Confirm the need for the process. Streamline the process. Virtualize the process. Extend the process to customers. Implement decision engines

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1 Tactical Guidelines, D. Flint Research Note 14 July 2003 Impatient Customers Demand the Real-Time Enterprise Companies can meet customers' increasingly demanding expectations for rapid service by applying the principles of streamlining, virtualization and decision automation. Core Topic Business Management of IT: Real-Time Enterprise Key Issues How must current systems be changed to support the RTE? What particular competencies are required from staff in the RTE? What tools and technologies will enable enterprises to operate in real time? Tactical Guidelines Confirm the need for the process Streamline the process Virtualize the process Extend the process to customers Implement decision engines Introduce business activity monitoring Customers want things yesterday. Modern technology has made it possible for them to buy products and services faster than ever before. And they're getting used to it. Customers get frustrated when companies don't deliver fast enough and are more likely to buy elsewhere in future. Companies that can't operate in real time will be left behind. To meet customers' needs, companies must modify their order fulfillment processes to: Confirm the need for the process Streamline the process Virtualize the process Extend the process to customers Implement decision engines Introduce business activity monitoring Applying these steps to the order fulfillment processes will be a major move toward becoming a real-time enterprise (RTE). Confirm the Need for the Process Some of the processes companies have in place for dealing with customers are not necessary. Managers planning to modify a process should check that it's worth investing the time and effort. If a process is not profitable, important to customers or necessary for the company's strategy, it may be better to drop it than improve it. Even where a process is necessary, it may be better to outsource it (see "A Framework for Making Partner Choices in BPO," ITSV-WW-DP-0462). Gartner Entire contents 2003 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Streamline the Process The best way to speed-up a process is to streamline it. Telecommunications company Bell Canada revised its process for setting up Internet Protocol (IP) and broadband services, with dramatic results. The time taken to arrange services used to range from 30 to 60 days. After revision and virtualization, it fell to 18 days. At the same time, productivity increased by 33 percent and order volume rose by 60 percent. New York State health insurer Empire Blue Cross and Blue Shield suffered from inflated administrative costs and a 27- day sales cycle. It cut its sales process from 80 steps to 40. It then installed a supporting Web-based application and slashed its sales cycle to just two to three days. By the end of October 2001, all Empire Blue Cross and Blue Shield's brokers had registered to use the Web application and 45 percent were using it regularly. Business process modeling tools are available to support this work (see "Business Modeling Is the Quality Connection to BPM," COM ). One Gartner client cut its underwriting cycle from 10 days to two hours while reducing processing costs by 40 percent in less than three months. To do this, it mapped the whole cycle, identified the bottlenecks and looked to see which manual processes could be automated. After that, it applied a straight-through processing approach that eliminated waiting for some overnight batch jobs the major bottleneck revealed by the mapping process. The final touch involved some detailed business process re-engineering activity, although this took rather more than three months to complete. Action: Process owners in a potential RTE should select the processes that are either most valuable or most inadequate and document them, preferably using business process analysis tools. They should then improve them. Virtualize the Process Even when individual processes are reasonable, as they should be after streamlining, there are often major delays caused by lack of control over the processes as a whole. Delays may also be caused by too much paperwork and a lack of integration between applications. Empire Blue Cross and Blue Shield, for example, found it was making 60 copies of each client enrollment form and filing copies in 11 departments. 14 July

3 At Bell Canada, the broadband order fulfillment process involved 14 stand-alone applications and 16 departments. The data quality of orders was poor, because of a substandard data entry system, and there was no way to monitor process performance. Reducing delays demands process virtualization and the introduction of a distinct business process management (BPM) layer into the systems architecture. The BPM layer defines the complete business process, running across all the relevant parts of the organization, and is independent of supporting applications. The benefits of process virtualization can be substantial, as PC component maker Adaptec discovered. Almost all its products depend on custom silicon. It designs its own chips, but outsources production to one of a number of specialized manufacturing firms (or silicon foundries). Adaptec recognized that this process could be completed in 55 days, although it was actually taking nearly twice as long. Adaptec worked with the Taiwan Semiconductor Manufacturing Company (TSMC), a leading silicon foundry, to agree the process and implement electronic links. It reduced the cycle time for supply of custom silicon from 105 to 55 days, with major financial and operational benefits. Similarly, on a large office renovation project in northern California, Swinerton Builders cut the time needed to process requests for information from 10 days to three, which allowed it to complete the project two weeks early. This meant that the client was able to collect extra rent of $880,000. Swinerton saved $90,000 in labor and administrative costs, and also gained another $40,000 from being able to move on sooner to the next job. Action: Application managers in a prospective RTE will need to virtualize selected processes, taking complete control of the information flow and workflow and integrating legacy applications to support the whole business process. Extend the Process to Customers If the fulfillment process is only virtual within the supplier's organization, there will be delays and problems at the interface with customers. In many sectors, it's usual for manufacturers to receive orders by phone or via fax, and a variety of electronic links. Orders often contain errors, with customers using obsolete part numbers and old prices. Cisco Systems, for example, once stated that 40 percent of its orders had to be sent back to customers for further information. 14 July

