In the 1990s, Michael Hammer and James Champy’s blockbuster book, Reengineering the Corporation, set off a tidal wave of business process improvement initiatives throughout corporate America. The two management gurus showed that redesigning a company’s processes, structure and culture could lead to a dramatic increase in performance. But a lack of attention to change management and the impact of these initiatives on employees yielded counterproductive results in many companies that tried to put Hammer’s and Champy’s ideas into practice. The once golden notion of business process reengineering took on a tarnish and fell out of fashion. Today, business process improvement has a new name—business process management—and is in vogue again. Spurred by the pressures of global competition, commoditization and government regulation, American companies are reexamining their business processes in search of more efficient ways to execute them through automation or even outsourcing. Companies again see business process management (BPM)—the practice of continually optimizing business processes through analysis, modeling and monitoring—as a systematic approach for solving business problems and helping them meet their financial goals.
“Companies are realizing that a good, solid understanding of their processes is essential to achieving any of their performance objectives,” says Roger Burlton, founder of consultancy Process Renewal Group. “Most organizations, if they’re not already doing something [with BPM], are starting to get into it.”
The Political Tussle
As BPM takes root in corporations throughout America, a struggle for control between the business and IT is ensuing. Historically, the business has managed its own process improvements. But the arrival of sophisticated BPM tools and IT’s ability to operate across the enterprise have given rise to the belief that IT should lead the charge.
It’s an idea that naturally incites pushback from the business. Burlton notes that BPM projects dealing with CRM or supply chain management initiated by IT often get subsumed into the business when a senior line executive realizes that the very processes IT is automating are those that drive his segment’s revenue. The executive worries that if IT screws up and his unit doesn’t meet its financial goals as a result, his bonus—and maybe his job—could be on the line.
Many of them also view IT as a bottleneck that adds cost and complexity to projects, so they’re hesitant to cede BPM to the CIO, according to Burlton. Finally, territorial instincts fuel their desire to control process management initiatives that affect their turf. (For ideas on how to work effectively with line-of-business managers who own BPM initiatives, read “Keeping Your Hand In,” this page.)
Even some IT execs are leery of leading BPM: Farrukh Humayun, National City Bank’s vice president and portfolio architect in charge of business systems, says the business must own BPM to be successful. “BPM is a business discipline,” he says. “IT can be a powerful enabling force…but the IT folks will not understand business drivers, processes or metrics as well as the business.”
It’s no wonder IT executives like Humayun and others are loath to advocate for IT ownership of BPM: So many ERP and CRM projects led by IT failed when employees refused to adapt to changes driven by technology. CIOs have been told that the business needs to lead any big change management initiative and that technology initiatives must have a business sponsor to succeed. So why should BPM be any different?
Well, for a number of reasons. CIOs must make sure IT is a part of these initiatives because so much technology is involved in BPM and because IT will have a hand in automation. What’s more, says Karl Kaiser, CIO of the city of Minneapolis, since processes often cut across business silos and IT is the one organization that straddles and supports them all, IT has the best vantage point for leading BPM.
“Doing these things from within [a line of business] can be difficult because they can’t see the forest through the trees,” says Kaiser. “It’s better done by an outside, independent organization [such as IT] with no ax to grind.”
Many BPM practitioners believe that since the business owns the processes, it should drive BPM. However, Burlton says, you don’t have to own a particular process to lead the charge. “IT doesn’t own the data stored on its servers, but they do provide the service of assuring that the data has integrity, is managed well and is secure,” he says. Similarly, IT can guide the business through a process improvement initiative by offering process analysis, modeling, design and automation services.
“If anybody in an organization really understands the importance of process, it should be the people in IT because…they have more experience in building models, doing analysis and looking for optimal solutions,” says Burlton.
There’s no reason why IT can’t lead BPM, he adds. “The question is whether they’ll be allowed to by the rest of the organization.”
