Operations & Business Process Management
Operations managers are increasingly concerned with the management of business processes in organizations. These processes are any of a number of linked activities that transform an input into the organization into an output that is delivered to the customer or other member of the supply chain. Emphasizing business processes enables the organization to be more flexible, optimize the responsiveness of the organization to the demands of the marketplace, reduce costs, and address issues of quality, consistency, and capability. Some of the most well-known approaches to business process management include business process reengineering, Total Quality Management, and Six Sigma programs. When applied correctly, these tools can be invaluable for optimizing the effectiveness of the organization.
Operations management comprises those areas of management that are concerned with productivity, quality, and cost in the operations function (i.e., the activities necessary to transform inputs such as business transactions and information into outputs such as completed transactions) as well as strategic planning for the organization. The discipline of operations management covers not only manufacturing processes, but support processes that add value to the product or service and the management of the entire supply chain. Increasingly, operations managers are looking at this function in terms of business processes. These are a number of linked activities that transform an input into the organization into an output that is delivered to the customer or other member of the supply chain. Business processes include management processes, operational processes (e.g., purchasing, manufacturing, marketing), and supporting processes, (e.g., accounting, human resources). These processes are typically interrelated and cross functional boundaries with both inputs and outputs. Business process management is the process of managing these processes on a continuing basis. A number of businesses have successfully implemented business process management, including Rank Xerox, Nortel, Texas Instruments, and Hewlett-Packard.
There are a number of reasons that operations managers are increasingly concerned with the management of business processes. First, viewing the operations of an organization as a series of business processes allows organizations to be more flexible in meeting the changing demands placed upon them by the marketplace. Second, conceptualizing the operations of an organization in terms of business processes can help optimize the speed of bringing new products and services to market and the responsiveness of the organization to the needs of the marketplace. Further, the emphasis on business processes that cross functional lines can also facilitate the reduction of costs as well as the increased reliability of delivery. Finally, an emphasis on business processes helps the organization address product and service quality issues by focusing on their consistency and capability.
Business processes have been categorized in a number of different ways. As shown in Figure 1 , one empirically-based approach divides business processes into four types: Operational, support, direction-setting, and managerial. Operational processes include those processes that enable work to get done; in particular, the production of products or services including product development and order fulfillment. Operational processes are also integral to integrated supply chain management and just-in-time manufacturing. It is operational processes that are most often targeted in business process reengineering efforts (see below). Support processes within the organization comprise those processes that enable the operational processes to run smoothly. Support processes may provide support technology (e.g., information technology and systems), personnel-related processes (e.g., human resources management), and accounting skills (e.g., billing) to enable the effective performance of the organization. Direction-setting processes are those processes concerned with organizational strategy, marketing, and change management. Managerial processes comprise the decision-making and communication activities of the organization. In this categorization, direction-setting and management are broken into separate processes for two reasons: Not only has this approach proven a successful strategy in many practical models, but the literature tends to regard strategy as a process in its own right and not just a subset of management processes. It should be noted, however, that although this categorization — like most models — may not be a perfect fit for all instances in the real world, it does present a worthwhile framework for considering business process management research.
One of the most well known aspects of business process management is business process reengineering. This is a management approach that strives to improve the effectiveness and efficiency of the various processes within an organization. Business process reengineering is intended to be a radical rethinking and redesign of business processes so that they achieve dramatic improvements in critical organizational performance criteria such as cost, quality, service, and speed. To do this, organizations need to reexamine the assumptions underlying their business operations and to question why they do things the way that they do. Frequently, this analysis reveals obsolete, erroneous, or inappropriate practices or procedures that do not add value to the product or service being offered by the business. Once the root of any business process problems that the organization is experiencing has been determined, the process can be reinvented — not just modified — to meet the needs of the organization to make it more effective, efficient, and flexible.
Since business process reengineering requires a total revamping of business processes, it is appropriate where more traditional methods fail or where there is a major discrepancy between where the organization is and where the organization needs to be. There are three types of organizations that can benefit from this type of major change effort. Businesses that are in serious trouble (e.g., have costs that are significantly higher the competition's, customer service that is causing the organization to lose a significant number of customers, or failure rates that are significantly above those for the industry) often need a major retooling of their business processes. Organizations that find themselves in this situation have little choice than to perform a major overhaul of their business processes if they want to be viable. In addition, organizations that are not yet in such dire straits but that are headed on such a trajectory can often profit from business process reengineering. This situation can arise from any number of factors, like: Increased competition; competitors that have significantly improved their offerings; or new customer needs that cannot be adequately met by the current business processes. Business process reengineering may make it possible for such organizations to avoid falling into the first category where reen-gineering is mandatory for the organization to survive. Another category of organization that can benefit from business process reengineering comprises top performing organizations with aggressive management that wants to take the organization further. Business process reengineering can help such organizations further consolidate their position in the marketplace and create further barriers to their competitors.
