I wrote in an earlier blog about an organization being a network of various processes which collectively achieve the operational, support and management goals of the organization. From a project management perspective, organizations can be 1) projectised or 2) functional or 3) hybrid (a mix of 1 and 2). I believe that under business process management one can categorize businesses also as process-centric, functional or mix of both. And key to being process-centric is establishing an owner for all end-to-end processes.
There are many advantages of having a process-centric approach towards managing business over functional approach.
Take the example of a retail (product) sale on an e-commerce portal. If the business is driven functionally, the ownership will typically be split by departments. Each of the departments have their own metrics and targets. The marketing department will focus on ways to attracting as many customers to its portal, the sales department will have number targets for every product sold, procurement department will try and minimize assets, materials team will look to optimize inventory levels and transport costs, cash department on funds replenishment or bank deposits, etc. Each department will concentrate on how their department can be most profitable or efficient irrespective of the impact on all upstream or downstream departments.
If such an organization is tasked with reducing cost per customer transaction by say 10%, it would probably end up identifying the top 10 (or 20) cost items on its expenditure side and target 10% cost reduction for each item by making the relevant function heads responsible. Each function will have its own P&L account, and the function head will probably allocate pro-rated targets to all his / her team members. Cost reduction becomes their only goal. One can imagine the effect each such reduction would have on other functions that depend on these expenditure items – especially if they themselves do not have a reduction target.
Now let us see how a process-centric company will handle the same scenario. In such an organization, the business results are consciously obtained through processes and all their associated elements. The key parts of the organization are structured as end-to-end processes from a customer perspective. And each end-to-end process will have a designated Process Owner (PO). The PO, unlike a function head, will own not only all the processes under that end-to-end but all the relevant parts of the functions involved in performing the process.
This end-to-end concept is very context-specific, but in general a process can be said to be end-to-end when it considers all the works required to achieve its primary goal. The example case for reducing cost per transaction has one main end-to-end process (Customer Order to Cash) and a number of inter-related end-to-end processes (such as Materials Procurement to Payment, Assets Acquisition to Retirement, Inventory Creation to Disposal, Service Requisition to Resolution, People Hiring to Retirement, etc.). As the primary goal is to reduce cost per customer transaction, the owner of the Customer Order to Cash process takes the ownership of the overall target. Having visibility of the entire end-to-end of the customer purchase lifecycle, the PO will have the advantage to look at multiple ways to achieve the target. The cost per transaction could be reduced by either by bringing down various costs across the lifecycle or by increasing the volume of transactions keeping the costs constant (or marginal increase). There could be opportunities for negotiating rates with suppliers and vendors for larger volumes. There could be cost increases in some departments but those that will significantly lower the net costs across the process – for example, investment in automation opportunities. The upstream or downstream impact of change in any cost parameter can be visualized using simulation scenarios. In other words, all the relevant functions involved in the end-to-end process will collectively and collaboratively act to achieve the target.
There are many other examples and scenarios across industries and business-types that reflect the advantages of process-centric approach over functional. There are also many drivers and enablers for moving from a functional structure to a process-centric structure. I will write about these in another blog. But the key to such a change is openness to process concepts, tools and methodologies – a shift from ‘it’s always been this way’ mindset to a ‘we can do it another way’ one.
“Organizations stuck with the functional view of business puts walls between departments and makes it difficult for anyone to recognize or comprehend the value-creating end-to-end business processes running across these functions. Only when departments jointly analyze, optimize and support their end-to-end processes can a transition to process-centric behavior begin. This may be a challenging task, but it will definitely unlock the greatest value for any organization in the long run.”