Sorry, this entry is only available in Русский.

Sorry, this entry is only available in Русский.

BPM advocates like to point out that, unlike typical IT projects, BPM gives a quick financial return. For example, according to Gartner data quoted by Jim Sinur, half of BPM projects demonstrate ROI at 20% or more. He saw “wild” numbers of 220% and 360% which he discarded to not skew the average.

Unfortunately this nice picture makes harm rather than contributes to the perception of BPM if not supported by analysis. Potential customers are well aware of reported bottom line numbers value and don’t trust another “silver bullet”.

I guess I can explain why BPM projects ROI is good on average, and why it shows such a large spread: it all depends on the corporate information system.

Let’s consider a company that implemented an ERP system. It may not even cover planning (after all, “P” in ERP stands for “Planning”), just accounting in the areas of finance, customers and suppliers relations and inventory - this seems to be a typical case. With BPM not only users of accounting and finance are engaged into end-to-end business processes but also management, engineering, purchasing, manufacturing, sales and marketing. Traditional corporate systems are ”passive”: it is able to answer almost any question, but only if you know how to ask. BPM makes it active by assigning tasks in accordance with the approved business process scheme, it controls timings, triggers escalations etc. All process activities are reflected in the appropriate records of a single database. As a result, instead of a «corporate data cemetery», we obtain an efficient tool to improve the quality of services, to increase sales and to respond quickly to changing business environment.

As shown by E. Goldratt in his book “Necessary but Not Sufficient” most of commonly declared economic value of ERP - increased transparency and productivity, attractiveness to investors, inventory reduction – is a fiction. The corporate system is necessary but not sufficient condition for achieving the bottom line results. Sure ERP has the potential to improve the economic efficiency of the company but only when supplemented with BPM this potential becomes a reality.

Now let’s suppose that we spent a million to implement ERP and two hundred thousands for BPM project. If we agree that ERP is necessary then the achieved results should be referred to the total costs incurred. But if you take into account only the cost of BPM then you’ll obtain the “crazy” ROI numbers mentioned above. Let me use a telecom analogy: ERP is like the backbone and BPM is like the last mile solution. Does it make sense to improve the ISP bottom line results by ignoring the cost of the backbone?

Of course it’s impossible to be in ISP business without a backbone access. Unscrupulous Internet provider may promise a client 10Mbps connection not mentioning that it’s only the bandwidth to its network and that the actual connection to the Internet will be ten times slower. The same thing happens when a customer says: “I have heard that ERP isn’t cool any more and there are problems with the payback. You say that BPM is such a great thing so isn’t it better to implement BPM instead of ERP?” Sorry, there is no way to do it “instead of”, only “together with” ERP! BPM not supported by the foundation of a corporate information system is like a good old docflow: weakly structured data which can not be processed, found or extracted at the right time and in the right way.

Getting back to telecom analogy: local provider is usually a better choice than global operator when you are looking for home Internet connection. Trying to reach every workplace within your company by ERP is about the same: ERP consultants can do it but basically it’s not their job. They usually recommend adapting your business to ERP rather than vice-versa. Adapting the system to your business turns out to be very expensive. In contrast to setting up Internet connection which is only done once, business processes should be within constant improvements loop so you’ll have to call programmers all over again. Therefore many companies have come to the conclusion that the implementation of business processes within ERP isn’t efficient and opt for BPMS which allows their own business analysts to design business processes.

Now let’s consider perhaps the most common situation: information «zoo», no single corporate system, Excel as the primary manager’s tool. The pilot BPM project is usually successful under such conditions. If the right business process is chosen, then BPM can streamline the process, radically reduce its cycle time, ensure seamless information transfer between functions, reduce costs, improve quality and ultimately provide solid economic results. Yet after the first success the BPM initiative often slows down because BPM team have to deal mostly not with business processes but with integration and accounting automation. The timeframe increases many-fold comparing to pure BPM project and financial performance declines.

You still need a backbone which business processes would connect to but in this case there is no single corporate system for this role. There are two possible solutions: either to implement ERP or to deploy a backbone based on service-oriented architecture (SOA). Both ways are hard, long-lasting and expensive but the alternative is to leave everything as is, forget about consistent business process management and finally become uncompetitive.

Of course it’s impossible to say which way is better - a unified system from a single vendor or the integration of various “best of breed” systems. Yet the recent years’ trend is the growing adoption of the latter approach. One reason is the progress and better affordability of integration technologies - ESB, MDM. Secondly, a unified system turns out to be a mirage: once the ERP is finally implemented you found yourself in need of CRM, PDA software for mobile workforce or software to monitor vehicles via GPS+GPRS. This way you fall back to the “best of breed” situation.

