READILY APPLICABLE RESEARCH & EXPERIENCE

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1 READILY APPLICABLE RESEARCH & EXPERIENCE Using Information to Manage Business Processes Aligned to Strategy Jim Ryan, PhD Since the 1970s, SIM (e.g. Society for Information Management) has periodically surveyed managers as to what major information technology (IT) concerns are forefront in their businesses. Repeatedly, the alignment of information technology application to business strategy appears either as one of the top three management concerns or as the top management concern. Aligning day-to-day organizational actions to accomplish over-all strategic objectives can be as elusive as the SIM research suggests. However, organizations can use information systems through business process management techniques to achieve alignment, according to Dr. Jim Ryan, assistant professor of information systems at Auburn University Montgomery s College of Business. What is Business Process Management? Business process management (BPM) techniques monitor and measure achievement of organizational objectives through the improvement, management, and control of organizational processes (e.g. organizational action). BPM incorporates commitment to constant improvement, continuous learning, and an environment of collaboration similarly reflected in three of AUM s core values. Process management based on process data analysis is also integral to BPM, where there is no finish line for improvement. Hence, BPM is an organizational commitment to consistent and iterative improvement within processes that support organizational objectives. To this end, BPM embraces process redesign concepts of continuous process improvement (CPI), process best practices (PBPs), or business process re-engineering (BPR), all aligned to organizational strategy. CPI is a systematic approach toward understanding the process capability, the customer s needs, and the source of observed variation. Incremental realization of improvement gains occur through an iterative cycle of analysis, evaluation, and synthesis that minimize the observed variation. CPI encourages bottom-up communication at the day-to-day operations level and requires process data comparisons to control metrics. CPI rewards are low (i.e. less than 20 percent), yet risk and cost are low with easy and short implementation. Within a CPI effort, incremental improvement must: (1) recognize the process capability; (2) address causes and not symptoms; (3) consider sustainability year after year; and (4) validate management s control of the process. An alternative to CPI is PBPs that can lead to superior performance, which offers higher rewards (i.e. 50 percent or less) with similar low risk, moderate costs, as well as longer and more complex implementation. PBPs encourage the imitation or adaptation of external best practices coupled with internal expertise. However, PBPs require more resource allocations versus CPI and a higher degree of understanding about the targeted process, which can lead management to under-estimate the resource requirements necessary for success. BPR offers more radical process redesign, assuming more risk with greater reward potential when compared to CPI or PBPs. Three key terms differentiate BPR from CPI or PBPs fundamental,

2 radical, and dramatic change. BPR is a project-oriented effort that utilizes top-down improvement, managed by external and internal expertise, to achieve breakthrough improvement. BPR offers the highest reward potential, with upwards of 1,000 percent. However, the high potential rewards have very high risk, very high costs, as well as the longest implementation duration and most difficulty. A BPR project requires extensive resource allocations as opposed to CPI or PBPs, as well as seeking an order of magnitude improvement by questioning necessary work relevance and reinventing new ways to accomplish work. Information about performance before and after intervention is an integral part of process redesign. Likewise, performance metrics are essential requirements for process redesign and purposeful BPM. Control feedback loops in information systems (IS) avoid management misinformation and IS feedback in the form of key performance indicators (KPIs) assists managers and knowledge workers using BPM to monitor organizational action (e.g. business processes). As BPM requires alignment to strategic objectives, a balanced scorecard (BSC) approach within BPM embraces the ability to quantify organizational control metrics (e.g. KPIs) across process perspectives of: (1) process; (2) customer; (3) financial; and (4) learning. Consequently, organizations also define KPIs to assist management in monitoring critical success factors (CSFs) for organizational action (i.e. business processes). Organizational KPIs fall into business analytics, which is the body of knowledge identified with technology solutions that incorporate performance management, definition and delivery of business metrics, as well as data visualization and data mining. Business analytics within BPM focus on the effective use of organizational data and information to drive positive business action. The effective use of business analytics demands understanding and skills from subject matter experts, knowledge workers, and organizational management. Hence, BPM success has a strong dependence on contextual understanding of end-to-end core business processes and the associated performance measures (e.g. KPIs). How can organizations position BPM to align core processes with strategy? Figure 1 on the next page depicts how an organization can position BPM techniques to align its processes within its strategy. The organization would develop and maintain its mission, vision, and core values outside the scope of BPM. The organization s mission statement identifies what the organization strives to achieve, while the organization s vision and core values identifies organizational perception and relative importance. Business processes flow across an organization and provide the workflow channels where organizational action occurs. Information systems within the organization collect the process data and reflect the associated organizational action. Organizational action reflected in business process data becomes the object and means for cost and quality measurement, which increases the measurements relevance or salience. BPM techniques measure and monitor KPIs of core and ancillary processes across the BSC perspectives to evaluate a complete or balanced view of organizational actions. KPIs reflect organizational action and benchmarks provide the performance comparison standards. Initially, management will focus organizational IS efforts to target core processes for fine-tuning

