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Management Information Systems, 13TH ED.
MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon
continued
Learning Track 2: A Primer on Business Process Design and
Documentation
Why Business Process Design Is Important
“Business process design has a long history in American management. In today’s digital environ-
ment, over 80% of the $800 billion business consulting industry involves business process design,
redesign, and process re-engineering. fiese business process design activities have grown along
with the huge $1.7 trillion annual spend on information technology hardware and software in the
United States. Why is so much attention paid to process design and how is it related to investments
in IT/IS?
fie concern with business process design is motivated by several findings. fie first is that many
firms and organizations invest heavily in information systems and technologies, but do not receive
anticipated benefits. In fact, it’s quite common. fie reason for this variation is that firms receiv-
A second finding that underscores the importance of business process re-design is that new infor-
mation technologies enable entirely new business processes that are inconceivable without new
technologies. fie process of ordering a CD from Amazon.com is entirely enabled by a collec-
tion of software tools and computer hardware. Making a purchase at Wal-Mart invokes a collec-
tion of business processes all of which are enabled by software (with the exception of the clerk who
Chapter 13: Building Information Systems
Chapter 13 Learning Track 2 2
continued
How to Describe a Business Process
fiere are two predominant methods of documenting business activities: ffow charts and business
process modeling. Each of this has very dierent uses and intentions. Flow charts are a schematic
representation of a decision process--not a business process. A decision process is a set of logical-
ly and temporally related decisions that are required to turn inputs into outputs. Flow charts were
Unfortunately, ffow charts tell us nothing about how long a decision process takes, who is involved,
what kinds of activities are involved, or how much it all costs. To answer these questions, business
process modeling is required.
Business process modeling is very dierent from ffow charting. A business process is a set of logi-
cally and temporally connected activities in a business that turn inputs into outputs, utilize capital
and labor resources, and require time to complete. Business process modeling focuses on the ffow
of work which transforms raw materials into finished products, inputs into outputs. Business
process modeling provides a schematic representation of a production process—not a decision
process. Originally developed in early factories, the technique spread to service and “paper-based”
organizations such as banks and insurance companies--which were seeking to identify all the steps
How to Model a Business Process
Modeling a business process means two things: (a) describe the business process, and (b) measure
the process. Before you can improve a business process, you need to be able to describe it, docu-
ment it, and measure it.
So let’s start with how to describe a business process. fiere is a great variety of commercially avail-
able software tools that are used to graphically describe a business process. For our purposes of
teaching the basics about business process modeling, they are too complicated and too sophisti-
cated. We prefer to start with a generic model of the business process that focuses on the key attri-
butes of any business process (see Figure 1 below):
Chapter 13 Learning Track 2 3
continued
◆ Inputs and outputs
◆ Activities (decision makers)
◆ Buers (time delays)
◆ Process managers and owners
◆ Resources (capital and labor support)
FIGURE 1 A Generic Business Process
A business process is a set of activities that transform inputs into outputs, utilize capital and labor,
and require time to complete. Buers represent time delays in the process where products or infor-
Next let’s think about how to measure a business process. As you can see from the generic model
and discussion above, a business model can be measured on the following dimensions:
◆ Cost
◆ Time
◆ Quality
◆ Eciency
◆ Flexibility
To see how this all works, let’s look at a practical example.
EXAMPLE BUSINESS PROCESS DOCUMENTATION: A PROCUREMENT
PROCESSES
ITC Corporation is a regional distributor of electronic connectors and components in Omaha,
Nebraska, that services the Mid-West region of Chicago, Denver, Minneapolis and Salt Lake.
Chapter 13 Learning Track 2 4
continued
the components from one of several manufacturers chosen by ITC on the basis of quality, delivery
time, and profitability for ITC. ITC always tries to get the lowest cost products from its suppliers,
while also ensuring the customer is satisfied with quality and delivery time.
fie procurement system was built twenty years ago for a mainframe environment, and is outdated,
slow, and not very good at obtaining and tracking the lowest price parts from manufacturers. As
a matter of fact, humans have to review quotations from suppliers, and the system can only really
FIGURE 2 High-Level Overview of the Procurement Processs
A consulting firm has prepared an overview of the procurement process.
fie procurement process takes inputs from customers in the form of requests for electronic prod-
ucts. In a process involving an interaction between Procurement Ocers (PO), the customer, and
vendors, an output is produced in the form of a procurement order.
Chapter 13 Learning Track 2 5
fie firm has identified the following key actors:
◆ AA: Administrative Assistant
◆ APM: Acquisition Program Manager
fie “process owner” is the unit of the firm which creates, manages, and maintains the procure-
ment process. fiey are the responsible party for this process.
Next the consulting firm spent two weeks in the field interviewing the key actors in the procure-
ment process, including customers, vendors, all employees, and all managers. fiey wanted to
FIGURE 3 ITC Procurement Process Workfiow
Now finally we get a sense of how the process works. Customers fax or email requests for compo-
nents to the Administrative Assistant (AA). fie AA works with the customer to clarify the order,
Chapter 13 Learning Track 2 6
the file to the Acquisition Management Director (AMP). fie AMP reviews the request and begins
the search for possible vendors. Once vendors are identified, the AMP issues a request for bid, and
receives from multiple vendors price quotations and delivery dates. Once a vendor is identified, the
information and file is passed back to the APM for a brief review, and then forwarded to company’s
Contracting Ocer (CO). fie CO reviews the documents and issues a procurement order to the
selected vendor.
FIGURE 4 ITC Business PRocess Workfiow: Typical $1 Million Purchase
fie consultants estimate the typical million dollar procurement costs about $46,000 and takes
340 hours. Because this is the first time the firm has ever looked at the process, and attempted
to measure it, senior managers are somewhat incredulous it could cost this much, and take this
long. fiey want to know how to cut the time in half, and reduce the direct labor cost to less than
$20,000. Do you have an ideas?
Chapter 13 Learning Track 2 7
Business Process Modeling Tools
Simple business processes can be modeled with a pen and paper, or spreadsheet and PowerPoint
slides. With more complex processes, and when there are multiple divisions, and when the infor-
mation has to be shared widely throughout an organization, it is much better to use a software tool
