The Characteristics of Process Orientation. Part 4: Process Performance Measurement

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Measurement and management are not separable (Lebas, 1995). By focusing measurement on processes rather than functions, alignment and common focus across separate organizational units can be achieved (Hammer, 2007). Implementing measures and taking corrective actions are operating precepts of process management (Melan, 1989), since a business process can only be mastered if it can be measured (Hinterhuber, 1995).

Process performance indicators are metrics which numerically capture the performance of a business process. The measures assigned to each process should be specified explicitly for each process (Braganza and Lambert, 2000). The process performance indicators have to be derived from the process objectives which themselves must be derived from business objectives and/or from the requirements of the process’ internal/external customers. This is crucial because business processes have to be linked with business strategy (Ndede-Amadi, 2004) and with the environment they intend to respond to (Kiraka and Manning, 2005). In his book, Davenport (1993) describes strategy as the backdrop against which process vision is created and driven.

Process performance measurement only makes sense if performance indicators are calculated from process performance data which is continuously collected. Not continuously collecting process performance data would impede timely reaction on poor process performance.

The Characteristics of Process Orientation. Part 3: The Process Owner Role

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A business process needs to have a process owner who has end to end responsibility for the process (Osterloh and Frost, 2006; Suter, 2009).

Process owner of a business process

Process owner of a business process

The existence of process owners is the most visible difference between a process enterprise and a traditional organization. Moreover, process ownership needs to be a permanent role (Hammer and Stanton, 1999). A process owner does not only need to have process knowledge, but also leadership experience (Schmelzer and Sesselmann, 2006).

“The process owner must have the authority to take all measures necessary to coordinate and improve the business process.” (Hinterhuber, 1995)

Process owners should have enough power in the organization to act for the interests of the process. An interesting example of the power of process owners is given by Schmelzer and Sesselmann (2006). In their book, they describe the process owner role at Texas Instruments Europe, stating that process owners in this company are members of the European strategic leadership team. Thereby a tight connection between business processes and business strategy is ensured.

An important task of a process owner is the continuous and proactive improvement and optimization of the business process for which the owner is responsible for.

The Characteristics of Process Orientation. Part 2: Management Commitment

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In a process-oriented organization, management needs to support the process program. Without the support of senior executives, the process idea cannot unfold to its full potential. There is a high risk for process management to fail if senior executives do not undertake necessary leadership roles and do not promote process-oriented thinking (Hinterhuber, 1995). Process oriented initiatives are less likely to secure benefits unless managers come to a consensus and an understanding of such initiatives (Edwards et al., 2000).

  • Process orientation must be a long-term commitment rather than a quick fix. Management should perceive process management not as a single project, but as a way of managing the business (Hammer, 2007).
  • In an ideal case, the organization has established a so-called chief process officer (CPO) who deeply understands the concept of the process approach and who is centrally responsible for the advancement of the enterprise-wide business process management (Schmelzer and Sesselmann, 2006).
  • The senior executive team should be actively engaged in the process program (Hammer, 2007),  e.g. by setting process performance goals or deciding between several process design variants.

The Characteristics of Process Orientation. Part 1: Design and Documentation of Business Processes

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Business processes present a difficult challenge in identification and analysis since they are often unknown quantities, have no names, and are not visualized in organizational charts (Kiraka and Manning, 2005). A prerequisite for managing an organization based on its processes is to know which business processes are performed within the organization and how they are related to each other. A precise definition of the company’s business processes is the starting point for process management (Hinterhuber, 1995).

Design of a complete and uniform enterprise process model. The enterprise process model, which is also sometimes referred to as “macro design” (Suter, 2004), “macro model” (Schantin, 2004), or “macro enterprise process map” (Gardner, 2004), gives an overview of the organization’s business processes.

Documentation of processes. Business processes need to be specified in terms of how they are to be executed (Hammer, 2007).

Update of process documentation. Without a timely update of the documentation after a change of the process design, people will soon discontinue to use the documentation, making the documentation of business processes largely useless.

Definition of inputs and outputs for each process. Since processes can be defined as collections of tasks and activities that transform inputs into outputs, the specification of a business process needs to include a definition of these inputs and outputs (Walter, 2009; Schantin, 2004).

