The Four Waves of Process Management

by Paul King, President, Orion Development Group

The business concept of “process” is not new. But in the twenty-first century, “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, and to achieve sales growth in both traditional and non-traditional customer bases. Making that leap is the new promise of process management.

Modern process management was born during the “Quality Revolution” of the 1980s. In one form or another, the First Wave of process management -Total Quality Management (TQM)- swept across all industries and sectors during the decade. Like all buzzword revolutions, TQM fell from grace in the late 1980’s…but was followed in the early 1990s by the Second Wave of process management: Business Process Reengineering (BPR). BPR preached 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.

In truth, the TQM and Reengineering are part of the same continuum: Managing processes to achieve operational excellence. Both help you achieve higher quality and lower costs. Few firms label their process management efforts TQM or BPR these days but the operational excellence they can deliver is as critical as ever.

Operational excellence is, of course, necessary to sustain corporate strategy. However, operational excellence is not strategy nor does it assure strategic success. That’s where the revolution in process management must take place.

As Peter G.W. Keen wrote in The Process Edge, “processes are the source of ‘firm-specific’ special competence that makes the competitive difference.” However, to realize the potential of such competence, it must be:

• sustainable
• exploited during strategic planning

Making Process Excellence a Strategic Asset

Operational excellence cannot be sustained 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. 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.

What organization changes must occur to make process excellence sustainable?

What organization changes must occur to make process excellence sustainable?

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 – Enterprise systems should enable seamless cross-functional information flow and cross-functional budgeting. Since the 1990’s, most ERP systems have fallen short on this front. Today’s BPM systems are getting close. 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.

Collectively, this change in management represents the Third Wave of process management. Once a company has aligned the above elements, process excellence becomes a sustainable asset that can be exploited for ongoing strategic success.

Process-Based Competition: The Fourth Wave

Processes should, of course, be a function of strategy. However effective strategy should also be a function of process capability. If your company can perform core processes in ways that deliver more value at less cost, then you have a competitive advantage that is extremely hard to copy because it is rooted in the fabric of your organization. Think about it: How many retailers have tried to emulate Wal-Mart’s cross-docking process over the last 15 years. No one has come close yet.

Unfortunately, most firms fail to recognize existing or potential strategic process assets during SWOT (Strength, Weakness, Opportunity, Threat) analysis. 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. A no-brainer.

Market Selection/Extension – Leverage process excellence to serve new markets or shift focus to higher-yield markets. Process capability can mean new customer bases, not just higher efficiency.

Process Extension – Widen process boundaries to control more links in the value chain. Taking more responsibility for a customer’s process, for instance, can add value and build a competition-resistant relationship.

Enterprise Creation – Leverage process excellence to create a new business or profit center. This could mean either new, complementary services for existing customers or a stand-alone business built on existing processes and infrastructure.

Firms like IBM, Duke Power, L.L. Bean and Wal-Mart have proven that leveraging unique process capabilities yields enduring competitive success that has eluded companies that utilize process management to pursue operational excellence only.

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.