Applying a Taxonomy of Business Processes to Identify Reengineering Opportunities
Thomas J. Crowe, Krishnakant Rathi, Joseph D. Rolfes
Department of Industrial Engineering
University of Missouri, Columbia, MO - 65211, USA
Email : c666460@showme.missouri.edu
This paper reports on research in the field of Business Process Reengineering/Improvement. The research has been carried out in two major phases: 1) Identification and establishment of a taxonomy of Business Processes for electronic equipment manufacturers (SIC Major Group 36) without regard for traditional organizational structures. 2) Development of a methodology to establish possible relationships between the strategic objectives of a Strategic Business Unit and the above business processes. The methodology further identifies those processes for the firm that distract the most from achieving their strategic objectives and hence qualify the most for reengineering and/or improvement opportunities. The model is based upon expert knowledge and stochastic relationships rather than definite quantitative relationships.
1. Introduction
Business Process Reengineering (BPR) is concerned with the analysis and radical redesign of the business processes within a firm [2, 5, 11]. Undertaking BPR is a high-risk, high-reward proposition. The payback for doing BPR right is enormous : 200 % to 1000 % improvements in key business performance measures are documented. But with those potential rewards come high risks : studies show more than two-thirds of BPR attempts fail [12]. The research reported in this paper develops a generic set of Strategic Business Unit (SBU) business processes, and a decision support system to reduce the risks while maintaining or improving the rewards. The methodology developed is not only applicable to Business Process Reengineering but also to Business Process Improvement projects which are less radical in nature and concerned more with incremental improvement. Although, the model has been developed for the firms within the domain of electrical and electronic components manufacturing (U.S. SIC Major Group 36), it is felt that the conceptual principles used behind the development of model are applicable to any kind of industry. Section 1 of the paper emphasizes the need to have a cross functional outlook of the firm and understand it’s business processes. It further presents the taxonomy of eight major business processes that were identified to exist at the SBU level. Section 2 first discusses the impact business processes have on the strategic objectives. It then presents, in a stepwise manner, the development of our decision model that assesses the performance and improvement potential of each business process with respect to the SBU’s collective strategic objectives. Section 3 discusses briefly, the validation efforts for both the phases of research. Finally, the paper ends with a conclusion and an appendix.
2. Phase I - Establishing the Taxonomy of Business Processes
In our research, we define Business Processes as sequences of linked functional-level activities which take inputs and produce outputs. We must emphasize the fact that the description of a business process specifically does not address the way the process transforms its inputs into its outputs - it describes what the process does, not how it does it.
In the past and present, a significant drawback of operating a company has been the traditional departmental viewpoint. It is time that companies abandon this outlook and adopt the cross functional perspective in terms of their activities and processes [2, 6].
This cross functional outlook alone can help companies to understand their business processes, which is needed not only for any kind of reengineering activity but also for incremental improvement. Looking towards the process as a whole helps the company to go beyond its myopic concerns for individual department activities and scan the functions with the customer in the mind and with the objectives of the company as the goal. As we shall see further in this paper, it is the knowledge of the business processes which in fact, can efficiently and directly let the company relate their strategic objectives at the Strategic Business Unit (SBU) level with their day-to-day functioning and how to achieve those strategies in the best possible manner.
The Phase I of our research concerns identifying the main business activities of a strategic business unit (SBU) within the electronic and electrical components industry (SIC Major Group 36). These activities are then logically grouped to form what we initially termed as "Business Function Chains." Through successful validation with participating U.S. SIC 36 firms, they are now termed as Business Processes and go well with our definition of a business process.
In all, eight major business processes are identified. The taxonomy seems to represent the main business processes for any firm within our research focus but it is not necessary that every firm needs to have all the eight processes mentioned here. Activities like Human Resources (HR), Cash Flow, and Research & Development (R&D) have deliberately been not included in the taxonomy. The premise behind not including these activities as separate business processes is two-fold:
The "all pervading" nature of these activities. We believe that these activities contribute more or less to almost all the eight processes mentioned above and they are not intrinsically separate from them.
By themselves these activities are not value-adding.
Therefore, these activities have not been listed as separate business processes. Porter's work [13] seems to support this notion. According to him, activities like HR and R&D are secondary activities and do not participate in the "primary value chain".
The taxonomy developed is presented below ( formal definitions of the eight business processes are stated in Appendix A) :
3. Phase II - Decision Model Formulation
Strategic objectives vis-ā-vis the business processes :
Now that the business processes have been defined and are in place, it is worthwhile to exploit their knowledge to the fullest. The best way would be to study their impact on the firm’s goals. In the second phase of the research, we have simultaneously established the fact that there does exist an explicit relationship between a SBU’s strategic objectives and its major business processes, and studied the relationship using influence diagramming and decision tree principles.
