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Key Concepts forBusiness Process

Optimization

40 eAI Journal August 2002

Fortune 500 companies must face the facts: Their ability to generateshareholder value depends heavily on how effectively they execute

business processes. The more efficient their processes, the more

revenue and profit they generate. But they face a huge challenge.

C onsider what the typical Fortune 500 company is upagainst. They must manage and optimize more thancore processes and more than 2,000 related sub- processes that run their businesses. Theyve spent millions of dollars acquiring enterprisewide systems aimed at planning,

budgeting, forecasting, managing, and analyzing their busi-nesses. Theyve spent additional time and money trainingtheir employees to use these systems. According to AberdeenGroup, a typical $10 billion Fortune 500 company spendsmore than $250 million annually to acquire, implement, and support more than 30 enterprise applications across its busi-ness, including Enterprise Resource Planning (ERP),

Enterprise Application Integration (EAI), and Customer Relationship Management (CRM) applications.

While these systems might have produced increased opera-tional efficiency, many business processes werent fully opti-mized as part of the enterprise system implementations. Then,changing business circumstances, such as acquisitions or merg-ers, caused many processes that were initially improved withenterprise systems to become outdated. As time passes, efficien-cies begin to wane. Theres still plenty of room for improvement.

In fact, AMR Research estimates that less than 10 percentof enterprise processes are integrated into a dynamic frame-work that lets a company quickly respond to market conditionchanges. Additionally, Gartner reported that typical ERP sys-tems cover just 30 percent of the business processes in an

enterprise. As todays earnings reports attest, many companiesmiss their performance targets by a wide margin, despite their

Key Concepts forBusiness Process

OptimizationBy Phil Gilbert

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enterprises fail to recognize the reachof their business processes, whichstraddle business functions as well asdivisional, geographic, and corporate

boundaries. For example, a manufac-turing company ships directly to itscustomers. Communication betweenthe order processing system and theshipper is automated with ElectronicData Interchange (EDI). At least 95

percent of the time, the shipment iscorrectly delivered, but resolving the5 percent product delivery problemrequires swift, accurate, and easy-to-understand collaboration between themanufacturer, shipper, and customer.This collaboration must occur with anon-intrusive application. (The manu-facturer cannot impose an applicationimplementation on their customersand shippers systems.) These discon-nects often slow transactions possi-

bly resulting in cancelled orders and customer defections.

Automate processes to increase theconsistency of high-quality servicedelivery.

Since many critical business process-es are complex and embody decision-tree characteristics, they should includesystem-to-system, people-to-system,and people-to-people integration. ManyEAI vendors already focus on system-to-system, or lights-out automation,

but huge efficiencies can be realized byalso addressing the exceptions (such as

manual processing required for resolv-ing EDI exceptions or issues) within

automated business processes.

Treat business processes as valuableknowledge capital. An effective busi-ness process is a valuable piece of intellectual capital a competitiveadvantage that boosts the bottom line.For example, order cancellations or

return requests present an opportunityfor a company to negotiate with thecustomer. Perhaps the customer willaccept the product at a lower cost, ulti-mately saving the company the cost of a return shipment, receiving, reim-

bursement, and reselling. Processessuch as these can be handled effective-ly only if customer service representa-tives are guided through a process,having accurate, real-time data (usual-ly from a variety of systems).

Leverage existing infrastructurewhenever possible. Since the goal of

process optimization is increased efficiency and increased profits,redesigning processes to work withinthe existing IT infrastructure justmakes sense. For instance, manycompanies made large investments inupgrading their transaction systemsin preparation for Y2K. Those corpo-rations should not be required tomake significant changes to thosesystems to accommodate business

process solutions. Apply principles of continuous im-

provement. A business process solu-tion should let users track the

progress of a process in which theyre participating and let personnel moni-tor process performance, uncover

bottlenecks, and improve processes in

real-time. This ensures the companyhas the chance to operate efficiently,despite changing business conditions.

BPM: Improving Processes forProfit

Improving and managing business processes can be complex. The key is to

accomplish this optimization whileleveraging all past investments in enter-

prise system infrastructure. BusinessProcess Management (BPM), a termAMR Research defines as softwarethat integrates data, applications, and

people through a common business process, is an emerging layer of soft-ware that helps companies execute thekey concepts of business process opti-mization. It coordinates and managesthe business relationships among acompanys existing software systems aswell as across company boundaries.