3 of associated KPIs and benchmarks required to monitor and measure the respective core process performance. Upon inclusion of all core business processes into the BPM monitoring and control, management can extended the BPM inclusion to cover ancillary processes to ensure monitoring and control of all processes that support organizational actions (e.g. primary products and/or services first, followed-up by support services to include the entire organizational value chain). Process feedback and data-driven analysis of KPIs must occur across operational, tactical, and strategic management levels to encourage multi-level BPM engagement. Given sufficient engagement, process stakeholders, knowledge workers, and management focus KPIs to gauge process variance, identify improvement opportunities from variances, take appropriate actions, and ultimately yield improved end-to-end workflow. Using this systematic and multi-level BPM approach, process redesign interventions will occur within particular lower-performing processes to target specific objectives as identified bottom-up and top-down by process stakeholders, subject matter experts, knowledge workers, and organizational management. Successful completion of process redesign interventions and BPM across BSC perspectives will improve process performance toward organizational objectives organizational action will align with organizational objectives and performance will improve. Figure 1 BPM Framework What CSFs support the BPM Framework? The BPM Framework is based on Ryan s observations from a longitudinal research study of an academic medical center that routinely integrates information technology and information systems

4 into core and ancillary business processes to achieve data-driven improvement. The BPM Framework is not industry specific and is extendable across industries. The critical success factors, observed over the past 12 years, supporting the BPM Framework are: Top management support Shared Governance Integrated information systems Empowered, integrated teams Data-driven change Top management charters the BPM Framework with the authority to evoke change in processes, which are interconnected and nested across the entire organization. With this charter, top management gives BPM stakeholders the ability to speak and act with authority within any process that negatively influences a core process or organizational vision. Top management empowers BPM stakeholders to change their governance, which provides the BPM Framework an opportunity to create a cross-functional management structure similar to matrix management, outside the hierarchical reporting channels, to facilitate BPM interventions and process redesign. In the new management structure, any issue that influences a core process or organizational vision is a legitimate topic. This permission allows intervention and process redesign to be evaluated from all BPM stakeholders rather than a quick dismissal from a non-stakeholder. Research and industry experience shows how integrating disparate IS (i.e. silos) cuts across political boundaries, manipulates organizational structure, transforms organizational culture, and alters organizational power distribution. Furthermore, disparate IS architecture cannot provide the holistic approach required by BSC perspectives for BPM data analysis. Integrating IS also networks the efforts of individual and multi-disciplinary teams across the organization, which provides opportunity for process improvement, organizational action alignment, and facilitates improved accountability, transparency, and BSC outcomes. Integration with respect to organizational IS is an attempt toward renovation, while integration with respect to individuals in the organization is a cross-functional task group perspective. From Figure 1, BPM Framework success rests on data-driven goal setting, KPIs, industry benchmarks, feedback, and control that is supported by organizational IS data. A system as a set of interrelated elements (i.e. subsystems) oriented to accomplish a set of common goals. Furthermore, a goal-state-system uses self-regulation with the environment through interactions, feedback, and responses to accomplish goals. The BPM Framework uses common goals (e.g. strategy) to direct organizational processes. The goal-state-system of the BPM Framework uses continuous improvement and KPI performance to trigger self-regulation of core and ancillary processes by BPM stakeholders, using BPM data analysis for interventions. Hence, organizational IS must be agile and extendable to collect the necessary core process data. Furthermore, an organizational IS must also have sufficient data granularity for purposeful BPM data analysis. What is the bottom line for using the BPM Framework? Since 2003, Ryan has observed the BPM Framework evolve into data-driven, systematic analysis of processes to improve end-to-end workflow. KPI feedback occurs at strategic, tactical, and

5 operational levels via balanced scorecards and dashboards to provide process performance and control aligned to strategy. Using the BPM approach, process redesign efforts in CPI, PBPs, and BPR document major initiatives across core and ancillary business processes. Moreover, the BPM Framework encourages goal setting aligned to organizational strategy. BPM goal setting coordinates and aligns individual department and employee actions to the organizational strategic mission and vision. BPM goals revise each year as quantitative targets, designed to measure objective outcomes. BPM goals must be aggressive and realistic, where fewer, rather than more, is better. The following are BPM goal characteristics: Measurable, objective outcomes Aggressive and realistic Changes focus as strategic objectives advance BPM goals have aggressive targets with varied success Iterative review of BPM goal targets Stakeholders focus on specific BPM goal areas Process outcomes and stakeholder action through BPM goals align to strategy BPM goals change focus as strategic vision advances. Consequently, each year organizational management reviews opportunities for improvement and identifies the most important BPM outcomes needed to support organizational strategy. As a result, achieving targeted process KPIs and successfully implementing process redesign efforts as BPM goals can become merit performance review goals for organizational stakeholders and departments. The BPM Framework can focus strategy alignment on BPM process outcomes and stakeholder action for departments and employees alike a very powerful process management tool. Connect Dr. Jim Ryan Assistant Professor of Information Systems Auburn University at Montgomery College of Business P.O. Box Montgomery, AL Office: jryan@aum.edu