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Archive of posts tagged process performance measurement

How to Build a Process-Oriented Organization

The 10th Business Process Management Conference, organized by the University of Ljubljana, Faculty of Economics, took place in Ljubljana, October 14-15, 2015. The keynote speech “Process Management Practices, Organizational Excellence, and Firm Performance” by M. Kohlbacher was about organizational excellence, i.e. how the organization needs to be designed to gain rigoros performance improvements. Buiding on real world examples, it was shown which process management practices should be deployed in practice and how the organization’s business processes have to be designed in order to improve the firm’s key performance indicators. The key building blocks of a process-oriented organization are as follows:

On the top of all endeavors, there is the customer with her needs. Between the customers and the suppliers, there is the enterprise boundary:

1_customer

Inside the enterprise boundary, the company’s value adding business processes are located:

2_business_processes

The overall goal is it to build a customer-oriented organization. So, internal customer orientation is needed, too. In order to implement internal customer orientation, the organization is designed in a way that the business processes relate to each other like customers to suppliers. In its essence, customer-supplier-relationships are built between the organization’s business processes. Every business process has a defined customer and may also have one or more supplying processes. The customer process is ordering, the supplier process is fulfilling the order and supplies the result back to the ordering process:

3_customer_supplier_relationships

So far, business processes were considered as black boxes. When the black box is opened, the activities of the business process can be seen (process design of a single business process):

4_detailed_process_design

IT-systems are supporting the business processes:

5_IT_systems

Another important element of process management is the role of the process owner. For every business process, a process owner is defined who is responsible for (i) the design of the process, and (ii) for the performance of the process:

6_process_owner

Process performance measurement needs to be in place. This is done by developing key performance indicators (KPIs) for the business processes. Process performance indicators are metrics which numerically capture the performance of a business process. It is important that the KPIs are derived from business strategy and internal/external customer requirements:

7_process_performance_measurement

Having KPIs in place, process performance can be measured and processes can be continuously improved (continuous process improvement):

8_continuous_improvement

In summary, the performance of the firm can be significantly improvement through building a process-oriented organization by using the following main concepts:

  • customer-supplier relationships between the business processes
  • process owners
  • process performance measurement, and
  • continuous process improvement initiatives

Process Management in Service Organizations VS. Manufacturing Companies

How is process management applied in service organizations? Do service providers apply process management practices differently to manufacturers? Does firm size play a role? The brand new paper “Process Management Practices: Organizational (Dis-)Similarities” by D. Weitlaner and M. Kohlbacher, published in the The Service Industries Journal a few days ago, addresses these questions. The study empirically explores the adoption of BPM practices contingent upon different industry affiliations and firm sizes. The summarized findings are as follows:

Process management in service organizations vs. manufacturing companies:
The findings indicate that manufacturers are more process-oriented than service providers. In particular, manufacturing companies are more likely to apply continuous process improvement methods, to have a stronger management commitment toward process orientation, to have process owners on site, and to perform process performance measurement. In particular, the greatest difference between service providers and manufacturers is found in the process performance measurement practice. No significant difference is found in the context of process-supportive corporate culture as well as process documentation.

Process management in small vs. large organizations:
Large companies are more process-oriented than small ones. More specifically, they are more likely to apply continuous process improvement methods, to have a stronger management commitment toward the process view, to have implemented the process owner role, to measure process performance, and to exhibit a higher level of process documentation. However, process-supportive corporate culture seems to be independent from firm size.

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).

The Impact of Process Ownership and Process Performance Measurement on Firm Performance

This article summarizes the study “Process Ownership, Process Performance Measurement and Firm Performance” by Kohlbacher M. and Gruenwald S., to be published in the International Journal of Productivity and Performance Management, Vol. 60, Issue 7, 2011.

Process performance measurement and the process owner role are two key components of business process orientation. The article investigates whether the implementation of process owners and process performance measurement can improve firm performance. The study was conducted with 132 randomly selected manufacturing companies in Austria. For every firm one executive (CEO, CIO or quality manager) was interviewed.

The following items were used to measure to which degree the role of the process owner is established in the organization:

  • Is a process owner assigned to each business process?
  • Are process owners experienced managers/leaders?
  • Are process owners responsible for continuous improvement of their processes and do they perform this task proactively?
  • etc.

The following items were used to measure to which degree measurement of process performance is carried out in the organization:

  • Are performance indicators defined for business processes?
  • Are process performance indicators derived from enterprise goals and/or from (internal) customer requirements?
  • Are improvement actions actually initiated if poor process performance is encountered?
  • etc.