Another strategy often utilized in business process management that has been widely adapted in recent years is Total Quality Management (TQM). TQM attempts to increase the quality of goods, services, and concomitant customer satisfaction by raising awareness of quality concerns across the organization. This business process management strategy emphasizes developing an organizational environment that supports innovation and creativity as well as taking risks to meet customer demands using such techniques as participative problem solving that includes not only managers, but employees and customers as well.
TQM is based on five cornerstones: The product, the process that allows the product to be produced, the organization that provides the proper environment needed for the process to work, the leadership that guides the organization, and commitment to excellence throughout the organization. A successful TQM program needs to consider all five of these primary emphases. To help optimize the effectiveness of a TQM implementation in an organization, it is necessary to foster an environment of quality within the organization. This should include emphases on qualities such as consistency, integrity, and other positive interpersonal relationship skills. To enable the success of a TQM program, the organizational culture should also foster pride in the product and professionalism among the all team members through all levels in the organization. TQM also encourages organizations to implement a decentralized authority structure where decisions are made close to those affected and all have a chance to participate in the process. This helps to foster the teamwork necessary to bring about high quality. In this type of organizational culture, employees can be made to feel part of the system as well as a vital part of the organization, not just hirelings. Ownership of team members in the product can also be fostered by increasing the flow of communication across all levels of the organization and providing each employee the training that s/he needs to successfully add value to the product.
Six Sigma is a spin-off of TQM that is also an important element of many business process management implementations. The term "six sigma" refers to how far (i.e, the number of standard deviations, symbolized by the Greek letter sigma, s) a data point is from the middle of the normal curve. At six sigma above "normal," a product reaches its quality goal 99.9999997 percent of the time, or has only 3.4 defects per million. This is the goal toward which manufacturing and quality control efforts in the organization are focused. The Six Sigma process can also be targeted toward improving non-manufacturing processes and functions within the organization.
The goal of Six Sigma programs is to reduce costs by making changes before defects or problems occur. To help reach the six sigma goal, employees and managers are trained in statistical analysis, project management, and problem solving methodology so that they can use these skills to reduce defects in their products. By getting it right the first time and reducing costs for having to redo work previously done, most organizations that have implemented Six Sigma programs find that it increases their profitability and lowers their production costs.
Although business process reengineering is still successful in many organizations and is a sound approach to organizational change and effectiveness, it is not as popular as it was when originally introduced. This is because in some instances, it was used as a code word to excuse making unpopular decisions such as layoffs or reductions in force without truly addressing the underlying problems or processes of the organization. However, business process reengineering and business process management are both valuable concepts if correctly applied. For example, using qualitative methodology, Armistead and Machin examined business process management in four large organizations. These organizations were at various stages in their implementation of business process management, but were all considered excellent against various criteria of success as discussed above. The results of the study showed six clusters of attributes: Organizational coordination, process definition, organizational structuring, cultural fit, improvement, and measurement.
Typically, business processes are characterized in part by the fact that they cross functional lines within the organization, starting with inputs from outside the organization and ending with outputs to the marketplace. One of the implications of this characteristic is that business process management is cross-functional in nature. Therefore, to be optimal, it is necessary to coordinate functions across the entire organization. Managers of organizations that have effectively implemented business process management tend to discuss how they run their entire organization rather than isolated pieces or processes. Processes are also described in layers from a top-level view down to an individual task-level view. To coordinate across the entire organization effectively, it is important to also manage the borders of the processes. This can be done, for example, by establishing networks around each process to formulate and implement strategy as well as to liaise with other processes with which there might be issues. In this way, not only can one business process be improved, but the other processes which impact or are impacted by it can be improved in a ripple effect throughout the organization.
As shown in Figure 2 , when initially approaching business process management, most organizations tend to first address operational processes. Once these have been improved, organizations typically move on to also consider the support processes while maintaining their emphasis on operational processes. Direction-setting is then added to the mix while continuing to address the needs of the other two types of processes. Typically, management is considered a superordinate to the other categories of processes. This "sandcone" model of business processes has additional implications. First, as organizations develop their approaches to business process management, their techniques will change. In addition, as organizations move through the process of refining their business processes, there will be an increasing impact on the organizational structure. This means that structural changes (i.e., the design of an organization including its division of labor, delegation of authority, and span of control) will also need to be addressed in order to optimize the benefits of business process management. Finally, as the organization moves through the stages of emphasis in business process management, coordination throughout the organization will need to be concomitantly increased.