4 Most problems, and the ensuing delays, can be removed by introducing unified electronic channels. Electronic channels are faster and allow instant detection and sometimes correction of defects. Tire manufacturer Pirelli, for example, gave its distributors access to its supply chain management, production planning and finance applications. This would allow them to support order entry, with immediate confirmation, to automatically generate replenishment orders and to track shipments. The convenience of these links has encouraged distributors to buy more from Pirelli. With only half the distributors online, Pirelli's sales increased by 5 percent. But real-time electronic links, though desirable, are only possible when customers have effective IT systems for procurement. Both consumers and small businesses usually lack such systems and can therefore be offered only a less integrated service typically Web-based ordering. Many will prefer not even to go this far, and will stick with tried and trusted telephone and fax ordering. Small businesses in many sectors are increasingly gaining access to the IT systems needed for direct supplier links, either individually or through consortia. Consumers, however, are moving slowly, even in areas like finance, where the benefits seem significant. Most suppliers will have to support multiple electronic channels for now. But it's important to limit the number of channels supported, as each extra channel requires more resources and creates the potential for inconsistency. The number of electronic channels being used is increasing. Many business buyers have their own preferred procurement systems and some are too important to ignore. Text messages and instant messaging are growing in popularity with consumers (see "Interactive Channel Proliferation in Europe," SPA ). Few suppliers have the resources to support all the channels available to them properly, and this is unlikely to change for at least the next three years. Action: Applications managers should allow customers and intermediaries access to their systems. They should consolidate customer interactions into unified electronic channels. Without denying access to human support, a business that aspires to become an RTE should encourage customers to switch to electronic channels. Network and telecom managers should expand their networks to connect with customers and market-facing intermediaries. 14 July

5 Advanced technology groups in potential RTEs should track the growth of new e-commerce channels. Application managers should be selective in implementation, using channel and customer profitability analysis to select those they will support. They should be prepared to close channels that do not meet their targets. Implement Decision Engines Many applications automate bookkeeping and pass all the hard bits, typically the decisions, to users. This is appropriate where human judgment is required, but often, users are merely trying to apply prescribed rules. Decision engines improve speed and consistency and enable all day, every day operation. Some sectors have used decision engines to automate decisions such as loan approvals and risk rating. One finance company used neural network scoring to reduce the time to approve a loan from 10 to 15 minutes to less than two. This allowed the firm to make an offer while the client was still on the phone, which won it extra business. Some very simple decision engines can be built using conventional development approaches and programming tools. But most decision engines need to be more complex. If people are currently making the decisions, it may be difficult to understand the basis for those decisions, though experienced expert systems developers have developed a number of techniques for eliciting the necessary information. Sometimes, the right rules can be determined by statistical analysis of previous experience and this needs special skills and tools. Sometimes, however, it is hard to find anyone who will take responsibility for deciding which rules are appropriate. No technology can resolve this problem. The more complex decision engines are expensive to build and maintain, not least because of the need for specialized expert systems developers. The American Express Authorizer's Assistant (AmExAA) supports decisions on whether to approve cardholder transactions. It took two years to build and had 800 rules on its initial release. But decision engines are never finished. They require continuous updates to fix problems, exploit new sources of data and track changing circumstances and customer behavior (see "Real-Time Credit Decisioning Is the Next RTE Step for FSPs," T ). The AmExAA system grew to 2,600 rules within eight years and 14 July

6 is maintained by a team of seven, though this team also has responsibility for other expert system developments. Decision engines are key parts of an RTE architecture, but developing them should never be undertaken lightly. Action: Application managers in an aspiring RTE should identify key decisions that slow down customer-facing processes and begin work on decision engines for them. If they do not have the necessary development skills in-house, they should outsource this work. Introduce Business Activity Monitoring The five steps described here will produce a streamlined, ITenabled, business process, but they do not guarantee the highest levels of performance. To maintain consistently high performance, the RTE will need to introduce business activity monitoring systems. These systems (see "Business Activity Monitoring: The Promise and Reality," COM ) capture data on business events from IT systems, detect problems such as bottlenecks, and alert managers so that action can be taken. The data sources may include business applications, business process management tools and more specialized systems, such as the automatic call distributors used in call centers. Bottom Line: To become real-time enterprises, companies will have to satisfy the needs of increasingly impatient customers. Current processes must be broken down and scrutinized. A great deal of work is involved, and processes must be reassessed regularly. But the potential rewards happier customers, cost savings and greater efficiency will make the effort worthwhile. 14 July