Business Process Management

Akhil Kumar

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781317295921
• Edition: 1
• Topic: Business
• Subtopic: Gestione dell'informazione
• Index: Business

This book introduces students to business process management, an approach that aims to align the organization's business processes with the demands of the marketplace. Processes serve as a coordination mechanism, and the aim of business process management is to improve the organization's effectiveness and efficiency in adapting to change, and maintaining competitive advantage.

In Business Process Management, Kumar argues for the value of looking at businesses as a collection of processes that cut across departments, and for breaking down functional silos. The book provides an overview of the basic concepts in this field before moving on to more advanced topics such as process verification, flexible processes, process security and evaluation, resource assignment, and social networks. The book concludes with an examination of the future directions of the discipline.

Blending a strong grounding in current research with a focus on concepts and tools, Business Process Management is an accessible textbook full of practical examples and cases that will appeal to upper level students.

1 Evolution of Process Thinking

What Is a Process?

Business Processes in the Real-World

A Sales Order Process

An ERP System

Role of Technology in Processes

Features of Processes

BPM Lifecycle and Reference Model

A Roadmap for the Book

What Is a Process?

Processes are the lifeblood of an organization. Michael Hammer and James Champy argued in the early 1990s that by redesigning their business processes, organizations could achieve large improvements in productivity. These improvements translated into faster deliveries for customers, shorter order-to-cash cycle times for the business, and savings in the manpower needed to work on the processes. Many organizations did not and still do not have formal processes for how things are done. People are expected to “know” how things are done and follow the routine. However, unless a process description is written down explicitly, it is not possible to analyze it, find inefficiencies in it, or even make improvements to it. Many organizations have continued to carry out unnecessary tasks for decades without pausing to consider why they are doing them. They might send extra copies of a document to more people than need to look at it, or require more approvals than are necessary, etc. If you ask someone in an organization why they are doing it, they will tell you “this is how we have always done it.” It happens because of organizational inertia, and often nobody may have even paused to reflect on why things are done in the way they are done!

1 A process is a way of performing activities to achieve an objective.

2 A process model is a formal representation of a series of related activities that are performed in a specific order to achieve a clear objective.

3 A business process is a collection of activities that takes one or more kinds of inputs and creates an output that is of value to the customer.

4 A business process is defined as a chain of activities whose final aim is the production of a specific output for a particular customer or market.

The focus of this book is on process thinking. This is a way of thinking logically about how various activities or groups of activities in an organization are carried out.

In their 1993 book, Hammer and Champy [3] urged organizations to think of their business in terms of their major processes, and to organize activities and people around processes rather than functions.

Figure 1.1 shows a function-centric view of a business, where each function reports to the top management. In such an organization, information flows between functions take place through the senior management. In contrast, Figure 1.2 shows a process-centric view of a business. Notice how the information flows directly across the functional areas. Which organization do you think is more efficient?

The functional organization leads to silos by creating somewhat artificial functional boundaries. On the other hand, the process-centric perspective helps to break down the functional boundaries to improve the information flow, and thus the flow of work, in an organization.

Business Processes in the Real-World

A real business has lots of processes. Some example processes are listed in Figure 1.3. If you have worked in a business or been a customer of a business you will be familiar with such processes. Most businesses have processes for selling their products to customers, for purchasing raw materials from vendors, and for manufacturing goods. In addition, they have a variety of processes related to hiring employees, approving expense claims when an employee goes on travel, approving requests for vacation, etc. As retail customers, we have all taken part in sales processes, returns processes, and repair processes. Each of these processes requires certain steps to be followed.

For instance, to return an item to an online merchant you must first have a return merchandise authorization from them. To obtain this authorization, you have to visit their website or call them on the phone and explain why you are returning the item. Some merchants will return the full amount of your purchase, while others will charge a restocking fee. The amount of refund is calculated based on their individual policies. Some merchants might accept returns only within four weeks from the date of the sale. Moreover, every return may require a manager’s approval. If the sales clerk decides to make an exception and accept a return that is made more than four weeks after the sale, then a senior manager or a director’s approval may be needed. Some key steps required in dealing with a return of a product are:

(agent) check that the returned product is complete and in good condition

(agent) check if a return merchandize authorization document is included

(agent) decide whether to accept returned item and ask manager for approval

(manager) approve or disapprove recommendation of agent

(agent) if return is not accepted: notify the customer and send the product back to them

(agent) if return is accepted: issue credit and send returned item to the manufacturer.

Figure 1.1 A function-centric view of a business

Figure 1.2 A process-centric view of a business

1 Travel expense report approval

2 Ordering a book at Amazon.com

3 Return a book at Amazon.com

4 Hiring a new employee

5 Transferring an employee

6 Auto insurance claim process

7 Mortgage loan application processing

8 30-year Mortgage processing

Figure 1.3 Some examples of business processes

Ideally, a process description must capture not only the steps that must be performed, but also such details as the policy of the merchant. In addition, the process description should capture all the data pertaining to each activity. For instance, when an order is submitted it must have a customer name, address, phone number, item(s) ordered (and quantities), date, shipping method, payment method, etc.

A Sales Order Process

One process that occurs in almost every organization is a typical sales order process (see Figure 1.4). This is also called the order-to-cash process, and it is by far the most important process in most organizations. It starts with an order from a client and ends after the payment is received for the fulfilled order. A client receives a quotation from a sales representative in your company as part of the pre-sales activities. Then the quotation is converted into a firm sales order in the ERP (Enterprise Resource Planning) system. This triggers the inventory sourcing task that in turn is followed by the delivery task. After the order is shipped, a bill is sent to the customer and finally the payment is received. In case the inventory has to be sourced in-house, the production process may have to be triggered to produce the order.

Figure 1.4 A sales order process cuts across functional areas

It is also important to note that the sales order process cuts across many functions or departments like Sales, Inventory/Production, Logistics, and Accounting.

This is a simple example of process thinking, where a certain way of doing things is formalized. The fruits of process thinking are realized in ERP systems. ERP systems help to automate business processes within an organization, as we discuss in the next section.

An ERP System

An ERP system, such as the old workhorse SAP R/3 from SAP Corporation, views a business as a collection of processes related to sales, purchasing, production, and accounting. This viewpoint offers many advantages. First, this leads to integration among different functional areas through better exchange of information. Second, inventory levels, sales orders, purchase orders, production orders and status of payments can be tracked in real-time. Third, the business can better manage its revenue cycle from invoice thro...