We firmly believe that for a SBU to achieve its strategic objectives effectively, it must look at its business processes. It is the change and/or improvement in the business processes, and not the individual departmental functions, that will help the firm achieve its strategic objectives. In fact, the very definition of Business Process Reengineering [5, 11] contains the essence that it is the business processes that have to be redesigned to "achieve dramatic improvements in critical contemporary measures like cost, quality, service, and speed." Very less work on explicitly relating business processes with strategic objectives is evident in the literature. However, a few authors do hint towards the importance of linking the functional activities with the strategic decisions [3, 7]. Also some suggest to take a broader perspective while evaluating the company progress and go beyond the traditional financial measures and targets [4, 8, 9]. The closest work so far suggests evaluating the firm’s value chain activities with respect to its strategic objectives [1]. Yet another work [10] suggests conceptually undertaking strategic initiatives at the start of the reengineering process. These initiatives seek to provide understanding of the markets, competitors, and the position of the organization within the industry. Critical success factors required to compete are identified and prioritized. Only then, are individual business processes addressed. However to date, little explicit work has been done to demonstrate the development of a formal methodology to study the impact of an entire business process on the strategic objectives. Our research does just that.
One of the most critical faults that often doom a BPR project from its outset is selecting business processes to be reengineered that have minimal impact on the strategic objectives. There are several discrete-event simulation-based methodologies and even more recipe-type methodologies being touted by various companies and consultants. Models rooted in system dynamics or discrete event simulation techniques (packages like ithinkŪ, BPSimulator™, etc.) can provide a good view of the functioning of the business processes with respect to time and sometimes cost, but none of these packages specifically addresses selecting business processes for redesign based upon the processes’ impact upon the firm’s strategic objectives.
Focusing on strategic business units (SBUs) within the electronic and electrical components industry (SIC Major Group 36), we have developed a decision model that assesses the performance and improvement potential of each business process with respect to the SBU’s collective strategic objectives.
The strategic objectives chosen are a generic set of objectives which, in a prior research, have been defined and validated [1].
The decision model, which contains both deterministic and stochastic elements, is based upon the concepts of decision tree analysis and influence diagramming. The model was implemented using influence diagramming/decision tree software package called DPL by ADA Decision Systems.
Presenting the Methodology :
The steps carried out in the development of methodology are as follows:
1. The main parameters of the model are listed. They are:
All the business processes obtained from the Phase I of our research
The set of sixteen strategic objectives which in our case are Environmental Coping Criteria (ECC) and the Order Winning Criteria (OWC) [1].
An influence diagram is drawn depicting the relationships between the processes and the strategic objectives. The eight business processes are embedded in a main decision node as it's eight states. Every strategic objective is drawn as a chance node. The main decision node is linked to each of the chance nodes so that in effect each link carries the influences of each of the eight business processes on every strategic objective. The relationships are in the form of probability distributions that reflect the stochastic nature of the influences the business processes have on the strategic objectives. An example of a software template showing the influence of the business processes on a strategic objective is shown below :
Figure 1. A DPL software template developed to show the influence of the eight main business processes on a strategic objective (e.g. Price).
With the option of multi-attribute analysis, an objective function is defined. The attributes here represent the strategic objectives and the objective function represents the final desired strategic objective. This overall desired objective, in the form of an objective function equation, is the sum of weighted outcomes of the chance nodes (the strategic objectives) with the weights being assigned to each of the chance nodes depending upon their order of importance, which will be specific to every firm. Thus if a particular firm focuses more on Price than Quality, this will be clearly reflected in the final desired strategic objective by assigning more weight to the chance node representing Price than that to the chance node representing Quality.
The model is then run. After the completion of run, the path from one of the processes is highlighted which gives the maximum value to the objective function defined above. This path points to the business process that needs to be reengineered and/or improved the most. The model is developed in such a way that not only the path for the above business process is depicted, but also the paths for the other business processes are shown with their end effect on the objective function expressed quantitatively. Thus the business processes can be ranked in the order of importance for the firm to reengineer. This facilitates the firm to prioritize their operations not only for the most ailing business process but also for the other processes keeping their order of importance in mind. This can be extremely helpful in a careful and balanced reengineering/improvement plan.
4. Validation Efforts
All the phases of the research (including the prior research on the development of a generic set of strategic objectives) have been validated through field study evaluations at twelve U.S. SIC 36 companies.
For Phase I, five Missouri and Pennsylvania SIC 36 firms were chosen. They were interviewed and requested to identify their processes and compare them with our taxonomy. The results were positive and assuring. Validation was also carried out from the case studies in the literature. Interestingly, American Productivity & Quality Center's International Benchmarking Clearinghouse has recently come out with their own Process Classification Framework [14]. This framework is a generic enterprise model containing a whole gamut of business processes applicable to any industry. This framework seems to agree with our taxonomy.
