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Eindhoven, September 2011
BSc Industrial Engineering & Management Sciences — TU/e 2009 Student identity number 0592220
in partial fulfilment of the requirements for the degree of
Master of Science in Operations Management and Logistics
Supervisors:
dr.ir. H.A. Reijers, TU/e, IS ir. G.J. Post-Dijkstra, Berenschot, CIFM
dr. A. de Jong, TU/e, ITEM
Process Improvement Intelligence:
A framework for measuring alignment
in business process improvement
projects
by
N.E.G.H. Jenniskens
ii
TUE. School of Industrial Engineering. Series Master Theses Operations Management and Logistics
Subject headings: business process improvement, alignment, Key Performance Indicator, best practice, regulative cycle, heuristics, project goal
iv
Abstract
While a performance measurement framework (such as the Balanced Scorecard) helps to translate (strategic) objectives into KPIs (which describe the ‘as-is’ situation), it does not provide any guidance to a business process improvement project. There is no framework translating these organizational goals into performance dimensions which can be used to direct a business process improvement initiative.
In this thesis, a Process Improvement Intelligence framework was proposed to measure the alignment between project goals and process improvements. This framework was applied to six cases in the public domain. Results showed that Process Improvement Intelligence could be measured by matching the project goals to the process improvement.
Implementing this framework into the proposed way to process improvement improves the way these projects are undertaken in practice. This will ensure a continual linkage of organizational goals and business processes.
v
Executive summary
While a performance measurement framework (such as the Balanced Scorecard) helps to translate (strategic) objectives into KPIs (which describe the ‘as-is’ situation), it does not provide any guidance to a business process improvement project. The KPIs, defined in the performance measurement framework, are organization specific and often constructed at the start of a business process improvement project, therefore project-specific (see Figure 3.1). Therefore, the following research objective was the goal of this thesis:
Ultimately, by measuring the alignment of business process improvement projects, improving the way these projects are undertaken in practice. To achieve this goal, the selection of process improvement heuristics will be guided the project goals. By examining the statistical relationship between the two, this thesis established that guidance.
Identified as the most important gap in the literature (Jenniskens, 2011), there is no framework translating strategic objectives into performance dimensions which can be used to direct a business process improvement initiative. Such a framework enhances the way business process improvement projects are undertaken. Following the research objective presented above, the main research question for this thesis was formulated as follows:
How can the project goals guide process improvements to ensure the continual tight linkage of organizational goals and business processes?
On a lower level, to examine the relationship between the organizational goals and process improvements, the following sub research question was proposed:
How can the alignment of a business process improvement project be measured?
By providing an answer to this sub research question, this thesis establishes the guidance in selecting the process improvement heuristic(s) as mentioned above in the research objective.
By answering this research question, this thesis extended the current field of research in the following ways. The regulative cycle (van Strien, 1997) was adapted to describe the way business process improvement projects are undertaken in practice. It was proposed to enhance this way by creating a shortlist of process improvement heuristics based on the project goals. Alignment between the project goals and the process improvement heuristics therefore played an important role. Because (project) objectives were translated into performance dimensions using the devil’s quadrangle, this research extended the business performance management literature, as indicated by Neely, Gregory, and Platts (2005). These performance dimensions were proposed to guide a business process improvement initiative, adjoining Reijers and Liman Mansar (2005) research on best practices in business process redesign. This research validated the research of Reijers and Liman Mansar (2005) in the public domain, using business process improvement projects conducted at Berenschot.
vii
Preface
This report is the result of my graduation project for the degree of Master of Science in Operations Management and Logistics at Eindhoven University of Technology. The research was conducted from November 2010 to September 2011 in collaboration with Berenschot, a management consulting firm in the Netherlands. This project would not have been successful without the contribution of a number of people, who I would like to express my gratitude to.
First of all, I would like to thank my supervisors. As my mentor during the last two years, I would like to thank Hajo Reijers for his enthusiasm and support during the project. His critical view on my work as well as valuable input contributed significantly to this result. Also, I would like to thank Ad de Jong for his valuable feedback on my work and his help when I could not see the wood for the trees in nonparametric statistics.
Second, I would like to thank Berenschot for giving me the opportunity to conduct this graduation project in a real-life consulting setting. Thanks to the Information Management group and its members for providing the necessary facilities, data, information and the great time I had. Special thanks to Gemma Post, who supervised me during this project and helped me collect the necessary data for the project.
Finally, but most importantly, I would like to thank my family, girlfriend and friends for providing me the support for successfully finishing my graduation project.
Already having one foot in the working life, now it is time to move on, once again in the management consulting industry.
Nick Jenniskens
Eindhoven, September 2011
viii
Table of Contents
Abstract.......................................................................................................................................................... iv
Executive summary ......................................................................................................................................... v
1. Introduction
In today’s dynamic business environment, the ability to improve business performance is a critical requirement for any organization. So, many enterprises have recently been pursuing process innovation or improvement to attain their performance goals.
