|Course:||BUS206: Management Information Systems|
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|Date:||Monday, December 4, 2023, 6:11 PM|
This chapter looks at one way information systems can bring competitive advantage through their effect on business processes. As you read, think about the previous chapter on competitive advantage. How are the two concepts related?
Table of contents
Upon successful completion of this chapter, you will be able to:
- define the term business process;
- understand the tools of documentation of business processes;
- identify the different systems needed to support business processes in an organization;
- explain the value of an enterprise resource planning (ERP) system;
- explain how business process management and business process reengineering work; and
- understand how information technology combined with business processes can bring an organization competitive advantage.
Source: David Bourgeois, https://opentextbook.site/informationsystems2019/chapter/chapter-8-business-processes-information-systems-introduction/
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 License.
The fourth component of information systems is process. But what is a process and how does it tie into information systems? And in what ways do processes have a role in business? This chapter looks to answer those questions and also describe how business processes can be used for strategic advantage.
What Is a Business Process?
We have all heard the term process before, but what exactly does it mean? A process is a series of tasks that are completed in order to accomplish a goal. A business process, therefore, is a process that is focused on achieving a goal for a business. Processes are something that businesses go through every day in order to accomplish their mission. The better their processes, the more effective the business. Some businesses see their processes as a strategy for achieving competitive advantage. A process that achieves its goal in a unique way can set a company apart. A process that eliminates costs can allow a company to lower its prices (or retain more profit). If you have worked in a business setting, you have participated in a business process. Anything from a simple process for making a sandwich at Subway to building a space shuttle utilizes one or more business processes. In the context of information systems, a business process is a set of business activities performed by human actors and/or the information system to accomplish a specific outcome.
Documenting a Process
Every day each of us will perform many processes without even thinking about them such as getting ready for work, using an ATM, texting a friend, etc. As processes grow more complex, documenting becomes necessary. It is essential for businesses to do this because it allows them to ensure control over how activities are undertaken in their organization. It also allows for standardization. For example, McDonald's has the same process for building a Big Mac in all of its restaurants.
The simplest way to document a process is to just create a list. The list shows each step in the process. Each step can be checked off upon completion. A simple process such as how to create an account on gmail might look like this:
- Go to gmail.com.
- Click "Create account".
- Enter your contact information in the "Create your Google Account" form.
- Choose your username and password.
- Search Wikipedia to determine if the term already exists.
- If the term is found, then an article is already written, so you must think of another term. Go to step 1.
- If the term is not found, then look to see if there is a related term.
- If there is a related term, then create a redirect.
- If there is not a related term, then create a new article.
This procedure is relatively simple. In fact it has the same number of steps as the previous example, but because it has some decision points, it is more difficult to track as a simple list. In these cases it may make more sense to use a diagram to document the process.
Diagram of an example business process
Business Process Modeling Notation
A diagramming tool for documentation of business process is a formalized visual language that provides systems analysts with the ability to describe the business processes unambiguously, to visualize the business processes for systematic understanding,
and to communicate the business process for business process management. Natural languages (e.g., English) are incapable to explain complex business processes. Diagrams have been used as tools for business process modeling in the information systems
field. There have been many types of business process diagramming tools, and each of them has its own style and syntax to serve its particular purpose. The most commonly used business process diagramming tools are Business Process Modeling Notation
(BPMN), Data Flow Diagram (DFD), and the Unified Modeling Language (UML).
BPMN is an extension of the traditional flowchart method by adding more diagramming elements for descriptions of business process. The objective of BPMN is to support business process documentation by providing intuitive notations for business rules. The flowchart style diagrams in BPMN can provide detailed specifications business processes from start to end. However, BPMN is short of the ability of system decomposition for large information systems.
DFD has served as a foundation of many other tools of documentation of business process. The central concept of DFD is a top-down approach to understanding a system. The top-down approach is consistent with the system concept that views a system in a holistic manner and concerns an understanding of a system by examining the components and their interactions within the system. More importantly, while describing a business process by using DFD, the data stores used in the process and generated data flows in the process are also defined. We will provide an example of DFD in the Sidebar section of this chapter to illustrate the integration of data and business tasks in documenting a business process.
