BPM and Innovation - Part 1: Promoting Incremental Innovation May 06, 2014 Martin Andestad and Hans-Christian

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1 Introduction BPM and Innovation - Part 1: Promoting Incremental Innovation May 06, 2014 Martin Andestad and Hans-Christian This is the first of two Articles that will focus on how business process management (BPM) affects business innovation capability. Innovation is a prerequisite for companies to survive in an increasingly competitive marketplace. Without innovation, both radical and incremental, companies will eventually become out-dated and ultimately experience bankruptcy. At the same time, operational excellence is necessary in order to satisfy existing stakeholders. Business process management and associated practices are popular methods and concepts related to the goal of achieving operational efficiency and effectiveness. In our academic research at the Norwegian School of Economics, we wanted to explore this relationship between business process management and innovation. This is an area of research that has received little attention, although it directly affects business competiveness. The following is a brief presentation of our study and our first main finding. The first section includes a short introduction of the two areas, innovation and business process management. The second section is a short presentation of how the academic research was conducted and its methodology. The third section is a presentation of our first main finding, and the fourth and final section contains our conclusion. For the full 120-page in-depth research paper, see Andestad & Grung-Olsen (2013) (in Norwegian). Section One: Introduction to innovation and business process management About innovation Schumpeter (1939) defined innovation as new combinations of existing resources. This definition is important because it clearly states that new combinations of solutions and knowledge are what leads to innovation. Innovation can be categorized by its radicality, which regards how distant the innovation is from existing knowledge, technology or customers. The concept of innovation radicality was in our study divided into two, incremental and radical. We defined incremental innovation as innovation expressed in minor changes based on existing technology, knowledge or activities, and that is often developed to meet the needs of existing customers, and radical innovation as innovation expressed in major changes that to only to a minor extent is based on existing technology, 2014 Andestad & Hans-Christian, All rights reserved.

2 knowledge or activities, and that is often developed to meet the needs of new and potential customers (Fagerberg, Mowery, & Nelson, 2005; Benner & Tushman, 2003; Green, Garvin, & Smith, 1995). To ensure continuous company existence, a balance between incremental and radical innovation is required (Tushman, Anderson, & O'Reilly, 1997; Cohen & Levinthal, 1990; Christensen, 1997; 2003). Literature on technological cycles and radical, disruptive innovation highlights the topic of absorptive capability as important for company survival during significant changes. Too much focus incremental innovation can reduce the absorptive capacity of a company by down-prioritizing investment in related technology and knowledge to the point where it might lack the capacity to understand, appreciate and make use of new knowledge and technology (Tushman, Anderson & O Reilly, 1997; Cohen & Levinthal, 1990). About Business Process Management Hammer (2010) wrote that all work is process work, indicating that all activities performed within businesses are parts of processes. Iden (2013) defined a process as what people from different organizational units collectively perform in order to handle a case from its origin to its completion and delivery to the customer, including the resources used and the rules guiding the handling. The concept of Business Process Management has no commonly accepted definition, but three common interpretations include: (1) BPM as a solution for a business using software systems or technology to automate and manage processes, (2) BPM as a broader approach to managing and improving processes that focus on the process lifecycle and (3) BPM as an approach to managing an organization by taking a process-view or orientation (Bruin & Doebeli, 2010). We took the third approach and interpreted BPM as a management approach oriented towards leading business processes. This view is shared by about one third of the respondents in BPTrends annual surveys (Wolf & Harmon, 2012). Section Two: Methodology Our study was conducted as an explorative semi-structured literature review. This means that we applied a semi-structured method of collecting relevant articles within the areas of innovation and business process management. It was necessary to decompose the concept of business process management to study how BPM affects business innovation capability, due to the lack of prior research within this field. Iden s (2013) process capability model was used to decompose BPM into six central components (seen in the figure below), and their prescription, that collectively represent BPM. Sixty articles where used in the review, ten per component. The following figure illustrates how our research was conducted in three successive steps: - Step 1: We Studied literature about how the BPM component relates to innovation, without considering the prescriptions of how the component should function to promote BPM Andestad & Hans-Christian, All rights reserved. 2

3 - Step 2: We analyzed how the prescriptions affected the findings in the literature from step 1. This was done to enable us to understand how the component, when aligned to support BPM, affects innovation. - Step 3: We used the findings from step 2 and combined them, to analyze how BPM (as a whole) affects innovation. Section Three: Findings In our holistic analysis of how BPM affects innovation, we found that the component Process goals and measures has a strong influence on the other components. Especially the strong customer orientation and focus that is stressed within BPM, influences the other components. This is because it guides how process goals and measures should be oriented. Goals and measures have a strong guiding effect on employee behavior, attention and work. Employees must comply with the rules and standards, which again should be aligned with the goals and measures. The prescriptions for process roles and process culture are focused on innovation enabling elements as increased process insight, cooperation, shared goals and 2014 Andestad & Hans-Christian, All rights reserved. 3