To comprehensively support business process execution, the concept of business process management (BPM) has been proposed. The strategic importance of BPM is becoming more important as a means of optimizing business performance. The ultimate goal of BPM, therefore, is performance management, which includes activities that ensure business goals are consistently being met.
Gartner, in their Business Unit (BU) CIO’s 2010 Agenda, showed that, just as in 2009, business process improvement is the top business priority of BU CIOs of large organizations (Meehan, 2010). Linking business and IT strategies and plans ranks second in the top BU CIO Strategies for 2010 and is expected to stay there in 2013.
Hardjono and Bakker (2006) state that business process management requires a clear relationship between process objectives and strategic objectives. Process objectives should be directed by strategic objectives, such that an (operational) process will always be in harmony with the strategy of the organization. The key question in this relationship is:
“What does a strategic choice mean for an operational process?”
Continuously relevant in practice, this topic of Process Improvement Intelligence is proposed in the scientific literature to describe the strategic alignment of a business process and its (strategic) objectives. This research extended the current state of research in this topic. The outline of this introduction is as follows. Firstly, the problem statement is discussed and motivation for this research is given. This research was done in collaboration with Berenschot, which is introduced next. Lastly, the outline of this report is presented.
1.1. Problem statement and motivation
The literature review (Jenniskens, 2011) revealed a substantial gap in the literature in the topic of strategic alignment of BPM. In short, there is no framework translating strategic objectives into performance dimensions which can be used to direct a business process improvement initiative. As a result, in the diagnosis phase of BPM, it is difficult to decide which process should be improved to achieve a specific performance goal of which performance index is influenced when a specific business process is executed successfully.
Therefore, the following research question was addressed in this thesis:
How can the project goals guide process improvements to ensure the continual tight linkage of organizational goals and business processes?
By answering this research question, this thesis extended the current field of research in the following ways. Using the regulative cycle (van Strien, 1997), a Process Improvement Intelligence framework was developed for measuring alignment in business process improvement projects in general. Because (project) objectives were translated into performance dimensions using the devil’s quadrangle, this research extended the business performance management literature, as indicated by Neely et al. (2005). These performance dimensions were proposed to guide a business process improvement initiative, adjoining Reijers and Liman Mansar (2005) research on best practices in business process redesign. This research validated the research of Reijers and Liman Mansar (2005) in the public domain, using business process improvement projects conducted at Berenschot.
By evaluating their business process improvement projects, Berenschot can improve the alignment of their process improvements to the objectives of a client, thereby improving its service level. Next, Berenschot’s company profile is introduced.
1.2. Company profile
The research performed in this thesis has been conducted in collaboration with Berenschot. Berenschot has been an independent organizational consulting firm for over 70 years in both the public and private sector in the Netherlands. Nowadays they are still mainly focused on the Dutch market, but with an office in Brussels and as a partner in the E-I Consulting Group, they are now an independent consulting agency in the Benelux with 500 employees.
This thesis has been written during an internship at Berenschot’s expertise group Information Management, which helps the public sector keeping control of their ICT and related projects, achieving the best results and saving on costs. They are often involved in the computerization of processes, which improves services, makes processes more efficient and in some cases, cuts costs.
In the public sector, Berenschot uses a project-based approach. The public sector thereby consists of the Dutch government, provinces, regional water authorities and municipalities. In this thesis, only projects within provinces and municipalities were analysed. These will be referred to as projects within local governments.
Many of these projects can be characterized as business process improvement projects. As laid out in the chapter 3 , they therefore follow the Process Improvement Intelligence framework. Using this adaptation of the regulative cycle, this thesis reflected on the way these projects are conducted by Berenschot.
Usually, these projects are done by multidisciplinary teams. These teams consist of experts from various field of expertise. The experts, which were asked to take part in this research, are presented in section 4.3.
2. Background
The research was based on a systematic literature review (Jenniskens, 2011), in which the field of alignment of organizational strategy and business process performance was explored. The literature review consisted of several steps. First, to scope the search of relevant literature, the following research questions were formulated:
How can the effects of a process improvement project be measured?
- What frameworks for measuring process performance (in general) exist?
- How to develop a (specific) process performance measurement system? How can we associate process performance measurements to strategic objectives and stakeholder measures?
- What frameworks for modelling strategic objectives exist?
- What links are there between strategic objectives and performance measurements?
- How can we derive performance measurements from strategic objectives?
The first research question focused on the measurement of business process improvements in general; this research question was divided into two sub questions, focusing on (1) the measures of (process) performance in general and (2) the development of a process performance measurement system. The second research questions focused on the association of process performance measurements to strategic objectives and stakeholder measures; the sub-questions focused on (1) strategic objective frameworks, (2) the relationship between strategic objectives and performance measurements and (3) tools that make this relationship explicit.