The Unified Modeling Language (UML) is a general-purpose modeling tool in the field of software engineering for constructing all types of computerized systems. UML includes a set of various types of diagrams with different subjects of modeling and diversified graphics styles. The diversified diagrams in UML can provide detailed specifications for software engineering in many perspectives for construction of information systems, but could be too complicated for documenting business processes from the perspective of business process management.
Managing Business Process Documentation
As organizations begin to document their processes, it becomes an administrative responsibility to keep track of them. As processes change and improve, it is important to know which processes are the most recent. It is also important to manage the process so that it can be easily updated. The requirement to manage process documentation has been one of the driving forces behind the creation of the document management system. A document management system stores and tracks documents and supports the following functions.
- Versions and timestamps. The document management system will keep multiple versions of documents. The most recent version of a document is easy to identify and will be considered the default.
- Approvals and workflows. When a process needs to be changed, the system will manage both access to the documents for editing and the routing of the document for approval.
- Communication. When a process changes, those who implement the process need to be made aware of the changes. The document management system will notify the appropriate people when a change to a document has been approved.
Of course, document management systems are not only used for managing business process documentation. Many other types of documents are managed in these systems, such as legal documents or design documents.
An Enterprise Resource Planning (ERP) system is software with a centralized database that can be used to run an entire company. Here are some of the main components of an ERP system.
An ERP System
- Computer program. The system is a computer program, which means that it has been developed with specific logic and rules behind it. It is customized and installed to work specifically for an individual organization.
- Centralized database. All data in an ERP system is stored in a single, central database. Centralization is key to the success of an ERP. Data entered in one part of the company can be immediately available to other parts of the company.
- Used to run an entire company. An ERP can be used to manage an entire organization's operations. Companies can purchase modules for an ERP that represent different functions within the organization such as finance, manufacturing, and sales. Some companies choose to purchase many modules, others choose a subset of the modules.
An ERP system not only centralizes an organization's data, but the processes it enforces are the processes the organization has adopted. When an ERP vendor designs a module, it has to implement the rules for the associated business processes. Best practices can be built into the ERP – a major selling point for ERP. In other words, when an organization implements an ERP, it also gets improved best practices as part of the deal.
For many organizations the implementation of an ERP system is an excellent opportunity to improve their business practices and upgrade their software at the same time. But for others an ERP brings a challenge. Is the process embedded in the ERP really better than the process they are currently utilizing? And if they implement this ERP and it happens to be the same one that all of their competitors have, will they simply become more like them, making it much more difficult to differentiate themselves? A large organization may have one version of the ERP, then acquire a subsidiary which has a more recent version. Imagine the challenge of requiring the subsidiary to change back to the earlier version.
One of the criticisms of ERP systems has been that they commoditize business processes, driving all businesses to use the same processes and thereby lose their uniqueness. The good news is that ERP systems also have the capability to be configured with custom processes. For organizations that want to continue using their own processes or even design new ones, ERP systems offer customization so the ERP is unique to the organization.
Registered Trademark of SAP
There is a drawback to customizing an ERP system. Namely, organizations have to maintain the changes themselves. Whenever an update to the ERP system comes out, any organization that has created a custom process will be required to add that change to their new ERP version. This requires someone to maintain a listing of these changes as well as re-testing the system every time an upgrade is made. Organizations will have to wrestle with this decision. When should they go ahead and accept the best-practice processes built into the ERP system and when should they spend the resources to develop their own processes?
Some of the best-known ERP vendors are SAP, Microsoft, and Oracle.
Business Process Management
Organizations that are serious about improving their business processes will also create structures to manage those processes. Business process management (BPM) can be thought of as an intentional effort to plan, document, implement, and distribute an organization's business processes with the support of information technology.
BPM is more than just automating some simple steps. While automation can make a business more efficient, it cannot be used to provide a competitive advantage. BPM, on the other hand, can be an integral part of creating that advantage.
