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The Effects of Process-Oriented Organizational Design on Firm Performance

This article briefly summarizes the study “The Effects of Process-Oriented Organizational Design on Firm Performance”, by M. Kohlbacher and H. A. Reijers, which will be published in the Business Process Management Journal.

The study investigates which process management components (i.e. process design and documentation, management commitment towards process management, process ownership, process performance measurement, corporate culture in line with the process approach, application of continuous process improvement methodologies, and organizational structure in line with the process approach) are important for improving customer satisfaction, product quality, time-to-market speed, delivery speed, delivery reliability, and financial performance.

The empirical findings of the study reveal that

  • process performance measurement is important for improving product quality.
  • a process-oriented organizational structure is important for improving time-to-market speed.
  • the application of continuous process improvement methods is important for improving financial performance, and
  • a culture in line with the process approach is important for improving customer satisfaction, delivery speed, delivery reliability, and financial firm performance.

The paper will be published in the next issue of the Business Process Management Journal (Vol. 19, No. 2, 2013).

Corporate Culture in Line with Business Process Orientation and its Impact on Organizational Performance

This article summarizes the study “Kohlbacher M., Gruenwald S. und Kreuzer E.: Corporate Culture in Line with Business Process Orientation and its Impact on Organizational Performance”. The paper was presented at the 6th International Workshop on Business Process Design at the Business Process Management Conference 2010, which took place at Stevens Institute of Technology (New Jersey, USA) in September 2010.

The study focuses on the question whether there is a positive relationship between a culture in line with the process approach and financial performance, delivery speed and delivery reliability. The study uses a sample of 132 Austrian manufacturing firms.

The results of the study show that firms which actually live the process approach outperform other firms in terms of profitability, order-to-delivery speed, and delivery reliability.

Organizations which live the process approach exhibit the following characteristics (amongst others):

  • The organization’s employees can describe the design of the process they work for.
  • The employees know how their work affects subsequent work, customers and process performance.
  • Teamwork between different departments of the organization can be taken for granted.
  • The organization’s employees understand that the purpose of their work is to fulfill the needs of the internal/external customers.

The study has been recently published by Springer (www.springerlink.com).

The Components of Business Process Management

This article summarizes the study “Process orientation: Conceptualization and Measurement” by Kohlbacher M. and Gruenwald S., to be published in the Business Process Management Journal in 2011, Volume 17, Issue 2.
The paper empirically explores the “building blocks” (“components”) of business process management. The article first considers the following definitions of business process management:

  • The approach of process orientation emphasizes processes as opposed to hierarchies (McCormack and Johnson, 2001).
  • Process orientation means focusing on business processes ranging from customer to customer instead of placing emphasis on functional structures (Reijers, 2006).
  • Process management capitalizes on improving an organization’s efficiency through high-level coordination of an organization’s activities in a rationalized system of end-to-end processes (Benner and Tushman, 2002).
  • The process management philosophy is a comprehensive problem-solving heuristic that is process-oriented, customer-focused, fact-based, and participative throughout a firm (Winter, 1994).
  • Business process management incorporates the discovery, design, deployment, execution, interaction, control, analysis and optimization of business processes (Smith and Fingar, 2003).

Based on these definitions, the paper builds up a model consisting of different business process management aspects. The final empirical analysis of the model suggests that process management is a concept consisting of seven “building blocks” (“components”):

  1. design and documentation of business processes
  2. management commitment towards process orientation
  3. the process owner role
  4. process performance measurement
  5. a corporate culture in line with the process approach
  6. application of continuous process improvement methodologies, and
  7. process-oriented organizational structure.

At present, many managers are looking for ways to make their organization more process-oriented. The findings of the paper indicate that business process management involves many different aspects, ranging from design and documentation of business processes to process-oriented organizational structure. The developed model in the paper has potential use for an organization to review its internal progress of process-oriented organizational design and has potential use for process assessment, either as an alternative or supplementary measurement of process capability and organizational maturity.

Survey on Process Management: Aspects of Corporate Culture

Process orientation is also a matter of enterprise culture. The real problems when implementing the process orientation approach are of a cultural nature (Hinterhuber, 1995). The cultural fit is an important issue since people and processes must combine to produce output (Armistead and Machin, 1997). Only a culture based on teamwork, willingness to change, customer orientation, personal accountability, and a cooperative leadership style goes hand in hand with the process approach (Hammer, 2007). This article discusses the results related to corporate culture of the process management survey. Survey details (research design, sample, etc.) can be found here.

A process-oriented organization needs a culture which values teamwork, since business processes cutting across functions must be operated by people in a team (Hammer, 2007). Most of the surveyed firms state that teamwork is a matter of course in their organization. The item “Teamwork (also between different departments) can be taken for granted in the organization” was rated by the firms in the sample as follows:

  • 6,67%: Disagree
  • 34,67%: Neither agree nor disagree
  • 58,67%: Agree
Teamwork (also between different departments) can be taken for granted in the organization.

Teamwork (also between different departments) can be taken for granted in the organization.

It is often argued that organizations emphasizing functions and hierarchy are failing to focus on the customer (Hinterhuber, 1995; Schmelzer and Sesselmann, 2006; Gulati, 2007). By contrast, in a process-oriented organization, each business process has a clearly defined customer who receives the result of the process (Schantin, 2004). The item “Our organization’s employees understand that the purpose of their work is to fulfill the needs of the internal/external customers” was rated by the firms in the sample as follows:

  • 7,33%: Disagree
  • 44,67%: Neither agree nor disagree
  • 48,00%: Agree
Our organization's employees understand that the purpose of their work is to fulfill the needs of the internal/external customers.

