Understanding Business Processes

Ford’s New Payables System

Ford’s New Payables System New Payables to reduce staff from 500 to 400. Mazda’s A/P Staff had only 5 individuals. Differences in the Business Process Model Consider the degree of structure in Mazda model. Much of Ford’s A/P Staff time was spent on Exception Processing. New System requires only 125 persons.

Ford’s New Payables System What changed in the new Ford system? Are the successes of the Ford and Mazda systems an indictment of management practices in other organizations? WCA Framework for Ford Case Study

Ford’s New Payables System CUSTOMER Ford’s suppliers Ford’s manufacturing and purchasing departments

Ford’s New Payables System PRODUCT Verification that the the order was fulfilled correctly by the supplier Payment to the supplier

Ford’s New Payables System BUSINESS PROCESS Major Steps: Order material Receive shipments Reconcile receipts with purchase orders Pay suppliers Rationale: store purchase orders in a shared database accept shipments only if they match the purchase order pay on receipt, not invoice

Ford’s New Payables System PARTICIPANTS Purchasing department Receiving department Accounts payable department INFORMATION Purchase order Receipt confirmation TECHNOLOGY Computer system supporting a shared database

Introduction In order to develop information systems or understand them from a business professional’s viewpoint, one needs to be able to describe and analyze business processes. We will emphasize the relationship between process architecture and process performance. Recall: Improvements in a work system are usually related to the links between the architecture and the performance perspectives. Customer satisfaction is largely determined by product performance. Product performance is determined by a combination of product architecture and the internal work system performance.

From work system architecture to customer satisfaction

Process Modeling: Business Process Architecture Process Modeling - A method of documenting process architecture by identifying major processes and sub-dividing them into linked sub-processes. Data Flow Diagrams Flow charts Structured English

Data Flow Diagrams Data Flow Diagrams - represent flows of data between different processes within a business. Simple, intuitive, no focus on computer systems Use only four symbols focus on analysis of flows between sub-processes Flowcharts and other techniques can be sued to talk of decision criteria and other details. Starting point is a Context Diagram - High Level representation Example: Ford Accounts Payable System

Creating Data Flow Diagrams The starting point for a DFD is a Context Diagram, which shows sources and destinations of the data being used and generated. The context diagram establishes the scope of the system. Next identify processes, and break them down into sub-processes to describe how work is done. The value of DFD’s is in resolving disagreements about how work is currently done, or it should be done in the future. Example: Ford Accounts Payable.

Symbols used in data flow diagrams

Context diagram for the Ford purchasing system

Data flow diagram showing the main processes in Ford’s original purchasing system

Data flow diagram dividing PCH 1 into four subprocesses

Example Data Flow Diagram: Student Grading Final Grades REGISTRAR’s OFFICE STUDENTS Current Grade Test Scores Current Score CALCULATE CLASS GRADES CALCULATE UNIVERSITY GRADES TEACHER Final Grades Final Score CLASS/GRADE FILE STUDENT FILE

Other Process Modeling Techniques DFD’s are used extensively. However, other techniques can also be used to fill in some details not expressed by DFD’s. DFD’s do not express the sequence and timing of processes nor the detailed logic of processes. Flowcharting - represent the sequence and logic of procedures Structured English - “pseudo-code” - represent the precise logic of a procedure by writing it down.

Architectural Characteristics of a Business Process Seven Characteristics that often affect business process performance: 1. Degree of Structure 2. Range of Involvement 3. Level of Integration 4. Complexity 5. Degree of Reliance on Machines 6. Attention to Planning, Execution, and Control 7. Treatment of Exceptions, Errors, and Malfunctions

#1: Degree of Structure DEGREE OF STRUCTURE the correspondence between inputs and outputs structured; semi-structured, and unstructured tasks e.g. Total last month's revenue vs. People Magazine Cover Story DEGREE TO WHICH STRUCTURE IS IMPOSED Highest: Substitution of technology for people High: Enforcement of rules or procedures Low: Access to information or tools Problem if the level is too high: People doing the work are prevented from their judgement. People doing the work feel like cogs in a machine because they have too little autonomy. Problem if the level is too low: Easily foreseeable errors occur because well-understood rules are not applied consistently. Outputs are inconsistent.

Structured and Unstructured Tasks information requirements known exactly methods of processing known precisely desired format of information known exactly decisions or steps within the process are clearly defined and repetitive. Criteria for making decisions clearly understood. Success in executing the task can be measured precisely

Structured and Unstructured Tasks Semi-structured Task information requirements and procedures are generally known, although some aspects of the task rely on judgement of person doing the task. Unstructured Task so poorly understood that the information to be used, method of using the information, criteria for deciding when task is done can not be specified. Unstructured tasks are performed based on experience, intuition, trial and error, rules of thumb, and very qualitative measures.

#2: Range of Involvement too many participants or too few the organizational span of people involved in a process. Problem if the level is too high: Work is slowed down because too many people get involved before steps are completed. Problem if the level is too low: Work is performed based on narrow or personal considerations considerations, resulting in decisions that may not be the best for the overall organization. The Role of Information Systems: Information systems can be designed to broaden or constrict the range of involvement. Executive Information Systems Case Manager Approach TQM: Reduce involvement and empower workers Note separation of duties from an internal audit perspective.

#3: Level of Integration Integration is the mutual responsiveness and collaboration between distinct activities or processes. In general, the extent of integration between two processes or activities is related to the speed with which one responds to the other. The speed depends on the immediacy of communication and the degree to which the process responds to the information communicated. e.g. level of integration between NJIT Registrar and Rutgers-Newark Registrar Five Levels of Integration: common culture common standards information sharing coordination collaboration

Five levels of integration between business processes

Five levels of integration between business processes - continued

Five levels of integration between business processes - continued

Level of Integration LEVEL OF INTEGRATION Problem if the level is too high: Steps in the process are too intertwined. Participants in different business processes get in each other’s way. To change one step it is necessary to analyze too many other steps or processes. Problem if the level is too low: Steps in the processes are too independent. The process needs greater integration to produce results.