CIOs who seek an active leadership role in BPM have their work cut out for them. But if they can earn the trust of the business and take charge of BPM, the payoff is big. Doing so will boost their profile and that of their IT organization. It will also facilitate their SOA plans, says Burlton, because process management initiatives identify the business services common across the enterprise that IT can then program and package for reuse as part of its SOA strategy. “If companies do process management properly across the board, IT can do service-oriented architecture properly,” he says.
Finally, if IT can offer the business BPM services the same way it provides application development services, it will increase the department’s value inside the company and bring it closer to the business.
CIO talked to three IT executives who are successfully leading BPM inside their companies. They share their experiences below.
The Marketing Challenge
In 2001, the city of Minneapolis got serious about creating a 311 system to better handle the 10,000 phone calls made to city offices daily. At the time, if a caller needed to report a stray dog, a pothole or a bum traffic light, she had to search through more than 275 listings for city government offices in the phone book’s blue pages. Callers often didn’t reach the right office on the first try and got bounced from one municipal worker to another. Some just called 911, tying up emergency operators with reports of broken parking meters. The 311 system, which included the creation of a call center and the implementation of a “constituent” relationship management system to track issues and route them to the appropriate offices within city government for resolution, would make it easier for citizens to get access to information and increase city government’s responsiveness and efficiency.
CIO Kaiser took charge of the project, which the city had been mulling since the late 1990s. He was ultimately responsible for getting the project approved, obtaining funding, implementing the system and promoting it to city residents.
During the implementation, he occasionally encountered municipal employees who pointedly told him that he and his IT department shouldn’t be in charge of the project. Officials inside the Public Works department, which handles citywide maintenance such as repairing potholes and erasing graffiti, didn’t like IT meddling with their processes or weighing in on how they should coordinate their efforts with other agencies. They had their ways and they wanted to stick with them, says Kaiser.
And what did IT know about repairing potholes anyway? The department, then known as Information and Technology Services (ITS), had a reputation within City Hall before the initiative started for barely being able to fix frozen computers, let alone manage large projects. Some city workers translated the acronym ITS as “It Totally Sucks.”
Kaiser knew he had to combat the IT department’s dismal internal reputation to win over the business. So in 2002 he outsourced all IT infrastructure to Unisys to focus his department on making city government more efficient and responsive. He also renamed the department Business Information Services to put the emphasis on the information services the group provides to the business. He said that it took him “the better part of three to four years to gain the credibility that [the members of his department] are the ones that have the diplomacy in place and the understanding of business needs” to lead process change initiatives.
Members of the city council also felt threatened by the 311 system. They worried that they’d lose touch with their constituents, who could now dial 311 instead of calling their councillor for help.
Kaiser had a considerable sales job on his hands. He was certain that in spite of its bad rap, IT was best positioned to lead this monumental effort, which transcended the entire umbrella of city government. “I had to do a lot of selling to convince people that since IT is responsible for information services across the entire city, we cut across silos and are logically the best place to come to do things that involve change,” says Kaiser.
Kaiser overcame resistance from Public Works and the City Council by articulating the unique benefits each would reap from the new system. For Public Works, explained Kaiser, the 311 system would free up employees by diverting calls to call-center agents trained to answer questions about potholes, traffic lights and graffiti abatement. Kaiser also showed managers how they could use the CRM part of the system to track how long it took the department to address problems logged through the call center and explained how that information would help them prioritize work and allocate staff.
Kaiser reminded city council members of the multitude of calls they get that should be directed to another branch of city government, such as Public Works. The 311 system would enable councillors to focus on the calls where they could have the greatest impact. He also showed them in demos how they could query the system from their PCs to see how many calls came in from their wards and the nature of those calls so that they could elect which ones to follow up on.
Kaiser understood his critics’ businesses so well, he was able to develop convincing messages that addressed their concerns head on. Selling stakeholders on IT-led business process change, he says, is the role of the CIO today. “You have to have patience, a game plan, a vision, and be in a position to articulate what’s at the end of this and why it’s worth going through.”