Not all of an organization's processes should be managed this way. An organization should look for processes that are essential to the functioning of the business and those that may be used to bring a competitive advantage. The best processes to look at are those that include employees from multiple departments, those that require decision-making that cannot be easily automated, and processes that change based on circumstances. Here is an example.
Suppose a large clothing retailer is looking to gain a competitive advantage through superior customer service. A task force is created to develop a state-of-the-art returns policy that allows customers to return any article of clothing, no questions asked. The organization also decides that, in order to protect the competitive advantage that this returns policy will bring, they will develop their own customization to their ERP system to implement this returns policy. In preparation for the rollout of the system, all customer service employees are trained, showing how to use the new system and specifically how to process returns. Once the updated returns process is implemented, the organization will be able to measure several key indicators about returns that will allow them to adjust the policy as needed. For example, if it is determined that many women are returning their high-end dresses after wearing them once, they could implement a change to the process that limits the return period to 14 days from the original purchase date. As changes to the returns policy are made, the changes are rolled out via internal communications and updates to the returns processing on the system are made.
If done properly, business process management will provide several key benefits to an organization, which can be used to contribute to competitive advantage. These benefits include:
- Empowering employees. When a business process is designed correctly and supported with information technology, employees will be able to implement it on their own authority. In the returns policy example, an employee would be able to accept returns made before fourteen days or use the system to make determinations on what returns would be allowed after fourteen days.
- Built-in reporting. By building measurement into the programming, the organization can stay current on key metrics regarding their processes. In this example, these can be used to improve the returns process and also, ideally, to reduce returns.
- Enforcing best practices. As an organization implements processes supported by information systems, it can work to implement the best practices for that class of business process. In this example, the organization may want to require that all customers returning a product without a receipt show a legal ID. This requirement can be built into the system so that the return will not be processed unless a valid ID number is entered.
- Enforcing consistency. By creating a process and enforcing it with information technology, it is possible to create consistency across the entire organization. In this example, all stores in the retail chain can enforce the same returns policy. If the returns policy changes, the change can be instantly enforced across the entire chain.
Business Process Re-engineering
As organizations look to manage their processes to gain a competitive advantage, it is also important to understand that existing ways of doing things may not be the most effective or efficient. A process developed in the 1950s is not going to be better just because it is now supported by technology.
In 1990 Michael Hammer published an article in the Harvard Business Review entitled "Reengineering Work: Don't Automate, Obliterate". This article suggested that simply automating a bad process does not make it better. Instead, companies should "blow up" their existing processes and develop new processes that take advantage of the new technologies and concepts. He states in the introduction to the article:
Many of our job designs, work flows, control mechanisms, and organizational structures came of age in a different competitive environment and before the advent of the computer. They are geared towards greater efficiency and control. Yet the watchwords of the new decade are innovation and speed, service, and quality.
It is time to stop paving the cow paths. Instead of embedding outdated processes in silicon and software, we should obliterate them and start over. We should "re-engineer" our businesses: use the power of modern information technology to radically redesign our business processes in order to achieve dramatic improvements in their performance.
Business Process Re-engineering (BPR) is not just taking an existing process and automating it. BPR is fully understanding the goals of a process and then dramatically redesigning it from the ground up to achieve dramatic improvements in productivity and quality. But this is easier said than done. Most people think in terms of how to do small, local improvements to a process. Complete redesign requires thinking on a larger scale. Hammer provides some guidelines for how to go about doing business process re-engineering:
- Organize around outcomes, not tasks. This simply means design the process so that, if possible, one person performs all the steps. Instead of passing the task on to numerous people, one person does the entire process, resulting in greater speed and customer responsiveness.
- Have those who use the outcomes of the process perform the process. With the use of information technology many simple tasks are now automated so the person who needs the outcome should be empowered to perform it. Hammer provides the following example. Instead of having every department in the company use a purchasing department to order supplies, have the supplies ordered directly by those who need the supplies using an information system.
- Merge information processing work into the real work that produces the information. When one part of the company creates information, such as sales information or payment information, it should be processed by that same department. There is no need for one part of the company to process information created in another part of the company.