Conclusions:

1. Economic impact of a BPM project depends on how much the company has spent before on the corporate system: the higher the amount, the higher return on investment can be demonstrated by BPM. But these figures are fiction because you assigned the lion’s share of total project’s costs to ERP and a large share of revenue growth and cost reduction to the BPM project.
2. In order to really improve the return on investment, one must consider not separate ERP and BPM projects but all investments in management improvements or, if you wish, in business transformation. A chain is only strong as its weakest link: if you invest only in ERP then you will get an information backbone not reaching its consumers. And if you invest only in BPM then the first success will turn into disappointment when information flows from the business users hit into inefficient corporate system.

Please also note that the weak link may be people rather than technology. Implementing even the most sophisticated systems makes no sense if employees are not prepared to creatively reconsider the way they work. How many certified professionals in Theory of Constraints, Lean Manufacturing and/or Six Sigma does your company have? Highly motivated and well-trained professionals are the driving force behind the business processes management and enterprise information systems. Not just IT professionals but also specialists in modern management methodologies. And what is the driving force behind them? Company executives indeed.

Although a single agreed definition of BPM has not yet been developed, most experts agree that BPM is a combination of management methodology and software tools. But what is BPM methodology and does BPM have a methodology of its own?

To get started, what process methodologies constitute today’s mainstream?

• The most popular today is Lean Six Sigma - a combination of Lean and Six Sigma approaches.
• Lean is a business transformation methodology derived from Toyota Production System (TPS) that focuses on increasing customer value by reducing the cycle time and elimination of waste.
• Six Sigma is a business transformation methodology originally developed at Motorola, it focuses on customer’s value by reducing process variations and elimination of defects on the basis of strict statistical techniques.
• Theory of Constraints (TOC) is a systematic approach to process improvement that views the business as a system of interconnected processes. The key point is that the performance of the whole is constrained by the weakest step like the strength of a chain equals to the weakest link’s strength. Although this methodology’s scope is narrower it brings genuine and practically valuable ideas. As a result they become widely accepted and partially incorporated into Lean Six Sigma.
• Total Quality Management (TQM) is also widely known yet now it’s part of the history rather than evolving methodology. Its basic ideas became part of Lean and Six Sigma as well as the ISO 9000 series of quality standards.

In addition some companies and analysts promote their own, sometimes very interesting methodologies. But perhaps only TQM, Lean, Six Sigma and TOC have reached the mainstream, meaning that there are communities around them, many books are written and training courses are available. Given that these mainstream methodologies overlap with each other to a large extent we can hardly expect that any new methodology would gain wide acceptance in a sudden.

Viewing from this perspective one comes to the conclusion that BPM doesn’t need a process methodology of its own: first, such a methodology would be competing to the mainstream without a chance to win, and secondly, BPM can be successfully applied in any of the mainstream methodologies.

Within BPM we should only talk about «tactical» methodology which is closely related to the tools. For example, BPMS promotes efficient business process discovery. Another example is rapid prototyping of executable processes within BPMS which helps bridging the gap between business and IT and improves agility.

But the strategic issues of process management - like the company’s value chain definition - are rather part of the outer context than the BPM itself. That doesn’t mean underestimating: the context is very important because it sets the business goals; without them the BPM program would be no more than IT department exercise.

What practical conclusions from this are for companies thinking about implementing the BPM program?

1. Take care both about technology and methodology. Within technology you should choose a BPMS, agree business process modeling style, adopt a standard business process lifecycle etc. On the methodology side you need to know e.g. how a particular process for the next project within BPM program is choosen: what’s the procedure and who is in charge. How the key metrics are choosen at the project start and how the goals are measured at the end? How the visibility of processes and their reuse are promoted within the organizations? Who is responsible for business processes to join into a value chain and not becoming scattered islands of suboptimization?
2. Leverage on ready-to-use BPMS and methodology. Developing a methodology of your own as well as developing a BPMS will bring you too far from the ultimate project goal which is improving your business efficiency. Keep in mind that developing a unique methodology could only afford such giants as Toyota (Lean), Motorola (Six Sigma) or Xerox (TQM). Stand on the giants’ shoulders - spend time on the books and trainings, hire consultants that have experience in implementing process management with BPM. This in no way means the call to blindly copy other’s experience. In fact, all methodologies establish only general principles and leaves more than enough room for the adaptation to the conditions of your particular business. And they all emphasize the importance of developing your own competence rather than buying it from someone else. So you’ll need talented and motivated individuals starting from the company’s top and you will have enough tasks adequate to their ambitions.

Sorry, this entry is only available in Русский.

Alternative title: “Micromanagement”.

