Business Process Excellence - Some Characteristics: Anders Mårtensson & Gösta Steneskog

IX Business Process Excellence
—Some Characteristics
Anders Mårtensson & Gösta Steneskog
During the last couple of years working with business processes has been
recognized as a major tool for business development. The business pro-
cess re-engineering strategy has become very popular. Everyone is striv-
ing to have the best business processes, to be “best-in-class”. But how do
you know how good your business processes are? In this chapter the
authors deal with questions like “What is an excellent business process?
What characterizes it?” The framework presented in the chapter is de-
veloped within the EU project CEBUSNET, which aims at identifying,
describing and disseminating business best practices. Naturally, it can be
used by anyone wanting to evaluate a business process
Introduction
There are many ways for a company to become successful, e.g. win-
ning business strategies, dominating products or excellent business
processes. In this chapter we deal with the last case, the “excellent
business processes”. The arguments put forward in the chapter are not
constricted to businesses but are applicable to the public sector and
other non-profit organizations as well.
1
Our study of business processes is a part of a EU project , CEBUSNET,
which aims at systematically collecting and analyzing the “Business
Best Practices” of “Business Best Processes”, which in turn might lead
to “Business Best Enterprises”.
------------
Lundeberg, M. & Sundgren, B. (eds.) (1996) Advancing Your Business: People and
Information Systems in Concert, EFI, Stockholm School of Economics, Sweden
IX:2 Advancing Your Business
Business Best Business Best Business Best

Practice Process Enterprise
Figure 1. The business process in its context.
What Characterizes an Excellent Business Process?

A fundamental question of this work is to identify what characterizes
an excellent business process. How do you recognize it? It is vital to
define the process and a number of its properties in order to answer this
question.
Naturally, the approach taken by the members of the EU project might
be used by practioners, such as e.g. a CEO who wishes to analyze busi-
ness processes in his company or by senior management to evaluate a
concluded BPR project.
What Makes the Process Excellent?

The next relevant question is what makes the process excellent? In this
study we are focusing three factors: process design, use of IT and hu-
man resources. Obviously, there are a number of other factors that
might lead to excellent business processes (e.g. new production tech-
nology). However, these three factors have enjoyed radical improve-
ments the last couple of years.
Of course, “excellent” is not well defined. It is also time dependent; a
business process that is competitive today, might well be outdated in
the future. A Business Best Practice will sooner or later become com-
mon practice and no longer be a source of competitive advantage.
What Is a Business Process?

In recent times, applying a business process oriented view on the com-
pany has become extremely popular. Earlier on, a company was usually
defined in terms of different functions or departments, e.g. sales and
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Business Process Excellence—Some Characteristics IX:3
production. Today, business processes, such as the order process or the

product development process, which create value to the customer, are
2
in focus . A reason for the increased interest in the development of
business processes is the opportunity for radical improvement brought
about by new information technology.
Sometimes working with processes and BPR, which is characterized by
3
radical change, is considered synonymous . It is important to keep in
mind that a process view by no means implies radical change. Patient
continuous improvement is an important part of working with processes.
One fundamental question is “What is a business process anyway?”
There are a number of different definitions of process, most of which
are fairly similar. Davenport defines a process as “a structured, meas-
ured set of activities designed to produce a specified output for a par-
4
ticular customer or market” .
In other words, a business process transforms some sort of input by
some sort of activities to some sort of output. The basic idea is of
course that the output is more valuable to the customer than the input.
A common example is the order process which transforms an order re-
ceived to a delivered product. Typically this kind of process crosses a
number of functional borders.
Different Levels of Scope in Process Work