Definition of suppliers and customers for each process. A primary characteristic of a process is that it is initiated by and that it must provide results for a customer (Davenport and Short, 1990; Childe et al., 1994).

Process Orientation is neither a Question of Firm Size nor of Manufacturing Process Type

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This article is a brief summary of the paper “Process Orientation of Manufacturing Companies” by Kohlbacher M., published in Proceedings of the GBDI Tenth International Conference, Las Vegas, October 2008.

In this paper a model for measuring a firm’s degree of process orientation is introduced. The model measures process orientation by means of ten dimensions (e.g. design and documentation of business processes, process owner, process performance measurement, etc.) and is used for measuring the degree of process orientation of 105 randomly selected Austrian manufacturing firms. With the empirical data collected, it is discussed whether there is a relationship between process orientation, firm size and manufacturing process type (i.e. project, jobbing, batch, and line manufacturing process type).

The paper concludes that the application of business process management is neither a question of firm size nor of manufacturing process type. Furthermore, the paper finds interesting correlations, such as the significant correlation between the process owner role and the application of process performance measurement. This correlation states that organizations with a stronger emphasis on the process owner role also make greater use of process performance measurement. There is also a strong correlation between process performance measurement and the application of process-oriented HR-systems, which means that firms making greater use of process performance measurement also place greater emphasis on process oriented HR systems (such as incentive systems which emphasize the process’ needs).

Main Characteristics of a Process-Oriented Organization

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According to (Hammer, 2007; Harmon, 2007; Hinterhuber, 1995; Melan, 1989; Reijers, 2006), an organization which has adopted the process-view exhibits the following characteristics:

First, a prerequisite for managing an organization based on its processes is to know which business processes are performed within the organization and how they are related to each other. Hence, a process-oriented firm explicitly designs and documents its business processes.

Second, management needs to support the process program. Without the support of senior executives, the process idea cannot unfold its full potential.

Third, the existence of process owners is the most visible difference between a process enterprise and a traditional organization. A business process needs to have a manager who has end to end responsibility of the process.

Fourth, a process-oriented organization comprehensively applies the concept of process performance measurement. By focusing measurement on processes rather than functions, alignment and common focus across separate organizational units can be achieved. Implementing measures and taking corrective actions are operating precepts of process management.

Finally, there are other characteristics a process-oriented organization exhibits, including a process-oriented corporate culture (e.g. teamwork, readiness to change, and customer focus), IT systems which seamlessly support business processes, a process-oriented organizational structure, people and expertise (e.g. existence of process redesign and change management experts), process-oriented HR systems (e.g. existence of an incentive system emphasizing the process’ needs) and the existence of a BPM office coordinating and integrating process projects.

Further information on the characteristics of process orientation can be found in this blog post: The Components of Business Process Management.

Information on which process management components are important for improving firm performance can be found here: The Effects of Process-Oriented Organizational Design on Firm Performance.

Process Performance Measurement in Outpatient Clinics

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This article is a brief summary of the paper “An ERP-Based Process Performance Measurement Approach in an Outpatient Clinic” by Kohlbacher M., Gautsch A., Zenz H. and Leodolter W., published in Academy of Health Care Management Journal, Vol.4, No.2, 2008.

Process orientation does not only work for process industry, but can be applied to service industries as well (Davenport, 1993). There is empirical evidence that hospitals with a high degree of process orientation are moderately but significantly more efficient (Vera and Kuntz, 2007). There is no doubt that health care institutions need to become high performers. In order to gain high performance, the organization has to determine its performance indicators, measure its performance, derive the performance gap and initiate actions to close the gap (Jennings and Westfall, 1994).  Assessing processes by means of performance indicators is a prerequisite for process control and serves as a basis for process optimization. Sometimes business processes are fully supported by an operative system like an enterprise resource planning (ERP) system collecting data from which process performance information can be extracted – automatically and free of additional cost.

The paper shows an efficient way for continuous performance measurement of the outpatient treatment process (from a patient perspective) as realized in an Austrian hospital. Performance measurement focuses on time and efficiency of the process. In this hospital the outpatient treatment process is supported by an ERP system which already collects process data of every patient going through the process, primarily for reasons of accounting and invoicing. The process performance measurement approach introduced in this paper uses the data of the ERP system, defines performance indicators, calculates and visualizes the resulting process performance. The paper also compares the ERP approach for collection process performance data with other data collection techniques (client flow analysis, patient surveys, and sensor networks).

