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A business process or business method is a collection of related, structured activities or tasks that produce a specific service or product (serve a particular goal) for a particular customer or customers. It often can be visualized with a flowchart as a sequence of activities with interleaving decision points or with a Process Matrix as a sequence of activities with relevance rules based on data in the process.
There are three types of business processes:
A business process begins with a mission objective and ends with achievement of the business objective. Process-oriented organizations break down the barriers of structural departments and try to avoid functional silos.
A business process can be decomposed into several sub-processes, which have their own attributes, but also contribute to achieving the goal of the super-process. The analysis of business processes typically includes the mapping of processes and sub-processes down to activity level.
Business Processes are designed to add value for the customer and should not include unnecessary activities. The outcome of a well designed business process is increased effectiveness (value for the customer) and increased efficiency (less costs for the company).
Business Processes can be modeled through a large number of methods and techniques. For instance, the Business Process Modeling Notation is a Business Process Modeling technique that can be used for drawing business processes in a workflow.
One of the most significant people in 18th century to describe processes was Adam Smith in his famous (1776) example of a pin factory. Inspired by an article in Diderot's Encyclopédie, Smith described the production of a pin in the following way:
”One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head: to make the head requires two or three distinct operations: to put it on is a particular business, to whiten the pins is another ... and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which in some manufactories are all performed by distinct hands, though in others the same man will sometime perform two or three of them.”
Smith also first recognized how the output could be increased through the use of labor division. Previously, in a society where production was dominated by handcrafted goods, one man would perform all the activities required during the production process, while Smith described how the work was divided into a set of simple tasks, which would be performed by specialized workers. The result of labor division in Smith’s example resulted in productivity increasing by 24,000 percent (sic), i.e. that the same number of workers made 240 times as many pins as they had been producing before the introduction of labor division.
It is worth noting that Smith did not advocate labor division at any price and per se. The appropriate level of task division was defined through experimental design of the production process. In contrast to Smith's view which was limited to the same functional domain and comprised activities that are in direct sequence in the manufacturing process, today's process concept includes cross-functionality as an important characteristic. Following his ideas the division of labor was adopted widely, while the integration of tasks into a functional, or cross-functional, process was not considered as an alternative option until much later.
In the early 1990s, US corporations, and subsequently companies all over the world, started to adopt the concept of reengineering in an attempt to re-achieve the competitiveness that they had lost during the previous decade. A key characteristic of Business Process Reengineering (BPR) is the focus on business processes. Davenport (1993) defines a (business) process as:
”a structured, measured set of activities designed to produce a specific output for a particular customer or market. It implies a strong emphasis on how work is done within an organization, in contrast to a product focus’s emphasis on what. A process is thus a specific ordering of work activities across time and space, with a beginning and an end, and clearly defined inputs and outputs: a structure for action. ... Taking a process approach implies adopting the customer’s point of view. Processes are the structure by which an organization does what is necessary to produce value for its customers.”
This definition contains certain characteristics a process must possess. These characteristics are achieved by a focus on the business logic of the process (how work is done), instead of taking a product perspective (what is done). Following Davenport's definition of a process we can conclude that a process must have clearly defined boundaries, input and output, that it consists of smaller parts, activities, which are ordered in time and space, that there must be a receiver of the process outcome- a customer - and that the transformation taking place within the process must add customer value.
Hammer & Champy’s (1993) definition can be considered as a subset of Davenport’s. They define a process as:
”a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer.”
As we can note, Hammer & Champy have a more transformation oriented perception, and put less emphasis on the structural component – process boundaries and the order of activities in time and space.
Rummler & Brache (1995) use a definition that clearly encompasses a focus on the organization’s external customers, when stating that
”a business process is a series of steps designed to produce a product or service. Most processes (...) are cross-functional, spanning the ‘white space’ between the boxes on the organization chart. Some processes result in a product or service that is received by an organization's external customer. We call these primary processes. Other processes produce products that are invisible to the external customer but essential to the effective management of the business. We call these support processes.”
The above definition distinguishes two types of processes, primary and support processes, depending on whether a process is directly involved in the creation of customer value, or concerned with the organization’s internal activities. In this sense, Rummler and Brache's definition follows Porter's value chain model, which also builds on a division of primary and secondary activities. According to Rummler and Brache, a typical characteristic of a successful process-based organization is the absence of secondary activities in the primary value flow that is created in the customer oriented primary processes. The characteristic of processes as spanning the white space on the organization chart indicates that processes are embedded in some form of organizational structure. Also, a process can be cross-functional, i.e. it ranges over several business functions.
