Selecting critical business processes: A case study

Introduction

Managers and decision-makers face the complex task of identifying a critical business process as well as determining how enhancing it will impact the firm's competitive advantage. Firms are only vaguely aware of the value of their competencies. If organizations understand and agree on core competencies, history indicates that they maintain their competitive edge and use their core competencies as foundation for creating future value. Companies usually have several core competencies. Determining which one needs improvement first can be complicated. If managers agree on the most valuable competencies, they tend to be more consistent in developing and nurturing those competencies. The purpose of this article is twofold: identify which business processes are critical, based on the enterprise's vision, and determine how to prioritize which processes to improve and monitor.

Core Competency Determination and Enhancement Models

The concept of core competencies serves as a useful framework for strategic thinking about how today's choices can make a positive impact on programs and services that can and should be provided in the future. Current literature discusses core competencies and core capabilities; however, limited information exists about determining a critical business process. One of the most comprehensive methodologies is based on the concept that product families and their platforms result from underlying core capabilities. Studies also link competencies and company performance. Determining and prioritizing critical business processes requires comprehensive selection criteria. This approach gives insight to the decision-maker by determining how essential each business process is to the overall vision; the value added; whether it contains core capabilities and characteristics; and how it performs in quality, flexibility, cost, and time.

The methodology presented extends the current core competency and core process literature to include performance criteria and the link to vision. Addressing performance is essential in improvement methodology. Companies may be aware of core processes that perform well, yet unaware of processes not considered core, but critical, that require performance improvement to prevent negative impact to overall company performance.

This article is based on results from implementation of the methodology. The methodology was tested with several companies ranging in size from $6 million in revenue to Fortune 500 companies. The results from a small high-tech company present the method step by step. The exhibits step the user through the process. The data in the exhibits represents a case study.

Methodology

We developed a new methodology for determining a critical business process. In this article, critical business process refers to a process essential to fulfill the organization's vision statement. It often needs improvement due to less than satisfactory performance.

Our methodology consists of four steps to select the critical business process: (1) identify the capabilities which support the enterprise's vision, (2) determine process and capability core rating, (3) determine the performance level of the business process, and (4) select the critical process.

Step One-Identify Capabilities Which Support Vision. The enterprise must first understand its vision and mission and know why they are in business. The working environment must be understood before attempting any type of business process improvement. It must be determined if improvement is appropriate and achievable.

A) Review vision statement. A valid vision statement explains the organization. It conveys a picture of the direction of the enterprise, and how it plans to get there. The vision is simple, inspirational, and focusing. A well-defined and articulated vision provides the organization with a common sense of purpose. Knowing the type of enterprise and its primary goals gives guidance and direction to locate core capabilities.

B) Determine appropriate vision statement. Once the existing vision statement has been reviewed, the decision-maker needs to validate that it remains appropriate, adds value, and supports the ongoing improvement philosophy: the ability to adapt to change.

C) Consider assets, resources, and views. The decisionmaker needs to determine which capabilities directly affect the organization's vision and mission. Capabilities can be a set of differentiated skills, complementary assets, and routines.

D) List capabilities that support vision. Verbalize capabilities that help achieve the organization's vision. We list 10 generic business processes developed and used by the University ofTexas at Arlington's Automation and Robotics Research Institute. See Exhibit 1.

Step Two: Determine Process and Capability Core Rating. Determining the core rating of a capability and business process involves four concepts. First, organize the capabilities by business process. Second, rate the capabilities and aggregate the scores at the business process level. Finally, select the core processes based on the highest normalized scores. These core processes become candidates for critical processes.

A) Categorize capabilities by business process. Once a valid vision and mission statement has been established, categorize the capabilities by business process. Use the capabilities selected in the previous section.

Categorizing capabilities by business processes provides a systemic view of the company. The analysis to determine critical processes is based on a business process approach. The improvement is made on a process level that implies a horizontal perspective of the firm that transcends traditional organizational barriers.

B) Calculate core rating. Analyze the business processes and determine their use. The core rating of a capability or process can be broken into two categories-core capability criteria and capability criteria.

Four characteristics comprise labeling a capability as a core capability: difficult to imitate, provide a competitive advantage, extendible to new markets, and customer perceived value.

Capabilities and business processes are defined with their associated scores.

Support (1)-Human resources, legal, etc. systems to serve internal customers.

Basic (2)Skills and systems common to most companies in a particular business. They are necessary to function in business.

Critical (3)Skills and systems critical to customers. They provide today's competitive advantage.

Cutting Edge (4)Skills and systems to be nurtured and developed as sources of tomorrow's competitive advantage.

A capability mentioned in more than one business process can be categorized differently and have different scores. For example, a capability might be a support capability in business process one, but a critical capability in business process four. Different scores are also possible with the core capability criteria.

C)Add capability scores at business process level. Individual capabilities scores are summarized at the business process level. The scores need to be normalized to compensate for the various capabilities assigned to a given business process. This facilitates analysis at the business process level.

