NATIONAL ECONOMICS UNIVERSITY

FACULTY OF BUSINESS MANAGEMENT

Section 4
The Process-Oriented Enterprise

Lecturer: Mai Vũ Xuân Hoành

Course: Business Process Management

Hanoi – 2022
CONTENT

PART I: PROCESS-ORIENTED ENTERPRISE

PART II: PROCESS AUDIT

PART III: PROCESS METRICS

 SECTION 4 LEARNING OUTCOMES

• An overview of the process-oriented enterprise;

• An overview of how to address the challenges to
successful business process implementation.
• An understanding how to assess organizations on the
Process and Enterprise Maturity Model (PEMM);
• An understanding of how to make recommendations
for organizational change based on a PEMM
assessment;
• An understanding of how to assess the metrics in
process audit.
 PART I
PROCESS-ORIENTED
ENTERPRISE
 Process-Oriented Enterprise

Hammer, M. and Stanton, S. (1999) How process enterprises

really work. Harvard Business Review, Nov-Dec 1999, 108-118
 Problems

Integrated process in fragmented organizations

Power over resources (budget, people, space) rests with tradition

management structures

Confusion and conflict

 Process Owner

Senior Executive
Responsible for:

• Process design, deployment, implementation

• Process budget and resources
• Process performance
Permanent Position
Works in cooperation with traditional department/unit heads

• Responsible for workforce and training

• Receive budget allocation from process owners
 New Management Style

Distributed authority over resources requires cooperation, rather than

authority
Negotiation between process owners an unit/department heads over

• Process and work design

• Process performance metrics
• Resource requirements and allocation
• Budget allocation
• “Matrix of Decision Rights”
 New Management Style

Negotiation among process owners over

• Shared resources
• Process coordination
• Performance metrics
• Budget allocation
Negotiation with frontline staff

• Managerial responsibility moved to process team

• Process coordinator becomes coach/leader
• Process owners become advocates
 Process Standardization

Reduced overhead costs

Unified external “face” to customers and suppliers
Increase organization flexibility

• How?

But: different customers/products may require different processes

• Standardize as much as possible while meeting diverse customer’s
needs
 Transitioning to Processes

Tied to strategic initiative

No interference with other change initiatives
High-profile process owners and senior executive support
Realistic expectations about timeline and process benefits
Expect and address resistance
 Organizational Process Change

Champy, J. (2006) People and processes. ACM Queue, Mar 2006, 34-
38
“Minimizing the pain of business process change”

Executive involvement
Small teams of good people
Change as quickly as possible
Change work, do not add work
Open communication
Empathize
Identify corporate values
Understand the values and behavior of business partners
“Minimizing the pain of business process change”

Identify corporate values

Understand the values and behavior of business partners
Inspect the workplace
Anticipate new skills in workers
Continuous process change

• Identify the right place

 PART II
PROCESS AUDIT
 Process Audit

Hammer, M. (2007) The process audit.

Harvard Business Review, Apr 2007
 PEMM Characteristics
 Helps to identify strength and weaknesses for
process orientation
 Helps to identify needs for change to enable
process performance
 Framework based on study of hundreds of
companies and verified by consortium of large
companies
 Independent of industries and processes and
organization size
 PEMM Characteristics
 Identifies both necessary process enablers and
enterprise wide capabilities
 Allows measurement and management of change
transformation results
◼ Objective and specific propositions
 Recognizes that enterprise capabilities and process
enablers are interdependent (within and between)
and must be aligned.
 Process Enablers
 Design
 Performers
 Owner
 Infrastructure
 Metrics

 Levels P-0 to P-4

 Process Maturity

P-0 Process works erratically

P-1 Process is reliable and predictable, stable
P-2 Process delivers superior performance,
end-to-end design and implementation
P-3 Process delivers optimal performance,
integration with other processes
P-4 Process is best in class,
integration with supplier and customer processes
 Enterprise Capabilities
 Leadership
 Culture
 Expertise
 Governance

 Levels E-1 to E-4

 In-class Excercise

 Hammer’s Assessing Worksheet

 Hammer’s Evaluating Worksheet

 PART III
PROCESS METRICS
 Capacity
 Maximum output of a resource
 Measured in units per time period

 Example
◼ An assembler of an electric motor can do her task in 30
seconds
◼ Her capacity is 60 minutes per hour/0.5 minutes per unit
= 120 unites per hour
 Throughput
 Actual total volume of production through a facility
(machine, department, factory, etc.)
 Units per time period

 Example
◼A company process 120 sales orders per day
 Cycle Time
 Time between completion of two discrete
units/cases.

