Principles of Process Management
- Guiding Concepts
- The 10 Principles of Process Management
By taking an approach that relies heavily on a simple set of base principles, everyone involved in renewal work will be able to understand and communicate more clearly. You can make recommendations and decisions based on a set of commonly understood and consistent criteria. You can share and discuss rationale for change, as well as avoid the always dangerous approach of relying on thoughtless cookbooks that describe unequivocal steps to be followed, even when they are senseless or irrelevant. The entire method should become a useful guide that helps you exercise judgment more confidently.
This chapter has been partitioned into two sections. The first section defines concepts to help you understand the terms often used in process management. It will define the interaction among a number of closely aligned concepts, all of which should be exercised for businesses to function effectively and for change to become robust. The second section lists a set of guiding principles that have worked in thousands of situations. These principles are the essence of process management. When present and applied in an organization, these principles satisfy a set of critical factors for success. When absent or not applied, they highlight the increased business risk associated with a program of change.
As I just mentioned, this section defines a number of very fundamental concepts and terms used throughout this book. It especially deals with the differentiation of the concepts
These ideas are all very powerful in their own right and are part of the search by architects and analysts to find the set of concepts which represents related, yet independent, business variables. Those variables can be isolated and changed independently to enable adaptability.
As we will see, this disentangling of concepts is a step in the maturing of organizational analysis, which has struggled with change when the concepts were intertwined and almost impossible to undo. Because we didn't know any better at the time, our business solutions exhibited a high degree of dependence. This caused many organizations that were previously successful in stable times to become hopelessly impotent when adapting to new business pressures and opportunities.
By managing some of these variables independently, as we learned to do with databases, we can change each relatively easily. This level of interdependence has been a step in the right direction. However, as happens in humans who successfully grow up, independence soon is replaced by a level of interdependence, wherein all factors stand alone but are connected in a set of known relationships. Any change in any one factor affects the others in the relationship, and that impact can be easily known. In this way, interdependence brings robustness and the ability to move more easily with the times. This is especially true when it comes to process modeling because, if the other variables are deeply embedded within the models, it is often necessary to change the entire process model. By defining such items as rules separately and cross-relating them to the process model, you can change the rule without changing the process design.
The same is true of the concepts examined next. It's vital that a business understand its processes, information, knowledge, and rules. We must make sure that we know the differences and the relationships among them to ensure that we don't see any one of them as the independent answer to all problems. We must work all of these concepts together synergistically to ensure that we understand their complex fit and can tweak any of them without having to change everything.
What Is a Business?
I define a business as any organization whose aim is to create results of value for someone who cares about those results. This is obviously a simple or, some might say, a simplistic view. But starting from the business's place in the world will help you understand how it must behave to serve its purpose.
Business as a Vehicle of Transformation
In simple terms, the purpose of any business entity is to act as a transformation mechanism. When appropriate events and conditions trigger action, customer requirements and consumable resources—such as raw materials, money, and information (see the left side of Figure 3.1)—are transformed into goods, services, and business outcomes for the customers' benefit (see the right side of Figure 3.1). These results can have a physical component, such as a tangible product, as well as an informational or knowledge-based one, such as a report, book, or expertise provided. Regardless of the nature of the delivered result, an emphasis on service and customer retention is the objective of most 21st century organizations.
Figure 3.1 Understanding the business context and organizational capabilities.
At the same time that businesses are serving their customer and consumer markets, their performance is measured in terms of appropriate key performance indicators (KPIs) and evaluated against the requirements of the business owners and investors (see the top of Figure 3.1). Satisfying customers and owners concurrently while recognizing the multiple outside pressures and regulatory constraints is difficult, given the potential conflict among these guiding factors (again, refer to the top of Figure 3.1).
The business applies a number of reusable resources to enable this transformation (see the bottom of Figure 3.1). These capabilities include
Cross-functional business processes. Interestingly, businesses might not recognize them as processes.
