Origin

When you search for the origins of Business Process Management (BPM), you ultimately end up with Adam Smith and his work, The Wealth of Nations, written in 1776 [33]. He determined that productivity can be increased considerably by division of labor and specialization. This requires the definition of roles, associated tasks, and a description of how they collaborate. This takes us to explicit business processes which should be controlled by management. The functional units are still the status quo in many enterprises, even today. However, the focus is instead on isolated optimization of individual process steps and not on the course of the entire process. Consequently, it is not optimal all the time and leads to increased costs and undesirable results. However, viewing the process flow—from the start to the end—is decisive. An up-to-date view of the topic is that it's the business process management's task to define and implement processes, support performance measurements based on predefined process goals, and optimize processes. It's important to know the process owner when you define and monitor the processes, so that processes can be oriented towards the customers and run optimally.

To find the roots of today's BPM, you typically don't go back to Adam Smith, but you usually end up with Total Quality Management (TQM) and Business Process Reengineering (BPR) from the 1980s and 1990s.

TQM

The initial ideas on TQM were developed by William Edwards Deming, Joseph Juran, and Kaoru Ishikawa in the 1940s. But it was not until the 1980s that the high market pressure, particularly coming from Japanese enterprises, lead to a widespread use of TQM.

Definition

It is difficult to define TQM. One of the originators—William Edwards Deming—even said that TQM was only a buzzword, and that he never used the term and it didn't have any meaning [12]. The fact that he rejects the term TQM doesn't mean, of course, that he also rejects the concepts of TQM. J. Richard Hackmann and Ruth Wageman provided a sound and acknowledged description of these concepts [21]: The purpose of an organization is to sustain itself so that it can contribute to the stability of the community, provide goods and services to customers and provide an environment for organization members to grow. TQM is also a technique to run continuous quality improvement projects on a regular basis. The principles of TQM include the following:

• Management by process because quality problems often arise there.

• Analysis of variability because uncontrolled variances are the main cause for quality problems.

• Management by fact because quality improvement projects should work on a systematic data basis about the processes.

• Quality improvement is a never-ending process.

The specific techniques of TQM involve:

• Determine customer requirements

• Establish supplier relationships on a partnership basis

• Set up cross-functional teams for quality improvement

The benefits of TQM and particularly, process focusing, include faster response to market changes and cross-functional communication and collaboration within the enterprise. On the downside, however, some functional capabilities must be doubled because they occur in multiple processes. In addition, if a functional organization structure is maintained during management by process, that is, if it is converted to a matrix organization, the organization's complexity increases.

BPR

In the 1990s, the attention shifted from TQM to Business Process Reengineering (BPR). This shift was initiated by an article by Thomas Davenport and James R. Short [11], and an article by Michael Hammer [23].

The first article suggests a five-step methodology for achieving process redesign (Figure 4.1). Two assumptions form the basis of this process:

• IT is a key enabler of BPM.

• Process improvement is oriented toward goals and not toward fixing local bottlenecks and other process weaknesses.

Radical Approach

The second article by Michael Hammer was published roughly at the same time. He, as well, considers IT as a key enabler, but his approach is considerably more radical. Instead of improving existing processes, he propagates to develop them completely from scratch.

Leaps Instead of Steps

The goal is to achieve huge progress with regard to cost reduction and quality improvement and not small, incremental steps that take too long overall and thus can existentially jeopardize the enterprise.

In the new development, everything is aligned with the processes. They, and not the individual tasks, take center stage. Consequently, this leads to a process-focused organization (Section 4.2).

Hammer and Champy

The approach of BPR is described comprehensively in the book, Reengineering the Corporation: A Manifestation for Business Revolution, written by Michael Hammer and James Champy [24].

BPM

In the mid-1990s—particularly due to TQM and BPR—business process management was labeled as an explicit discipline for the first time. It is a management approach that creates the environment necessary to implement improvement methodologies, such as Six Sigma (Chapter 7, Section “Six Sigma”), TQM, or BPR. The close proximity of these methodologies leads to unclear delimitations, and, as expected, no uniform definition of BPM exists. Instead, there are many principles and practices that characterize BPM. You can find many of these concepts in BPR or TQM.