Results of the study:

The contingency table of the process owner role and process performance measurement is illustrated below:

Process Performance Measurement
Low implementation High implementation Total
Process ownership Low implementation 46
(34.8%)
5
(3.8%)
51
(38.6%)
High implementation 34
(25.8%)
47
(35.6%)
81
(61.4%)
Total 80
(60.6%)
52
(39.4%)
132
(100%)

In approx. 35% of the firms, both process performance measurement and process owners are virtually absent. Approx. 26% of the interviewed firms implemented process owners in their organization, but do not or only sparely measure the performance of their business processes. Approx. 4% of the organizations implemented process performance measurement, but have no or only a rudimental implementation of the process owner role. Finally, approx. 36% of the firms have both process performance measurement and process owners in place.

The core finding of the study is that implementing process performance measurement or the process owner role only is insufficient to achieve high performance. Organizations must implement both concepts (process performance measurement and the process owner role) to reap the fruits of process management. This finding is illustrated in the following figure:

processowner_processperformancemeasurement_performance

The left illustration applies for firms with no or rudimentary implementation of process performance measurement. These firms apparently cannot profit from establishing process owners. The right illustration applies for firms which (comprehensively) implemented the concept of process performance measurement. It can be said that those firms benefit from establishing the process owner role in their organization.

In summary, the empirical evidence shows that both concepts – process ownership and process performance measurement – must be present in the organization in order to gain higher organizational
performance.

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: Process Performance Measurement

By focusing measurement on processes rather than functions, alignment and common focus across separate organizational units can be achieved (Hammer, 2007). This article discusses the concept of process performance measurement of the process management survey. Details on the survey (research design, sample, etc.) can be found here.

Implementing measures and taking corrective actions are operating precepts of process management (Melan, 1989). The results of the survey show that the concept of process performance measurement is partly established by organizations (see figures below). More than 40% of the surveyed firms state that process performance measurement is not implemented in the firm.

The item “Performance indicators are specified for our organization’s business processes” was rated by the firms in the sample as follows:

  • 42,67%: Disagree
  • 27,33%: Neither agree nor disagree
  • 30,00%: Agree
Performance indicators are specified for our organization’s business processes.

Performance indicators are specified for our organization’s business processes.

Process performance indicators have to be derived from the process objectives which themselves have to be derived from business objectives. The results of the survey reveal that most of the firms which defined process performance indicators derived these indicators from enterprise goals and/or customer requirements. The item “Process performance indicators are derived from enterprise goals and/or from (internal) customer requirements” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 10,00%: Disagree
  • 22,00%: Neither agree nor disagree
  • 42,67%: Agree
Process performance indicators are derived from enterprise goals and/or from (internal) customer requirements

Process performance indicators are derived from enterprise goals and/or from (internal) customer requirements.

Process performance measurement only makes sense if performance indicators are calculated from process performance data which is collected continuously. Most firms which defined process performance indicators also continuously collect performance data. The item “Process performance data is continuously collected” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 14,00%: Disagree
  • 18,00%: Neither agree nor disagree
  • 42,67%: Agree
Process performance data is continuously collected.

Process performance data is continuously collected.

Measuring process performance without reacting on poor performance stresses resources, but does not lead to any improvements. Most firms which defined process performance indicators also initiate improvement actions if process performance is poor. The item “Improvement actions are actually initiated if poor process performance is encountered” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 9,33%: Disagree
  • 24,67%: Neither agree nor disagree
  • 40,67%: Agree
Improvement actions are actually initiated if poor process performance is encountered.

Improvement actions are actually initiated if poor process performance is encountered.

Process workers who know the performance of the business process are able to timely react on bad performance. Most organizations which defined process performance indicators also make the data available to process performers. The item “Process metrics are periodically presented to process performers (for e.g. awareness and motivation)” was rated by the firms in the sample as follows:

  • 25,33%: No process performance indicators defined
  • 18,00%: Disagree
  • 22,00%: Neither agree nor disagree
  • 34,67%: Agree
Process metrics are periodically presented to process performers (for e.g. awareness and motivation).

Process metrics are periodically presented to process performers (for e.g. awareness and motivation).

Process benchmarking uses business processes as comparison units and aims to identify best operating practices (Delpachitra and Beal, 2002). The results of the survey reveal that process benchmarking is infrequently used by organizations. The item “Process benchmarking (for several processes) is carried out in the organization” was rated by the firms in the sample as follows:

  • 25,68%: No process performance indicators defined
  • 37,84%: Disagree
  • 29,73%: Neither agree nor disagree
  • 6,76%: Agree
Process benchmarking (for several processes) is carried out in the organization.

Process benchmarking (for several processes) is carried out in the organization.