Physical facilities. These include offices, factories, equipment, and tools.
Computing and communications technology. These enable information flow, knowledge sharing, and communications.
The traditional challenge of any business is to optimize results from competing courses of action, given performance objectives and scarcity of some resources. This isn't easy given the number of interdependent variables in play. It's made more difficult because the game is played on a business landscape that's changing rapidly. Different players might be playing by different rules and focusing on different time horizons. It's management's job in this environment to make the difficult decisions in a state of uncertainty and sometimes chaos.
Internal Versus External Perspectives
A fundamental obstacle in optimizing performance and flexibility is the often systemic conflict between those inside the organization and those outside it. This classic battle pits workforce performance measures and incentives against the true requirements of the market forces. The needs and wants of customers, consumers, suppliers, and shareholders will ultimately rule in any competitive business environment but might not be the focus of staff and managers.
The vertical structures of most organizations recognize and reward those who perform well against arbitrary, divisional targets. Unfortunately, these targets are often misaligned with external requirements, of which the organizations are often ignorant. The challenge is to align these two perspectives by segmenting programs of change and ultimately organizations into value-creating streams focused on and measured by outsiders, not insiders. To do this, all analysis and design need a process perspective. Process is the only way to segment a business that can be described in exactly the same terms as the business itself. A process is also a vehicle that delivers results valuable to those who care. That is why it must remain the primary way of segmenting change programs.
The Industrial Revolution
In focusing on managing the delivery of results to our customers and consumers, we are in a sense returning to the days before the Industrial Revolution, when work was performed completely in one place and time. Workers saw the results of what they did. Outcomes were clear, stakeholders weren't mysterious, and work processes had integrity. Craft workers did the whole job and took ownership of the results, not just small parts of it.
The advent of the Industrial Revolution in England in the late 18th century changed work significantly. Even though products and service had relatively long business cycles, everything had changed. Equipment availability and production capacity brought competitive advantage. However, financial capital was scarce because of the relatively expensive equipment and plant required.
A large pool of low-paid, uneducated laborers was clearly a commodity to be exploited. As usual, companies optimized based on their scarcest resource, and work methods were built around division of labor into repetitive simple tasks that could be easily taught. Human resources had no "value" reflected in accounting systems, which evolved to see only physical facilities as corporate assets on the balance sheet. A business's human resource, including middle management, was considered merely a labor overhead—strictly there to control work in a hierarchical structure.
This philosophy was central to many exponents of early industrial engineering and process re-engineering approaches. They saved money at the expense of staff knowledge because employee headcount reductions were simply exercises in accounting savings with no regard for the loss of knowledge or creativity assets. In the era that valued things over people, organizations measured themselves on such factors as Return on Assets (ROA) and Return on Investment (ROI). Internally, they focused on efficiency metrics such as ratios of physical outputs over physical inputs. Industrial engineering approaches worked because similar outputs existed across companies and could be compared over time.
Quality Management Period
In the 1970s, such respected teachers as W. Edwards Deming 1 and Philip Crosby2 recognized that traditional industrial engineering approaches had outlived their usefulness. Even though the lifecycles of products and services were still long by today's standards, traditional mass production means were under question. The customer's role was starting to gain importance. Organizations realized that by meeting customer needs for better, faster, and cheaper results, they could gain in market share. This became most apparent when customers rejected the inferior offerings of traditional U.S. industries such as automobiles and steel. Offshore competition took away significant market share.
The shortening of business cycles—which required the capability to repeat success more frequently—exacerbated this trend. Also, the growth in the service aspects of business meant that product quality alone was no guarantee of keeping one's position in the marketplace. The messages of "Customer first" and "Continuous improvement" became the slogans of many organizations. However, most of them practiced their new approaches only in small groups within large organizations. Despite some performance improvements, there was still lots of room to do better, especially when it was clear that savings in production were mostly offset by increased expense in office and overhead positions.