The scientific search engines ABI/Inform, Springerlink and Google Scholar were used to generate a long list of potentially useful articles. ABI/Inform was selected for its large availability of journals in numerous fields of research (e.g. business). Springerlink was selected for its availability of journals specifically in computer science. Google Scholar was used to cross-check the references with the other two search engines and to complement the search results. The long list, consisting of 52 articles, was scored on relevance, recentness and quality of the source. The resulting 20 articles served as input to the literature synthesis. A more detailed description of the literature research methodology can be found in Jenniskens (2011).
This chapter summarizes the literature review, beginning with an explanation of the concepts used throughout this report. Then, the results of the literature review are presented.
2.1. Processes
A process can be identified by four key features (Zairi, 1997):
- Predictable and definable inputs
- A linear, logical sequence or flow
- A set of clearly definable tasks or activities
- A predictable and desired outcome or result
In an organizational context, a process is an approach for converting inputs into outputs. In the context of Berenschot (section 1.2), the process ‘providing subsidiaries’ of a municipality converts subsidy requests (inputs) into accepted or rejected subsidies (outputs). In the next section, this notion of a process is used to evaluate the performance of a process, by using performance indicators related to inputs and outputs.
Specifically, in this report, business processes are the subject of interest. One of the fundamentals of BPM is the following definition of a business process, which is used in this report (Hammer & Champy, 1993):
“A business process is a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. A business process has a goal and is affected by events occurring in the external world or in other processes”
Next, the performance dimensions used in this report are described and related to the process concept described above.
2.2. Process performance
As can be concluded from the literature review (Jenniskens, 2011), there are two classifications of performance dimensions: time, cost, quality and flexibility and efficiency, effectiveness and adaptability. Graphically, these are presented as the devil’s quadrangle (Brand & van der Kolk, 1995) and the three dimensions of performance (Moseng & Bredrup, 1993):
These two functions of performance dimensions are similar in their calculation of the performance of a system. The devil’s quadrangle’s area is a direct function of the measurements in the indicator groups: time, cost, quality and flexibility. The volume of the rectangular prism is a direct function of the measurements in the indicator groups: efficiency, effectiveness and adaptability. However, the two frameworks differ in their application. Because the devil’s quadrangle explicitly states that a trade-off must be made (i.e. it is impossible to improve on all four dimensions at once), it is more suitable to decision-making processes e.g. business process improvement projects (Jansen-Vullers,
Figure 2. 1 The devil's quadrangle (adopted from Jansen- Vullers, Loosschilder, Kleingeld & Reijers, 2007)
Figure 2. 2 The three dimensions of performance (adopted from Moseng and Bredrup, 1993)
Performance measurement frameworks provide a categorization of performance indicators (KPIs), similar to the process-oriented framework developed by Brown ( 1996 ) discussed above. One potential approach is to think of individual KPIs not just as a single metric, but as a balanced metric that incorporates several alternative dimensions. Most common in practice, the Balanced Scorecard provides a set of measurements from four perspectives: financial, internal business processes, customer and learning & growth (Kaplan & Norton, 1992). By giving information from four perspectives, the number of measures is limited and it forces managers to focus on the handful of measures that are most critical. As a performance management tool, the balanced scorecard is designed to assist management in aligning, communicating and tracking progress against on-going business strategies, objectives and targets. The main weakness of this approach is that it is primarily designed to provide managers with an overall view of performance, but does not direct improvement projects on the business operational level. Thus, the balanced scorecard is primarily designed as a monitoring and controlling tool rather than an improvement tool (Neely et al., 2000). In practice therefore, there is a significant gap between performance indicators and improvement initiatives. This strategic alignment of BPM has become an emerging topic in Business Process Management literature. It is introduced in the next section as well as some tools to make this relationship between strategic goals and business processes explicit.
2.4. Strategic alignment of BPM
A definition of strategic alignment of BPM is given by de Bruin and Rosemann (2006):
“Strategic alignment of BPM is the continual tight linkage of organizational priorities and enterprise processes enabling the achievement of business goals.” (de Bruin & Rosemann, 2006, p. 4)
‘Alignment’ can be defined as “the act of adjusting or aligning the parts of a device in relation to each other”^2. In this case, the device is BPM and the parts are organizational priorities and enterprise processes. Organizational priorities are a function of an organization’s objectives and corresponding KPIs. Strategic alignment of BPM thus examines the alignment of business processes and (strategic) objectives. To align processes with corporate strategy, Brenner and Coners (2010) introduce an instrument known as the Strategic Process Alignment matrix (SPA matrix). The SPA matrix establishes formal, KPI-based relations between strategy and those processes with strategic relevance. A matrix is used to systematically compare the strategic goals. In this way, the contribution of process capital to strategy is assessed based on the criteria of ‘process relevance’ and ‘degree of target achievement’. Process relevance represents a weighting in per cent of how relevant a process is for reaching the strategic goal; degree of target achievement compares the actual value of a performance indicator and a target value.
