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A business process or business method is a collection of related, structured activities or tasks that produce a specific service or product (serve a particular goal) for a particular customer or customers. It often can be visualized with a flowchart as a sequence of activities.
There are three types of business processes:
- Management processes, the processes that govern the operation of a system. Typical management processes include "Corporate Governance" and "Strategic Management".
- Operational processes, processes that constitute the core business and create the primary value stream. Typical operational processes are Purchasing, Manufacturing, Marketing and Sales.
- Supporting processes, which support the core processes. Examples include Accounting, Recruitment, Technical support.
A business process begins with a customer’s need and ends with a customer’s need fulfillment. Process oriented organizations break down the barriers of structural departments and try to avoid functional silos.
A business process can be decomposed into several sub-processes, which have their own attributes, but also contribute to achieving the goal of the super-process. The analysis of business processes typically includes the mapping of processes and sub-processes down to activity level.
Business Processes are designed to add value for the customer and should not include unnecessary activities. The outcome of a well designed business process is increased effectiveness (value for the customer) and increased efficiency (less costs for the company).
Business Processes can be modeled through a large number of methods and techniques. For instance, the Business Process Modeling Notation is a Business Process Modeling technique that can be used for drawing business processes in a workflow.
One of the first people to describe processes was Adam Smith in his famous (1776) example of a pin factory. Inspired by an article in Diderot's Encyclopédie, Smith described the production of a pin in the following way:
”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 two or three distinct operations: to put it on is a particular business, to whiten the pins is another ... and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which in some manufactories are all performed by distinct hands, though in others the same man will sometime perform two or three of them.”
Smith also first recognized how the output could be increased through the use of labor division. Previously, in a society where production was dominated by handcrafted goods, one man would perform all the activities required during the production process, while Smith described how the work was divided into a set of simple tasks, which would be performed by specialized workers. The result of labor division in Smith’s example resulted in productivity increasing by 24,000 percent (sic), i.e. that the same number of workers made 240 times as many pins as they had been producing before the introduction of labor division.
It is worth noting that Smith did not advocate labor division at any price and per se. The appropriate level of task division was defined through experimental design of the production process. In contrast to Smith's view which was limited to the same functional domain and comprised activities that are in direct sequence in the manufacturing process, today's process concept includes cross-functionality as an important characteristic. Following his ideas the division of labor was adopted widely, while the integration of tasks into functional, or cross-functional, process was not considered as an alternative option until much later.
In the early 1990s, US corporations, and subsequently companies all over the world, started to adopt the concept of reengineering in an attempt to re-achieve the competitiveness that they had lost during the previous decade. A key characteristic of Business Process Reengineering (BPR) is the focus on business processes. Davenport (1993) defines a (business) process as
”a structured, measured set of activities designed to produce a specific output for a particular customer or market. It implies a strong emphasis on how work is done within an organization, in contrast to a product focus’s emphasis on what. A process is thus a specific ordering of work activities across time and space, with a beginning and an end, and clearly defined inputs and outputs: a structure for action. ... Taking a process approach implies adopting the customer’s point of view. Processes are the structure by which an organization does what is necessary to produce value for its customers.”
This definition contains certain characteristics a process must possess. These characteristics are achieved by a focus on the business logic of the process (how work is done), instead of taking a product perspective (what is done). Following Davenport's definition of a process we can conclude that a process must have clearly defined boundaries, input and output, that it consists of smaller parts, activities, which are ordered in time and space, that there must be a receiver of the process outcome- a customer - and that the transformation taking place within the process must add customer value.
Hammer & Champy’s (1993) definition can be considered as a subset of Davenport’s. They define a process as
”a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer.”
As we can note, Hammer & Champy have a more transformation oriented perception, and put less emphasis on the structural component – process boundaries and the order of activities in time and space.