An important part of a process analysis is how the process is delimited.
• The first (and most basic) level is a business process within a com-
pany whose customer is another process within the company. This
perspective is useful for continuous improvement but seldom leads
to radical improvement.
• The next level is business processes providing output to external
customers (usually on some market). These processes are usually
called the core business processes of the firm and are essential for
the success of the company. The focus of process work on this level
is usually on reducing non value adding activities, but in some cases
it might result in radical improvement. Many of the success stories
------------
that are commonly cited in the literature deal with this kind of pro-
cess work. One example is Ford’s procurement process, which
avoided a number of steps not adding value by paying for goods re-
5
ceived instead of invoices received .
• The third level of process work is about concerning yourself with
your customer’s customer and your vendor’s vendor. Of course, the
ultimate scope is from the very beginning of the value chain to the
end consumer. Working on this level, one might discover relations
and possible solutions that change the business logic of the industry.
Procter & Gamble did this for a consumer product process by man-
aging the process from the factory, through wholesaler and retailer
6
to the consumer .
The third level encompasses the first two. If one chooses to work on level
one or two, it is important to have some knowledge of higher levels in
order not to sub-optimize the process. The chances for achieving radical
improvement increase with the scope of your process work. On the other
hand, this tends to increase the level of risk in the project.
The Business Process

The figure below shows one way of describing the relationships
between process characteristics and process enablers.
Process Characteristics
Internal Characteristics
Process enablers
Business Strategy
Figure 2. Overall structure.
------------
The business strategy formulates the goals for the process in terms of
its characteristics. In order to achieve these goals the business strategy
directly affects the process enablers which in turn affect the
characteristics. Analyzing a process shows that there are often internal
characteristics and responsibility matters, which are of importance.
We will now discuss four process characteristics in some detail; cus-
tomer satisfaction, productivity, quality and lead time.
Customer
Satisfaction
Characteristics
Productivity Quality Lead Time
Figure 3. Process characteristics.
Customer Satisfaction
Customer satisfaction deals with whether the customer is satisfied with
the result of the process. This can be considered as quality in a wide
sense, but we choose to differentiate between customer satisfaction and
quality. Customer satisfaction is not only about the quality of the output
object itself but also incorporates time (“Do I get the output on time?”)
and productivity (“Is the output reasonably priced?”).
Customer satisfaction is important since it is essential for a process to
be viable. Satisfied customers mean more business, more executions of
the process, and—hopefully—increased income. A process without
satisfied customers is a dying process. In terms of the consumer prod-
uct process mentioned above; if the consumers are not satisfied with
our product, they will not buy it, the retailers will not order it, and nor
will the wholesalers.
While customer satisfaction is a subjective measure, customer benefit
is its objective counterpart. A process owner can focus on customer
benefits since this, in the long run, often leads to customer satisfaction,
even though there is no guarantee for this.
------------
Customer satisfaction is a central concept when working with process

management. If customer satisfaction is not measured, an important
prerequisite for business process excellence is missing.
Quality
Quality deals with whether the process output object meets the de-
mands of the customer. If the output object is what the customer wants,
it will increase customer satisfaction. However, it is not the only de-
terminant since cost and timeliness are of importance as well. Methods
of identifying and measuring customer demands are dealt with in the
7
quality literature .
In the consumer process example we want our goods to meet the de-
mands of the customers as well as what we demand based on our per-
ception of customer demand and need.
Productivity
Productivity is important both in order to achieve competitive pricing,
and to make reasonable profits for future development of the business.
Total productivity relates the value added to the cost of transformation,
i.e., “value added/cost of transformation (incl. fixed costs)”. Marginal
productivity is defined as the productivity of one single execution of
the process, i.e., “value added/cost of transformation (excl. fixed
costs)”
Fixed costs are costs such as, e.g. rent and equipment expenses, which
are needed to create the platform, i.e. the fundamental conditions and
resources for being able to run the process. This means that the total
productivity is volume-dependent. Economies of scale can bring down
the fixed costs per execution. This can be illustrated by shipping costs
in the consumer process example. The cost of driving a full truckload
of goods to a retailer equals that of driving an almost empty truck.
Not all processes deal with physical objects, however. Lately, processes
have been moved to the “cyberspace” or “marketspace”. Electronic
------------
commerce and Internet shopping are examples of this. For processes

mainly dealing with non-tangible objects such as information, this
means major productivity boosts.
All in all, the old economic rules have been fundamentally changed
since financial barriers to entry are almost non-existent for these types
of processes. New information and communication technologies have
decreased start-up costs very significantly. Starting a phone bank costs
next to nothing compared to an ordinary bank. The consequences of
these new economic rules are not predictable at the moment.
One does not usually need the precision and continuity of traditional
accounting for management accounting and control of a process. The
structure of traditional accounting is mainly departmental and it is of-
ten hard to get measurements of the process level.
Lead Time
The third characteristic which leads to customer satisfaction is lead
time. Defining lead time is no uncontroversial matter. One important
aspect is whether an internal or external perspective is used.
Figure 4. Process lead time.
------------
Deciding how time for start-up of the process should be handled is an