With the ERP approach introduced, peak times can be located and reduced which results in shorter patient waiting time; appointments and resources (personnel, facilities) can be better planned and benchmarking between departments can be performed. In general, the impact of any organizational change on process performance can be shown almost in real-time. Although automatically collecting performance data represents a great advantage (there are almost no additional operating costs), the ERP approach does not come without problems. For example, ERP systems are primarily designed to support business processes; collecting detailed process performance data is not their main purpose. Hence, they do not record all desired process performance data.

The Traditional Functional Structure of Firms

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A typical example of processing an order in a traditional functional-oriented firm can be seen in the figure below. As one can easily see, the natural sequence of the business process “order processing” is not reflected in the given structure.

Order processing in a functional organization (Vahs, 2007)

Order processing in a functional organization (Vahs, 2007)

In a functional-oriented organization, the management board develops a strategy and each functional unit should then implement this strategy, developing its objectives, which results in what is termed “silo effect”. Consequentially, every unit sets its own priorities in order to fulfill its objectives, often resulting in a divergence of effort (Braganza and Korac-Kakabadse, 2000). Such a functional-oriented firm is like a pyramid with many hierarchical levels. Work is divided up among different functions at the highest levels of the hierarchy and at lower levels, work is allocated to specialized activities (Hinterhuber, 1995). As a consequence of these hierarchical and functional barriers, operative islands emerge (see figure below).

Functional and hierarchical barriers lead to operative islands (Hörrmann and Tiby, 1991)

Functional and hierarchical barriers lead to operative islands (Hörrmann and Tiby, 1991)

Some serious disadvantages of the functional- and hierarchical-oriented organization include:

  • The structure is inflexible, hence it is difficult to change (Hinterhuber, 1995).
  • It does not reflect the natural sequence of business processes although it is a business process which creates value for the customer (Hinterhuber, 1995).
  • There is a poor customer orientation.  Silo-oriented organizations do not easily permit their employees to concentrate on the customers and their problems. What is missing is trans-sectoral harmonization and information. Departments are trying to make their internal issues perfect (they are internally focused), but they do not think about possible improvements in terms of the customer which may result from collaborating with other departments (Gulati, 2007). Since certain key business processes, such as the order fulfillment process, cut across several departments, functional-based structures have difficulties in meeting customer needs because no one “owns” the issue of how long it takes or how much it costs to fulfill the customer requirements (Davenport,
    1993).
  • In a functional-oriented organization, the work is broken down into simple tasks. However, this leads to disintegration of the natural business process. The number of interfaces is growing and therefore the coordination efforts are increasing. Usually, every interface represents loss of time, loss of information and a source for organizational irresponsibility (who is responsible for errors?) (Osterloh and Wübker, 1999).
  • Finally, there is often poor communication between departments (Braganza and Korac-Kakabadse, 2000; Osterloh and Wübker, 1999; Garvin, 1998).

Business Process Management

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This website favors the following definitions of business process management (or simply “process management”) and its delimitation to business process reengineering:

Business process management (BPM) cannot be considered as a single BPR project but it deals with how to manage processes on an ongoing basis (Armistead and Machin, 1997).

BPR often addresses the reengineering of individual processes only. Therefore the BPR approach often treats processes as unconnected islands. However, the success of an organization also depends on how its business processes interact. Moreover, reengineering experts virtually do not state how to manage a business process after reengineering. Though, business processes still have to be managed after being reengineered (Garvin, 1995).

A firm which has adopted the process-view of its organization, regardless of whether it has already run through BPR and/or process improvement projects or not, is concerned with the management of its business processes (Armistead and Machin, 1998).

Business process management does not only incorporate the discovery, design, deployment and execution of business processes, but also interaction, control, analysis and optimization of processes (Smith and Fingar, 2002).

“Process management seeks to improve processes continuously so that the products and services meet the ever-changing expectations of the internal and external customers.” (Hinterhuber, 1995)

Business process management is a management philosophy that focuses on organizing the organization around its business processes (Harmon and Wolf, 2007).