A rather general, common definition of BPM comes from Mary J. Benner and Michael L. Tushmann [1]: Business process management, based on a view of an organization as a system of interlinked process, involves concerted efforts to map, improve, and adhere to organizational processes.

The ultimate goal of BPM was specified by Michael Hammer, who defines it as the improvement of products and services using structured service optimization based on systematic design and management of business processes. Admittedly, this is still very vague and difficult to realize. James F. Chang defines the term BPM in more detail and described four principles and eight tools of BPM for this purpose [6].

Processes Are Assets

Principle 1—Business processes are central assets of the organization to meet customer requirements. It is these assets that create values for the customer, and not an individual person or organization unit. The sales and marketing departments of SpeedyCar, for example, cannot render any values for the customers without car service and system development. Therefore, business processes are considered as assets which are directly invested in.

Processes Should Be Managed

Principle 2—As assets, business processes must be managed explicitly. This includes the measuring, monitoring, controlling, and analyzing of business processes, which results in consistent outcomes for the customer and forms the basis for process improvements.

Processes Should Be Continuously Improved

Principle 3—Business processes must be improved continuously. It is not a one-time task to implement improvements but a continuous, never-ending task.

IT Is an Essential Enabler

Principle 4—The use of information technology is essential for the success of BPM. IT delivers information that is required to manage business processes.

Practices

The principles are guidelines that lead the way for BPM. The eight practices provide concrete specifications of the tasks to be performed.

Organization Structure

Practice 1—Establish process-focused organization structures.

Process Owner

Practice 2—Nominate process owners. They are responsible for the success of their processes. For this purpose, they must reconcile with the functional units that are affected by the process. SpeedyCar's process owner that is responsible for the car rental process must collaborate with the managers of the functional units, call center, car service, customer support, and accounting, so that his process runs optimally.

Bottom-Up Support

Practice 3—The upper management must support and promote BPM. The process is improved from bottom to top (bottom-up approach).

IT

Practice 4—Establish IT systems to monitor, control, analyze, and improve business processes. IT plays a critical role in the world of business processes. In the 1990s, IT was entitled as a key enabler of process management within the scope of the BPR movement. As a result, IT has moved into the limelight. For example, the revenue of SAP—a provider of Enterprise Resource Planning (ERP) systems—has increased from €255 million in 1990 to €7.5 billion in 2001 [6].

Such systems cannot be installed and used easily, but require a tedious adaptation. For this purpose, IT experts must closely collaborate with analysts. The convergence of IT and process management theory is a key concept of process management.

A Business Process Management Suite (BPMS) is a collection of IT applications that supports and measures the business processes [6]. They support the standardization and linking of business processes. Standardization also involves the integration of data in back-end systems.

Business Partners

Practice 5—Collaborate with business partners that are involved in common cross-organizational business processes.

Training and Improvement

Practice 6—Train the employees regularly, and continuously improve the business processes.

Bonus and Awards

Practice 7—Combine process improvement with bonus payments and awards.

Leaps Instead of Steps

Practice 8—Utilize both incremental process improvement measures, such as Six Sigma and more radical approaches, such as BPR.

The question arises as to why an organization should change toward a process-focused organization. The reason can be found in the market that is changing and exerts pressure on the enterprise. Success in the market can no longer be reduced to the simple formula, “faster, better, cheaper”:

• Faster—The enterprise that launches a product first is successful.

• Better—The enterprise that launches products with a higher quality is successful.

• Cheaper—The enterprise that can ultimately offer the products at a lower price is success.

Pressure on Enterprises

This formula was valid for a long time. Then, Japanese enterprises, such as Sony and Toyota, emerged that met all three requirements at the same time. This changed market situation has inspired the radical ideas of BPR, among other things. The growing globalization and the associated increase of marketplaces advances the focus on business process management. In their book, Howard Smith and Peter Fingar mention seven trends that illustrate the pressure which enterprises are subject to [34]:

1. The customer is no longer a king, but a dictator. Thanks to the Internet, the customers are well-informed and demand what they want.

2. Mass production makes way for mass customization. Dell, which offers its customers customized computers, is a good example.