During the 1970s and 1980s, plentiful financial capital poured in for equipment that had now become more of a commodity than a scarce resource. Everyone was on a level playing field when it came to physical assets. A skilled well-paid labor pool was growing steadily. Businesses also started to remove layers from their deep functional organizations. Businesses started implementing customer service in addition to efficiency measures.
Despite the changing business landscape, bottom-line measures still focused on ROA and ROI. Human resources were still seen as having no residual value from a corporate financial perspective, unfortunately. Many organizations would live or sometimes die to regret this oversight.
Information Technology Revolution
In the 1990s with the advent of advanced information technology, we entered a knowledge-led revolution characterized by hyper rates of change. Business cycles became extremely short. Products and services were and still are constantly in flux. Mass production and continuous improvement approaches became totally insufficient for a business to thrive. Mass customization, individualization, personalization, one-to-one approaches, and permission marketing strategies started changing everything to a relationship-based business model. In this world, customer expectations skyrocketed and are still going higher, whereas loyalty is more fleeting.
Features of this new economy, within which we still find ourselves, are plentiful liquid capital and low-priced and universally accessible commodity equipment. More and more, the large pool of educated laborers available in the last few decades is becoming a scarce resource due to a rapidly growing increase in demand for them. This threatens to limit organizations' capability to grow and adapt. Within this ecosystem, human resources are investments to be leveraged.
To survive in this new world, the integration of tasks into full processes isn't an option—it's the only way to deliver results to the outside world. The people working in them, typically experience daily variation in fuller, more complex roles. They feel that they own more of the process within more "fuzzy," less structured organizations. Clearly, human capital is now critical for success even as we struggle to find ways to measure its value.
New measurement approaches are also creeping into complement traditional financial-based measures. Return on Management (ROM) approaches such as those developed by Paul Strassmann3 are becoming more mainstream. ROM evaluates the effectiveness of the knowledge capital of what has traditionally been called overhead in corporations. Measures of staff competency, experience, retention, and loyalty are also being recognized, as are indicators of innovation. Many organizations have incorporated these concepts into a more comprehensive measurement system, often called a balanced scorecard4 because it looks at multiple indicators of predictive organizational health, and not just at the end-of-game score.
In balanced scorecard world, worker incentives focus more and more on collaboration to deliver stakeholder outcomes as part of a shared team reward in a total process and relationship.
These themes are commonly accepted, and all prognosticators emphasize the critical role of customers, cross-functional processes, and knowledgeable human resources.
This transition of the economy and society requires a new emphasis on professional practices to emphasize full processes and learning. These will be discussed next.
What Is a Business Process?
As has been described so far, there seems to be an awakening to the absolute necessity of managing along process lines. This becomes even more apparent when the nature of a process is examined.
A true business process starts with the first event that initiates a course of action. It isn't complete until the last aspect of the final outcome is satisfied from the point of view of the stakeholder who initiated the first event or triggered it. This outside-in perspective cuts across organizational structures, geographies, and technologies, and begs the question, "How do we know the criteria for satisfactory conclusion?" More importantly, "What relationship must we have with the stakeholder who initiates action?" In other words, "Who cares?"
A true process comprises all the things we do to provide someone who cares with what they expect to receive. It also contains all the actions we take when we fail to meet those expectations.
Within any true process, inputs of all types—such as raw materials, information, knowledge, commitments, and status—are transformed into outputs and results. This transformation occurs according to process guidance, such as policies, standards, procedures, rules, and individual knowledge. Reusable resources are employed to enable the change to happen. These resources can include facilities, equipment, technologies, and people.
From this perspective, any process clearly will contain logical and sometimes illogical steps, which usually cross professional functions and, often, organizational units. It's in this realm that you'll find the lion's share of misalignments because organizational and personal goals and incentives are frequently at odds with the organization's value proposition to the stakeholder who launched the process.
In a stakeholder-oriented process, you can easily find performance indicators and desired targets for future performance improvement. The process can have measurable objectives set and performance can be evaluated on an ongoing basis based on outcomes.
