BUSINESS PROCESS MANAGEMENT MODULE 1

CHAPTER I: INTRODUCTION TO BUSINESS PROCESS MANAGEMENT

I. OBJECTIVES
At the end of this chapter, the students should be able to:
 To introduce and explain the principles and methods of Business Process Management.
 To discuss the essential concepts about Business Process Management.
 To describe the typical processes found in most organizations.
 To provide the definition of business process and business process management.
 To scrutinize the origins and history of BPM including the functional organization, birth or
process thinking, and the rise and fall of BPR.
 To discuss the structure of the BPM Lifecycle.

II. SUBJECT MATTER

Topic: Introduction to Business Process Management (BPM)
Subtopic: - Processes Everywhere
- Ingredients of a Business Process
- Origins and History of BPM
- The Business Process Management Lifecycle

III. PROCEDURE
A. Preliminaries
Pre- Assessment
1. Enumerate and discuss the principles and methods of Business Process Management.
2. Explain the overall concepts about Business Process Management.
3. Discuss how projects the typical processes found in most organizations.
4. Enumerate the origins and history of BPM including the functional organization, birth
or process thinking, and the rise and fall of BPR.
5. Examine and explore the structure of the BPM Lifecycle.

B. Lesson Proper
In this chapter, we introduce the essential concepts behind BPM. We start with a
description of typical processes that are found in contemporary organizations. Next, we
discuss the basic ingredients of a business process and provide a definition of business process
and BPM. In order to place BPM in a broader perspective, we then provide a historical
overview of the BPM discipline. Finally, we discuss how a BPM initiative in an organization
typically unfolds.

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1. Processes Everywhere

Business Process Management (BPM) is the art and science of overseeing how work is
performed in an organization to ensure consistent outcomes and to take advantage of
improvement opportunities. In this context, the term “improvement” may take different
meanings depending on the objectives of the organization. Typical examples of improvement
objectives include reducing costs, reducing execution times, and reducing error rates, but also
gaining competitive advantage through innovation. Improvement initiatives may be one-off or of
a continuous nature; they may be incremental or radical. Importantly, BPM is not about
improving the way individual activities are performed. Rather, it is about managing entire chains
of events, activities, and decisions that ultimately add value to the organization, and its
customers. These chains of events, activities, and decisions are called processes.

Each organization—be it a governmental agency, a non-profit organization, or an enterprise—has

to manage a number of processes. Typical examples of processes that can be found in most
organizations include:

Order-to-cash. This is a type of process performed by a vendor, which starts when a customer
submits an order to purchase a product or a service and ends when the product or service in
question has been delivered to the customer and the customer has made the corresponding
payment.

Quote-to-order. This type of process typically precedes an order-to-cash process. It starts from
the point when a supplier receives a Request for Quote (RFQ) from a customer and ends when
the customer in question places a purchase order base on the received quote.

Procure-to-pay. This type of process starts when someone in an organization determines that a
given product or service needs to be purchased. It ends when the product or service has been
delivered and paid for.

Issue-to-resolution. This type of process starts when a customer raises a problem or issue, such
as a complaint related to a defect in a product or an issue encountered when consuming a
service. The process continues until the customer, the supplier, or preferably both of them agree
that the issue has been resolved.

Application-to-approval. This type of process starts when someone applies for a benefit or
privilege and ends when the benefit or privilege in question is either granted or denied.

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2. Ingredients of a Business Process

A business process as a collection of inter-related events, activities, and decision points

that involve a number of actors and objects, which collectively lead to an outcome that is of value
to at least one customer.

Ingredients of a Business Process

Armed with this definition of a business process, we define Business Process

Management as a body of methods, techniques, and tools to identify, discover, analyze, redesign,
execute, and monitor business processes in order to optimize their performance. This definition
reflects the fact that business processes are the focal point of BPM.
Related Disciplines
Total Quality Management (TQM)

 Focus on continuously improving and sustaining the quality of products and services.
 TQM puts emphasis on products and services themselves, while BPM focuses on
improvement of processes.
 Applications of TQM are primarily in manufacturing while BPM more in service organizations.

