develop and validate the operational definitions and measures of BPO and test the relationships in the context of the Kohli and Jaworski framework developed in 1993. This study will specifically propose and test BPO relationships to esprit de corps, business performance, inter-functional conflict and interdepartmental connectedness, all components of the Kohli and Jaworski market orientation framework. This study will also enhance the prescriptive aspect of business process orientation and its impact on an organization.

Phase I of this study develops the domain of the construct of business process orientation and also develops and validates the operational definitions and measures of business process orientation. Phase II tests the relationship between Business Process Orientation and performance using the validated survey instrument.

Research Question of This Study

The specific research questions being answered are:

    - What is the construct of Business Process Orientation (BPO) in an organization?

    - What are the measures used to examine the influence of BPO?

    - Does Business Process Orientation in an organization really improve performance?

Structure of Present Study

This study is a "key informant" survey research study investigating the orientation of the organization, which is the unit of analysis. Specifically, manufacturing organizations in the United States existing in 1998. This study is divided into two phases. Phase I develops and validates the business process orientation (BPO) construct, develops the initial measures and develops and validates the final measures for BPO. Phase II uses a self-assessment survey approach to gather data from several judgmental samples and investigates the relationship between BPO and several proposed consequences, such as improved business performance.

Phase I of this study follows Churchill’s suggested procedures for developing measures (Churchill 1979).

These eight procedures are

1. specify domain of the construct,

2. generate sample of items,

3. collect data,

4. purify the measure,

5. collect new data,

6. assess reliability with new data,

7. assess construct validity and

8. develop norms

Phase II consists of gathering data from various organizations using the validated survey instrument and examining the relationships between BPO and several outcome measures developed by Kohli and Jaworski (1993). These are inter-functional conflict, interdepartmental connectedness, esprit de corps and overall performance.

Summary of Literature Review

Business Process Orientation - the Independent Variable

The concept of business process orientation has only been generally defined by the popular press and has not been operationalized and tested as to its proposed impact on an organization. This has resulted is some confusion concerning a consensus on the definition, measures and statistical studies of the related impacts. How does one know he has it if it can't be clearly defined and measured?

In order to develop a specific description of the business process orientation construct, ten definitions were developed from the literature. Questionnaires were sent to three hundred Hammer and Co. seminar attendees asking them to rate each of the definitions from "strongly agree" to "strongly disagree" using a five-point scale (see appendix A). Thirty-four responses were received. Two definitions rated high with a mean of 4.5 and 4.47 on a scale of 1 to 5.

"An organization that is oriented towards processes, customers and outcomes as opposed to hierarchies."

"An organization that emphasizes process and a process oriented way of thinking."

The combined definition of the construct using these two definitions can be written as:

"An organization that emphasizes process, a process oriented way of thinking, outcomes and customers as opposed to hierarchies."

The consensus view of the components of a business process oriented organization that emerges from the literature appears to includes:

 

 

Process View (PV)

A "Process View" can be described as the documentation detailed by Melan, the High Level Map referenced by Hammer, the Relationship Map of Rummler- Brache and the process vocabulary described often in the literature.

Process Structures (PS)

A cross-functional process team structure, "flat" hierarchy, process owners with leadership not control oriented management are the components in this area.

Process Jobs (PJ)

Empowered, multi-dimensional, process team oriented jobs are the descriptors of these components.

Process Management and Measurement systems (PMM)

The components of this area are process measurement systems, rewards for process improvement, outcome measurements, customer driven measures, and team and customer based measures and rewards.

Process Values and Beliefs (PVB)

Customer focused, empowerment and continuous improvement oriented values and beliefs.

 

 

Measuring the Outcome - the Dependent Variables

Process centering or building an organization with a business process orientation has led to many reported successes. Texas Instruments, Progressive Insurance and American Standard have all been reported, albeit anecdotally, as receiving improved business performance from building a process orientation within an organization (Hammer 1996). A team oriented working environment and strong feelings of ownership are also proposed by many as a result of or possibly an essential ingredient of a business process oriented organization (Hammer 1993, 1995, 1996, Davenport 1993, Byrne 1993, Champy 1995).

