Standardization or Harmonization? You need Both

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1 Standardizatin r? Yu need Bth Albrecht Richen and Ansgar Steinhrst Recently the CFO f a majr cnsumer electrnics cmpany stated, We dn t need standardizatin f ur wrldwide prcesses, we need harmnizatin. Is he right? What is the difference, anyway? Standardizatin Standardizatin means creating unifrm business prcesses acrss varius divisins r lcatins. The expected results are prcesses that cnsistently meet their cst and perfrmance bjectives using a well-defined practice. Standardizatin, thus, reduces the risk f failure. Thrugh standardizatin, individual business units can share expenses, and will benefit frm a cmpany-wide business prcess management (BPM). Crprate-wide develpment f business prcesses lwers the ttal expenses, using ecnmics f scale. Lking fr the preventin r eliminatin f differences in the technical cntent f standards having the same scpe 1 is ne example f defining harmnizatin. lks at differences between prcess standard, and sets bunds t the degree f their variatin. Here is an analgy, abut ffice paper: There are varius standards fr paper, such as letter, legal, A4, r A5. These standards define the paper size, but nne f them standardizes paperweight r thickness. If th A4 standard included a standard fr paperweight, as well as paper size, while the letter standard did nt, then the management f these standards wuld be mre difficult. The degree f variatin in this paper standard is bund t size, nt t thickness r weight. In the cntext f Business Prcess Management, harmnizatin defines the extent f standards and hw they fit tgether, but it des nt attempt t make different standards unifrm. Applicatin f Standardizatin and A cmpany can establish standards acrss varius divisins and gegraphies. The three levels f the Enterprise Service Architecture are subject t standardizatin and harmnizatin: Strategic psitining, and Strategy Business prcesses Infrmatin technlgy: Cnfiguratin f ERP systems, etc. Standardizing Business Prcesses fr Prfitability Standardizatin f Business Prcesses intends t imprve perfrmance and t give management mre cntrl ver peratinal perfrmance. (The mst ppular measure fr perfrmance is the cst f executing the prcess. Althugh it is n less imprtant, the quality f the results is less ften cnsidered.) Finally, the impact n ther business prcesses needs t be cnsidered, such as the ability t apply the standard perfrmance measures and, thus, cmpare a unit s perfrmance with thers. Advantages frm standardizatin, beynd direct cst and quality imprvements, include The prcess becmes mre reliable; variatins in quality shrink. Less expenses in develpment f innvative new practices, and less expenses in the administratin f prcesses Cmparing the perfrmance between different units f an rganizatin becmes easier. Prcess standardizatin is an imprtant prerequisite fr the standardizatin f IT systems 1 Eurpean Health infrmatics at Cpyright 2005 Albrecht Ricken, Ansgar Steinhrst 1

2 Standardizatin and in a Practice Example Our example, the cnsumer electrnics cmpany mentined abve, runs peratins in mre than 40 cuntries, selling gds thrugh large retailers. In advanced cuntries, such as Canada, large retailers request buying ver the internet thrugh B2B. On the ther end is Blivia, where cash-sales are cmmn and where the custmers walk in t buy and pick up their merchandise. In cntrast, ther parts f the lcal peratins, such as direct prcurement, are basically the same everywhere. Fr this cmpany, there have been 40 different sales prcesses in the 40 different cuntries with significant differences in perfrmance. Strict standardizatin attempts t make the sales prcess in all cuntries the same. Such a ne-sizefits-all apprach culd never serve bth Canada and Blivia. One f the tw cuntries will lse as the standard becmes a perfectly suitable apprach fr the ther cuntry: If Canada s B2B apprach is selected as standard, Blivia cannt serve its cash-sales custmers. The harmnizatin apprach analyzes requirements frm all cuntries and creates 3 standard sales prcesses: B2B Order taking thrugh fax, letter, r via telephne Cash sales With the harmnizatin apprach, there are nly three (rather than frty) standards fr the sales prcess. In cntrast t a single, strict standardizatin, every cuntry sees its requirements attended thrugh a standard specific t their needs. It is als pssible that sme cuntries might implement tw r even all three sales rder prcesses in parallel t attend t different grups f custmers. Direct prcurement is the same prcess everywhere (see abve). Our sample cmpany did nt need t maintain mre than ne standard prcess acrss all 40 cuntries. Criteria fr Standardizatin The example f the cnsumer electrnics cmpany illustrates tw rules: Decisins abut standardizatin are prcess-specific. In the example abve, the cmpany needed just ne standard fr the prcurement prcess, but three standards fr the sales rder prcess. A precnditin fr any prcess standardizatin is that the requirements fr prcesses are sufficiently similar. Hw d yu find ut whether the prcess requirements are sufficiently similar? At Navedn, we develped a list f qualitative criteria and a frmula calculating the quantitative impact. Qualitative Criteria fr Standardizatin It is ften the business envirnment the way the cmpany des business with gvernment bdies, custmers, vendrs, etc. that impses variatins in requirements. A typical vilatin f requirements ccurs when a cmpany attempts t squeeze a Make-t-Order peratin and a Make-t-Stck peratin int ne single standard. Make-t-Order and Make-t-Stck are different ways f ding business, and the business prcesses need t be different. Here is a checklist t detect cnditins when business prcesses shuld nt be standardized withut carefully lking int the details: Strategy cnsideratins: Different strategic psitinings make it difficult t standardize the supprting business prcesses. Example: One cmpany has a lw cst prduct line and anther ne targeting the high end. This impacts many business prcesses in the value chain, and standardizatin may nt be beneficial. Cpyright 2005 Albrecht Ricken, Ansgar Steinhrst 2