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Operations Management

 Concerned with managing physical and technical functions of organization, particularly those
relating to production and manufacturing.
 Using probability theory, queuing theory, decision analysis, mathematical modeling, and
simulation for optimizing efficiency of operations.
 Such techniques are also useful in.
 Often concerned with controlling an existing process, while BPM making changes to an
existing process in order to improve it.
Lean

 Originates from manufacturing, in particular Toyota Production System.

 Eliminates waste, i.e., activities that do not add value to the customer.
 BPM puts more emphasis on use of information technology as a tool to improve business
processes and to make them more consistent and repeatable.
Six Sigma

 Originates from manufacturing, in particular from production practices at Motorola.

 Focuses on minimization of defects (errors).
 Strong emphasis on measuring output of processes, especially in terms of quality.
 Popular approach to blend Lean with Six Sigma, leading to Lean Six Sigma.

3. Origin and History of Business Process Management

How process moved out of focus through ages

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The key idea of BPM is to focus on processes when organizing and managing work in an
organization. This idea may seem intuitive and straightforward at first glance. Indeed, if one is
concerned with the quality of a particular product or service and the speed of its delivery to a
customer, why not consider the very steps that are necessary to produce it? Yet, it took several
evolutionary steps before this idea became an integral part of the work structures of
organizations.
Adam Smith: Processes and Division of Labour

“To take an example, the trade of a pin-maker: But in the way in which this
business is now carried on, it is divided into a number of branches:

 One man draws out the wire; another straights it;

 a third cuts it; a fourth points it; a fifth grinds it at the
 top for receiving the head; to make the head requires
 three operations; to put it on is a peculiar business;
 to whiten the pins is another; to put them into the paper; and the important business of
making a pin is, in this manner, divided into about eighteen distinct operations.”
Frederick W. Taylor: Scientific Management

 Meticulously studying labor activities

 Work instructions for workers
 Managers oversee the productivity of groups of workers
 Units and their managers were structured hierarchically
 Functional organization remains dominant until the end of 1980s.

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Birth of Process Thinking

Purchasing process at Ford at the initial stage

Purchasing process at Ford after redesign

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The Rise and Fall of BPR

Concept misuse:

 Projects were labeled BPR, even when business processes were not the core.
 Many corporations-initiated reductions of workforce, often packaged as process redesign
projects, which triggered resentment.
Over-radicalism:

 Hammer’s early papers states: “Don’t Automate, Obliterate”.

 Many situations require a much more gradual (incremental) approach.
Support immaturity:

 Necessary tools and technologies were not yet available or insufficient.

 Much process logic had to be hard-coded in IT applications of the time.
 People grew frustrated when they noted that their efforts on redesigning a process were
thwarted by a rigid infrastructure.
Job Functions of Process Owner

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This figure shows that a manager that is responsible for a business process—also called the
process owner—is concerned with planning and organizing the process on the one hand and
monitoring the process on the other. The figure allows us to explain the differences in scope
between BPR and BPM. While both approaches take the business process as a starting point, BPR
is primarily concerned with planning and organizing the process. By contrast, BPM provides
concepts, methods, techniques, and tools that cover all aspects of managing a process—to plan,
organize, and monitor it—as well as its actual execution. In other words, BPR should be seen as a
subset of techniques that can be used in the context of BPM.
4. The Business Process Management Lifecycle

Establishing Process Thinking in Organizations

 Establish BPM Team

 Describe Process Architecture
 Define Process Performance Measures
 Discover and Model Processes
 Analyze, Redesign, Implement and Monitor Processes
 Make Use of Process-Aware Information Systems
Example: Process model for the initial fragment of the equipment rental process

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The BPM Lifecycle

Process identification. In this phase, a business problem is posed. Processes relevant to the
problem being addressed are identified, delimited, and interrelated. The outcome of process
identification is a new or updated process architecture, which provides an overall picture of the
processes in an organization and their relationships.
Process discovery (also called as-is process modeling). Here, the current state of each of the
relevant processes is documented, typically in the form of one or several as-is process models.
Process analysis. In this phase, issues associated with the as-is process are identified,
documented, and whenever possible quantified using performance measures.
Process redesign (also called process improvement). The goal of this phase is to identify changes
to the process that would help to address the issues identified in the previous phase and allow
the organization to meet its performance objectives.