internal question. Does the execution begin when preparations are
started or when the actual object handling begins? Is the execution over
when the output object is finished or when the process platform has
returned to its static state? The basic questions are; “How long are the
resources of the process occupied?” and “How long must we control
the resources of the process?”
From the customer’s point of view, it might be the length of the lead
time that is interesting. In many cases, e.g. lean production, the preci-
sion of the delivery or lead time might be even more interesting. The
most important thing in these cases is to be able to deliver the output
when the customer needs it, neither earlier nor later. The variance of
the lead time is more important than its average.
Predictability is an internal property of the process that is defined as the
ability to predict when the output will be available. Predictability obvi-
ously depends on lead time variance.
Delivery precision is an external property defined as the ability to de-
liver the output at the right time. This depends not only on the predict-
ability, but also on buffer time and the ability to handle problems by
e.g. relocating resources.
The lead time may be output object dependent, i.e. it may vary with
the size and complexity of the output. This makes measuring and
control very hard. The lead time for building a house obviously
depends on whether it is an ordinary prefabricated family home or,
say, an Olympic stadium. In the case of processes dealing with non-
physical objects, such as information systems development, the lead
times are often hard to estimate. It is hard to predict the planned size
and quality of the output and measuring causes problems even when
the product is finished.
In most cases, there is no need to measure every single execution of the
process. Measuring a small sample usually clarifies the state of the
process, at least as far as lead times are concerned. Despite the prob-
lems pointed out above, time is often fairly easy to measure.
------------
Actor Satisfaction
Actor satisfaction—the well-being of the process actors—is not explicit
in Figure 4 since it differs from other characteristics. Actor satisfaction
is a result of a process execution, but also a significant input of the next
execution. Most other process characteristics do not affect subsequent
executions in the way actor satisfaction does.
A successful and motivating process creates interest and motivation for
its actors. This in turn makes it a successful and motivating process etc.
To a certain extent, this characteristic is determined by external factors,
e.g. the process environment. The internally generated part of the actor
satisfaction is a positive feedback loop. Satisfied actors mean better
process results which lead to even more satisfied actors etc. Unfortu-
nately this feedback loop works the other way around too.
Figure 5. Actor satisfaction.
Actor satisfaction is a direct experience for the actor whereas process

results and customer satisfaction have to be explicitly reported to the
actor. When dealing with quality, actor satisfaction is extremely impor-
tant. If the actors do not care about quality, productivity, lead time and
customer satisfaction, we will not have an excellent process.
------------
Process Enablers
The results of a process depend on a number of enablers. The three
enablers the CEBUSNET project is focusing on are the technical plat-
form (including information and telecommunications technology),
people/actors and process design, i.e. the fundamental structure of the
process. The reason for focusing on these is the increase and shift in
their relative importance. Of course, there are other important enablers
such as, e.g. production technology.
The process enablers are mutually interdependent. The technical plat-
form and process actors constrain what designs are feasible. In the
same way, the need for IT support is decided by the process design and
the actors. Changing the process enablers or their use is necessary in
order to change the process characteristics.
IT’s role in business process development is often exaggerated, espe-
cially in the BPR literature. However, Davenport claims that:
“Its great potential notwithstanding, IT cannot change processes
by itself, nor is it the only powerful resource [...] Process inno-
vation can seldom be achieved in the absence of a carefully con-
8
sidered combination of both technical and human enablers.”
One result of our initial analysis of Business Best Processes is that it is
the excellent interplay between the enablers that result in excellent
processes.
Process Process
Enablers Human Actors IT
Design
Figure 6. Process enablers.
Information Technology
Using IT effectively is important for achieving attractive process char-
acteristics. There are different ways of using IT in a business process:
------------
• IT Support. Providing actors with improved information for decision