3 Business prcesses: Cnsider all prcesses f the extended value chain. Prcesses that belng t different types f lgistics, sales channels, r prduct develpment are hard t standardize: Type f lgistics: Make-t-Order, Make-t-Stck, r Engineer-t-Order Type f sales channels: Sales thrugh retailers r ther intermediaries, direct sales t named accunts, direct sales t custmer grups Type f prduct research and design: Develpment prcess fr a new versin f a prduct, develpment prcess fr a new prduct, develpment prcess fr a new technlgy Technlgical readiness f the relevant parties in the extended value chain. In the example abve, Blivian custmers were nt yet ready fr the B2B exchange. Gegraphy and cmpliance: Cuntry-specific requirements in financial reprting, HR, custms, imprt/exprt restrictins, dangerus gds handling, data archiving, warranties, etc. Infrmatin technlgy: Business prcess design has a majr impact n the cnfiguratin f IT. Additinal criteria, beynd thse fr business prcesses, invlve different requirements fr hardware, perating systems r databases, and incmpatible interfaces. We believe that with the advent f service-riented architectures (SOA) these criteria will becme less imprtant. This list is fr alerts nly. Even thugh Maket-Order lgistics are different frm Make-t- Stck lgistics, their respective warehuse peratins ften can be put int the same standard. Quantitative Criteria fr Standardizatin The csts and benefits f prcess standardizatin can be quantified, prvided perfrmance metrics are in place. Assume that fr a given prcess there are a number f existing variants. Shuld a new prcess variant the standard substitute fr the existing nes? The cst and benefit cmpnents fr standardizatin are Success Factrs fr Standardizatin and 1. Senir Management Buy-in and Gvernance. Prcess standardizatin and are explicitly stated as bjectives. 2. Clear decisin rules fr standardizatin and harmnizatin: a. Criteria when prcess variants shuld nt be standardized b. Criteria fr selecting the best standard. These shuld be based n prcess perfrmance and prcess cst. 3. Standardizatin and effrts need t be rganized. 1. The perfrmance difference between the existing prcess variants and the new standard prcess variant: Prcess perfrmance is quantified in terms f reaching prcess bjectives. Prcess bjectives are derived frm the bjectives f the respective prcess chain. In sme cases the individual prcess imprves, while ther prcesses in the same value chain suffer. Therefre, the perfrmance difference needs t be measured n the level f the end-tend prcess. 2. Expenses fr develping and rlling ut the standard prcess variant. 3. Savings that arise frm maintaining just ne rather than several variants f the same prcess. The ttal f (1) + (2) + (3) represents the benefit frm standardizatin. Cnsideratins fr finds the best trade-ff between t many and t few standards fr a prcess. The ideal number is a trade-ff between tw factrs: A smaller number f prcess variants lwers the cst f business prcess maintenance and increases the agility twards prcess changes. Cpyright 2005 Albrecht Ricken, Ansgar Steinhrst 3

