Kai Laamanen Markku Tinnilä TERMS AND CONCEPTS IN BUSINESS PROCESS MANAGEMENT

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1 Kai Laamanen Markku Tinnilä TERMS AND CONCEPTS IN BUSINESS PROCESS MANAGEMENT

2 Content To the Reader...3 Introduction...4 Management concepts...7 Process... 8 Leadership and the creation of strategies Creation of shareholder value and corporate acquisitions Customer relations, marketing and sales Product and service development, production, delivery and logistics Project Quality and risk Business intgelligence, knowledge Human resources and competence Networking Social responsibility and sustainable development Understanding an organisation as a system Renewal and making change happen How to use the glossary...40 Glossary...43 Index

3 To the Reader Improving processes is a key means of developing business and enhancing performance. Several models, such as Quality Management, Six Sigma, Activity Based Management, Business Process Management and Lean Management are based on the analysis of processes and their improvement. People in an organisation understand one another through language. The use of casespecific and often slightly ambiguous concepts is perhaps not a major obstacle to face in every day life. However, when we develop organisational activity and, this can change. It is important to be more specific when dealing with these concepts, in order to avoid abstract conflicting arguments and misunderstandings as well as to achieve the desired results. The purpose of this book is to assist in defining the terms and concepts used in the development of processes within the organisation. Another objective is to compile and develop Finnish process terminology, in order to facilitate the exchange of information between organisations. The concepts are presented in both English and Finnish, which also allows for their adaptation in international organisations. This book is intended for anyone interested in process, process owners and especially those responsible for the development of organisational operating systems and business. The first edition of this book was published in 1996, followed by the second edition a couple years after that. Because the book had demonstrated its necessity based on the feedback received and demand, the decision was made to publish a third revision in A comprehensive re-evaluation of the concepts was made for the third edition. The beginning of the book, which examines the doctrines of, has been re-written for this edition. The objective is to distinguish between the rapidly changing fads of and its relatively constant challenges. Based on this examination, an effort will be made to include terms and concepts, which integrate process thinking with other concepts, such as strategic thinking and competence. The goal is to promote a dialogue between experts in different fields of development. Despite this expanded perspective, we wanted to preserve the basic nature of the book by focusing on process thinking and retaining its purpose as a dictionary. We are sincerely grateful for all the feedback we have received. It is our hope that the book will continue to serve the needs of Finnish organisations. We also hope that you will continue to submit your invaluable feedback. Helsinki, December 2008 Kai Laamanen Licentiate of Technology Innotiimi Oy Markku Tinnilä, Doctor of Science (Economics and Business Administration), Professor Helsinki School of Economics, HMV Service Economy Oy 3

4 Introduction 4 In many organisations people are managed with concepts developed at the beginning of the 20th century in the spirit of Taylorism. This approach is characterised by strict definitions of tasks and organizing people into hierarchical departments. In the 1950s this was augmented with goal- and results-oriented models, by setting departmental and personal targets, drafting annual budgets and creating longer term strategies. The underlying idea of these doctrines was that future development could be forecasted with reasonable accuracy, and that these forecasts could be used to plan a course of action and favourable decisions could be made concerning the effective utilisation of resources. The operating environment of organisations and challenges to their ability to function effectively are undergoing fundamental change. This is influenced by such factors as: global competition; the evolution of information networks and digitalisation of information; improvements in transport systems; increased mobility; changes in the environment (e.g. climate warming, pollution and the compromised availability of raw materials); new types of e-business models; mobility of capital with a rapid return on investment; evertightening productivity requirements; new patterns in customer purchasing behaviour; and changes in the age structure. On the other hand, success is becoming increasingly less dependent on production capacity, organisational scale or available financial resources. Even though each of these factors does play a role in business, an organisation s capabilities, such as competence, speed, flexibility and innovativeness, are becoming more and more important. This can be referred to as an increase in complexity. People and organisations respond to increased complexity by specialising. Co-operation among specialised experts becomes a crucial factor in achieving success. A functional organisation might prevent the sort of co-operation that generates value. Problems in co-operation primarily occur as breakdowns in the information flow or blocks in the knowledge transfer. Many supervisors and managers spend a great deal of time identifying and solving these problems. The customer grows impatient with the organisation s sluggishness, errors and bad service. In the end the organisation complains about how tough the competition is and begins to lose its vitality. But, as Deming said: survival isn t mandatory. Constantly increasing competition cannot be managed by constantly reorganising the organisation or drafting plan after plan, each one more elaborate than the last. What is needed is a new type of approach to. The question is how an organisation can harness each and every person s creative potential to create new and improved products and services and make operations more efficient. One approach to face this challenge is to see organisational activity as a network of value-creating processes. This particular approach is characterised, for example, by the identification of key organisation processes, their description and continuous, intensive improvement to generate greater value for the customer this is called process.