After a year spent selling city officials on the value of this 311 system, Kaiser obtained city funding and federal grant money for the project. Since the new $6.3 million system went live in January 2006, an average of 67 percent of phone calls are resolved immediately, and calls are answered in an average of nine seconds. The launch of the 311 system also cemented the IT department’s reputation as a true business partner and enabler.
“We have in essence become a business change agent in the city,” says Kaiser. “It used to be when I walked the halls, people slammed their doors. Now they knock on my door and say, ‘We need your help.’”
Carrots and Sticks
Last September, MTC Holdings hired Larry Grotte as its first CIO. The stevedoring company, based in Oakland, Calif., created the position because it needed someone to oversee the implementation of best practices and technologies to streamline terminal operations and increase revenue through productivity improvements at its seven operating companies. Currently, each of the operating companies that run terminals has its own processes for doing so. Grotte is charged with reconciling the operating companies’ disparate processes with standard technology. His top priority? Shepherding a pilot program of new processes and technologies for moving trucks in and out of MTC’s terminals at the port of Los Angeles and the port of Long Beach, Calif., the second busiest port in the United States. The new process will eventually roll out to other MTC terminals.
MTC competes in the stevedoring world on the basis of how efficiently it runs its terminals. The faster its operating companies can load and unload shipping containers and the faster they can get 18-wheelers in and out of their terminals, the more business they can do and the more money they can make from unloading cargo from ships and charging terminal entrance fees to truckers.
“If you have a terminal that’s X number of acres sitting on a piece of dirt in the Pacific Ocean, you can’t grow its acreage but you can grow its throughput: You can either stack containers higher or move them faster. We have to keep pushing more throughput at our terminals,” says Grotte.
At MTC’s Long Beach terminals, truck traffic was a nightmare. Terminal operators had no way to keep tabs on trucks inside their facility. There was no process for admitting trucks, which were all vying for entry during the peak daytime hours of 3 a.m. to 6 p.m., or for moving them around the terminal. This hampered productivity, created congestion and heightened security risks.
To improve operations at the two Long Beach terminals, Grotte developed a system that identifies trucks as soon as they enter the terminal’s gate and directs the drivers from point to point while they’re inside the terminal. Terminal operators now affix GPS devices to trucks as soon as they enter the facility. The GPS devices, each of which has a unique identifier, connect to the terminal operating system. Traffic controllers inside the terminal use the system to monitor congestion and to tell truckers where to go next. Truckers must also now schedule appointments to enter MTC’s Long Beach terminals during peak hours. Those appointments are tracked in a new system MTC developed called VoyagerTrack.
To further increase productivity and reduce congestion at the Long Beach port and on neighboring highways, MTC and an alliance of marine terminal operators in Southern California expanded their operations to 24 hours a day and created incentives to get truckers to enter their terminals at night. They offered reduced entrance fees for after-hours arrivals and charged trucking companies that continued to operate during normal business hours a “traffic mitigation fee” to offset the cost of operating during off-peak hours from 6 p.m. to 3 a.m. Off-peak appointments are scheduled in a new system called PierPass.
Knowing truckers earn their keep based on the number of containers they move, Grotte and the West Coast Marine Terminal Operators convinced the drivers that following the new procedures would increase their productivity and profitability. For example, if they made appointments to enter the terminal—day or night—they wouldn’t have to wait in line to get in. Thus, truckers could get in and out of terminals faster, giving them the opportunity to earn more revenue by transporting more cargo and making more trips.
“By moving their same fixed fleets faster, trucking companies improve their profitability and their return on assets,” says Grotte. And those truckers who switch to the night shift experience the added benefit of smoother traffic through the terminals. In this manner, Grotte got nearly 99 percent of the trucking community on board with VoyagerTrack at MTC’s Long Beach terminal. “These trucker communities and marine terminal communities know they need to constantly cannibalize their processes just to stay with the game,” says Grotte.