Process orientation and its relationship to improved cross-functional interaction was introduced by Michael Porter. He introduced the concept of interoperability across the value chain as a major issue within firms (Porter 1981). Dr. Michael Hammer also presented the business process orientation concept as an essential ingredient of a successful "reengineering" effort. (Hammer, 1993). Dr. Hammer offers reengineering as a strategy to overcome the problematic cross-functional activities that are presenting major performance issues to firms and cites many examples of successes and failures in his series of books and articles. Hallmark and Wal-Mart are often put forward as success stories and IBM and GM as the failures.

These proposed outcomes of business process orientation appear strongly linked to the constructs developed by Kohli and Jaworski. Therefore, the theoretical framework chosen for this study was the Kohli and Jaworski 1993 market orientation framework. This framework was selected due to its completeness, maturity and frequent use of the measures in testing an organization's orientation and the impact on performance factors. The proposed relationship between business process orientation (BPO) and the framework's internal organizational factors, inter-functional conflict and interdepartmental connectedness, were also investigated using this framework. The relationship of BPO to the framework outcomes of overall business performance and esprit de corp were examined within this framework as the key hypothesized relationships in this study.

The framework's internal organizational factors, inter-functional conflict and interdepartmental connectedness have been conceptualized, operationalized, validated and tested by Kohli and Jaworski (1993). Inter-functional conflict is defined as tension among departments arising from the incompatibility of actual or desired responses and interdepartmental connectedness is defined as the degree of formal and informal direct contact among employees across departments. The components, definition and measures of Kohli and Jaworski were used in this study. Kohli and Jaworski used a seven-item, five point Likert scale to measure conflict and connectedness. These items were developed with a manufacturing firm focus and fit with this study. For that reason, they were used as-is except for the addition of a "cannot judge" category that will reduce guessing and allow for a quality measure of the survey. If there are a significant number of the "cannot judge" answers, then the participant might not be knowledgeable enough on the concept being measured and their survey should be eliminated. See appendix A for the final phase II survey questionnaire that includes the conflict and connectedness measures.

Performance, in the Kohli and Jaworski framework, is measured by using a judgmental measure asking informants for their assessment of the overall performance of the business rated on a 5-point scale ranging from poor to excellent. This measure, although very subjective, has been used in cross industry studies and is generally accepted as representing the relative overall performance of an organization from a key informant perspective.

The long term health of an organization, possible a better predictor of future performance, is measured in the framework using the construct of esprit de corps. This is defined by Kohli and Jaworski as the "extent to which a team spirit prevails in an organization" and is measured by 7-items scored on 5-point Likert scale.

 

Sample Population and Data Collection

Phase I - Construct and Instrument Development

Several academic and research groups have been formed around the BPO and reengineering topic. Most are using the case study approach to investigating the reengineering topic. Most of these groups have a presence on the world-wide-web and make their points of view available. During the literature review, several of these web sites were examined and provided valuable references on the topic. These groups were also contacted and recruited for participation and input. This sample population helped validate the construct domain specification as well as generate a comprehensive list of sample items to be used in the initial survey.

A sample of "experts" was used in the idea generation stage of phase I to review and contribute to the initial list of measures developed in the literature review and contained in appendix A. Participants in this stage were recruited from expert populations. These populations were identified by attributes that indicated significant experience in the area of business process orientation. A company with a published history of building a business process oriented organization, such as Texas Instruments, 3M and Corning were excellent pools of experience. Repeated participation in Hammer and Co. seminars on the subject of reengineering was also an indicator of knowledge of BPO. Three hundred of these participants were contacted by mail and over 35 participated in reviewing and rating the measurement ideas.

The sample population used for refining the initial survey was selected from Nova Southeastern University DBA statistical research classes held in Austin and Denver during the 1997 Fall semester. An instrument listing the potential measures describing BPO and some basic background material was given to the participants. The participants were asked to develop a refined list of indicators from this initial list and submit it for consideration for inclusion in the questionnaire. This input was considered and an initial survey questionnaire was developed. The resulting questionnaire is contained in Appendix A.

 

The scale used for this questionnaire was a Likert scale measuring agreement with the question in regards to the participant's organization. This scale consisted of the following:

1 completely disagree, 2 mostly disagree, 3 neither agree nor disagree, 4 mostly agree,

5 completely agree, and 8 cannot judge.

