During the boom times of our economy, like the late 1990s, it was easy for companies to make a profit. It was so easy that many companies didn’t give much thought to efficiency. However, after the stock market bubble burst, most companies began to think about efficiency.
Look back some five years to when Dell was vying to be the number one personal computer (PC) maker. PCs were becoming commoditized, and the difference in quality between all competitors was not apparent. As prices fell, these PC makers needed to figure out how they could make a PC and still make a profit. Dell’s strategy has proven to be a winner. It has become so efficient that it doesn’t actually build a computer before it gets an order. Dell has accomplished this by reaching an agreement with its suppliers where it can process the order, source parts, assemble and test the PC, and ship it to the customer within a few days. Dell rightly sees this efficient new process as a competitive advantage.
Dell realized that spending money on research and development to create the ultimate PC motherboard won’t increase its profits. However, Dell realized that changing its business process—ordering parts to spec, then assembling and testing to ensure its performance criteria were met—would increase its profits. The company realized that the closer it got to just-in-time (JIT) manufacturing, the more profit it could make. They realized that this was a competitive advantage. Building on this competitive advantage, the vendor saw that it could expand its product offerings to other electronic devices such as a PC version of the iPod and flat-panel televisions to increase revenue.
So what are the driving forces for other companies to gain their competitive advantage?
InformationWeek published a study (July 2005) identifying the factors that drive companies’ business process management initiatives. [Shown at right]
Business process management
Any improvement in company efficiency will involve business process management (BPM). The responses to the Information Week survey are very revealing.
Let’s look at some of the problems underlying those driving forces.
Ensure process consistency
Most companies have great difficulties in defining their business processes. One group might define it one way, while others might define it quite differently. If you could find a single definition, each group would probably handle exceptions differently. If those processes aren’t consistent, it’s hard to know how to be more efficient. Companies that have been successful in defining their processes have had a strong project advocate and a dedicated project manager to make sure the definition is written correctly.
Optimization of business processes
Assuming your processes are defined, the next step is to start using them. With use, you will be able to spot inconsistencies and make adjustments. When you are satisfied that your process is well defined, it is important to measure the time it takes to complete them. Now that you have a baseline, you’re in a position to improve it. You can make changes to the process and see the impact of those changes.
Automation of cumbersome manual processes
Assuming you have a well-defined process, you’ll be surprised at the impact automation can have on that process. Process automation will produce shorter cycle times, lower management costs, higher quality, access control to critical data, and more. Automation will provide the biggest impact on your ROI.
Ensuring compliance
There are many compliance needs. All companies have Sarbanes Oxley issues, pharmaceutical companies have FDA, manufacturers have ISO 9000 and there are many others.
With the new US Sarbanes Oxley (SOX) requirements, companies are required to implement processes. Those who successfully implemented SOX-compliant processes and automated them found rewards beyond meeting legal compliance regulations. They discovered that their processes were inefficient and improved them. Cycle times were shortened. They shortened the time it takes for audits. They gained visibility into their processes. Articles are being written about companies that see SOX compliance as a competitive advantage.
Integration and automation of complex processes of multiple applications
Managing processes across multiple applications creates many difficulties. Two of the most difficult problems include: applications talk to each other; and the inability of most BPM software packages to link one process to another. It is extremely important not to lose sight of your vision for a solution. The technology is available to create almost any solution, but at what cost. Linking one process to another allows you to map reality; we call it process orchestration.
The author has seen many successful solutions built with minimal integration coding. Many solution architects tend to require more integration coding than is actually necessary for day-to-day operations. Often you can do a simple import/export once a day to share information between applications. [Contact me to learn more.]
Why automate?
Companies are in business to build and maintain profitability while increasing revenue. In today’s competitive economy, it’s not easy to raise prices to increase profits. However, if you could keep your prices down and cut costs, the results would be increased profits.
Furthermore, process automation is a winning strategy. According to a 2004 InformationWeek survey, 95% of companies that tried to automate business processes were successful. Responding companies reported an average rate of return of 15%, with more than half earning returns of $100,000 to $500,000 (USD) on each project.
Automaton to lower costs
Research shows that process delays are costly. The costs of delays are generally considered part of the cost of doing business, and most companies are unclear on how much they could actually save by automating key processes.
Automate to save time
Over the last twenty years, time to market has become a common terminology. If a company can bring a product to market a month early, then it can potentially earn an additional month of revenue. However, you can establish your position in the market before the competition.
Automation adds value
Companies that have implemented BPM strategies have seen many benefits: greater control; cycle time predictability; better visibility of processes; improved morale; fewer manufacturing errors; higher performance; and more.
Automate to create a price advantage
If you and your competitor sell your products for the same price and your company is more efficient, then you have more room to lower your price by putting pressure on your competitors to follow suit.
Automate to improve quality
Most companies that have implemented BPM have discovered an unexpected benefit in improving product quality.
A competitive advantage
A competitive advantage allows you to generate and maintain profitability while increasing revenue. A competitive advantage is a barrier to entry – imagine deciding to go into the PC manufacturing business against Dell.
A competitive advantage can help you sell products.
Dell’s competitive advantage is its process that requires JIT manufacturing. Due to their strength in the market, they have been able to build relationships with their suppliers that allow them to ‘build on demand’. They have negotiated terms that allow them to manufacture, ship, and invoice before their suppliers’ invoices are due. They are so efficient with this new process, that they actually make money as they go.
Wal-Mart’s competitive advantage is logistics. According to an investment magazine, Wal-Mart sells more than 5% of all retail products sold in the United States. If they are missing an item that is selling well in California, they can stop one of their trucks in Nebraska carrying that item, pick it up, and reroute it to California.
Build a competitive advantage for your company
Do Business Process Management [BPM] your competitive advantage. Well-defined, automated business processes allow you to bring products to market sooner [shorter time to market]. Lower costs due to higher efficiency make your business more competitive. More efficient consistent processes generally result in higher quality products. In short, the effective management of your business processes can provide your company with a Competitive Advantage:
BPM should provide some control over how long a process takes. If nothing goes wrong, you know how long the process will take. If something goes wrong, you will be notified immediately. [not weekly] so that you can assign other resources to the problem. This advance notice can keep the project on schedule.
BPM should provide visibility into the status of any process in the system. You should be able to see which step is being worked on and who is working on it. You should be able to see if someone is late or even potentially late.
BPM must provide access to the documentation necessary to perform the tasks. BPM must manage and provide access to any documentation created by performing tasks.
BPM software should allow you to perform audits in a few hours instead of a full week.
Your competitive advantage
How will you build and maintain your profitability while growing revenue? What will be the history that will be written about your company?