Rummler & Brache (1995) use a definition that clearly encompasses a focus on the organization’s external customers, when stating that
”a business process is a series of steps designed to produce a product or service. Most processes (...) are cross-functional, spanning the ‘white space’ between the boxes on the organization chart. Some processes result in a product or service that is received by an organization's external customer. We call these primary processes. Other processes produce products that are invisible to the external customer but essential to the effective management of the business. We call these support processes.”
The above definition distinguishes two types of processes, primary and support processes, depending on whether a process is directly involved in the creation of customer value, or concerned with the organization’s internal activities. In this sense, Rummler and Brache's definition follows Porter's value chain model, which also builds on a division of primary and secondary activities. According to Rummler and Brache, a typical characteristic of a successful process-based organization is the absence of secondary activities in the primary value flow that is created in the customer oriented primary processes. The characteristic of processes as spanning the white space on the organization chart indicates that processes are embedded in some form of organizational structure. Also, a process can be cross-functional, i.e. it ranges over several business functions.
Finally, let us consider the process definition of Johansson et al. (1993). They define a process as
”a set of linked activities that take an input and transform it to create an output. Ideally, the transformation that occurs in the process should add value to the input and create an output that is more useful and effective to the recipient either upstream or downstream.”
This definition also emphasizes the constitution of links between activities and the transformation that takes place within the process. Johansson et al. also include the upstream part of the value chain as a possible recipient of the process output. Summarizing the four definitions above, we can compile the following list of characteristics for a business process.
- Definability : It must have clearly defined boundaries, input and output.
- Order : It must consist of activities that are ordered according to their position in time and space.
- Customer : There must be a recipient of the process' outcome, a customer.
- Value-adding : The transformation taking place within the process must add value to the recipient, either upstream or downstream.
- Embeddedness : A process can not exist in itself, it must be embedded in an organizational structure.
- Cross-functionality : A process regularly can, but not necessarily must, span several functions.
Frequently, a process owner, i.e. a person being responsible for the performance and continuous improvement of the process, is also considered as a prerequisite...
Supporting theories and concepts
Division of labor
Frederick Winslow Taylor developed the concept of scientific management. The concept contains aspects on the division of labor being relevant to the theory and practice around business processes. The business process related aspects of Taylor's scientific management concept are discussed in the article on Business Process Reengineering.
Span of control
The span of control is the number of sub-ordinates a supervisor manages within a structural organization. Introducing a business process concept has a considerable impact on the structural elements of the organization and thus also on the span of control.
Departmentalization by process and purpose
Large organizations that are not organized as markets need to be organized in smaller units - departments - which can be defined according to different principles.
Information management concepts
Information Management and the organization design strategies being related to it, are a theoretical cornerstone of the business process concept.
- Business process management
- Business process outsourcing
- Business process reengineering
- Thomas Davenport (1993). Process Innovation: Reengineering work through information technology. Harvard Business School Press, Boston
- Michael Hammer and James Champy (1993). Reengineering the Corporation: A Manifesto for Business Revolution, Harper Business
- Rummler & Brache (1995). Improving Performance: How to manage the white space on the organizational chart. Jossey-Bass, San Francisco
- Henry J. Johansson et al. (1993). Business Process Reengineering: BreakPoint Strategies for Market Dominance. John Wiley & Sons
- Hall, J.M. and Johnson, M.E. (2009, March), “When Should Process Be Art, Not Science“, Harvard Business Review, 58 – 65
- Paul Harmon, (2007). Business Process Change: 2nd Ed, A Guide for Business Managers and BPM and Six Sigma Professionals. Morgan Kaufmann
- E. Obeng and S. Crainer S (1993). Making Re-engineering Happen. Financial Times Prentice Hall
- Howard Smith and Peter Fingar (2003). Business Process Management. The Third Wave, MK Press
- Slack et al., edited by: David Barnes (2000) The Open University, Understanding Business: Processes
- The Process Wiki A repository (wiki) for all kinds of business processes
- BPTrends Website A free webizine that publishes articles on all aspects of business process
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