4 tolerance for change. The radicality of innovation that is promoted from these components is likely influenced by the company s goals and customer focus. Process infrastructure elements such as IT and HR would likely be implemented and directed according to company goals as well. When considering BPM as a whole it therefore seems that the prescriptions regarding customer orientation of goals and measures, including standardization and improvement in alignment with these, is the most important and influential component. Since the strong customer orientation is the most influential component, we needed to establish whether the customer focus is short term oriented, and thus mainly focused on existing customers, or not. It appeared natural that BPM s focus on mapping and standardization of processes to realize increased goal achievement would be easier to implement if the governing and guiding goals are limited to existing customers. If not, there would be conflicting goals that would make the development of a standard for a process more difficult. Including potential future customers in the customer focus would increase ambiguity, since there would be more uncertainty regarding who they are and what they want. We found support in the literature for the hypothesis that the customer focus, within BPM, is on existing customers (Benner & Tushman, 2002; 2003). Since the customer orientation seems to be directed towards existing customers, we wanted to understand what influence this has on innovation. Incremental innovation relates to improvements that are near to existing capabilities, technology and competency. It is likely that the needs of existing customers are primarily met by the existing capabilities and technology of the company. It is therefore likely that incremental innovation is often directed towards existing customers. In a normal situation where customer aspects such as needs and willingness to pay are relatively stable, one can thus assume that the BPM focus on improvement and standardizing, in alignment with goals oriented towards the existing customers, would coincide with a company s focus on incremental innovation. Exceptions exist where radical innovation is targeted towards existing customer within a BPM perspective. This can for instance occur in the implementation phase of BPM where the BPM prescriptions can have a radical effect. Another example is the implementation of process infrastructure, like an ERP system, which can lead to radical innovations. Still, it seems that BPM, with a focus on better and more profitable service to existing customers, coincide with a focus on incremental innovation. Section Four: Conclusion Our first finding is that BPM supports incremental innovation. The finding is based on the logic that BPM promotes goals and measures targeted towards existing customers. An orientation towards existing customers coincides with incremental innovation and focus on existing knowledge. The one factor that has the strongest influence on the companywide innovation radicality is found to be the customer orientation. Several questions are still unanswered in this regard, like: What happens if companies widen their customer 2014 Andestad & Hans-Christian, All rights reserved. 4

5 orientation and also consider potential customers? Can radical innovation be promoted within BPM? Our next Article is therefore going to answer if it seems probable that BPM can promote radical innovation, and if is it possible to achieve an innovation balance with BPM. Sources Benner, M. J., & Tushman, M. L. (2003, Vol 28). Exploration, Exploration, and Process Management: The Productivity Dilemma Revisited. Academy of Management Review, p Bruin, T. d., & Doebeli, G. (2010). An Organizational Approach to BPM: The Experience of an Australian Transport Provider. I J. v. Brocke, & M. Rosemann, Handbook on Business Process Management 2 (p ). Tyskland: Springer. Christensen, C. M. (1997). The innovator's dilemma: when new technologies cause great firms to fail. Boston, Massachusetts, USA: Harvard Business School Press, ISBN Christensen, C. M. (2003). The innovator's solution: creating and sustaining successful growth. Boston, Massachusetts, USA: Harvard Business Press. ISBN Cohen, W., & Levinthal, D. (1990, Vol. 35, No 1). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, p Fagerberg, J., Mowery, D. C., & Nelson, R. R. (2005). The Oxford Handbook of Innovation. New York: Oxford University Press Inc. Green, S., Garvin, M., & Smith, L. (1995). Asessing a Multidimentional Measure of Radical Innovation. IEEE Transactions on Engineering Management. Iden, J. (2013). Prosessledelse. Bergen: Fagbokforlaget. Rosemann, M. (2012, June). The Three Drivers of Innovation What is the Related BPM/EA Readiness? IRM UK Newsletter Hentet fra Schumpeter, J. A. (1939). Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process. New York Toronto London: McGraw-Hill Book Company. Tushman, M. L., Anderson, P. C., & O'Reilly, C. (1997). Technological Cycles, Innovation Streams, and Ambidextrous Organizations: Organization Renewal Through Innovation Streams and Strategic Change. Managing Strategic Innovation and Change, p Wolf, C., & Harmon, P. (2012). The State of Business Process Management Business Process Trends. BPTrends Andestad & Hans-Christian, All rights reserved. 5

6 Author Martin Andestad Martin Andestad is a BPM Consultant at Qualisoft AS, one of Norway s leading companies within BPM consulting. He holds a MSc from the Norwegian School of Economics. During his studies he spent two periods abroad, the most recent at the MBA-UC in Santiago, Chile, and the first at Università Commerciale Luigi Bocconi in Milan, Italy. He has done a considerable amount of research within the field of BPM and innovation, together Hans-Christian Grung- Olsen. Hans-Christian Hans-Christian Grung-Olsen is a BPM Consultant at Qualisoft AS, one of Norway s leading companies within BPM consulting. He holds a MSc Norwegian School of Economics. He has done a considerable amount of research within the field of BPM and innovation, together with Martin Andestad Andestad & Hans-Christian, All rights reserved. 6