Formalising what may previously have been ad-hoc business processes is a key issue when differentiating medium-sized organisations from small ones. Yet figuring out which processes need to be formalised or modernised, and in what priority, is a difficult task for leaders of medium organisations. M Institute co-founder Jyoti Banerjee checks out the options. Processes new and old
Companies that want to exercise a competitive edge in the market, whether by launching an e-commerce channel or being first to market with a new product, have found that they are dependent on the state of their business processes if they want to succeed. Typically, their business processes are a mix of new and old, with only brand-new well-financed companies having the luxury of fully modern processes. Good processes do not guarantee success, though bad processes will certainly guarantee failure.
Great business processes drive up customer satisfaction and employee satisfaction. They enable a business to scale up and drive costs down. The challenge for managers of medium businesses is assessing which processes are broken and which ones should be fixed first.
The Enterprise 2007 study by the Institute of Chartered Accountants in England and Wales (ICAEW), an M Institutepartner, found that 71% of all British companies in their survey were intending to improve their IT systems, as a significant financial objective of the business. A European study found that 56% of the companies that introduced new processes ended up introducing processes that were new to the market.
Why do business processes, and their related technologies, need to change anyway?
They need to change for a number of reasons, some of which are internal to the organisation, and others of which are external. Understanding what drives changes in the business environment is usually very useful in understanding how and why processes change.
M Institute has identified four different business drivers that cause consequent changes in business process. Each of these four is at play in any organisation, though their relative strengths may vary from time to time. In constructing processes that are aligned with business strategy, an organisation has to evaluate each of these drivers and consider how to address the changes they cause.
Moving from ad hoc to formalised processes
Small businesses are characterised by ad hoc processes, while medium-sized organisations tend to have formalised processes. Negotiating this transition is important in the life of the organisation if it wishes to scale and grow. So as businesses mature, they tend to think about ways in which previously manual or ad hoc processes can evolve into formal processes.
Quite often, but by no means exclusively, this requires the application of technology to the process, to cement in the formal way of working, and to enable that practice to be shared / spread across the organisation.
In most businesses, the first processes which undergo a degree of formalisation relate to accounting and finance. This usually means that the technologies applied to accounting come up for renewal earlier than others in the organisation.
At first glance, this set of process transitions might only apply once to a business – after all, when a manual process becomes modernised, it will never be manual again, or so the thinking goes. However, in reality, a business operating in change will always be creating new processes to respond to changing opportunities, whatever its size.
Natural changes to the working of an organisation
While all of the business drivers that cause processes to change are present at most times to some extent or another, this particular issue never goes away. There may have been a time when a business would have substantially the same processes from one decade to the next, but that day seems to be past. Now, the expectation among leaders of medium businesses is that their organisation would continually change to respond to movements in the marketplace, their own capabilities, and the capabilities of their business partners.
Each of these shifts usually works its way through the organisation via changes in business process.
An important shift in the business landscape over the last ten years or so has been the greater ease with which medium organisations have been able to participate in globalisation, particularly through the use of digital capabilities to promote collaboration with business partners. As a result, many organisations are now focusing on a few core competencies and outsourcing other activities where they can find partners who are better and more economical than they can ever be.
For example, Audio Partnership, a British manufacturer of hi-fi equipment, chose to focus its own activities on designing its products and marketing them internationally, but outsourced all its manufacturing processes to the Far East to take advantage of cheaper costs and reliable manufacture. It had to change its business processes so that it could start integrating what had previously been entirely in-house activities with activities across the globe.
Changes in technology
A European innovation study found that 40% of the European companies indicated that their ability to innovate is greatly enhanced by IT, plus a quarter found that the organisation strategically depends on IT for effective innovation.
It is a truism to say that the Internet has changed everything. However, many business leaders in medium organisations seem to interpret that to mean that they can now sell their goods and services on the Net. That is only one aspect of the digital revolution that has swept across business.
The wider impact of the digital revolution is in the way in which organisations can break down their activities into core processes which, through the use of enabling digital technologies, can be shared easily, speeded up and scaled up. Processes that are manual or based on the movement of paper are truly single-user, whereas digital processes enable any number of participants in a process to do their part without compromising others or holding them up.
Jenks is a sales and marketing distributor for some well-known international brands. “Half of the company’s staff work from home,” explained Colin Bendel, director – IT & transformation. “Home-based sales people often had to call up a person based in a central office to look up data for them. Since we had seven different databases in which we stored our information, we were always chasing our tail in keeping these databases consistent, when changes were made to any one of those databases.”
Now a new software system from Microsoft has enabled Jenks to provide a consistent and seamless view of the organisation to every staff member, no matter where they are based.
Information technology has broken down the traditional walls that existed between different parts of an organisation: sales, finance, manufacture, warehousing and so on. Now it is possible to enable a process such as order to cash across different parts of the organisation, or even across a range of partner organisations, in a manner that is seamless to the participants in the process.
Changes in business model
The arrival of digital technologies has enabled the evolution of business processes in most companies, but the ones that have taken these technologies furthest are those that have revolutionised their business models.
Some business gurus argue that it isn’t companies that compete with each other anymore – the real competition is between business models. A business model is really a collection of processes skilfully assembled in such a way that the output of the model is delivered as effectively and efficiently as possible. It is this sort of process thinking that is at the heart of business model change.
“Our processes reflected our business model from 10-15 years ago,” pointed out Colin Bendel of Jenks. Since then Jenks has changed ownership, grown by a factor of two to three times, and widened its services. “We need to deliver a seamless service to our customers, engender continuous improvements, and build repeatable processes.” None of this could be done with the old system.
By outsourcing its manufacturing overseas, Audio Partnership was built on a new business model that challenged the status quo in its industry. However, now many of its competitors are also doing the same. In response, Audio Partnership is learning how to take collaboration to the next level, and thereby change the rules of competition again. As Stuart George explains, “We are now considering how the company’s design processes should change to take into account feedback from our Far Eastern partners that helps make the equipment easier to manufacture.”
Process change driven by such changes in business model is either generated within a company, or be a response forced upon the company by the actions of its competition. Either way, whenever an industry’s typical business model is in flux, it creates new challenges in terms of process thinking.
This article is based on Modernising business processes, a paper authored by Jyoti Banerjee for M Institute. The paper was supported by software author Microsoft.
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