3. Customers demand holistic solutions. It is no longer just about a single product, but also about processes. SpeedyCar not only offers rental cars. The customers can also call on travel agency services, such as event bookings, or transfers from/to rental offices: A full-service package for all activities that could be related to a drive in the rental car.

4. The boundaries between industries become blurred. Because enterprises offer holistic solutions, they also advance in other industry segments. SpeedyCar, for example, offers some products of the travel industry, such as transfers and hotel booking services.

5. Enter partnerships. When enterprises advance in other industries, they must also enter partnerships, because they cannot meet all requirements by themselves. The successful cooperation with partners requires a sound adaptation of business processes.

6. Value chains are the measure of competition. It's no longer just about who has the best product, but who has the best value chains to be able to offer customers a holistic solution.

7. Change is the only constant. The rate of changes in the market and the associated pressure on enterprises becomes ever shorter and requires more flexible business processes.

Process-Focused

This is exactly where the focus is in process-focused organizations, and the function structure takes a backseat, or doesn't exist at all. To successfully coordinate the functions involved in the process is one of the challenges of process management. This, however, increases the responsiveness on the market. Concentrating on the horizontal structure may have the disadvantage that functional expertise is duplicated, because it is no longer concentrated in the vertical structure.

In his article, Becoming a Process-Focused Organization [26], Daniel J. Madison lists several points on culture, concepts, structure, and technique, which a process-focused organization should take into account.

Culture

The organization's values must shift from individual recognition to process excellence. Errors are not considered as errors of individual persons, but as an opportunity to improve processes from the insights gained. As an individual person, I can gain a good reputation if I make valuable contributions to more efficient business processes.

The values of the organization enhance the collaboration of the process teams, and standards of the organizations prevent boundaries and territories from forming in the vertical structure. The process owners and department managers must cooperate closely and respect each other. The top management must think in processes and not in functions, in other words, they must map projects onto processes, and not onto tasks for the function units.

Concepts

The organization requires a vision and a mission (Chapter 5) to provide the necessary context and focus on the business processes. The strategies must directly relate to the processes. This can be achieved by using balanced scorecards (Chapter 7, Section “Balanced Scorecard”). Using process-focused methods like Six Sigma, BPR, or TQM should be promoted.

Structure

Shifting from a function-focused to a process-focused organization also affects the structures of the enterprise. It is necessary to create a formal governing body that oversees the organization-wide business processes and sets priorities and provides resources for projects.

The business processes require a process owner, which may represent a new role within the organization. In general, role descriptions should increasingly call for cross-functional abilities to obtain more all-rounders than specialists. The career ladders shift from the vertical to the horizontal structure. The process owner is responsible for the optimal functioning of his process or, if this is not the case, for initiating an optimization measure. He designs the process and implements it in the organization, which would mean in a process organization, that the employees performing the process are subordinated to the process owner. In addition to the process owners who are defined as relatively stable for each process, each project for identifying, optimizing, and implementing a business process requires a sponsor. This sponsor provides the necessary resources, coordinates communication between the process owners involved, and specifies rough objectives and strategies for the processes within his areas of responsibility. To perform and define business processes in detail, you also require work units or lowest level units, because they know the process in detail and are able to identify weaknesses and develop concrete improvements.

Technology

Of course, technology also plays a special role in a process-focused organization. IT must provide the following for business processes:

• Support by modeling and testing them

• Full or partial automation

• Provision of information, such as key figures

Digression SOA

Because the topic of service-oriented architecture (SOA) is frequently addressed within the scope of executing process diagrams, also referred to as process automation, we want to mention it briefly here. The goal of a service-oriented architecture is to abstract the mapping of business processes in IT from concrete implementation. In other words, it allows you to describe the necessary processes using services without committing yourself to platforms, programming languages, or other implementation details. The concrete implementation of a business process that was defined using services can still be changed without having to change the definition. Vice versa, a business process can be redefined using the services, for example, to respond to a changed business environment without having to change the implementation as long as you deploy existing services.

Sound IT alone doesn't result in process orientation, but it supports its realization. For this purpose, you require cultural, conceptual, and structural aspects, as described in Section 4.2.