#4: Complexity Systems that are too simple don’t handle the complexity of the problem; systems that are too complex are hard to understand, maintain, and fix. Complexity can be measured by the number of elements it contains, and the number and nature of their interactions Reduce Complexity by reducing low value variations, reducing the number of interacting components, and simplify the nature of interactions. COMPLEXITY Problem if the level is too high: Participants, managers, and programmers have difficulty understanding how the system operates or what will happen if it is changed. Problem if the level is too low: The system cannot handle the different cases that it should be able to handle.

#5: Degree of Reliance on Machines Not everything can be automated! DEGREE OF RELIANCE ON MACHINES Problem if the level is too high: People become disengaged from their work. People’s skills may decrease. Mistakes occur because people overestimate what the computers are programmed to handle. Problem if the level is too low: Productivity and consistency decrease as bored people perform repetitive work that computers could do more efficiently.

#6: Attention to Planning, Execution, and Control Participants in a business process need to know what to do, when to do it, and how to make sure it was done right. Planning - decide what work to do and what outputs to produce when. Executing - process of doing the work Controlling - use information about past work performance to assure goals are attained and plans carried out.

#6: Attention to Planning, Execution, and Control

Comparison of Planning, Execution, and Control Time focus: Future Important issues related to information: Having reliable methods of projecting into the future by combining models, assumptions, and data about the past and present EXECUTION Time focus: Present Providing information that tells people what to do now to meet the plan and adjust for any problems that have occurred recently Using current information to identify problems or errors in current work Collecting information without getting in the way of doing the work CONTROL Time focus: Past Having reliable methods of using data about the past to develop or adjust plans, and to motivate employees Provide information current enough that it can be used to guide current actions

Attention to Planning, Execution, and Control Problem if the level is too high: Too much effort goes into planning and controlling within the process, and not enough goes into execution. Problem if the level is too low: Insufficient effort in planning and control leaves the business process inconsistent and unresponsive to customer requirements

#7: Treatment of Exceptions, Errors, and Malfunctions Exceptions: The system does not handle special cases properly. Operational failures: The system fails to operate as intended. Bugs: The system does not correctly reflect the ideas of the system designers. Design errors: The system does what the designers intended, but they failed to consider certain factors. Capacity shortfall: The system cannot meet current output requirements. Displacement of problems: The system creates problems that must be absorbed and fixed somewhere else. Computer crime: The system is used for theft, sabotage, or other illegal purposes often based on fraudulent data inputs.

Treatment of Exceptions, Errors, and Malfunctions The danger in designing systems is not planning for the unexpected. A mistake should be as easy to correct as it was to commit in the first place! TREATMENT OF EXCEPTIONS, ERRORS, AND MALFUNCTIONS Problem if the level is too high: The process focuses on exceptions and becomes inefficient and inconsistent. Problem if the level is too low: The process fails altogether or handles exceptions incorrectly, resulting in low productivity or poor quality and responsiveness perceived by customers.

Evaluating Business Process Performance PROCESS PERFORMANCE VARIABLES: Rate of output Consistency Productivity Cycle Time Flexibility Security

Evaluating Business Process Performance PROCESS PERFORMANCE VARIABLES: Rate of output - the amount of output it actually produces in a time period consider capacity and scalability How can I handle special needs? Consistency A Basic TQM tenet: “unwarranted variation destroys quality”. Carefully specify how something should be performed and monitor the process to ensure it is performed consistently.

Control chart for monitoring consistency of a business process

Evaluating Business Process Performance PROCESS PERFORMANCE VARIABLES: Productivity - amount of output per level of resource usage. Resources mean money, time effort. Control waste (consumption of resources with no output value). Cycle Time - (the total time from start to finish; what about waiting time? Bottlenecks?

Evaluating Business Process Performance PROCESS PERFORMANCE VARIABLES: Flexibility - (ease of adjustment to meet immediate customer needs) Security - (likelihood of vulnerability to unauthorized use, sabotage, criminal activity, etc.)

Finding the Right Level for Each Process Performance Variable RATE OF OUTPUT Problem if the level is too high: Lower productivity and consistency due to increasing rates of errors and rework Problem if the level is too low: Lower productivity due to the cost of unused capacity PRODUCTIVITY Too much emphasis on cost per unit and too little emphasis on quality of the output Output unnecessarily expensive to produce CONSISTENCY Inflexibility, making it difficult to produce what the customer wants Too much variability in the output, reducing quality perceived by the customer

Finding the Right Level for Each Process Performance Variable CYCLE TIME Problem if the level is too high: Lack of responsiveness to customer Excess costs and waste due to delays Problem if the level is too low: Product produced too soon is damaged or compromised before the customer needs it Delivery before the customer is ready FLEXIBILITY Too much variability in the output, reducing quality perceived by the customer Inflexibility, making it difficult to produce what the customer wants or to modify the process over time SECURITY Excess attention to security gets in the way of doing work Insufficient attention to security permits security breaches

Information systems related to Mintzberg’s management roles

Common Sources of Management Information FORMAL, COMPUTER-BASED Internal sources: Key indicators generated by internal tracking systems External sources: Public databases FORMAL, DOCUMENT-BASED Internal sources: Planning reports, internal audits External sources: Industry reports, books, magazines FORMAL, VERBAL Internal sources: Scheduled meetings External sources: Industry forums INFORMAL Internal sources: Lunch conversations, gossip, management-by-walking-around External sources: Trade shows, personal contacts