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Process implementation. In this phase, the changes required to move from the as-is process to
the to-be process are prepared and performed. Process implementation covers two aspects:
organizational change management and automation.
Process monitoring. Once the redesigned process is running, relevant data are collected and
analyzed to determine how well the process is performing with respect to its performance
measures and performance objectives.
Stakeholders in the BPM Lifecycle

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ACTIVITY 1: DEFINITION OF TERMS

Based on the discussion, define and describe the following key terms below.

BUSINESS PROCESS MANAGEMENT

1. SYSTEMS
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2. BUSINESS PROCESS
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3. ISSUE-TO-RESOLUTION
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4. PROCESS IDENTIFICATION
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5. PROCESS REDESIGN
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ACTIVITY 2: CASE ANALYSIS

Read the interactive session and discuss the following questions below.
Source: A. McAfee, Pharmacy service improvement at cvs (a). Harv. Bus. Rev. Case Stud. (2005)
Customers drop off their prescriptions either in the drive-through counter or in the front counter of the
pharmacy. Customers can request that their prescription be filled immediately. In this case, they have to
wait between 15 min and 1 h depending on the current workload. However, most customers are not
willing to wait that long, so they opt to nominate a pick up time at a later point during the day. Generally,
customers drop their prescriptions in the morning before going to work (or at lunchtime) and they come
back to pick up the drugs after work, typically between 5 p.m. and 6 p.m. When a prescription is dropped
off, a technician asks the customer for the pick-up time and puts the prescription in a box labeled with the
hour preceding the pick-up time. For example, if the customer asks to have the prescription be ready at 5
p.m., the technician will drop it in the box with the label 4 p.m. (there is one box for each hour of the day).
Every hour, one of the pharmacy technicians picks up the prescriptions due to be filled in the current hour.
The technician then enters the details of each prescription (e.g., doctor details, patient details and
medication details) into the pharmacy system. As soon as the details of a prescription are entered, the
pharmacy system performs an automated check called Drug Utilization Review (DUR). This check is meant
to determine if the prescription contains any drugs that may be incompatible with other drugs that had
been dispensed to the same customer in the past, or drugs that may be inappropriate for the customer
taking into account the customer data maintained in the system (e.g., age). Any alarms raised during the
automated DUR are reviewed by a pharmacist who performs a more thorough check. In some cases, the
pharmacist even has to call the doctor who issued the prescription in order to confirm it. After the DUR,
the system performs an insurance check in order to determine whether the customer’s insurance policy
will pay for part or for the whole cost of the drugs. In most cases, the output of this check is that the
insurance company will only pay for a certain percentage of the costs, while the customer has to pay for
the remaining part (also called the co-payment). The rules for determining how much the insurance
company will pay and how much the customer has to pay are very complicated. Every insurance company
has different rules. In some cases, the insurance policy does not cover one or several drugs in a
prescription, but the drug in question can be replaced by another drug that is covered by the insurance
policy. When such cases are detected, the pharmacist generally calls the doctor and potentially also the
patient to determine if it is possible to perform the drug replacement. Once the prescription passes the
insurance check, it is assigned to a technician who collects the drugs from the shelves and puts them in a
bag with the prescription stapled to it. After the technician has filled a given prescription, the bag is passed
to the pharmacist who double-checks that the prescription has been filled correctly. After this quality
check, the pharmacist seals the bag and puts it in the pick-up area. When a customer arrives to pick up a
prescription, a technician retrieves the prescription and asks the customer for payment in case the drugs
in the prescription are not fully covered by the customer’s insurance.

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Questions:
1. What type of process is the above one: order-to-cash, procure-to-pay, application to-
approval, or issue-to-resolution?
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What is system software? What kinds of

programs are included in system
software?
What is system software? What kinds of
programs are included in system
software?
2. Who are the actors in this process?
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3. What potential issues do you foresee this process might have? What information would
you need to collect in order to analyze these issues?
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