Another aspect of successful business process management is process definition. Although much of the literature deals specifically with business process improvement, empirical research has found that the real value of business process management does not come from focusing on the details of improving tasks at the task or team levels, but by defining and improving processes at a higher level. This often proves a difficult task, with much of the effort focusing on the defining procedures. However, communication across different levels of the organization can help overcome this problem by increasing a common understanding and definition of the processes of the organization.
In addition, another aspect that needs to be considered in the optimization of business process management is the structuring of the organization. Organizational structure is the design of an organization including its division of labor (i.e., the way in which work in an organization is divided into separate jobs assigned to different people), delegation of authority (i.e., authorization for a subordinate to make certain decisions in place of the supervisor), and span of control (i.e., number of employees whom are directly supervised by the person one level above in the organizational hierarchy). Although some theorists propose that the best organizational structure for business process management revolves around the processes themselves, in practice, optimal structure is usually matrixed. In a matrix structure to organizational design, employees report both to a functional or departmental supervisor and to a project supervisor. Matrix structures in organizations that have implemented business process management matrix the organizational structure between processes and functions. Again, processes provide a framework for the relationships and help the organization build understanding and common approaches to processes across the organization. Although in theory these matrices may tend to be unstable and move toward a process-centric structure, in practice they are both stable and desirable and enable the organization to remain flexible so as to be more successfully responsive to various demands.
Business process management also needs to take into account the culture of the organization if it is to be effective. Organizational culture is the set of basic shared assumptions, values, and beliefs that affect the way employees act within an organization. Although in the long-term it may be necessary to address and change the culture of the organization, to be successful, business process management needs to work within the parameters of organizational culture — at least within the short-term. This is as opposed to some approaches to business process reengineering that unsuccessfully attempt to implement change while running rough-shod over the organizational culture. Organizational culture often changes as the implementation of business process management techniques is successful and a drive to constantly improve processes builds within the organization. Finally, business process management can only be successful if measurement techniques are set in place. Organizations need to be able to objectively determine whether or not their change efforts and new processes are effective. In addition, they need to be able to continually identify trends, determine marketplace requirements, and assess the stability of the organization. This can be done through measuring performance against predetermined goals and objectives, collecting measures of customer satisfaction and loyalty, and looking at the efficiency of processes in addition to the effectiveness.
Terms & Concepts
Business Process: Any of a number of linked activities that transforms an input into the organization into an output that is delivered to the customer. Business processes include management processes, operational processes (e.g., purchasing, manufacturing, marketing), and supporting processes, (accounting, human resources).
Business Process Reengineering (BPR): A management approach that strives to improve the effectiveness and efficiency of the various processes within an organization.
Just-in-Time Manufacturing (JIT): A manufacturing philosophy that strives to eliminate waste and continually improve productivity. The primary characteristics of JIT include having the required inventory only when it is needed for manufacturing and reducing lead times and set up times. Also called "lean manufacturing."
Integrated Supply Chain: A supply chain in which the component organizations are coordinated and integrated into an efficient system with the dual purposes of meeting customer demands and improving the competitiveness of the supply chain as a whole.
Lean Manufacturing: A set of tools and techniques used to eliminate all waste from production processes.
Operations Management: Those areas of management that are concerned with productivity, quality, and cost in the operations function (i.e., activities necessary to transform inputs such as business transactions and information into outputs such as completed transactions) as well as strategic planning for the organization.
Six Sigma (6s): An approach to improving quality. The term "six sigma" is a statistical term referring to the degree to which a product reaches its quality goal. At six sigma, a product is reaching its quality goal 99.9999997 percent of the time, or has only 3.4 defects per million. The six sigma system was originally developed by Motorola.
Strategic Planning: The process of determining the long-term goals of an organization and developing a plan to use the company's resources — including materials and personnel — in reaching these goals.
Strategy: In business, a strategy is a plan of action to help the organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including market needs and trends, competitor capabilities and offerings, and the organization's resources and abilities.
Supply Chain: A network of organizations involved in production, delivery, and sale of a product. The supply chain may include suppliers, manufacturers, storage facilities, transporters, and retailers. Each organization in the network provides a value-added activity to the product or service. The supply chain includes the flow of tangible goods and materials, funds, and information between the organizations in the network.
Total Quality Management (TQM): A management strategy that attempts to continually increase the quality of goods and services as well as customer satisfaction through raising awareness of quality concerns across the organization.
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Essay by Ruth A. Wienclaw, PhD
Dr. Ruth A. Wienclaw holds a doctorate in industrial/organizational psychology with a specialization in organization development from the University of Memphis. She is the owner of a small business that works with organizations in both the public and private sectors, consulting on matters of strategic planning, training, and human/systems integration.