 Example:
◼ Motors assembled at a rate of 120 per hour
◼ Cycle time = 30 seconds

 Example:
◼ Sales order processed at a rate of 10 per business day
◼ Cycle time = 8/10 = 0.8 hours = 48 minutes
 Throughput Time
 Length of time when case begins until completed

 Example:
◼ Electricmotors assembled on a line with 15 operators,
each with a labor time of 30 seconds
◼ Throughput time = 7.5 minutes (15 x 0.5)
◼ Capacity = 120 motors per hour
◼ Cycle time = 30 seconds
 Throughput Time
 Example:
◼ Sales orders processed using 10 steps, each with a time of
10 minutes
◼ Throughput time = 10 x 10 minutes = 100 minutes
◼ Capacity = 6 sales orders per hour
◼ Cycle time = 10 minutes
 Utilization
 A measure of how intensively a resource is being
used to produce a good or service
 Compares actual time used to available time
 Example:
◼A worker who is busy 45 minutes per hour
◼ Utilization = 45/60 = 75%

 Example:
◼A worker capable of entering 10 sales order per day but
enters only 8
◼ Utilization = 8/10 = 80%
 Lead Time
 The time between initiation of an order and the
receipt of goods
 Includes
◼ Order preparation time
◼ Queuing/waiting time
◼ Processing time
◼ Move or transportation time
◼ Inspection time
 Setup Time
 The length of time require to change a specific
machine, resource, work center or line from making
the last good piece of one type of product to the
first good piece of another type of product

 Costs associated with setup may include scrap costs,

calibration costs, labor downtime costs, lost sales,
etc.
 Other Process Metrics
 Process cost (activity-based costing)

 Process “value added,” e.g. revenue

 Process variability (“six-sigma”)

 Example: Accounts Payable Process
Video: “A Tale of Two Invoices”
 The accounts payables process has four steps that
are done by four different employees (resources) in
sequence
◼ The mail clerk enters the invoice
◼ The AP specialist analyzes and codes the invoice
◼ The purchasing specialist sets up the vendor for the invoice
◼ The controller issues and signs a cheque for the invoice
 Example (continued)
 Invoice entry takes 15 minutes
 Analyzing and coding takes 20 minutes
 Vendor setup takes 30 minutes
 Issuing the cheque takes 20 minutes

 Analyzing and coding invoices is highly specialized

and can only be performed by the AP specialist.
 On average, ProductIFF receives 15 invoices per 8
hour day
 Example (continued)
 What is the capacity of the current process?
 What is the maximum number of invoices that
ProductIFF Inc. can process per day?
 What is the average utilization of
◼ The mail clerk?
◼ The AP specialist?
◼ The purchasing specialist?
◼ The controller?
 Example (continued)
 ProductIFF Inc. has suggested that the vendor for
commonly purchased items must be set up before
ordering, so that they are available when an invoice
arrives. From experience, this would affect half of
the invoices
◼ What is the capacity of this modified process?
 ProductIFF Inc.’s business expands and there is an
increase to 20 invoices per day
◼ What (if any) changes would be needed in the process to
support this invoice rate of 20 invoices per day? Assume
early vendor setup as above.
 Example (continued)

Resource Number Minutes per Available Capacity of %

Order minutes per resources Utilization
day
Mail Clerk 1 15 480 32 46.875
AP specialist 1 20 480 24 62.500
Purchasing 1 30 480 16 93.750
Specialist
Controller 1 20 480 24 62.500
 Example (continued)
 Capacity = 16 invoices per day
◼ Vendor setup is the bottleneck
 Throughput time for invoice = 15+20+30+20 = 85
min
 Throughput = 15 invoices per day (unconstrained)
 Average cycle time = 480 min per day / 15
invoices per day = 32 minutes
 Utilization of resources (See table)
 Case Study

“Creating a Process-Oriented
Enterprise at Pinnacle West”
by T.S. Raghu