The Four Waves of Process Management
The business concept of "process" is not new. But as the twenty-first century begins, "process" has become a revolutionary concept capable of transforming the ways a company achieves and sustains competitive advantage.
How can an old concept be revolutionary?
When the benefits of its new application far exceed its original benefits.
It is inarguable that process management (TQM, reengineering, etc) has helped industry save billions in operating cost and improve short-term sales by raising levels of quality and customer satisfaction. But a much larger return can be realized if a company also leverages process excellence to select the right markets to compete in, to build sustainable competitive advantage that is difficult to duplicate, and to achieve sales growth in both traditional and non-traditional customer bases.
Making that leap is the new promise of process management. That's the process revolution that is going on today.
Actually the story of process management is one of both evolution and revolution. There are four distinct waves, four chapters in the process epic.
Modern process management was born during the "Quality Revolution" of the 1980s. In one form or another, Total Quality Management (TQM) swept across all industries and sectors during the decade. Stories of successful quality initiatives in manufacturing led to major pushes to improve service quality and efficiency. Eventually hospitals were required to establish "CQI" programs to maintain accreditation and the government launched it's own alphabet soup of quality programs.
Total Quality Management created the First Wave of Process Management: continuous process improvement. This First Wave started as a ripple within the sea of TQM jargon but it has outlasted the Quality Revolution and is still essential to maintaining operational effectiveness in today's business world. Today, it is almost universally understood that a process is the way an organization creates value for its customers and that when efficiency (cost) or effectiveness (quality/customer satisfaction) need to be improved, you start by looking at your business processes.
Like all buzzword revolutions, TQM fell from grace in the late 1980's. That left the door open for the Second Wave of Process Management: business process reengineering.
The "Reengineering Revolution" struck the '90s with great fanfare. "Don't Automate, Obliterate." "Reengineering is new and it has to be done!" The results were dramatic. Dramatically good for some companies, dramatically bad for many.
Reengineering is a more aggressive process improvement approach that leverages information technology to rethink cross-functional performance. Companies that focused on the cost-cutting/downsizing potential of reengineering got burned while those that truly rethought and restructured cross-functional business processes soared to new heights.
Where continuous process improvement hit as a ripple within the larger quality movement, business process reengineering was a tidal wave that made an indelible impression on American business. It continues to exist and help companies, though often under aliases: process redesign, for instance. Unfortunately, it usually runs up against the same walls as TQM.
In truth, the First Wave and the Second Wave are part of the same continuum: Managing processes to achieve operational excellence. Both help you achieve higher quality and lower costs. These are good, important outcomes. Operational excellence is necessary to sustain corporate strategy. However, operation excellence is not strategy nor does it assure strategic success.
That's where the Third and Fourth Waves of Process Management come in. The Fourth Wave, process-based competition, is our ultimate goal. To get there, an organization must first make process/operational excellence a sustainable asset. The Third Wave, process-oriented organization, enables that asset.
It's been proven time and again: good process management that creates operational excellence will still only yield short-term (six to 24 months) benefits unless all management structures and systems are aligned to support business process performance. The walls (silos, fiefdoms) of modern organizations were created early in the industrial age. Task specialization led to functional management which in turn led to the hierarchical bureaucracy (a.k.a. the classic org chart). The walls have been reinforced over the years by layer upon layer of management systems. This legacy of function-oriented management makes it very difficult for cross-function process change to endure and flourish.
To date only a few score companies (e.g. IBM, Ameritech Network Systems, Air Products) have tackled the challenges of becoming truly process-oriented. What organization changes must occur in the Third Wave?
- Performance Management - Measures and rewards that motivate functional myopia must be replaced (or at least augmented) with a system that drives managers to give cross-functional value creation top priority.
- Leadership/Politics - Senior managers must have both functional and cross-functional responsibility so that all leaders have an incentive to avoid turf wars.
- Skills/Competencies - Process-oriented organizations need workers that are able and willing to "grow horizontally." That means acquiring skills from and/or teaming with upstream and downstream functions.
- Data Management - ERP and financial systems should enable cross-functional information flow and cross-functional budgeting.
- Structure - Creating the title "process owner" is not enough. For all core processes, one manager must have cross-functional accountability and corresponding authority to make changes in process execution.
Once a company has aligned its performance management systems, structure, employee development policies and leadership practices to bolster cross-functional value creation, process excellence becomes a sustainable asset that can be leveraged for ongoing strategic success.
Enter the Fourth Wave of Process Management. Processes should, of course, be a function of strategy. If effective processes don't fulfill strategic goals, an organization can go out of business quite efficiently (see Mutual Benefit in Keen's Process Edge). However effective strategy should also be a function of process capability. Processes are the source of 'firm-specific' special competence that makes the competitive difference (also Keen).
There are four ways to transform process capability into a driver of strategic success:
- Strategic Process Improvement - Enhance the performance of processes that have the heaviest impact on current strategic goals. Domino's, for instance, significantly increased sales per transaction by improving the order-taking process, enabling customer service representatives to sell to repeat customers rather than just take orders.
- Market Selection/Extension - Leverage process excellence to serve new markets or shift focus to higher-yield markets. Nypro, a plastics manufacturer, was able to shift it's focus exclusively to high-priced medical device and IT products because strategic process improvements yielded superior process capability.
- Process Extension - Widen process boundaries to control more links in the value chain. Enterprise Rent-A-Car became the largest renter of cars in the United States because they move the process boundary from the airport to automobile body shops and customer's homes.
- Enterprise Creation - Leverage process excellence to create a new business or profit center. Due to the cyclical nature of it's business, H&R Block develop great competency in hiring and training a temporary work force. They spun that process capability into a separate business that serves a completely different client population.
The Third and Fourth Waves are creating a new age of process management. Built on the foundation of operational excellence the first two waves deliver, they produce sustainable strategic success. The Four Waves of Process Management will change how all organizations select markets, define competitive positions and fulfill their missions and visions.
© Copyright 2007, Orion Development Group