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Rummler & Brache (1995) use a definition that clearly encompasses a focus on the

organization’s external customers, when stating that

 

”a business process is a series of steps designed to produce a product or service. Most

processes (…) are cross-functional, spanning the ‘white space’ between the boxes on

the organization chart. Some processes result in a product or service that is received by

an organization’s external customer. We call these primary processes. Other processes

produce products that are invisible to the external customer but essential to the effective

management of the business. We call these support processes.”

This definition contains certain characteristics a process must possess. These

characteristics are achieved by a focus on the business logic of the process (how work

is done), instead of taking a product perspective (what is done). FollowingDavenport’s

definition of a process we can conclude that a process must have clearly defined

boundaries, input and output, that it consists of smaller parts, activities, which are ordered

in time and space, that there must be a receiver of the process outcome- a customer – and

that the transformation taking place within the process must add customer value.

 

Hammer & Champy’s (1993)[3] definition can be considered as a subset ofDavenport’s.

They define a process as

 

”a collection of activities that takes one or more kinds of input and creates an output that

is of value to the customer.”

 

As we can note, Hammer & Champy have a more transformation oriented perception,

and put less emphasis on the structural component — process boundaries and the order of

activities in time and space.

 

The Four Major Process Improvement Areas

 

The point to note here is that, irrespective of the class of the task – whether manual or

computerised – it is important that each task – and hence the process as a whole — is

designed and periodically reviewed, improved, or substituted by another task, with a view

to continuous improvement in four major areas:

 

1. Effectiveness

 

2. Efficiency

 

3. Internal control

 

4. Compliance to various statutes and policies

 

These areas are explained by highlighting typical deficiencies in each of them, as under:

 

Effectiveness

 

The overall effectiveness of a process is the extent to which the outputs expected

from the process are being obtained at all, and is therefore a first measure of the

basic adequacy of the process and its capability to fulfill the logical and reasonable

expectations of process uses and operators.

 

For example, consider the material procurement process. One of its important tasks is the

sub-process for supplier follow-up to ensure timely deliveries of materials. Such a task is

considerably less effective if it does not provide accurate and timely purchase order status

reports for use of the purchase department staff responsible for follow-up.

 

Efficiency

 

Supposing it has been observed that the average time taken to prepare and send

out a purchase order after receipt of a properly prepared intent from the end-user is

unacceptably high, leading to delayed customer deliveries and consequent customer

complaints.

 

The process of “converting” the end-user’s intent to a purchase order is effective because

a purchase order is being somehow generated, but its efficiency is very low since it takes

an inordinate amount of time and costs considerably more in terms of the cost to the

company of the salaries of staff members involved.

 

Internal Control

 

In a scenario where quantities of major raw materials are regularly ordered and

consumed, rates are fixed with selected, reliable, approved vendors for an extended

period — commonly a year. Moreover, let us say that the rate contract does not contain

a price escalation clause. This safeguards the organisation from unanticipated price

escalation during the period. The rate contract data are stored in the ERP system’s

database. Whenever materials are to be ordered (with or without a delivery schedule),

purchase orders are generated mentioning the rate finalised in the rate contract. An

internal control exists to keep the purchase rate constant throughout the year.

 

Suppose, however, it is found that the rate on a purchase order based on a current rate

contract is changed to a different value, and the purchase order then sent out to the

supplier. This is a serious lapse in internal control, since a change to a higher rate exposes

the company to a higher financial liability. Moreover, the editability of the rate in such

a purchase order completely nullifies the internal controls provided by having a rate

contract in the first place and including a no-escalation clause in it. There would be a

further breach of internal control if it were found that such aPOamendment is actually

authorised before sending the purchase order to the supplier.

 

Compliance to various statutes and policies

 

There are certain situations where payments made to consultants or service contractors

must be statutorily made after deducting tax at source (T.D.S.), and such T.D.S. amounts

must be deposited in government treasury accounts with banks on or before a specified

 

date in the month following the month in which the payments are made.

 

In such cases, if a business process does not provide for deduction of T.D.S. and/or

fails to ensure deposition into government accounts by the specified date, then this is a

statutory compliance issue that makes the concerned executives liable to civil / criminal

legal action.

 

Policies, Processes and Procedures

 

The above improvement areas are equally applicable to policies, processes and detailed

procedures (sub-processes/tasks). There is a cascading effect of improvements made at a

higher level on those made at a lower level.

 

For instance, if a recommendation to replace a given policy with a better one is made

with proper justification and accepted in principle by business process owners, then

corresponding changes in the consequent processes and procedures will follow naturally

in order to enable implementation of the policy changes.

 

Manual / Administrative vs. Computer System-Based Internal Controls

 

Internal controls can be built into manual / administrative process steps and / or computer

system procedures.

 

It is advisable to build in as many system controls as possible, since these controls, being

automatic, will always be exercised since they are built into the design of the business

system software. For instance, an error message preventing an entry of a received raw

material quantity exceeding the purchase order quantity by greater than the permissible

tolerance percentage will always be displayed and will prevent the system user from

entering such a quantity.

 

However, for various reasons such as practicality, the need to be “flexible” (whatever

that may signify), lack of business domain knowledge and experience, difficulties in

designing/writing software, cost of software development/modification, the incapability

of a computerised system to provide controls, etc., all internal controls otherwise

considered to be necessary are often not built into business systems and software.

 

In such a scenario, the manual, administrative process controls outside the computer

system should be clearly documented, enforced and regularly exercised. For instance,

while entering data to create a new record in a material system database’s item master

table, the only internal control that the system can provide over the item description field

is not to allow the user to leave the description blank — in other words, configure item

description as a mandatory field. The system obviously cannot alert the user that the

description is wrongly spelt, inappropriate, nonsensical, etc.

 

In the absence of such a system-based internal control, the item creation process must

include a suitable administrative control through the detailed checking, by a responsible

officer, of all fields entered for the new item, by comparing a print-out taken from the

system with the item data entry sheet, and ensuring that any corrections in the item

description (and other similar fields where no system control is possible) are promptly

 

carried out.

 

Last but not least, the introduction of effective manual, administrative controls usually

requires an overriding periodic check by a higher authority to ensure that such controls

are exercised in the first place.