For Phase II, the decision model is currently being applied to the same five firms mentioned above. The relationships between the decision node (representing the eight business processes) and the chance nodes (representing the strategic objectives) needed to be determined. This was accomplished by asking the experts of the particular firm in question to rate each business process with respect to each of the strategic objectives on a multiple differential scale. With this kind of a scale, the experts could qualitatively rate each process with respect to the strategic objective by ticking off between two extremes - 1) the process detracts heavily from achieving that particular strategic objective, and 2) the process does not detract at all from achieving the objective. This is then converted into normative data in the form of probability distributions that are then fed into the software model as shown in Figure 1. The experts are also asked to rank the strategic objectives in the order of their importance to the firm. This ranking is used to assign weights to each of the chance nodes (the strategic objectives) which is used in defining the objective function (the overall desired objective) as described earlier in the paper. The preliminary results are promising.
The "Experts" chosen represented a very cross functional panel. The panel comprised of personnel from different departments with posts like the Chief Operating Officer, Vice President of Manufacturing, Vice President of Finance, shop floor Supervisors, Chief of Quality Assurance Systems and so on.
5. Conclusion
Our research affirms two theories:
If the organizations need to understand how they work, they need to understand their functioning from a horizontal, process viewpoint, rather than from a vertical, functional viewpoint.
It is the business processes that reflect the true health of the company by bearing a direct relationship with the strategic objectives of the firm.
Further, the research has developed a methodology by which, with the help of the experts of the firm, it can be possible to identify the business processes that need to be reengineered and/or improved the most. This will enable a firm to achieve its strategic objectives in the best possible manner, since the processes highlighted by the model will have the biggest impact on the strategic objectives.
We anticipate that the conceptual principles reflected in this work not only apply to firms within the electric and electronic components manufacturing where we validated our results, but also reflect the actual scenario in most manufacturing industries. With careful adjustments, the methodology can be applied to any industry.
Appendix A. Business Processes Defined
Knowledge of Market to Orders - the process of taking preliminary knowledge of a product market, analyzing it to find the target audience, increasing the awareness of this audience through product promotion, for the purpose of winning orders.
Customer Order to Processed order - the process in which a customer order is received and all of the necessary paper work, etc. is processed so the order can be filled.
Concept to Successful Design/Redesign - the conversion of a product idea (or product improvement idea) into a complete set of verified product plans.
Unpriced Product to Final Price - to compile all of the direct and indirect factors used that add cost to a product to determine how much the product should sell for.
Need for Resources to Payment - the process of acquiring all goods and services needed for production, and sending payment to the suppliers.
Raw Material to Shipped Product - the conversion of raw material into a finished product which is then packaged, stored and then shipped to a customer.
Shipped Product to Payment Received - the process of collecting payment for all products that have been shipped to a customer.
Customer Feedback to Serviced Customer - to provide support to a customer before or after a sale.
References
Crowe, T. J. and J. P. Nuņo, "Distributing Strategic Objectives Along Manufacturers’ Value Chains: A Framework and a Decision Model", International Journal of Operations and Quantitative Management, Vol.1 No. 2, 1995, 109-130.
Davenport T. and J. Short, "The New Industrial Engineering: Information Technology and Business Process Redesigned", Sloan Management Review, Summer, 1990, 11-27.
Gluck, F.W., "Strategic Choice and Resource Allocation", The McKinsey Quarterly, 1990, 22-43.
Hamel, G. and N. Prahalad, Competing for the Future, 1994 Harvard Business School Press, Boston.
Hammer, M. and J. Champy, Reengineering the Corporation, 1993 Harper Business, New York.
Hammer, M., "Reengineering Work: Don’t Automate, Obliterate", Harvard Business Review, July-August 1990, 104-112.
Jelinek, M. and J. D. Goldhar, "The Interface Between Strategy and Manufacturing Technology", Columbia Journal of World Business, 1983, 26-36.
Kaplan, R. S. and D. P. Norton, "Using the Balanced Scorecard as Strategic Management System", Harvard Business Review, January-February 1996, 75-85.
Kaplan, R. S. Measures for Manufacturing Excellence, 1990 Harvard Business School Press, Boston.
Kehoe, L., "Down in the Dirt to Clean Up IBM", Financial Times, December 5, 1994, 8.
Klein, M. M., "IEs Fill Facilitator Role in Benchmarking Operations to Improve Performance", Strategic Management Journal, Vol. 10, 1989, 40.
Mandel, M.J., "The High-Risk Society: Book Excerpt", Business Week, October 28, 1996, 86-94.
Porter, M.E., Competitive Strategy: Creating and Sustaining Superior Performance, 1985, The Free Press, New York.
Process Classification Framework, developed by APQC’s International Benchmarking Clearing Clearinghouse in partnership with Arthur Anderson & Co., SC, 1995. (Cited in World Wide Web: Http://www.apqc.org/b1/b1pubs/pubs2.htm#Framework").
Please don’t publish this paper or its excerpts without the consent of any of the authors. 1997.
About ProSci. ProSci is a registered trademark of the
Quality Leadership Center, Inc. Copyright 1996-1999, All Rights Reserved.Tutorial Series | Bookstore | Articles | Books | Benchmarking | Mailing lists | Yellow Pages
Register | Search Other Sites | Comments | Home Page