5 The goals of process do not differ essentially from the general goals of, such as: good financial result customer satisfaction high productivity the active input, good motivation and discipline of personnel. However, the means by which process achieves these goals differ significantly from those used previously. Whereas the focus was formerly cost-effectiveness, speed and flexibility are now also considered crucial. Whereas things were done in the name of hard personal goals, organisation-wide co-operation and the development of methods and teams are now emphasised. Whereas suppliers had to compete for bids and customers were thought of as a necessary sales target, suppliers and customers are now partners in a value-creating network. Perhaps the most significant change has occurred in thinking. Whereas the division of labour and development were formerly based on organisational units and their well designated tasks, chains of activities (i.e. processes) that flow through organisational boundaries now serve as the template. The goal is to model the business logic of the organisation for processes and develop them. This development results in better service for the customer, work that does not generate added value is eliminated from the activity chain, and the organisation s own personnel has a better understanding and of the business entity. Many organisations have initiated development programmes for the development of philosophies and systems. However, the results of development efforts have often been less than encouraging. There are surely numerous reasons for this poor performance. One possible reason is the ambiguity of concepts used in development. Development work is launched on a wave of great inspiration, but a year later it is evident that a large part of the organisation does not understand the nature of the change. We have been talking about the forest and the trees. The purpose of this book is to help people working on developing an organisation s activities to understand and define the concepts used in development. The goal is to have the developer use this book to tell others what the various terms in a given organisation mean. The spectrum of -related terms is extraordinarily broad and the field is constantly evolving. In this presentation every effort was made to select concepts specifically related to process. Concepts related to such areas as general, strategic and human resource were excluded, unless they were deemed to play a special role in process. In addition to this, an effort was made to draw distinctions between various models (e.g. Business Process Re-engineering or Total Quality Management) and concepts (e.g. customer, product, process). 5

6 Because most development concepts are based on literature written in English, English terms and their content will be familiar to the reader. However, many of the concepts have an equivalent translation in Finnish. Every effort was made to choose the most commonly used equivalent for this book. Use of the concept and its meaning are briefly described. The goal was not to make a text-book, but rather that the reader would be encouraged to refer to the appropriate literature and use the Internet as a source of information. In order to succeed an organisation needs the goal, and common will to make it happen. However, the fact that people know what the goals are and do their best to realise them is not enough. An operating system and tools that help and support people in their daily work to achieve success are also necessary. The formula for success cannot be copied each organisation has to find its own way. Process in its various forms provides a model of thinking, whose key concepts are described in this book and which all organisations can utilise to achieve their goals. 6

7 Management concepts In there are some basic concepts and approaches, which are used to improve activities and processes as well as to achieve good results. Figure 1 shows the key approaches, which are briefly addressed in this chapter. Basic terms and concepts are listed for each approach. These concepts are specified and described in greater detail in the glossary. Project Business intelligence and knowledge Leadership and creation of strategies Creation of shareholder value and acquisitions Networking Customer relations,, marketing and sales Quality and risk Process Management Product and service development, production, delivery and logistics Human resources and competence Social responsibility and sustainable development Renewal and making change happen Understanding organisation as a system Figure 1. Management approaches 7

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