A final test of a process's completeness is whether the process delivers a clear product or service to an external stakeholder or another internal process.
What Is Business Process Management?
Business process management is itself a process that ensures continued improvement in an organization's performance. As with any process, business process management requires leadership and guidance. At times, this means taking a radical-change perspective, meaning that the fundamental tenets of the process are under re-examination and perhaps renewal. At other times, the process might undergo a cycle of continuous review and enhancement with minor adjustments being considered. At all times, the process's fit with other processes should be understood, examined, and challenged.
Processes are assets of an organization, much like people, facilities, and information. Well managed, they will pay off in terms of performance to the corporation. Processes, moreover, are somewhat special in that they are the vehicles that synchronize the other assets and aspects of change. They are the organizing framework for all the other components. If we don't have the answer to the question, "What should we do?" we can't justify our designs for change in other organizational capabilities. The process links the changes we make to the external business reasons for their existence because only processes can be measured in terms of business performance. They exist for no other purpose. Everything else is in place to make it possible to attain the processes' aim of achieving stakeholder results. The process management hexagon in Figure 3.2 depicts this concept.
Figure 3.2 Process management hexagon.
Process management ensures that all other factors shown in Figure 3.2 are in sync to deliver performance. The work flow from input through transformation to output aligns with the desired results. The technology, people, and facilities enable the process to deliver repeatedly. The guidance of rules, roles, and organizational structure provides the controls to execute the process well. Knowledge and intellectual capital are embedded in a business's physical and technological assets and embodied in its human abilities. The hexagon in Figure 3.2 is always under stress. Process management is the never-ending journey that maintains the balance and keeps an organization pointed in the right direction.
What Is Knowledge?
Today, many businesses emphasize those processes that create knowledge in the form of new products and services or those that exploit created knowledge in the conduct of day-to-day activity. Thus, knowledge workers draw on their experience or their documented references more than ever before. Knowledge in business guides humans in making judgments, formulating decisions, and doing work. Knowledge in this sense provides context. It tells us who, what, when, where, why, and how to be most effective.
Implicit in this view of knowledge is the assumption of relevance to a business or a process objective. From this perspective, knowledge is different from information in that knowledge is the guide that helps us use data and information to attain results. Information is what's processed; knowledge is how and why information is processed.
It has become an accepted convention to divide knowledge into two major types: tacit and explicit.
Tacit knowledge exists within a human being. It is embodied.
Explicit knowledge has been articulated in an artifact of some type, rather than existing solely within a human being. It is embedded.
Table 3.1 outlines the advantages and disadvantages of each.
Table 3.1 Tacit Versus Explicit Knowledge
The most powerful form of knowledge
Difficult to articulate formally
Drawn from real experience
Difficult to communicate and share
Includes insights, feelings, culture,
Hard to steal or copy
A source of creative advantage
Can be articulated formally as pictures,
Can become obsolete quickly;
models, and documents
has a lag
Can be duplicated and transmitted easily
Easy to steal or copy
Can be processed and stored automatically
Can be shared, copied, and imitated easily
A survey of the popular dictionaries provides three main distinctions of the word knowledge: recognition, guidance, and ability (see Figure 3.3). Often, more than one of these is at play in a business dialog, transaction, or relationship, and the distinction of which meaning applies when in a business can be critical.
Figure 3.3 The three dimensions of knowledge.
Recognition is the shallowest level of knowledge. Unless you can identify a problem, the application of knowledge won't occur because no action will ever be taken. Recognizing a problem with a customer relationship is a critical first step to resolving the problem or avoiding further problems. However, recognition by itself not sufficient. Many people will claim they "know," about a problem area, but what they know remains shallow compared to those who are knowledgeable in other dimensions.