The typical first BPM project issue: how deep to dig into a business process details?

We were engaged into a process called “Purchase order by the three-tier agreement” in one of our first projects. Here is the brief:

• A three-tier agreement is concluded by and between the buyer, the manufacturer and the supplier - manufacturer’s authorized partner.
• The agreement is designed as a framework: it specifies prices, terms and conditions, but not the items to be purchased nor the volume. Each purchase shall be specified by a separate specification containing items and quantities. When signed such a specification enforces contractual obligations to all parties.
• The process is managed by the supplier and there were no intention to directly attach the buyer or manufacturer to BPMS. The whole process runs inside supplier’s organization yet there were such activities as “send the specification to manufacturer for signature” or “ship the goods to buyer”.

The process consists of four majour phases:

1. Agreeing the order.
2. Signing the specification.
3. Delivery.
4. Payments and deal closure.

Let’s consider the first phase “Agreeing the order”. Despite terms and conditions are set by the agreement, the bargaining may happen here, e.g. the buyer may request an additional discount for a large order or tougher delivery terms tied to the internal project schedule. In such cases the account manager should agree on the conditions within the organization and with the manufacturer; if the buyer requested too much then a compromise acceptable for all parties should be found. Several iterations may be necessary lasting for months. It’s a delicate work highly depending on account manager’s skills. And this is the key point of the process - the remaining activities are pure routine.

The first version of the process diagram looked like this:

Then it became more compliacated. First, if the manufacturer made a counter-offer that we found acceptable then we should only agree it with the buyer on the next round; the same is true with respect to buyer’s counter-offers. Then it was rightly pointed out that the process may be speed up if negotiations with the manufacturer and the buyer was made in parallel. And so on.

Let me skip the evolution of the process and proceed directly to the resulting diagram:

The key point of this process is that there is a single performer: account manager. No one else cares about where we are inside. Agreeing started / agreeing ended successfully / agreeing failed - that’s all the business (the process owner) is interested in.

I’ve seen process diagrams similar to the first one several times. For example, there was customer’s process of accepting goods to the warehouse with about twenty activities, all performed by a  storekeeper. It doesn’t make sence. You get cumbersome scheme prone to frequent changes yet the details do not add value to the process.

Target BPM on the overall process performance and cross-functional problems which are responsible for poor performance in most cases.

It is not easy - you must be ready to find yourself under crossfire if your studies affect existing borders between organization departments. But don’t go the path of least resistance and don’t use BPMS to document a sequence of activities performed by a single person.

Sorry, this entry is only available in Русский.

Sorry, this entry is only available in Русский.

Sorry, this entry is only available in Русский.

There is a new post at Jim Sinur’s blog: “Business Process Management Grows Value While Saving Costs“. He says how great it is being able to achieve two results by single activity:

1. BPM Saves Costs

2. BPM Increases Value

Not quite new idea but Jim adds some specific arguments which makes the post worth to read.

Yet with all my respect to him I dare to say that the list above isn’t complete - it misses:

3. BPM Increases Agility

Sounds too abstract? I suspect many people aren’t really sure what the hell this “agility” thing is. OK, let me show you the money behind it.

Generally speaking, there are three ways to compete:

1. A new market segment is opened by innovators who excel in time-to-market. They offer something that didn’t exist before.

2. Then comes those who deliver superior quality.

3. And finally when neither the concept nor the production quality is no secret then it all becomes about the cost.

Do you see? The second list matches to the original one in reverse order!

Now how does this third advantage like in practice? Quite simple, actually: there is a strategy of “waiting for the window of opportunity to open”. This strategy implies that you must be fast because the window only opens for a short period.

Let’s assume that you are a bank which achieved an outstanding agility from SOA+BPM that allows you to launch a new product say in two months while industry average is six months. Being in such position you are able to copy any good idea that your competitor may get while he won’t be able to copy you because you’ll make the next step meanwhile.

(I used a bank as an example because for them product = process. For other industries it isn’t that obvious but still being able to implement a new process or redesign an existing process promptly is a clear advantage.)

Still not conviced? Here is another argument: it’s well known that business, warfare and chess have much in common. Both in chess and war strategy there is a notion of “tempo”: if you made your opponent stressed in time then it increases your chances to win. Hence it’s not uncommon to exchange say a pawn for a tempo in chess so this “canned time” is absolutely material thing in chess.

And so it is in business. When you invest some resources into BPM you not only obtain more customers and serve them more efficiently - you also posess a “canned time” which makes you better prepared for changes, either positive or negative.

The final note: the process management discipline has a long history and it always was about costs and value. Agility is a new thing that BPM brings. So we shouldn’t forget about it and shouldn’t be shy to articulate its value to our customers.