The questionnaire asked participants to rate the question in regards to how they perceived their organization as to the way the organization is structured toward getting work done. Each participant was asked to complete the questionnaire and survey at least ten other people using the same questionnaire. (240) valid surveys were returned. The data was then entered into an SPSS database for analysis.

Phase II - Measuring the Relationships

For the final data gathering in Phase II, a judgmental sample was drawn from attendee lists of Hammer and Co. seminars held on the subject of business process reengineering and process improvement during 1994 through 1996. Since the topic of business process orientation is presented at the Hammer and Co. seminars on reengineering, attendee lists from these seminars will be used to select participants knowledgeable in BPO concepts. Due to attendance at these seminars, these attendees are assumed to have a basic knowledge of business process concepts. Survey participants were selected from these lists based upon company type. Manufacturing companies in the U.S. were selected as a focus of this research since the concept of "process" is generally well known within manufacturing firms.

Motorola, a well-known leader in the concept of business process improvement, also volunteered to distribute the survey at an internal, company wide seminar.

Approximately 500 survey questionnaires were distributed by mail to the list of participants selected from the Hammer and Co. attendee lists and the Motorola seminar attendees. The returned valid surveys were collected via mail or fax and entered into an SPSS database for analysis.


Analysis and Validation Methods

Phase I - Measures Development and Validation

Several approaches were used to purify the measures after the initial data-gathering step. These were:

In order to keep the survey instrument to a reasonable length, an attempt was made to get the maximum coefficient alpha with five measures for each of the five components. Using an iterative process that attempted to maximize the coefficient alpha, five measures for each component were selected. Process Structure (PS) was the lowest alpha with 0.67, Process Jobs (PJ) was 0.72, Process View (PV) 0.82, Process Values and Beliefs (PVA) 0.85 and the highest was Process Management and Measurement (PM) with 0.90. Detailed results appear in appendix B.

An exploratory component factor analysis using maximum-likelihood extraction and oblique rotation was performed on the data to examine the dimensions underlying the construct. This analysis was used to examine whether the number of dimensions conceptualized could be verified empirically. The initial analysis used a five-factor strategy. The results showed problems with several measures along with the components of process structures (PS) and process values and beliefs (PVA) specifically. Adjustments were made to the measurement model as suggested by this analysis. The variables PS, PVA and certain problem measures in the other components were eliminated and a three-factor analysis performed. Table 1, in appendix B, shows the resulting three-factor structure matrix with the significant factor loadings highlighted.

The resulting three-factor model was also problematic in that several measures were significant (above 0.5) in multiple factors and did not cluster strongly. In these cases, the measures deemed significant and able to discriminate were selected as the largest factor above 0.5 with a difference of at least 0.2 between factor loadings. The resulting three-factor, 11-item instrument used in this study may be limited in discriminating between the components of BPO.

The final BPO portion of the survey consisted of three factors. Process jobs (PJ) had three questions, process management and measurement (PM) had five questions and process view (PV) had three questions. One question within PV, PV4, was eliminated from the instrument since it does not clearly emerge in this analysis. Coefficient alpha measures were generated for the final factors. The three-item process jobs (PJ) component was 0.69, the five-item process management and measures (PM) component was 0.90 and the three-item process view (PV) component was 0.71. These were all deemed acceptable using target criteria of 0.6-0.7 (Churchill 1979). The final survey for BPO is contained in appendix A.

The final validated instrument listing the measures describing BPO was combined with Kohli and Jaworski's outcome measures of inter-functional conflict, interdepartmental connectedness, esprit de corps and overall performance and used in phase II of this study. See Appendix A for the final phase II survey questionnaire.

 

Phase II - Relationship Examination

The second phase of this study was to examine the relationship between business process orientation (BPO), inter-functional conflict (IF), interdepartmental connectedness (IC), esprit de corps(EC) and overall performance (OP).

Since Kohli and Jaworski suggest that long term business performance is related to and can be measured by organizational factors such as commitment, conflict, and connectedness, the relationship with the Kohli and Jaworski constructs were also examined in phase two of this study as well as overall organizational performance.

Data received from the returned valid questionnaires were entered into an SPSS database for analysis. Descriptive statistics were developed, variables constructed and correlation and regression analysis used to test the hypothesized relationships between BPO, esprit de corps, overall performance, inter-functional conflict and interdepartmental connectedness components.