D) Select highest scoring process. The business process with the highest score becomes the candidate for critical process. The scores range in value from Ito 8, the highest possible score being 8.

Core Rating. Exhibit 2 indicates the core rating of the business process. This reflects the score given to a business process.

1) Transfer capabilities from Exhibit 1 to Exhibit 2. A capability may fall into one or more business processes.

2) The next four categories-difficult to imitate, provide competitive advantage, extendible to new markets, and customer perceived value-are core competency characteristics. The result is binary, the capability either has the characteristic (1) or it does not (0). For each applicable characteristic, a score of one is entered in the appropriate column.

3) The next four categories-support, basic, critical, and cutting edge-can ascertain the degree to which a capability contributes to the concept of a core capability. The scoring will be as follows: support = 1, basic = 2, critical = 3 and cutting edge = 4.

(4) Add the individual scores of the capability at the business process level. This total score is normalized to compensate for the varying number of capabilities assigned to a business process. The normalized score becomes the final score for the business process.

As shown in Exhibit 2, the business processes "Develop products/processes" and "Acquire, develop, and maintain human assets" received the highest possible score of 8. The business processes "Create enterprise plans" and "Acquire customers/ orders" received a 7. A high score is the first criterion of becoming a critical process. The other criterion is establishing the performance level of the business process.

Step Three: Determine Performance Level of Business Process. A company may have more than one core process, but the one with the lowest performance rating should be improved or enhanced first. Correcting poor performance of a critical process is essential for an enterprise to remain competitive. Determining which processes have the best and the worst performance is essential.

Generic performance measures of quality, time, cost, and flexibility determine how the given business process is performing.

A) Weight performance measure. Determining the importance of a given performance measure is critical. Quality may be the number one goal for one company. Another company may be pursuing the lowest cost. Ranking the performance measurement as to the impact it makes on the organization's vision is essential. Exhibit 3 ranks performance measurements by contribution to company vision.

Exhibit 3 weighs the performance measure as it pertains to the overall vision of the organization. It lists the generic dimensions of quality, time, cost, and flexibility. Assign a weight to each dimension, the total equaling 100. The higher the percentage assigned, the more important the dimension to the vision.

In the example, quality carries the most weight. Different organizations will assign different percentages. Companies testing this methodology have assigned various percentages from the four dimensions being equal to cost being the overriding factor in a commodity business.

B) Rank process by performance measure, Next take the capabilities listed by business process and rank them from I to 5 for each performance measure in Exhibit 4. Lower ranked capabilities require more improvement. Capabilities rated extremely well score 5, while poorly performing capabilities rate 1. The values need to be aggregated at the business process level for which the capabilities are categorized. The score needs to be normalized to compensate for a various number of capabilities relating to a business process.

C) Combine weight and rank. Each business process and performance measure combination needs to attain an overall score. This score comes from multiplying the percentage assigned to the performance measure by the rank assigned to the business process.

Exhibit 4 shows the overall performance indicator of the business process.

1) The weight from Exhibit 3 carries over for each performance measure.

2) Each capability is scored from I to 5.

3) The percentage from Exhibit 3 and the capability score are multiplied to obtain the overall score for that performance measure on the given capability.

4) Individual scores are aggregated at the business process level. Normalization is required to compensate for the varying number of capabilities of a,business process.

5) The calculated overall scores for the given business process are to be listed in the final column.

In the example, the worst performing business processes are "Manage enterprise performance," "Deliver and support products," "Acquire materials," and "Fill orders."

D) Select lowest scoring process. The final step is normalizing all the combined scores for each business process and determining the business process with the lowest overall score. The business processes with the lowest scores are now candidates to become critical processes because they need improvement.

Step Four: Select Critical Process(es). Combining core processes with business processes that require performance improvement will determine the critical process. Bring the results of Exhibit 2 and 4 together as shown in Exhibit 5. Column B results from multiplying column A by 5 since the capabilities were ranked from 1 to 5 in their core performance. Likewise, column C is multiplied by 8, since the core rating was based on a I to 8 scale. The results are in column D. This normalization enables column D to be subtracted from Column B to obtain the result. The business process with the highest score needs attention. In the example, "Acquire, develop, and maintain human assets" should be investigated as it scored 12.8. "Fill orders" warrants examination and improvement next.

Cost and Benefit Analysis

The company's cost for analysis was the time of the manager performing the steps. The time to walk through the model involved three, two-hour sessions. After the results were given to the company, they reorganized employees into work teams and held team training seminars. Approximately six months later sales increased 38%. It is difficult to determine what the direct effect of the reorganization had on the increase in sales.

Conclusion

The methodology was successfully implemented at a small hightech company. It is generic enough that it could benefit other companies. After determining the critical process, the company can focus on improving that process to optimize overall performance.

The critical process determination methodology bases the selection of critical processes on their contribution to the organization's vision statement. Addressing performance is essential in improvement methodology. An organization may be aware of exceptionally performing core processes and unaware of processes, not core but critical, that require performance improvement to prevent negative impact to overall company performance.