Since deploying those new processes and technologies, Grotte estimates that MTC has increased the productivity of its Long Beach terminals by 25 percent and reduced traffic congestion during the day by 30 percent. Grotte plans to roll out the new system to MTC terminals around the United States.
No Partners, No Process
Robert Salazar, the vice president of process management for financial services firm First Horizon National in Memphis, Tenn., oversees his company’s BPM initiatives. First Horizon has been doing BPM since July 2005. Salazar’s role is to define the direction of all the initiatives and serve as a liaison among all the parties engaged in them.
This makes him the go-to guy when a business manager realizes a process needs attention. In 2005, for example, the business wanted to improve its process for handling exceptions that come up during loan origination. Salazar got the process owner for exception handling (here, the executive VP of risk management) together with business analysts and with representatives from each functional group (loan processing, underwriting and IT) that plays a role in the process. The group defined and documented the scope of the process improvement project, the goals and the key capabilities to be delivered. The team analyzed existing processes, modeled new ways of handling exceptions and implemented new technology.
The goals were to be more responsive to end customers, to make decisions about exceptions more quickly, to reduce costs and to increase the accuracy of the loan origination process. The key capabilities were automating a manual workflow and providing visibility into the process as well as supplying mechanisms for tracking and escalating all related transactions. Although Salazar declined to share specific metrics, he said the cost of handling exceptions has decreased, while customer service has increased.
Salazar says IT hasn’t battled the business for control of BPM. Instead, IT views BPM as a way to work with the business to serve customers. “You can’t view BPM as a technology issue. It’s all about creating business value,” he says. Salazar adds that the key to making IT’s governance of BPM work is close-knit collaboration between the two parties. First Horizon achieved that through Salazar’s reporting relationship and through a homegrown methodology he uses for BPM.
Salazar reports directly to the CIO but maintains a dotted line to First Horizon’s executive VP of operations. That dotted line gives Salazar the ability to get process owners and line-of-business managers involved. His tight link to the IT department ensures that any automation effort is in sync with what line-of-business managers need to run their shops effectively and with the broader IT strategy.
First Horizon’s custom BPM methodology also secures the business-IT partnership by defining those who need to be involved in any process improvement initiative and their responsibilities. For example, the methodology spells out that a process improvement initiative must involve representatives from every functional group involved, and it must be led by a process owner. The process owner is responsible for ensuring that the project team stays on track, and for playing the role of tiebreaker when the team can’t achieve consensus.
The BPM implementation group developed the methodology with Fuego (acquired by BEA Systems). It is based on the principles of Agile software development, which emphasizes a close working relationship between business users and developers, frequent face-to-face conversations among stakeholders and regular work reviews, both of which keep all parties on the same page.
The close-knit collaboration between the business and IT resolves the control issues that dog many BPM initiatives. Since BPM is a service IT provides to the business and because Salazar reports in to the business through the executive VP of operations, line-of business managers and process owners feel comfortable approaching him for help with process improvement initiatives. And the BPM methodology he’s put in place gives the process owners the control they need over their processes. IT, meanwhile, is never left out of any planning.
“I know many companies that have successful, IT-driven BPM initiatives and that’s because their goal was always to serve the business and to collaborate with the business, not to define the latest, greatest, coolest technologies,” says Salazar.
Keys to Success
Just because it’s called business process management doesn’t mean IT has to take a backseat in these initiatives. As the city of Minneapolis, MTC Holdings and First Horizon National show, CIOs can successfully drive BPM if they encourage collaboration and understand the needs, concerns, pain points and existing processes of the business.
Looking to the future, Process Renewal Group’s Burlton says CIOs have to become more proactive in business process management. It’s in their best interest to do so because BPM is at the center of so much IT activity. Says Burlton, “Process is so important right now because it is the linchpin of all these other things we’ve talked about for years: ERP, CRM [and now SOA]. Process holds everything together.”
Senior Web Editor Meridith Levinson can be reached at firstname.lastname@example.org.