Results and Findings

The Sample Results

Of the 615 surveys distributed, 20 surveys were returned "addressee unknown" and 115 usable surveys were received. This is a response rate of 19.3%. The sample size meets the requirements for factor analysis, 100 or larger, and regression analysis, 10-15 observations per predictor variable (Hair1992, pg. 227 and pg. 46). All data were entered into SPSS for analysis

Descriptive statistics were generated from the data and the sample examined for assumptions of normality using tests for skewness and kurtosis. Both skewness and kurtosis values were in acceptable ranges.

The respondents were spread across several industries, functions and positions (see figures 1,2, and 3).

Figure 1. Respondents by Industry

Figure 2. Respondents by Function

Figure 3. Respondents by Position

In general, the sample appears to represent a broad cross section of manufacturing firms from several industries as well as a broad sample of functions and positions within these organizations.

 

Data re-coding and variable construction

The BPO measures used were all designed to be in a consistent frame, a negative or positive in regards to the sign of the correlation coefficient, and did not need re-coding. Several measures from the Kohli and Jaworski constructs needed to be re-coded to make them consistent with other measures within the construct. Within interdepartmental conflict, the data for IF 1, 4 and 7 were reversed (1 to 5, 4 to 2, etc.). Within interdepartmental connectedness, IC 4 and 6 were reversed and within esprit de corps, EC 6 and 7 were also reversed.

Several variables needed to be constructed from the data. The components of BPO, process view -PV, process jobs-PJ, and process measures-PM, were constructed by summing the individual scores. BPO was constructed by then summing the components PV, PJ and PM. The Kohli and Jaworski constructs of interdepartmental conflict (IF) and connectedness (IC) were constructed by summing the scores using the re-coded scores. IF was developed in the negative frame, meaning higher scores represented more conflict and therefore a potential negative sign when correlated with BPO, and IC was developed in the positive frame. The variable for the construct of interdepartmental dynamics was constructed by re-coding IF in to a positive frame where less conflict was a higher score, and summing the IF positive and IC variables. The two overall performance measures, OP1 And OP2, needed no re-coding or construction and were used as entered.

Instrument and construct validation

In phase I, measurement development, the survey data were entered into SPSS and an exploratory component factor analysis using maximum-likelihood extraction and oblique rotation was performed on the data to examine the dimensions underlying the construct. As an initial validation test, a confirmatory factor analysis using maximum-likelihood extraction and oblique rotation was conducted and the new factor matrix compared to the original factor matrix. Table 1 is the new factor structure matrix for the phase two sample.

Table 1.

New Factor Structure Matrix (Three-Factor) for the BPO Construct

________________________________________________________________________

PM PJ PV

Factor 1 Factor 2 Factor 3

Ph. II Ph.I Ph.II Ph.I Ph.II Ph.I

________________________________________________________________________

PJ1 .13416 .74026 .69279 .27849

PJ2 .14186 .79826 .71264 .16298

PJ3 .18980 .84921 .65089 .30249

PM1 .91497 .76323 .13539 .61368

PM2 .94430 .86936 .16297 .65002

PM3 .67790 .76387 .24439 .48167

PM4 .88595 .85863 .07328 .62495

PM5 .81752 .81144 .11168 .64166

PV2 .41752 .18297 .53892 .79595

PV3 .57721 .14366 .74380 .58138

PV5 .52840 .23469 .79760 .67363

________________________________________________________________________

The factors in this phase II sample are highlighted and are similar to phase I. The loadings from phase II and I are shown in table 1.

Consistency is only a part of construct validity. In order to establish the construct validity of a measure, the extent to which the measure correlates with other measures designed to measure the same thing and whether the measure behaves as expected must also be examined.

In this study, the BPO construct was proposed to closely relate to the Kohli and Jaworski constructs of interdepartmental dynamics, business performance and esprit de corp. In order to validate the BPO construct and measures, the relationship between these constructs was examined in order to establish construct validity. The BPO correlation coefficient for esprit de corps (EC) is 0.490 (p<.001) and business performance (OP1) is 0.3670 (p<.011). From this strong relationship, both in correlation coefficient and direction, it can be concluded that the BPO construct and measures have a measure of construct validity within the Kohli and Jaworski framework.

