Business process

he above definition distinguishes two types of processes, primary and support processes, depending on whether a process is directly involved in the creation of customer value, or concerned with the organization’s internal activities. In this sense, Rummler and Brache's definition follows Porter's value chain model, which also builds on a division of primary and secondary activities. According to Rummler and Brache, a typical characteristic of a successful process-based organization is the absence of secondary activities in the primary value flow that is created in the customer oriented primary processes. The characteristic of processes as spanning the white space on the organization chart indicates that processes are embedded in some form of organizational structure. Also, a process can be cross-functional, i.e. it ranges over several business functions.
Finally, let us consider the process definition of Johansson et al. (1993) They define a process as

”a set of linked activities that take an input and transform it to create an output. Ideally, the transformation that occurs in the process should add value to the input and create an output that is more useful and effective to the recipient either upstream or downstream.”

This definition also emphasizes the constitution of links between activities and the transformation that takes place within the process. Johansson et al. also include the upstream part of the value chain as a possible recipient of the process output. Summarizing the four definitions above, we can compile the following list of characteristics for a business process.

1. Definability : It must have clearly defined boundaries, input and output.
2. Order : It must consist of activities that are ordered according to their position in time and space.
3. Customer : There must be a recipient of the process' outcome, a customer.
4. Value-adding : The transformation taking place within the process must add value to the recipient, either upstream or downstream.
5. Embeddedness : A process can not exist in itself, it must be embedded in an organizational structure.
6. Cross-functionality : A process regularly can, but not necessarily must, span several functions.

Frequently, a process owner, i.e. a person being responsible for the performance and continuous improvement of the process, is also considered as a prerequisite...

Importance of the Process Chain

Business processes comprise a set of sequential sub-processes or tasks, with alternative paths depending on certain conditions as applicable, performed to achieve a given objective or produce given outputs. Each process has one or more needed inputs. The inputs and outputs may be received from, or sent to other business processes, other organizational units, or internal or external stakeholders.
Business processes are designed to be operated by one or more business functional units, and emphasize the importance of the “process chain” rather than the individual units.
In general, the various tasks of a business process can be performed in one of two ways – 1) manually and 2) by means of business data processing systems such as ERP systems. Typically, some process tasks will be manual, while some will be computer-based, and these tasks may be sequenced in many ways. In other words, the data and information that are being handled through the process may pass through manual or computer tasks in any given order.

The Four Major Process Improvement Areas

The point to note here is that, irrespective of the class of the task - whether manual or computerised - it is important that each task - and hence the process as a whole – is designed and periodically reviewed, improved, or substituted by another task, with a view to continuous improvement in four major areas:
1. Effectiveness
2. Efficiency
3. Internal control
4. Compliance to various statutes and policies
These areas are explained by highlighting typical deficiencies in each of them, as under:
Effectiveness
The overall effectiveness of a process is the extent to which the outputs expected from the process are being obtained at all, and is therefore a first measure of the basic adequacy of the process and its capability to fulfill the logical and reasonable expectations of process uses and operators.
For example, consider the material procurement process. One of its important tasks is the sub-process for supplier follow-up to ensure timely deliveries of materials. Such a task is considerably less effective if it does not provide accurate and timely purchase order status reports for use of the purchase department staff responsible for follow-up.
Efficiency
Supposing it has been observed that the average time taken to prepare and send out a purchase order after receipt of a properly prepared indent from the end-user is unacceptably high, leading to delayed customer deliveries and consequent customer complaints.
The process of “converting” the end-user’s indent to a purchase order is effective because a purchase order is being somehow generated, but its efficiency is very low since it takes an inordinate amount of time and costs considerably more in terms of the cost to the company of the salaries of staff members involved.
Internal Control
In a scenario where quantities of major raw materials are regularly ordered and consumed, rates are fixed with selected, reliable, approved vendors for an extended period – commonly a year. Moreover, let us say that the rate contract does not contain a price escalation clause. This safeguards the organisation from unanticipated price escalation during the period. The rate contract data are stored in the ERP system’s database. Whenever materials are to be ordered (with or without a delivery schedule), purchase orders are generated mentioning the rate finalised in the rate contract. An internal control exists to keep the purchase rate constant throughout the year.
Suppose, however, it is found that the rate on a purchase order based on a current rate contract is changed to a different value, and the purchase order then sent out to the supplier. This is a serious lapse in internal control, since a change to a higher rate exposes the company to a higher financial liability. Moreover, the editability of the rate in such a purchase order completely nullifies the internal controls provided by having a rate contract in the first place and including a no-escalation clause in it. There would be a further breach of internal control if it were found that such a PO amendment is actually authorised before sending the purchase order to the supplier.
Statutory and Policy Compliance
There are certain situations where payments made to consultants or service contractors must be statutorily made after deducting tax at source (T.D.S.), and such T.D.S. amounts must be deposited in government treasury accounts with banks on or before a specified date in the month following the month in which the payments are made.
In such cases, if a business process does not provide for deduction of T.D.S. and/or fails to ensure deposition into government accounts by the specified date, then this is a statutory compliance issue that makes the concerned executives liable to civil / criminal legal action.

Policies, Processes and Procedures

The above improvement areas are equally applicable to policies, processes and detailed procedures (sub-processes/tasks). There is a cascading effect of improvements made at a higher level on those made at a lower level.
For instance, if a recommendation to replace a given policy with a better one is made with proper justification and accepted in principle by business process owners, then corresponding changes in the consequent processes and procedures will follow naturally in order to enable implementation of the policy changes.