Guidance, or referenceable knowledge that tells you what to do, is the next dimension of know- ledge. Guidance requires rich and deep sources with specific relevance so that an appropriate action can be taken. Without it, people might recognize a need or know how to do something but they would lack the specific context needed to do the right things correctly. Once a problem with a customer relationship is noted, it's imperative to find out more details, which then guides the appropriate response.
The third dimension of knowledge is the ability to accomplish some result that is of value to someone who cares. This know-how is obviously essential to the smooth functioning of an enterprise. Having this deepest form of knowledge often differentiates the enterprise from its competitors. Clearly, someone must be able to do what it takes to resolve a customer relationship problem, after it is recognized, and appropriate guidance is gained. Applying the three levels of knowledge enables a business to do the right things in the right way.
By identifying the two types of knowledge and the three dimensions of knowledge, we can explore what knowledge is important to business. This can be represented as a two-by-three matrix, which I have named the Burlton Six Pack (see Figure 3.4).
Figure 3.4 Burlton Knowledge Six Pack.
This scheme can be used to determine which set of alternatives form the best mix of solutions for a particular process problem. It also can be used as the basis for enabling software selection.
With today's emphasis on knowledge and intellectual capital, many questions are being asked about the value of such capital and how we can measure it. Again, process plays the key role. If we see knowledge as a guide embedded in an enabler to the processes we conduct, we can measure the value that the knowledge provides only in terms of the difference it makes in the process. Typically, this is done by examining process quality or the cost of nonconformance—that is, the cost of lost opportunity to do better due to better knowledge. This can appear as the total downstream cost of not having that knowledge available, costs of extra work, customer dissatisfaction, repairs or corrections, lost staff, and so on.
It can also be measured as the cost of the lost opportunity that would have been realized if the knowledge had been accessible immediately, rather than later. For now, let's say that we improve the "flow" with what we "know."
What Is Knowledge Management?
Knowledge management (KM) is the set of professional practices that improves an organization's human resources capabilities and enhances the organization's ability to share what employees know. KM is a set of processes that delivers capability to others in order to meet the organization's objectives.
Knowledge in business can be seen to have a life cycle of its own, as shown in Figure 3.5:
Knowledge must be created either within or outside the organization. Ideas evolve in iterative tacit and explicit loops until the knowledge is ready for distribution to those outside the creating group.
Knowledge can then be stored somewhere, either tacitly or explicitly, so that it's accessible for others to find and use.
Those who need the specific knowledge must find out where it is by searching in the right places and/or by asking the right people.
Once the knowledge source is found, the user will then go through the act of actually acquiring it—that is, gaining personal knowledge from other humans or documented sources.
Once acquired, the knowledge can be put to use toward some productive purpose.
As a result of having applied the knowledge, perhaps repeatedly, the user will learn what worked well and what didn't. This learning can then be significant input into further iterations of the knowledge creation and distribution process.
Figure 3.5 The knowledge life cycle.
Learning contributes highly to the effective management of this cycle. Without the learning component, the cycle is devoid of knowledge. It merely becomes an information delivery strategy, disconnected from the leverage of more effective human experience. Applying the delivered knowledge to operating the business (finding, acquiring, and using) will have some initial value, but the delivered knowledge will be immediately out-of-date unless it's continuously renewed with the latest lessons learned (learning, creating, and storing).
Knowledge management processes oversee this cycle for optimal performance across all aspects of the Burlton Six Pack (see Figure 3.6).
Figure 3.6 The knowledge creation and exploitation process.
The objective of knowledge management processes is to make this cycle more effective as well as more efficient. This implies that corporate knowledge must be made available in readily accessible forms, such as documents, processes, and rules. These could be embedded in human resources, in information technologies, or in the design of facilities. In this way, the embedded knowledge can be reused and continually evaluated for effectiveness and improvement.
Improving the knowledge management lifecycle is critical to organizational success; without it, overall business performance will suffer. Getting the best knowledge through the cycle quickly before it ages is a major goal within intellect-based, fast-paced companies.