making.
• IT Control. Improve control, management and optimization of the
process.
• IT Based. IT can be the primary source of value added in the pro-
cess. The presence of information-based processes is increasing
(software development, processes on the Internet) and will continue
to increase. In these processes IT is not only an enabler but is actu-
ally doing the work
IT not only creates opportunities but also can create problems. The
costs, in time and money, of changing existing information systems can
be a major obstacle.
For obvious reasons IT is the most important enabler for the informa-
tion-based process. The other enablers, actors and process design, are
actually enablers for the information system rather than the business
process.
Actors
The skill and motivation of the actors are decisive factors for the per-
formance of the process. Human actors tend to induce flexibility into
the process compared to IT based solutions. The human ability to im-
provise and overcome unexpected problems by using creativity is way
beyond the ability of IT.
Within the BPR movement an implicit Tayloristic approach is often
used—actors are considered interchangeable parts of a machinery. The
aim is to create a “programmed process” with extremely high produc-
tivity and low variance of performance, but at the same time low
flexibility. There is no explicit intent to make use of the individual
skills of the actors.
On the other hand the awareness of the actors’ unique skills has in-
creased the last couple of years. A company’s core competence is one
of the hardest competitive advantages to copy. An important part of this
core competence is the employees’ ability to act flexibly in the business
------------
processes. To do this, they must know more about the processes than
their own small part. The ultimate goal is of course that every em-
ployee will be given the opportunity to make full use of their skills in
the business processes.
Process Design
The way the activities of the process are actually performed and how
they relate to each other show the process design and the structure of
the process. What activities are there in the process and how do they
relate to each other? What activities are actually adding value? These
are central questions when considering process designs. How well a
specific process design will work depends on the other process enablers
and the expected process performance.
Flexibility
There are two forms of flexibility; what can the process do today, and
how easily can it be changed to cope with new demands. Both forms
determine the process’ ability to create customer satisfaction. The first
form is important in the short term, while the second form deals with
the process’ long term ability.
Flexibility can be defined as the ability to cope with changes in the en-
vironment, enabling factors and expected performance characteristics.
The object of change, the kind of request for change and the level of
change are also of interest.
A simple analysis of the flexibility of a process can be based on the
following questions.
1 What is the object of change? Input? Output? Actors? Technical
platform?
2 What requests for change can be predicted and pre-planned? What
is the risk of unplanned and unpredicted requests for change?
------------
3 How does the process cope with the changes identified by the first
two questions?
Object of Change
• The input object can vary. If the main input object, an order, is
changed it automatically leads to a different output object. New and
improved material is another source of variation. Traditional input
objects can be hard to come by and substitutes have to be used.
• The output object can vary. The output of one process execution can
differ from the previous one. For most processes this is the most
9
common variation. The popularity of mass customization , where
every single output object is custom made, is increasing. Combining
mass customization with maintained economies of scale is a major
challenge in many industries. In the automotive industry, for exam-
ple, long production series are used but at the same time every car is
custom built to fill the needs of a specific customer.
• The actors of the process can change, by e.g. skill development
projects. New actors (new employees) will enter the process while
others disappear. Skill development projects can enable new solu-
tions and process designs that used to be prohibited by lack of actor
skills. Using individual actors’ competence to improve process per-
formance increases the risk inherent in the process. When certain
key actors disappear, the performance of the process can suffer dra-
matically.
• Variations in equipment or information systems can be due to new
technologies or the breakdown of existing systems. Usually the
technical platform is fairly stable compared to other objects of
change. Unfortunately, its stability often translates into resistance to
change. The technical platform is often a major source of inflexi-
bility. The role of information systems is often anything but flatter-
ing in this respect.
• The flexibility of the process’ capacity can be changed in two dif-
ferent ways. The execution frequency can change, i.e. the time
between two consecutive executions is changed, or the batch size
------------
can change, i.e., the number of output objects per process execution
is changed. For information-based processes, requests for higher ca-
pacity can often be handled by increasing the performance of the
underlying system.
Different Kinds of Requests for Change