 

Table 2. Correlation Matrix Results – BPO

 

 

As shown in table 2, the correlation coefficients for the hypothesized relationships between BPO, esprit de corps (0.490), inter-functional conflict (-0.418), interdepartmental connectedness (0.338) and business performance (0.367) are all strong and significant (p<0.01). The direction or sign of the relationships also appear to be valid. For example, it was hypothesized that there is an inverse relationship between BPO and inter-functional conflict (IF). This relationship is clearly shown in the correlation matrix (-0.418). The hypothesized positive relationship with interdepartmental connectedness and BPO is also shown ( 0.338).

Of primary interest in this study was the relationship between BPO and the outcomes of business performance (OP) and Esprit de Corps (EC). The results in table 1 clearly show strong correlations (0.367, 0.490) and significance (p<0.01) and appear to initially validate the positive relationship of the BPO construct to these outcomes of the Kohli and Jaworski framework.

Regression analysis was used to further test the hypothesized relationships between BPO, esprit de corps, business performance, as well as inter-functional conflict and interdepartmental connectedness. Each hypothesis was tested by using techniques outlined by Hair et al (1992).

.

Figure 4. Coefficient of Determination (R Squared) - Values and Directions

The coefficient of determination (R-squared value) was used in this test as indication of the strength of the relationship between variables. The sign, positive or negative, of the regression coefficients are shown in figure 4 adjacent to the R-squared values in order to show the direction of the proposed relationship. As can be seen in figure 4, the hypothesized relationships are relatively strong and significant. The relationship of BPO to business performance (OP1), a key part of this investigation, has an R squared of 0.135, is positive and significant (p<.001) . Since many other factors can impact overall performance, the strength of this relationship, in itself is surprising. The relationship of BPO to esprit de corps (EC) is even stronger (0.239), is also positive and significant (p<.001).

The relationships to the organizational variables of inter-functional conflict and inter-departmental connectedness are also relatively strong (0.175 and 0.114) and significant (p<.001). The hypothesized inverse relationship between BPO and IF is substantiated as well as the positive, direct relationship to IC.

Conclusions and Implications

This key informant study of a cross industry sample of manufacturing companies in the US has developed and validated the construct of business process orientation (BPO) within an organization and created a useable instrument for diagnostic measurement of this construct. This study has also shown, at least in this sample, that the hypothesized outcomes of BPO within an organization appear to be valid. BPO has been shown to reduce inter-functional conflict and increase interdepartmental connectedness, both of which impact long and short term performance (EC and OP1). The reduction of conflict and increase in connectedness would also help create the "team" environment that has been a focus of so many management trends such as TQM.

The hypothesis that there is a direct positive impact on self-evaluated business performance is validated in this study as well as the positive relationship of BPO to the long-term health of an organization, as measured by esprit de corp. The more business process oriented an organization, the better it performs both from an overall perspective as well as from the perspective of the employees. The increased presence of a feeling of esprit de corps makes for an excellent working environment and has been the desired outcome of many a leader seeking a high performance organizational environment.

The implications of this study and these conclusions are clear. The development of business process orientation in an organization will lead to positive outcomes, both from an internal perspective and a resultant perspective. The proposals by Dr. Hammer and others are no longer just anecdotal. Building BPO in an organization appears to have significant positive impacts and might be worth the investment. With the development of the BPO instrument, the progress in this effort can now be measured thus providing a feedback loop to an organization's leadership. Improvement efforts without a measurement and feedback loop are rudderless. This study offers a compass and a tracking mechanism that can help leaders direct limited resources to areas of impact.

Future Research

In this study, only subjective relationships are examined using a self-evaluating instrument. A relationship between BPO and objective firm performance, such as long term ROI, should be tested. Also, testing of the BPO instrument within different business sectors (financial services, IT services, health care, etc.) would help determine if BPO matters more in some sectors than in others.

Dr. Kevin McCormack has over 25 years of business leadership and consulting experience in the areas of business process engineering, reengineering, change management, organizational design and information technology. He is the Vice President of Business Consulting for Complete Business Solutions, Inc. (www.cbsinc.com), a global Information Technology Services firm. Kevin holds degrees from Purdue University, an MBA from the University of Houston and a DBA from Nova Southeastern University. His areas of research are business process orientation and IT investments. He can be contacted via e-mail at kmccorma@cbsinc.com.

 

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