Finally, let us consider the process definition of Johansson et al. (1993). They define a process as:
”a set of linked activities that take an input and transform it to create an output. Ideally, the transformation that occurs in the process should add value to the input and create an output that is more useful and effective to the recipient either upstream or downstream.”
This definition also emphasizes the constitution of links between activities and the transformation that takes place within the process. Johansson et al. also include the upstream part of the value chain as a possible recipient of the process output. Summarizing the four definitions above, we can compile the following list of characteristics for a business process:
Frequently, a process owner, i.e. a person being responsible for the performance and continuous improvement of the process, is also considered as a prerequisite...
Business processes comprise a set of sequential sub-processes or tasks, with alternative paths depending on certain conditions as applicable, performed to achieve a given objective or produce given outputs. Each process has one or more needed inputs. The inputs and outputs may be received from, or sent to other business processes, other organizational units, or internal or external stakeholders.
Business processes are designed to be operated by one or more business functional units, and emphasize the importance of the “process chain” rather than the individual units.
In general, the various tasks of a business process can be performed in one of two ways
Typically, some process tasks will be manual, while some will be computer-based, and these tasks may be sequenced in many ways. In other words, the data and information that are being handled through the process may pass through manual or computer tasks in any given order.
The above improvement areas are equally applicable to policies, processes and detailed procedures (sub-processes/tasks). There is a cascading effect of improvements made at a higher level on those made at a lower level.
For instance, if a recommendation to replace a given policy with a better one is made with proper justification and accepted in principle by business process owners, then corresponding changes in the consequent processes and procedures will follow naturally in order to enable implementation of the policies
Internal controls can be built into manual / administrative process steps and / or computer system procedures.
It is advisable to build in as many system controls as possible, since these controls, being automatic, will always be exercised since they are built into the design of the business system software. For instance, an error message preventing an entry of a received raw material quantity exceeding the purchase order quantity by greater than the permissible tolerance percentage will always be displayed and will prevent the system user from entering such a quantity.
However, for various reasons such as practicality, the need to be “flexible” (whatever that may signify), lack of business domain knowledge and experience, difficulties in designing/writing software, cost of software development/modification, the incapability of a computerised system to provide controls, etc., all internal controls otherwise considered to be necessary are often not built into business systems and software.
In such a scenario, the manual, administrative process controls outside the computer system should be clearly documented, enforced and regularly exercised. For instance, while entering data to create a new record in a material system database’s item master table, the only internal control that the system can provide over the item description field is not to allow the user to leave the description blank – in other words, configure item description as a mandatory field. The system obviously cannot alert the user that the description is wrongly spelt, inappropriate, nonsensical, etc.
In the absence of such a system-based internal control, the item creation process must include a suitable administrative control through the detailed checking, by a responsible officer, of all fields entered for the new item, by comparing a print-out taken from the system with the item data entry sheet, and ensuring that any corrections in the item description (and other similar fields where no system control is possible) are promptly carried out.
Last but not least, the introduction of effective manual, administrative controls usually requires an overriding periodic check by a higher authority to ensure that such controls are exercised in the first place.
Business processes must include up-to-date and accurate reports to ensure effective action. An example of this is the availability of purchase order status reports for supplier delivery follow-up as described in the section on effectiveness above. There are numerous examples of this in every possible business process.
Another example from production is the process of analysis of line rejections occurring on the shop floor. This process should include systematic periodical analysis of rejections by reason, and present the results in a suitable information report that pinpoints the major reasons, and trends in these reasons, for management to take corrective actions to control rejections and keep them within acceptable limits. Such a process of analysis and summarisation of line rejection events is clearly superior to a process which merely inquires into each individual rejection as it occurs.
Business process owners and operatives should realise that process improvement often occurs with introduction of appropriate transaction, operational, highlight, exception or M.I.S. reports, provided these are consciously used for day-to-day or periodical decision-making. With this understanding would hopefully come the willingness to invest time and other resources in business process improvement by introduction of useful and relevant reporting systems.
Frederick Winslow Taylor developed the concept of scientific management. The concept contains aspects on the division of labor being relevant to the theory and practice around business processes. The business process related aspects of Taylor's scientific management concept are discussed in the article on Business Process Reengineering.
The span of control is the number of sub-ordinates a supervisor manages within a structural organization. Introducing a business process concept has a considerable impact on the structural elements of the organization and thus also on the span of control.
Large organizations that are not organized as markets need to be organized in smaller units - departments - which can be defined according to different principles.
Information Management and the organization design strategies being related to it, are a theoretical cornerstone of the business process concept.
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