The SPA matrix, however, does not answer our key question:
“What does a strategic choice mean for an operational process?”
(^2) http://www.definitions.net/definition/alignment
As a result, in the diagnosis phase of BPM, it is difficult to decide which process should be improved to achieve a specific performance goal of which performance is influenced when a specific business process is executed successfully. Therefore, it is necessary to establish a process-based performance measurement model (Han, Choi, Kang, & Lee, 2010 ). Their Process-Based Performance Measurement Model (PPMM) therefore holds an integrated view of the KPI model, process model and K-P model, which represents the relationship between KPI and business processes. This correlation scheme between business process and KPIs is not clearly established in the current measurement practices (Han et al., 2010).
2.5. Literature review conclusions
Process performance can be measured in two classifications performance dimensions, which differ in their application. The devil’s quadrangle (Brand & van der Kolk, 1995) constitutes a trade-off between the indicator groups time, costs, quality and flexibility (i.e. it is impossible to improve on all four dimensions at once); therefore, it is more suitable to decision making processes (e.g. business process improvement projects). On the other hand, efficiency, effectiveness and flexibility can be used to adopt a process-based perspective on performance, by viewing resources as inputs (cf. efficiency), process results as outputs (cf. effectiveness), and viewing flexibility as an inherent aspect of process execution (cf. adaptability) (Beamon, 1999); therefore, it is more suitable to performance measurement systems.
Strategic objectives are high-level goals of an organizational, while targets provide a measurable value for success or failure in reaching those goals. A key performance indicator (KPI) measures your current performance against those targets. KPIs can be categorized in a performance measurement framework. Recalling, the balanced scorecard is a valuable framework suggesting important areas in which performance measures might be useful, but it provides little guidance on how the appropriate measures can be identified, introduced and ultimately used to manage business (Neely et al., 2000). In practice therefore, there is a significant gap between key performance indicators and business process improvement initiatives. This strategic alignment of BPM has become an emerging topic in Business Process Management literature.
Strategic alignment of BPM examines the alignment of business processes and (strategic) objectives. A correlation scheme between business process and KPIs is not clearly established in the current measurement practices (Han et al., 2010). Therefore, they developed a K-P model, which represents the relationship between KPIs and business processes. However, this tool does not include the performance improvement of a business process and its measurable effect on the KPIs.
As a result, in the diagnosis phase of BPM, it is difficult to decide which process should be improved to achieve a specific performance goal of which performance index is influenced when a specific business process is executed successfully.
In short, while a performance measurement framework (such as the Balanced Scorecard) helps to translate (strategic) objectives into (organizational) targets (KPIs), it does not provide any guidance to a business process improvement project. There is no framework translating strategic objectives into performance dimensions which can be used to direct a business process improvement initiative.
Figure 3.1 The regulative cycle adapted to a business process improvement project
The transition from the ‘as-is’ situation to the ‘to-be’ situation constitutes a significant gap in the literature. Or, to put it in the words of Sharp and McDermott (2001): “How to get from the as-is to the to-be isn’t explained, so we conclude that during the break, the famous ATAMO procedure is invoked – And Then, A Miracle Occurs”. Therefore, the focus of this thesis is on that transition (from KPIs to Process Improvements).
Rosemann (2010) provides four ways to process improvement:
Figure 3.2 Four ways to process improvement (adopted from Rosemann, 2010)
(Strategic) Objectives
KPIs
Process Implementation Improvements
Evaluation
New
Process
Derivation (better practices)
Innovation (new practices)
Utilisation (potential practices)
Enhancement (current practices)
Analytical
Creative
Limam Mansar, Reijers, and Ounnar (2009) provide the following overview of the creative, analytical and their proposed way to process improvement:
Figure 3.3 Overview of the creative, analytical (label 'structured') and proposed way to process improvement
The creative approach corresponds to Rosemann’s creative ways to process improvement, namely innovation and utilisation. Starting from a set of goals, brainstorming sessions and discussions will be held to create an improved process design. As mentioned above, these are more suitable to business process reengineering projects (which require radical innovation). The structured approach corresponds to Rosemann’s analytical ways to process improvement, namely derivation and enhancement. Because business process improvement projects involve incremental improvement taken the current process as starting point, a structured approach is adopted in these projects. This approach builds on an extensive list of potentially effective practices to improve the current process. Key element in this approach is the ‘best practices’ (BP), which are evaluated for their applicability on improving the current process. Simulation can be used to measure the effect of the process improvement. The best practices are a predefined list of process improvement heuristics. These are introduced next, before discussing the proposed approach of this thesis.