EAI vendors often include someBPM capabilities. Several companiesfocus their BPM products to add valueto existing EAI technology rather thantrying to replace the technology. Ineither case, the fundamentals of theBPM platform should include:

Process modeler An environmentwhere companies build and modifytheir processes graphically, and define user roles, business rules, and

process relationships. If a companymust change a process quickly torespond to a changing business con-dition, it can easily build processguidance within the process modeler so that the the process change doesntstymie the employee.

Figure 1

BPM operatesunder the premisethat people shouldnot be engineered

out of businessprocesses.

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Process engine An execution envi-ronment for the process defined in the

process modeler. It should kick off processes on timed or process-drivenevents. The process engine controlsthe process behind the scenes, thenincludes the appropriate people in the

process at the appropriate time. This

includes much more than merelysending an e-mail notification, whichnotifies the user that theres a problem

but doesnt include information need-ed to quickly fix it.

Process manager A user environ-ment in which users are given tasks,information, and process steps, sothey can execute their individual

pieces of a process with no need for additional research or help request.The process manager must be able toinclude employees, business partners(such as shippers, suppliers, etc.), and customers.

Process monitoring Captures pro-cess and user performance data for

business process analysis, providingdifferent views of the process for per-sonnel executing the process as well asmanagers overseeing the process. This

provides visibility into process effec-tiveness and delivers the informationneeded for continuous improvement.

BPM moves beyond process automa-tion, which usually attempts to remove

people from the business process bymanaging only system-to-system pro-cesses. BPM operates under the premisethat people should not be engineered outof business processes effectively man-aging not only system-to-system com-munication, but also people-to-peopleand people-to-system communication. AWeb-enabled business process easilyenables personnel as well as suppliersand customers to fully participate in the

business process. The point is to effec-tively recognize when peoples knowl-edge will add value to business process-es and design processes to leverage thisknowledge as effectively as possible.

When executed correctly, BPM soft-ware is more than just a simple workflowtool or a document router. It automates

processes and manages exceptions whencircumstances fall outside the normal

process pushing information to theright people at the right time so they canwork efficiently to solve problems and

get processes back on track.Typically, when an exception occurs

in an automated process, the processstops and costs escalate. This includeshidden costs such as increased invento-ry levels, delayed cash cycles, and increased cost of goods sold all detri-mental to a companys bottom line. Inaddition, there are direct costs associat-ed with the labor required to manually

resolve the exception. BPMs goal is to:

Automate processes when it makesthe most sense

Remove process delays Expedite decisions by providing

process guidance and real-time accessto the required supporting information.

Some EAI vendors offer processmanagement functionality, but whenexceptions occur, they typically send ane-mail alert to an employee, notifyingthem of the exception. Rather than sim-

ply alerting an employee that an excep-tion has happened within an automated

process, or waiting for an employee togo to a process portal, BPM softwareshould proactively push whole process-es out to employees. It should serve upinformation from the multiple datasources needed to make each decision

plus process guidance that steps theuser through the process. This keeps

processes moving and helps companieshandle all their business processes in aconsistent, documented way.

The ideal BPM platform assures thatthe process is optimized by capturing

process and user performance data for business process analysis. Business process analysis lets companies improvetheir processes based on concrete datainstead of hunches. The BPM platformshould be able to expose the data to athird-party reporting application to showthe key metrics that represent the bottom-line value added to a company after the

implementation of the optimized process.BPM software also should bedesigned to integrate easily with a com-

panys existing enterprise systems. Itshould not interfere with these IT sys-tems, but drive business processes ontop of them tapping into them todeliver important information toemployees within the context of busi-ness processes. This ensures optimiza-tion of a companys existing investmentsin enterprise software.

As an added benefit, the open archi-

tecture protects the time investment inemployee training. Rather than teaching

employees a proprietary technology one that wont be used should the com-

pany one day abandon that technology the company can invest time and money training employees in an openenvironment that will endure.

Optimizing Business Processesfor Profits

Though most large companies haveimplemented enterprise software appli-cations, most still have room for vastimprovement surrounding their business

processes improvements that ulti-mately will have a positive impact ontheir bottom line. By using the key con-cepts for process optimization executed in a BPM environment, a company caninterlace their software packages into aninfrastructure that more closely repre-sents its way of doing business. Usingthis approach, companies will be moreresponsive to changing business condi-tions, will optimize their investments inenterprise software, and will see quick,

positive results in their bottom line.

Phil Gilbert ischief technology offi-cer of Lombardi Soft-ware. He has morethan 20 years of busi-ness and technical experience. Voice:512-382-8200, ext.

231; e-Mail: pgilbert@lombardisoftware.com;

Website: www.lombardisoftware.com.

About the Author

Business processanalysis lets

companies improvetheir processesbased on concrete

data instead ofhunches.