2.0 Segmenting Business Processes

A business strategy needs to be operationalized in order to use it to drive process design and implementation. (Some would call this creating a “Strategic Execution Plan”) This starts by deriving strategic value-drivers from the organization’s strategy. Value-drivers are simple statements that describe necessary achievements required to make the strategy happen. The degree of realization of a value-driven process design is measured through key performance indicators (KPIs). A business process assessment based on the impact of a business process on strategic value-drivers is the basis for the segmentation of processes into high impact and commodity processes (Franz, Kirchmer, 2012). This process assessment is the key tool to align business strategy with process design and implementation. It enables the desired value-driven approach and is a core part of a BPM-Discipline, where we focus on transferring strategy into execution.

Value Drivers

The value-drivers are derived from the business strategy of the organization using value-driver-tree models (value-driver trees). This is a way of transferring the strategic intent of an organization into operational, value-driven business targets. An excerpt of an example value-driver tree is shown in figure 2. The value-drivers can be further weighted, to focus the segmentation (and subsequent analysis) on the most important business objectives.

In practice a three-step approach to developing a value-driver tree has proven to be most successful as depicted in figure 2. The strategy describes the business priorities outlining the overall direction the company is taking. These priorities are decomposed into strategic objectives (the second column in figure 2), describing the key components of a business priority. Then one or several value-drivers (the final column) are identified for each objective, hence the operational achievements that make this objective happen.

 

Figure 2: Value-driver Tree (Excerpt)

Process Impact

The business processes of an organization are then evaluated based on their total assessed impact on the specific value-drivers. The result gives two segments of business processes: high impact and commodity processes. “High impact” processes are the ones that are key to make the business strategy of the organization happen: the “competitive” processes and “supporting core” processes. They are the most important link of business strategy to execution. This approach is visualized in figure 3 (with the high impact processes shown in red).

 

Figure 3: High Impact and Commodity Processes

The value-drivers can be weighted according to their importance. Minor changes and adjustments in strategy can then be reflected through adjustments of the weights. Changing, removing or adding value-drivers accommodates larger strategy changes. This update of value-drivers and their weights enables an agile adjustment of process-priorities to respond to revised strategies, reflecting the ever-changing business environment.

Impact Assessment

For each process it is necessary to assess if it has no (0), low (1), medium (2) or high (3) impact on each of the value-drivers. Then the overall impact is calculated in a process assessment matrix by multiplying impact with the weight of the appropriate value-driver and calculating the total of all impacts of a process. An example of a process impact assessment (PIA) is shown in figure 4.

Figure 4: Process Impact Assessment (Excerpt)

The high impact processes have then to be evaluated based on general industry practices, e.g. through benchmarks or purely qualitative evaluations. In that way you identify the high impact “high opportunity” business processes. These are the processes where improvements have the biggest value potential since the process has a high impact on the strategy but it currently performs only in or even under the industry average.

Practice experience, with different companies, has shown that the processes should be analyzed on a level of detail so that 150-200 process definitions describe the entire organization. This is often referred to as “level 3” (L3). This level is detailed enough to obtain differentiated results but high level enough to avoid excessive work efforts and getting “lost in the weeds”. Using the results of the process impact assessment the 20% of the processes that are classified as high impact can be identified. The others are considered the commodity processes.

In practice there is often a “grey” area of processes that could be in either group. Hence there may be slightly more or less than 20% of the processes in the high impact segment. This issue has to be resolved, on a case-by-case basis, reflecting the specific situation of an organization, its business strategy and the overall business environment it works in. The absolute level is not important, as the level of improvement is, based on experience, normally driven by the level of process expertise available and the appetite it has for investment.

 

 

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