Activity based costing captures costs horizontally in line with business processes (Hinterhuber, 1995). The results of the study reveal that activity based costing is rarely used by organizations. The item “Activity-based costing is comprehensively applied in the organization.” was rated by the firms in the sample as follows:

  • 25,50%: No process performance indicators defined
  • 45,64%: Disagree
  • 21,48%: Neither agree nor disagree
  • 7,38%: Agree

Activity-based costing is comprehensively applied in the organization.

Activity-based costing is comprehensively applied in the organization.


The Characteristics of Process Orientation. Part 4: Process Performance Measurement

Measurement and management are not separable (Lebas, 1995). By focusing measurement on processes rather than functions, alignment and common focus across separate organizational units can be achieved (Hammer, 2007). Implementing measures and taking corrective actions are operating precepts of process management (Melan, 1989), since a business process can only be mastered if it can be measured (Hinterhuber, 1995).

Process performance indicators are metrics which numerically capture the performance of a business process. The measures assigned to each process should be specified explicitly for each process (Braganza and Lambert, 2000). The process performance indicators have to be derived from the process objectives which themselves must be derived from business objectives and/or from the requirements of the process’ internal/external customers. This is crucial because business processes have to be linked with business strategy (Ndede-Amadi, 2004) and with the environment they intend to respond to (Kiraka and Manning, 2005). In his book, Davenport (1993) describes strategy as the backdrop against which process vision is created and driven.

Process performance measurement only makes sense if performance indicators are calculated from process performance data which is continuously collected. Not continuously collecting process performance data would impede timely reaction on poor process performance.

Process Orientation is neither a Question of Firm Size nor of Manufacturing Process Type

This article is a brief summary of the paper “Process Orientation of Manufacturing Companies” by Kohlbacher M., published in Proceedings of the GBDI Tenth International Conference, Las Vegas, October 2008.

In this paper a model for measuring a firm’s degree of process orientation is introduced. The model measures process orientation by means of ten dimensions (e.g. design and documentation of business processes, process owner, process performance measurement, etc.) and is used for measuring the degree of process orientation of 105 randomly selected Austrian manufacturing firms. With the empirical data collected, it is discussed whether there is a relationship between process orientation, firm size and manufacturing process type (i.e. project, jobbing, batch, and line manufacturing process type).

The paper concludes that the application of business process management is neither a question of firm size nor of manufacturing process type. Furthermore, the paper finds interesting correlations, such as the significant correlation between the process owner role and the application of process performance measurement. This correlation states that organizations with a stronger emphasis on the process owner role also make greater use of process performance measurement. There is also a strong correlation between process performance measurement and the application of process-oriented HR-systems, which means that firms making greater use of process performance measurement also place greater emphasis on process oriented HR systems (such as incentive systems which emphasize the process’ needs).

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.

Process Performance Measurement in Outpatient Clinics

This article is a brief summary of the paper “An ERP-Based Process Performance Measurement Approach in an Outpatient Clinic” by Kohlbacher M., Gautsch A., Zenz H. and Leodolter W., published in Academy of Health Care Management Journal, Vol.4, No.2, 2008.

Process orientation does not only work for process industry, but can be applied to service industries as well (Davenport, 1993). There is empirical evidence that hospitals with a high degree of process orientation are moderately but significantly more efficient (Vera and Kuntz, 2007). There is no doubt that health care institutions need to become high performers. In order to gain high performance, the organization has to determine its performance indicators, measure its performance, derive the performance gap and initiate actions to close the gap (Jennings and Westfall, 1994).  Assessing processes by means of performance indicators is a prerequisite for process control and serves as a basis for process optimization. Sometimes business processes are fully supported by an operative system like an enterprise resource planning (ERP) system collecting data from which process performance information can be extracted – automatically and free of additional cost.

The paper shows an efficient way for continuous performance measurement of the outpatient treatment process (from a patient perspective) as realized in an Austrian hospital. Performance measurement focuses on time and efficiency of the process. In this hospital the outpatient treatment process is supported by an ERP system which already collects process data of every patient going through the process, primarily for reasons of accounting and invoicing. The process performance measurement approach introduced in this paper uses the data of the ERP system, defines performance indicators, calculates and visualizes the resulting process performance. The paper also compares the ERP approach for collection process performance data with other data collection techniques (client flow analysis, patient surveys, and sensor networks).

With the ERP approach introduced, peak times can be located and reduced which results in shorter patient waiting time; appointments and resources (personnel, facilities) can be better planned and benchmarking between departments can be performed. In general, the impact of any organizational change on process performance can be shown almost in real-time. Although automatically collecting performance data represents a great advantage (there are almost no additional operating costs), the ERP approach does not come without problems. For example, ERP systems are primarily designed to support business processes; collecting detailed process performance data is not their main purpose. Hence, they do not record all desired process performance data.