Our organization's employees understand that the purpose of their work is to fulfill the needs of the internal/external customers.

Only organizations whose culture values personal accountability will find it possible to move forward with their degree of process orientation (Hammer, 2007). The item “Our firm’s employees feel accountable for enterprise results” was rated by the firms in the sample as follows:

  • 9,33%: Disagree
  • 62,00%: Neither agree nor disagree
  • 28,67%: Agree
Our firm's employees feel accountable for enterprise results.

Our firm's employees feel accountable for enterprise results.

The lack of a change-supportive culture is often blamed when process improvement actions fail (Tenner and DeToro, 2000). As business conditions change, process designs need to evolve, and it is the task of process owners to guide that evolution (Hammer and Stanton, 1999). A remarkable part of a company’s change-capability is based on its employees (Nyhuis et al., 2008). The item “Changes in the way work is performed are accepted by the employees in a sluggish manner” (note that the item is reverse-coded) was rated by the firms in the sample as follows:

  • 26,67%: Disagree
  • 49,33%: Neither agree nor disagree
  • 24,00%: Agree

Therefore, in most of the surveyed firms, the employees’ willingness to change is on a moderate level.

Changes in the way work is performed are accepted by the employees in a sluggish manner.

Changes in the way work is performed are accepted by the employees in a sluggish manner.

Process orientation is a construct which becomes “real” by communication and interaction, i.e. the construct becomes real if it is communicated by means of a language. By communicating about business processes and their design, process management becomes a reality (Gaitanides, 2007). The item “Employees on all levels of the organization are speaking about business processes, customers, teams, process performance indicators, etc.” was rated by the firms in the sample as follows:

  • 36,00%: Disagree
  • 42,00%: Neither agree nor disagree
  • 22,00%: Agree
Employees on all levels of the organization are speaking about business processes, customers, teams, process performance indicators, etc.

Employees on all levels of the organization are speaking about business processes, customers, teams, process performance indicators, etc.

The need to empower staff is often mentioned by literature on team and process-based organizations (Armistead and Rowland, 1996). Traditional management styles have no place in a process enterprise. Managers can’t command and control but they have to negotiate and collaborate (Hammer and Stanton, 1999). The item “The management’s leadership style is based on hierarchical command and control” (note that the item is reverse-coded) was rated by the firms in the sample as follows:

  • 44,00%: Disagree
  • 34,67%: Neither agree nor disagree
  • 21,33%: Agree
The management's leadership style is based on hierarchical command and control.

The management's leadership style is based on hierarchical command and control.

Continuous Process Improvement, Business Process Orientation and Innovation

This article is a brief summary of the paper “Dynamic Capabilities through Continuous Improvement, Organizational Process Alignment and Innovation” by M. Kohlbacher and M. Ringhofer, which will be presented next week at the 30th Annual International Conference of the Strategic Management Society in Rome (http://rome.strategicmanagement.net). The paper examines the interaction effect of continuous improvement initiatives (e.g. Six Sigma or KAIZEN) and business process orientation on innovation. The empirical study uses a sample of 67 Austrian manufacturing companies.

 The empirical evidence shows that firms which apply continuous improvement methods and at the same time

  • have a culture in line with the process approach (i.e. a culture based on teamwork and customer orientation; and where  process workers have detailed knowledge of how their process is executed, etc.) or
  • a strong top management commitment towards the process approach (i.e. where management does not perceive the process program as a single project, but as a way of managing the business; and where management is actively engaged in the process program)

can develop their products to the market more quickly. The paper will be presented in Track I, Session 203.

The Characteristics of Process Orientation. Part 7: Corporate Culture

Process orientation is also a matter of enterprise culture. The real problems when implementing the process orientation approach are of a cultural nature (Hinterhuber, 1995). The cultural fit is an important issue since people and processes must combine to produce output (Armistead and Machin, 1997). Only a culture based on teamwork, willingness to change, customer orientation, personal accountability, and a cooperative leadership style goes hand in hand with the process approach (Hammer, 2007).

  • Existence of inter-departmental teamwork. Process-oriented organization needs a culture which values teamwork, since business processes which cut across functions must be operated by people in a team (Hammer, 2007). Teams play an important role in process management, since e.g. a large process such as order fulfillment still requires working together across functional and/or geographical boundaries (Armistead and Rowland, 1996). Also, Hinterhuber (1995) states that a precondition for successful process management is employing empowered teams.
  • Customer-focused attitude of employees. Companies have to increasingly act and think in a customer-oriented way. It is often argued that organizations that emphasize functions and hierarchy fail to focus on the customer (Hinterhuber, 1995; Schmelzer and Sesselmann, 2006; Gulati, 2007). In contrast, in a process-oriented organization, each business process has a clearly defined customer who receives the result of the process (Schantin, 2004).
  • Employees’ accountability for enterprise results. Only organizations whose culture values personal accountability will find it possible to move forward with their degree of process orientation (Hammer, 2007). “Commitment to business success” is a cultural artifact exhibited by a process-centered organization (Hammer, 1996).
  • Employees’ attitude towards change. The lack of a change supportive culture is often named when process improvement actions fail (Tenner and DeToro, 2000). As business conditions change, process designs need to evolve, and it is the task of process owners to guide that evolution (Hammer and Stanton, 1999). A remarkable part of a company’s change-capability is based on its employees (Nyhuis et al., 2008).
  • Use of process language. Process orientation is a construct which becomes “real” through communication and interaction, i.e. the construct becomes real if it is communicated by means of language. By communicating about business processes and their design, process orientation becomes a reality (Gaitanides, 2007).

Main Characteristics of a Process-Oriented Organization

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.