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Improving Business Process Management (BPM) has become a top priority for companies in 2006 and 2007. A recent survey of more than 1,400 CIOs revealed that the top business priority identified by their company was business process improvement. Of course, there are many options for improving business processes - ranging from complete process re-engineering to adopting new process management methodologies, like Lean Six Sigma, or adding new capabilities to existing systems. At Lombardi, we believe that an investment in BPM software, coupled with new approaches to project implementation, is the best investment companies can make in delivering sustainable business process improvement.
This paper is intended for groups who want to make the business case for investing in BPM to drive process improvement. It provides an overview of the areas of benefit that companies can expect from BPM as well as concrete examples of value. It also compares the use of BPM to alternative approaches for driving process improvement. Finally, this paper provides a basic introduction to the costs associated with a BPM initiative.
The Strategic Value of BPM
Better processes produce lower costs, higher revenues, motivated employees, and happier customers. The most dramatic examples of economic value driven by process improvement come from the companies that have led the adoption of the Six Sigma (and Lean Six Sigma) methodology - most notably General Electric (GE). Mikel Harry, one of the founders of the Six Sigma methodology, has documented the economic impact of focusing on process improvement. Using the base measure of his methodology - Sigma, Dr. Harry provides a tangible example of how companies like GE have benefited from a commitment to process improvement:
With just a one-sigma shift, companies will experience a 20 percent margin improvement, a 12 to 18 percent increase in capacity, a 12 percent reduction in the number of employees, as well as a 10 to 30 percent capital reduction.
When you consider that GE achieved multiple Sigma shifts on their core markets, it is clear why they have become a top competitor in any market they compete. Their costs are lower and their quality is better.
Of course, GE also made Business Process Management a core part of their corporate culture - from the CEO down. Most groups making the case for BPM cannot assume such commitment - at least not to begin with. Not a problem. Even a basic investment in a BPM suite (BPMS) can yield significant returns. Without any process redesign, Connecticut-based research firm Gartner indicates that companies can still expect to receive significant operational improvements for any given process. Gartner claims that by simply "making the current-state handoffs, timing and responsibilities explicit, productivity improvements of more than 12 percent are normally realized." For many processes that is just the start of the efficiency gains. Later in this paper, we will compare a BPMS investment to other alternatives for driving process improvement. However, we can already see that even a basic BPMS investment can drive significant value. In fact, the typical BPMS projects are driving more value - a lot more. In another report, Gartner indicates that 78% of projects see an internal rate of return (IRR) of greater than 15%3. The same report indicates that these projects were deployed quickly (67% in less than six months, 50% in less than four months). So companies are realizing significant value with rapid returns by driving process improvement with BPM.
A Benefits Case Study: Logistics
The concept of continuous improvement is at the heart of the BPM value proposition. In fact, the ability to continuously improve processes and gain incremental ROI on a consistent basis is what sets a BPMS apart from other means of driving process improvement. So, when making the case for BPM, it is critical to consider not only the first iterations of processes and what value they might bring - it is essential to consider the incremental value that will be added over time.
A large computer manufacturer identified a process improvement opportunity in their logistics operations. Products that could not be delivered (referred to as "distressed shipments") were costing the organization millions of dollars per quarter in lost revenue.
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