2.0 What has Innovation to do with Business Processes?

According to Wikipedia [20] wide definitions of innovation include the following:

  • The introduction of something new (Merriam-Webster Online)
  • A new idea, method or device (Merriam-Webster Online)
  • The successful exploitation of new ideas (Department of Trade and Industry, UK)
  • Change that creates a new dimension of performance (Peter Drucker, Hesselbein, 2002)

So, what has innovation to do with business process? In the last ten years more and more companies have been built on the principles of business process innovation, the invention and successful application of new processes. When Dell was founded, for example, the enterprise did not invent the PC. But it did invent new business processes to bring PCs to market, eliminating unnecessary steps in the supply chain, while offering more flexibility and control to the customer. These processes had become Dell’s main differentiator in the competitive marketplace. Process innovation was the basis for starting and growing this company. Amazon.com did not invent the book, but it introduced a now-popular process of buying books online from the comfort of your living room. This is a process innovation based on digitalization using the Internet with its new capabilities. In a further innovation step, they became a broader online retailer. And now they offer their retail platform to other companies so they can sell new products online. eBay did not invent the auction, but its online, easy-to-use processes increased the popularity of the auction and the opportunity to make money with it. This is again a process innovation as the basis for a new business. LinkedIn and Facebook invented new processes to manage relationships and personal networks.

Traditional companies are also focusing on process innovation. For example, enterprises in the machinery industries offer more convenient and reliable service processes based on Internet connections to their clients or directly to the delivered equipment. Airlines have simplified the ticketing process to reduce cost and increase, or at least stabilise, service levels through online ticketing. This is a process innovation that eventually became the standard, hence an industry best practice. Banks reduce cost and improve their service levels through online banking. An electronic company like Apple increasingly becomes more of a content provider, re-selling music and a wide range of digital content. Think of all the online travel tools to book hotels, flights, or cars. I am sure you can find many more examples of the power of process innovation.

Examples of the significant impact of business process innovation are shown in Fig. 1.

Figure 1: Examples of business process innovation in different organizations and industries

Business process innovation is clearly of highest importance for every company. But what is the bigger more general picture? What is the relationship between “innovation” and “business processes”? Let’s discuss this to learn how BPM can create and improve innovation. A useful structure to understand innovation is proposed by Davila et al. [3]. According to them, innovation has two major forms:

  • Business model innovation
  • Technology innovation

Business model innovation includes a new or modified value proposition, new business processes (especially in the supply chain), or new target customers and markets. Let us look at a few examples. Levis Strauss & Co. introduced denim jeans. Because of the company’s new process of putting rivets in pants for strength, jeans were introduced as working clothes for farmers and factory workers. Since the first introduction of the denim jeans, the company’s value proposition has changed and evolved. Denim jeans have become an expensive fashion product requiring a new business model. In its PC offerings, Dell’s value proposition was the convenient custom configuration and ordering of products – the supply chain processes eliminated dealer networks and enabled individual configuration by the client, while the target customers remained, more or less, the same as those of competitors. The opening of new markets for existing offerings is another kind of business model innovation. If a company has always sold to the US market, but now decides to also deliver products to Europe, this is a form of business model innovation, the integration of a new market. Sometimes the pricing approach is considered to be an additional component of the business model; however, it can also be seen as part of the general value proposition.

Business model innovation, with new processes at its core, plays an increasingly important role – especially if you look at digitalization as a major enabler. Many of the previously mentioned examples of the business impact of innovation and the role of processes are mainly business model innovations. BPM is the management discipline used to realise this form of innovation.

The second form of innovation, technology innovation, has different levers: offerings, including products and services; process technologies; and enabling technologies. New product technologies, e.g., the introduction of digital cameras, are some of the most obvious forms of innovation. Process technologies support efficient and effective business processes. Enterprise Resource Planning (ERP) systems, for example, were able to make many processes more efficient and effective. Supporting technologies improve either product or process technologies. A good example is the development of efficient relational databases supported the development of integrated application software, such as the aforementioned ERP systems. Technology innovation is what most people still think first about when they hear the term innovation.

A technology innovation can also enable a business model innovation: the digitization of music in the form of MP3 files and the development of MP3 players opened the way for Apple’s development of a new business model for selling music through the internet [22]. Digital cameras and their digital photos enable new business models focused on the use of “photo data” such as Shutterfly or Snapfish.

Business model and technology innovations in the areas of “processes” and “process technologies” show the direct link between “process” and “innovation” and with that the importance of process management for innovation. But the other levers of innovation also lead to new processes. New value propositions and expansion into new markets require appropriate business processes. A product innovation generally leads to new production or distribution processes. The result is an indirect link between “business processes” and “innovation.” Basically, any form of innovation requires new or modified business processes and often business process innovation: processes with new structures, more accurate, granular or timely data, new organizational responsibilities, new functions or superior process deliverables. The levers of innovation and their relation to “business process” are shown in Fig. 2.

The close relationship between innovation and business processes is reflected in various innovation theories that are applied in practice, such as Christensen’s “Value Chain Evolution” (VCE) theory and his “Resources, Processes, Values” (RPV) theory [4, 5]. These are excellent readings to get more information about the topic.

Figure 2: Levers of innovation and the relation to processes

“Collaboration innovation” is an extension of business process innovation. In this case, inter-enterprise processes are implemented to support innovative forms of collaboration between organizations [6]. For example, ING is a bank that works together with coffee shops. When customers visit an ING location, they feel like they are in a coffeehouse – with some terminals in the back for banking transactions. Therefore, the BPM infrastructure has to support this collaboration between organizations. Processes of different organizations must be integrated to deliver value to the final client. Thus, process innovation is again the underlying principle of that new form of collaboration.

An important and very specific form of process innovation is the innovation of service processes. A service as rendered by a consulting company, financial services company, etc., is also a business process. That means the “product” they deliver to the market is a “business process.” Therefore, the innovation of the offering, the service, is by definition a process innovation – which is consumed directly by the customer. Product innovation in a service company is always process innovation. Therefore, process innovation in such enterprises is even more of a core focus of their activities. BPM enables this innovation.

It is now clear that innovation is tightly linked to business processes. Value-driven BPM provides the management discipline to deal with those processes. But this discipline is also important to organise innovation in general and make it part of the daily business of a company. BPM also enables the “innovation process” of an organization. Let’s discuss this topic further.

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