4 Having a higher number f prcess variants better attends t the requirements f every part f the rganizatin. Ignring such requirements increases the ttal cst. The ptins fr the sales prcess f the cnsumer electrnics cmpany ranged frm 40 standards fr the 40 cuntries t ne single glbal standard. The trade-ff was t have 3 standards. There is an additinal cnsideratin fr harmnizatin acrss prcesses: Hw t divide a business int prcesses such that prcess standards can be managed efficiently? Prcess definitins shuld hierarchically divide end-t-end sequences f prcesses. Then every prcess element cntributes directly t the perfrmance f the higher-level prcess. We fund a prcess mdel with hierarchical breakdwn f tp-level prcesses helpful. Mdels such as SCOR, DCOR, r CCOR 2 start with the value chain and break dwn acrss varius levels. Implementatin Prcess standardizatin and harmnizatin effrts are a part f crprate gvernance. They require full executive supprt. Organizatin: Many cmpanies have set up a central institutin t manage business prcesses: A cmpetence center r a grup in charge f business prcess management (BPM) is an ideal envirnment. Paul Harmn describes the rle f a Business prcess architecture cmmittee 3. Such a grup is well psitined t manage standardizatin and harmnizatin effrts. Acceleratrs fr Standardizatin and A prcess mdel helps, which breaks dwn tp-level business prcesses and their metrics int mre detailed prcesses. Example: The Supply Chain Cuncil s SCOR. Develp templates that ffer space fr lcal adaptatin. Prcess standardizatin and IT standardizatin are different things. IT must fllw the prcess standards, nt vice-versa. The central grup ensures lcal buy-in thrugh practice cmmittees fr lgistics, accunting, sales, prduct develpment, etc. Team members are the lcal prcess wners. Peridically, they meet and review the standardizatin and harmnizatin effrts in their respective practices. Prjects: Rather than a big crprate prject, it is ften better t run small prjects with a clear fcus n a specific set f prcesses. Standardizatin and harmnizatin prjects need t be perfrmance-driven and fcus n prcess imprvement. Cnsider using a prcess mdel such as the Supply Chain Cuncil s peratinal reference (SCOR). SCOR prvides the prcess framewrk and perfrmance metrics. We fund that it dramatically saves time and imprves the quality f wrk. Define templates: Rather than defining every single piece f a prcess, a template just defines the essential part f a standard and leaves a well defined degree f freedm fr lcal adaptatin. Where t start: Any prcess can be a starting pint. Cmmn pitfall: IT-driven standardizatin f business prcesses: IT departments are ften the first t develp templates fr rllut. Savings in IT csts justify it-driven standardizatins. Frm an IT perspective, it is lgical t standardize business applicatin systems, their cnfiguratin, and transactins. There are tw prblems assciated with an IT-driven apprach t business prcesses: IT-standardizatin fcuses n saving IT-csts, nt n prcess perfrmance. Standardizatin f the transactins changes the design f business prcesses. Lcal businesses need t adapt t the IT template, rather than have IT supprt the lcal peratins. Such changes trigger resistance in the business. 2 see als 3 Paul Harmn: Business Prcess Change. A Manager s Guide t Imprving, Redesigning, and Autmating Prcesses. Mrgan Kaufmann Publishers, Cpyright 2005 Albrecht Ricken, Ansgar Steinhrst 4

5 It is beneficial t develp standards fr IT system nce the business prcess standards are defined. Unfrtunately, there are many instances when IT drives standardizatin and then expects the business t fllw. Such attempts tend t fail. Cnclusins and Recmmendatins Standardizatin and harmnizatin can greatly imprve prcess perfrmance, lwer the csts fr prcess maintenance, and give senir management mre cntrl ver the peratins. The tw prcesses may lk similar, but if the perfrmance requirements are different, they need separate standards. This is ften due t different types f supply chains, sales channels, prduct develpment, r gegraphies. avids a ne-size-fits-all apprach. It makes the trade-ff between t many and t few prcess standards and avids incnsistencies between standards. Standardizatin and harmnizatin need senir management supprt. Management establishes standardizatin criteria and ensures that the fcus remains n the verall perfrmance imprvement. A cmpetence center can manage standardizatin and harmnizatin as a part f its prtfli f prcess imprvement prjects. IT standardizatin fllws prcess standardizatin, nt vice-versa Dr. Albrecht Ricken and Ansgar Steinhrst funded Navedn t help custmers with their innvatin prcess in the areas f business prcess design and SAP applicatins. They wrked fr 15 years as cnsultants fr glbal cmpanies in ERP and Supply Chain prjects. They can be reached via at Cpyright 2005 Albrecht Ricken, Ansgar Steinhrst 5

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