A request for change can be either predicted or unpredicted. The
change required to meet the request can be either planned or un-
planned. Change consists of prepared routines for how the process must
be changed to meet the new demand. In cases of unpredicted requests
for change there are no plans.
The different possible cases are described in the table below:
Predicted Unpredicted
Planned Premeditated choice to No specific plans possi-
prepare plans. ble, only generic plans
for surprising requests.
Un-planned Not worth making plans You cannot plan for un-
for improbable requests. predicted requests.
Premeditated choice not
to prepare plans.
Table 1. Kinds of requests for change.
Level of Change
Three levels of change can be discerned; versatility, reconfiguration
and reconstruction.
The versatility of a process corresponds to the implemented functional
width. The process can cope with certain requests for change without
any interference. The request can be predicted (and automatically
handled) or unpredicted (and handled by creative actors).
An important part of the versatility concept is the ability to provide
custom made output objects. Being able to vary the output object en-
------------
ables meeting the customer’s individual needs without having to ac-

tively change the process.
An example of a versatile process is the car production process. The
same process produces a number of variations of the same model.
Reconfiguration means that a number of different versions of the pro-
cess exists. Before every execution a decision is made which version to
execute. The versions can handle different predicted requests for
change. Unpredicted requests for change can be handled by a special
exception version of the process, relying heavily on creative manual
work.
The car production process mentioned above, can by reconfiguration
produce two different car models based on the same base model. The
process is reconfigured when a shift between the models is needed.
Reconstruction creates even more functional width of the process. Re-
quests for change that lead to reconstruction can either be predicted
(but not probable enough for plans to be prepared, or planning might be
too expensive) or unpredicted.
The IT legacy is often a burden when reconstructing a business process.
The information systems cannot easily be changed to accommodate the
needs of a new process design. Reconstructing a business process can
become very complicated if the process relies on information systems
which in turn communicate with other information systems in the com-
pany.
In the automotive industry the yearly model changes lead to major or
minor reconstruction of the production process.
To increase the flexibility of a process, the manual part of the process
work can be increased. However, this usually leads to trade off consid-
erations since manual work tends to decrease productivity and increase
the variance of the output.
A common solution to this problem is to let the information systems
handle the majority of the execution but let human actors deal with all
the exceptions. Good routines for deciding whether the systems or the
people should handle the execution are essential in this case.
------------
What Level of Flexibility Is Desirable?

Determining what level of flexibility that is desirable is important.
What kinds of requests for changes does the process have to meet?
How important is it to be able to meet these requests (this might be
explicitly formulated in the business strategy)? What demands do the
customers have?
Maintaining a higher level of flexibility than necessary is not a problem
in itself. What causes problems in the long run, however, is if this is
paid for by decreased productivity.
Managing the Process

A Business Best Process must be constantly developed, otherwise it
will soon no longer be a Business Best Practice. It is important to con-
sider both short term process control and long term process manage-
ment. The relationship between these two concepts and process charac-
teristics and enablers is shown in Figure 7.
Customer
Satisfaction
Characteristics
Productivity Quality Lead Time
Internal Process
Flexibility Control
Characteristic
Process Process
Enablers Human Actors IT
Design
Process
Business Management
Strategy
Figure 7. Process enablers, characteristics and the management of the process.
------------
Process Control
Process control deals with a single execution of the process. How shall
the available resources be used in this specific execution? How shall
the execution be coordinated with other synchronized processes and
other executions of the same process? How do we handle disturbances?
Process control is about using the versatility of the process to handle
changes in preconditions and demands.
The goal is to achieve the best results possible for each and every pro-
cess execution based on the enabling factors available.
Process control can often be dealt with as a separate process—the con-
trol process. Changes in the control process often achieve better results
than changes in the base process. In Procter & Gamble’s consumer
product process, the base process was not changed very much while the
control process was turned upside down. The results that were achieved
stemmed from these control process changes. Enhanced information
management on topics such as what the customer bought, and what the
retailers and wholesalers ordered was enough to increase the effective-
ness in the whole value chain.
Process Management
Process management deals with the long term use of enabling factors
and how the process is developed. Based on the business strategy, pro-
cess management is the tool which ensures that the business processes
meet the customers’ demands. Deciding the desirable mix between dif-
ferent process characteristics, e.g. price/quality, is a process manage-
ment question. The goal is twofold, to identify how well the process
matches current demands (based on measurements), and to ensure the
development of the process in order to improve it and enable it to meet
future demands.
Process management is about creating the platform of the process,
make it work, measure the process and design and implement changes
in the platform or enablers. To verify that new goals are met is also a
part of process management. A process without a well-functioning
------------
process management will not keep up with competition and will not be
a Business Best Process for long.
The management of the process is summarized in the following table:
Level Purpose
Process Control Operative management.
Effective short term use of existing enablers.
Process Management Management of the development of the process.
Effective long term use of existing enablers to reach
goals.
Providing resource and developing the platform.
Articulate goals.
Table 2. Two levels of managing the process.
Environment
Processes do not exist in a vacuum. They exist in companies on mar-
kets. Characteristics that are important in one company on one market
(e.g. short lead times) might be of less importance for a process in
another company on another market. When studying business process it
is important to take the environment of the process into account.
The Company Environment