This challenge applies at the individual, workgroup, company-wide, and intercompany levels. Each wider level offers a greater degree of leverage and improved business results but also brings with it a set of more difficult issues, as long-standing ways of doing things must be overcome.
Knowledge management creates and maintains the optimum environment to make this happen. It closes the process feedback loop, which continuously converts tacit knowledge, based on experience, into explicit knowledge for wider communication. This explicit knowledge turns back into tacit knowledge again through inference, experience, and learning.
Improving the sharing of knowledge, then, delivers better guidance and more effective enablers to the business process at hand. This pays off when applied to individual workers, communities of practice, and corporate-wide knowledge creation.
Individual knowledge enhancement is key to developing a flexible and adaptable work force, whose members can provide better service and help others learn in an environment of rapid change. Communities of practice—people with a common interest and bond associated with a knowledge topic or way of working—generate knowledge that can be shared if it is harnessed and communicated.
Corporate knowledge creation processes help bring new products and services to market faster.
An organization's individual, community, and corporate levels all deliver capability in a learning environment, enabling the organization's other processes to function. It should be no surprise that leading organizations emphasize these knowledge creation processes today as their only sustainable advantage.
What Are Business Rules?
A subset of our knowledge can be represented as business rules. Rules are constraints on human behavior or business system behavior, normally derived from legislation, regulations, or policy and expressed in the form of a declarative sentence. We can leverage our knowledge of best practices and lessons learned repeatedly by consistently applying the same rule under the same conditions. Normally embedded in technology or documents, rules represent what we know in a consistent structure that allows easy, broad sharing. Rules provide a consistent expression of business requirements. Rules, like knowledge, provide guidance to business processes.
Business rules consist of terms, facts, and rules:
Terms simply identify the business concepts we use through a noun or noun phrase, such as customer, payment, order, and credit. Clearly, if business partners and staff don't have a common understanding of terms, business will be hard to transact. Terms are the most stable of business concepts. They change less often than facts and rules.
Facts describe relationships among terms—how business concepts connect to one another. Facts are expressed as a verb or verb phrase that connects terms, such as "Customers place orders and make payments for them using credit." Knowledge of these connections is clearly essential for running a business. Facts change less often than rules.
Rules constrain terms and facts. An instance of a rule is a truth statement governing a fact usually involving must (constraint) or should (guideline). A sample rule might be, "Customers who have outstanding payments older than 90 days must not be granted credit for new orders." "Must" rules can be automated and shared quickly. Humans can interpret "should" rules according to their individual knowledge and experience.
A rule is "a statement which accomplishes any of the following—defines a phrase (term), relates terms (facts), constrains populations of facts (constraints), calculates a new piece of information by applying mathematical formulas to known information (mathematical derivation), deduces a new piece of information by applying logical formulas to known information (inference), (or) initiates an action (action enablers)." 5
If written strictly in business language, each rule can stand alone and does not need to be embedded deeply in procedures, workflows, and software logic. In this way, rules can be changed more easily than any of these other hosts. They also leave behind a more stable set of processes and technologies that are also easier to change when the rules are separated from the hosts. As a significant advantage, busineses can identify, normalize, and manage standalone rules as reusable assets, applicable across business processes, documents, and technologies.
By putting in place shared rules, a businesses can achieve independence of variables and significant advantage in adaptability and change. They can expect tremendous productivity breakthroughs as well as integrity similar to that achieved when software developers separated normalized data from logic.
What Is Business Rule Management?
Business rule management, like process and data management, attempts to see rules as assets that can be reused in many situations. As organizations require more integrity of execution across multiple channels and functions, they must have integrity of rules within and across processes or relationships with their stakeholders will suffer.
Business rule management captures, reconciles, publishes, and makes an organization aware of the business's rules. It aims for rule independence. It attempts to shorten the time and effort required from identifying the need to change a rule to making the new rule accessible to all enablers. This area will mushroom in the coming years as organizations begin to understand the need for complete process management and for integrity and ease of change.