- Treat geographically dispersed resources as though they were centralized. With the communications technologies available today, it becomes easier than ever to focus on physical location. A multinational organization does not need separate support departments (such as IT, purchasing, etc.) for each location anymore.
- Link parallel activities instead of integrating their results. Departments that work in parallel should be sharing data and communicating with each other during a process instead of waiting until each group is done and then comparing notes. The outdated concept of only linking outcomes results in re-work, increased costs, and delays.
- Put the decision points where the work is performed, and build controls into the process. The people who do the work should have decision making authority and the process itself should have built-in controls using information technology. Today's workforce is more educated and knowledgeable than in the past so providing workers with information technology can result in the employees controlling their processes.
- Capture information at the source. Requiring information to be entered more than once causes delays and errors. With information technology, an organization can capture it once and then make it available whenever needed.
These principles may seem like common sense today, but in 1990 they took the business world by storm. Hammer gives example after example of how organizations improved their business processes by many orders of magnitude without adding any new employees, simply by changing how they did things.
Unfortunately, business process re-engineering got a bad name in many organizations. This was because it was used as an excuse for cost cutting that really had nothing to do with BPR. For example, many companies simply used it as a reason for laying off part of their workforce. However, today many of the principles of BPR have been integrated into businesses and are considered part of good business-process management.
Sidebar: Reengineering the College Bookstore
The process of purchasing the correct textbooks in a timely manner for college classes has always been problematic. Now with online bookstores competing directly with the college bookstore for students' purchases, the college bookstore is under pressure to justify its existence.
But college bookstores have one big advantage over their competitors, namely they have access to students' data. Once a student has registered for classes, the bookstore knows exactly what books that student will need for the upcoming term. To leverage this advantage and take advantage of new technologies, the bookstore wants to implement a new process that will make purchasing books through the bookstore advantageous to students. Though they may not be able to compete on price, they can provide other advantages such as reducing the time it takes to find the books and the ability to guarantee that the book is the correct one for the class. In order to do this, the bookstore will need to undertake a process redesign.
The goal of the process redesign is simple. Capture a higher percentage of students as customers of the bookstore. After diagramming the existing process and meeting with student focus groups, the bookstore comes up with a new process. In the new process the bookstore utilizes information technology to reduce the amount of work the students need to do in order to get their books. In this new process the bookstore sends the students an e-mail with a list of all the books required for their upcoming classes. By clicking a link in this e-mail the students can log into the bookstore, confirm their books, and complete the purchase. The bookstore will then deliver the books to the students. And there is an additional benefit to the faculty: Professors are no longer asked to delay start of semester assignments while students wait for books to arrive in the mail. Instead, students can be expected to promptly complete their assignments and the course proceeds on schedule.
College Bookstore Redesign
Here are the changes to this process shown as data flow diagrams:
College bookstore data flow diagram (original)
College bookstore data flow diagram (redesigned)
Sidebar: ISO Certification
Many organizations now claim that they are using best practices when it comes to business processes. In order to set themselves apart and prove to their customers, and potential customers, that they are indeed doing this, these organizations are seeking out an ISO 9000 certification. ISO is an acronym for International Standards Organization. This body defines quality standards that organizations can implement to show that they are, indeed, managing business processes in an effective way. The ISO 9000 certification is focused on quality management.
In order to receive ISO certification, an organization must be audited and found to meet specific criteria. In its most simple form, the auditors perform the following review.
- Tell me what you do (describe the business process).
- Show me where it says that (reference the process documentation).
- Prove that this is what happened (exhibit evidence in documented records).
Over the years, this certification has evolved and many branches of the certification now exist. ISO certification is one way to separate an organization from others.
The advent of information technologies has had a huge impact on how organizations design, implement, and support business processes. From document management systems to ERP systems, information systems are tied into organizational processes. Using business process management, organizations can empower employees and leverage their processes for competitive advantage. Using business process reengineering, organizations can vastly improve their effectiveness and the quality of their products and services. Integrating information technology with business processes is one way that information systems can bring an organization lasting competitive advantage.