The environment of the company, e.g. competitors, vendors and cus-
tomers, affects its business strategy. This strategy directly affects how
the company shall act on the market, segments to focus, etc., and indi-
rectly what mix of characteristics that are desirable for the core pro-
cesses of the company.
------------
The Process Environment

The process environment consists of, e.g. interaction with other pro-
cesses or customers within the company, corporate culture, business
processes in other companies. The latter is becoming increasingly
common, e.g. in form of close relationships based on interorganiza-
tional information systems between customer and vendor. The process
environment affects what goals are desirable—based on customer de-
mands—and whether these goals are feasible—based on the existing
enabling factors.
Conclusion
Whether a process is excellent:
• can be articulated in terms of the characteristics: customer satisfac-
tion, quality, lead time and productivity
• depends on how these characteristics match the demands from the
environment, especially the business strategy.
What makes it an excellent process can usually be found among the
following enabling factors:
• information and telecommunication technology
• human actors
• process design.
Other important factors are:
• the flexibility of the process—it should be adjusted to match de-
mands and actual needs
• process control—the short term management of the process
• process management—the long term management of the process.
------------
Notes
1
CEBUSNET (CEMS Business Best Practice Network), Esprit Project 21776.
2
Steneskog, G. (1991) Process Management—Konsten att styra och utveckla ett företags
administrativa processer, Liber, Malmö, Sweden.
3
See e.g. Davenport, T. H. (1993) Process Innovation—Reengineering Work through
Information Technology, Harvard Business School Press, Boston, Massachusetts, or
Hammer, M. & Champy, J. (1993) Reengineering the Corporation—A Manifesto for
Business Revolution, Harper Collins Publishers, New York.
4
Davenport, op.cit., p. 5.
5
See e.g. Hammer & Champy, op.cit., p. 39 ff.
6
Procter & Gamble’s work is documented in Clark, T. H. (1995) Procter & Gamble:
Improving Consumer Value Through Process Redesign, Harvard Business School Case
No. 9-195-126, Boston, Massachusetts.
7
See e.g. Bergman, B. & Klevsjö, B. (1994) Quality—from customer needs to customer
satisfaction, Studentlitteratur, Lund, Sweden.
8
Davenport, op.cit., p. 17.
9
See e.g. Pine, J. B. II (1993) Mass Customization The New Frontier in Business Com-
petition, Harvard Business School Press, Boston, Massachusetts.
------------

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IX Business Process Excellence

Business Best Business Best Business Best

Figure 1. The business process in its context.

What Characterizes an Excellent Business Process?

What Makes the Process Excellent?

What Is a Business Process?

production. Today, business processes, such as the order process or the

Different Levels of Scope in Process Work

The Business Process

Figure 2. Overall structure.

Figure 3. Process characteristics.

Customer satisfaction is a central concept when working with process

commerce and Internet shopping are examples of this. For processes

Figure 4. Process lead time.

Deciding how time for start-up of the process should be handled is an

Figure 5. Actor satisfaction.

Actor satisfaction is a direct experience for the actor whereas process

Figure 6. Process enablers.

• IT Support. Providing actors with improved information for decision

Different Kinds of Requests for Change

Table 1. Kinds of requests for change.

ables meeting the customer’s individual needs without having to ac-

What Level of Flexibility Is Desirable?

Managing the Process

Figure 7. Process enablers, characteristics and the management of the process.

Table 2. Two levels of managing the process.

The Company Environment

The Process Environment

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