In-Depth

Enterprise Surprises: Where To Find Those Elusive Profits

The secret: an integrated business design

• By Steven E. Arbogast
• 09/16/2003

Any business manager or owner would obviously love to find a pile of cash stashed away in some overlooked account or hidden corner of their business. The good news is that it’s not only possible but likely to find such pleasant surprises right under your nose.

Some will tell you that the key to these secreted treasure chests can only be found with new software, more technology training, or by spending money on the newest IT gadget. Those solutions can certainly provide value in the proper context. However, my experience tells me that all of those options will be hindered unless one crucial element is in place, a foundation upon which all such solutions should be built.

More and more, business managers are embracing the importance of information: gathering it, analyzing it, and ultimately acting on it. Gartner estimated that the Business Intelligence (BI) market in 2001 grew to approximately $1.7 billion, not including sales of database management systems. That’s a lot of money. It’s clear that businesses everywhere continue to realize and appreciate the importance of gathering, maintaining, and utilizing a solid base of information for decision-making. This information can range in form from traditional printed reports to interactive portals or intranets, all the way up to the most sophisticated systems such as executive dashboards.

I like to think about this base of information that businesses need as their “business design.” That term can be confusing because it’s used in many contexts: Business Process Management (BPM), Business Process Improvement (BPI), Quality Management Systems (QMS) including ISO-certified systems, and/or Enterprise Architectures (EA). Business design is also sometimes a synonym for business model.

Regardless of the context, a business design invariably minimally includes a set of business processes. In terms of BPM and BPI, business design usually consists of process maps, which comprise a subset of the processes that run a business. In the QMS context, business design typically refers to the procedures that govern activities on and near the manufacturing floor, or involved in delivering high quality products and services. The broadest context would be that of an Enterprise Architecture, though some executives view EA as simply the collection of software and hardware systems used throughout the organization. I want you to start thinking of EA in the context of your overall business model/design.

I prefer to use the broadest EA context, which encompasses all the significant processes that constitute an organization. While a business design can be comprised of nothing more than the business processes themselves, a more useful design includes references or links to other information. For instance, businesses often describe some of their processes in the context of the Order-to-Cash cycle. Such a business cycle can include CRM (Customer Relationship Management), Order Fulfillment, Manufacturing, Distribution, and Finance-related business processes. Each process will have an independent design, but for optimal performance these process maps (designs) should be linked so that the process interactions are clearly articulated and easily visualized.

Now, factor in a desire to understand what organizational units or people are engaged in executing each process. Such an integrated business design would permit a company to quickly assess the impact of an organizational change on its superset of business processes. A business design can also include detail about the data or information that is critical to effective process execution, which applications (information systems) automate the business processes, and which business rules, policies, or regulations drive specific behaviors across the business.

When people talk about process improvement, they often think only about taking wasted work out of a particular process, not about the implications across other areas of the business, such as the overall organization, impact to customers, or applications. To effectively and continually improve the operations of a business, all areas of the business [design] must be considered, otherwise the business simply ends up with another problem. Think of the Gopher game at a carnival: you hit a gopher on the head to get that problem out of your way, but another gopher inevitably pops up somewhere else.

An effective business design provides the framework necessary for informed decision-making and efficient change-management. Ideally, the design serves as a roadmap or blueprint for how top management envisions the future accomplishments of the business.

The business design must therefore be integrated (or linked) in order to optimize value and thus profitability. This integration permits top management to institutionalize disciplined analysis and decision-making across the enterprise. Author H. James Harrington uses IBM as an example of how to integrate, improve, and bring business processes together so that they make the organization run more like a well-oiled machine. Think about how IBM operated years ago: it was organized as a set of autonomous business units all vying for a sale to a customer. Customers interacted with a variety of different sales teams when all they really wanted was one total solution. Thus, customers often wound up defining solutions themselves, then ordering the pieces and parts of the solution in a piecemeal fashion.

When executives at IBM initiated the “One IBM,” customer-focused program, they started thinking about the total solution the customer wanted, and consequently began selling integrated solutions. To accomplish this, major process engineering and internal cultural change was required. No longer was there a set of unrelated product orders flowing through multiple fulfillment centers. All of these orders were linked such that single-order status for the solution could be provided to the customer. A single invoice could be delivered to the customer. This was a major business transformation. Think about the required process change, application change, new data requirements, organizational change, cultural shifts, and influence these have had on customer interaction and relationships. Think about how strong IBM remains to this day.

Simply put, a well defined, implemented and utilized business design bridges the gap between strategy and implementation. “One IBM” is not just a strategy; it’s a comprehensive business model (design) that delivers the desired customer experience: one complete solution instead of piecemeal products.

When to Invest

A company should seriously consider a business design investment when:

• customer satisfaction is mediocre (or worse)

• requirements are not being met

• critical processes take too much time to execute

• operational errors cause significant customer, financial challenges

• shareholder value continues to decline

• IT costs exceed budgets

• market share dwindles

• cost of operations increases

Many people view business design and IT initiatives as one and the same, but the growing trend today is to drive business definition and management – as well as IT initiatives – with a well maintained, broadly used business design. Without that design firmly in place, IT initiatives can quickly get off track, resulting in SILOs (single-location systems that are difficult to integrate), or worse: initiatives that are stalled or even cancelled outright.

A successful business design, by contrast, offers the best kind of value a company can achieve: lasting value. The benefits are numerous, but all boil down to competitive advantage:

• ability to respond quickly to change

• visibility into operational efficiency

• stability in the event of exiting employees

• clarity among all employees of company mission

One of the most common pitfalls in trying to implement such a comprehensive design is the desire to build Rome in a day. Many consultants and software salespeople will try to sell business-design products and services with a focus on modeling and building each and every dimension of such a design in one fell swoop. This comprehensive path can prove to be an overwhelmingly long and arduous process, and one that is often viewed as unaffordable or simply unattainable.

The business framework must therefore be flexible enough to let managers define one or a few dimensions at a time, versus setting off on a course to build each and every dimension concurrently, all with explicit layers of definition. The framework of a business design must allow for the definition of dimensions incrementally, as a business grows and market conditions change.

Where are those stashes of cash? Without a business design that delivers critical direction and permits you to redesign, discover, and rediscover time and time again, those stashes will stay hidden. Once your design is up and running, the hidden stashes of cash will surface in the form of cost and expense savings associated with making your business processes and operations more efficient.

You’ll also see cycle-time improvements. In "Business Process Improvement", author James Harrington observes:

One common error is to focus on reducing processing time and ignore cycle time. To meet our needs, we work on reducing processing time. To have happy customers, we must reduce cycle time. There is no doubt that there is a direct correlation between cycle time, customer satisfaction, and increased profits.

What’s more, you’ll find new value just by knowing each and every direct or indirect interaction your business has with its customers and suppliers. You’ll realize how you can optimize those interactions, thereby building and maintaining strong relationships. Those relationships mean new and more business, i.e., more revenue.

In his book "The Fifth Discipline," Peter Senge notes, “Structures of which we are unaware hold us prisoner. Once we can see them and name them, they no longer have the same hold on us.” If you do not have a clearly articulated business design, then you have “structures” of which you are unaware. These structures manifest themselves in your business as inefficient business processes, poorly performing organizations, outdated and/or expensive IT systems. Such structures represent the hidden opportunity in your business, the hidden stashes of cash. Find them, see them, name them, and change or remove them so you can uncover that cash and put it to work for you.