Business Process Improvement – Value proposition 101
An organization’s capacity of business areas and processes increases proportionally in accordance to organizational growth in revenue and market share. As the organization climbs up the life cycle from growth to maturity stage, it increases the threshold of standard business operations performance, which consequently drives up the amount of analysis needed to assess the efficiency, effectiveness, and accuracy of business processes.
The heart of every business is the receiving end of the production output, in other words, customers. Nowadays, customers have virtually unlimited sources of quality goods and services at acceptable prices, and they are demanding more for less. Organizations are constantly challenged with this dilemma to cope with the rising customer expectations, as to bridge the gap between customer expectation and customer perception.
Business process improvement BPI is one way to meet these challenges. BPI is a concept exercised by management to evaluate and improve the core areas in their business. By doing so, organizations will identify the workflow and competencies required to promote efficient procedures, overall business growth, and the value proposed to their customers.
Creating and Capturing Value
Organizations tend to make intelligent choices about where to focus their energy and how to best create value in the eyes of their customers. Value proposition is the worth and desirability of a particular product or service that a company promises to deliver to its customers. Value is added in the process of transforming an input to the final output received by the customer, therefore, the greater the customer’s willingness to pay for the output, the greater the value that has been created.
Value creation is a core component in a business model and the process of strategic planning for an organization. The literature is rich in terms of strategic approaches for value creation. One way is to provide a low-cost product/service across the market that satisfies customers’ needs. Another approach is to provide a differentiated “innovative” product across the market that customers cannot obtain otherwise. The third approach is to target a niche market that is shadowed in the industry and underserved, and provide either a low cost or a differentiated product. These strategic approaches of value creation will promote a competitive advantage for the business.
Capturing value is another core component for organizational success. As businesses create and deliver value to their customers, they need to capture some of the value to themselves. It refers to the ability to capture a portion of the delivered value as a retained profit to the business. In simple terms, a high margin between cost and selling price is required to capture value and sustain profits.
Value Chain Analysis VCA is one way to create and capture value. VCA is a strategic tool used to assess the importance of value perceptions. It defines current costs and performance measures to determine where customer value can be increased and where costs can be reduced in value and supply chains. Management use this approach to identify and split primary and secondary activities in their business. Primary activities are known as the core steps in the transformation process. Customer value should be added in every step, whereas non-value-added steps must be reduced or eliminated. Secondary activities are known as support activities, and they are equally important as they provide a differentiated advantage to the business process.
Benchmarking Process Performance
Benchmarking is used to develop measures that are put in action to assess an organization’s effectiveness, efficiency, and adaptability. A process is known effective when it produces a desired result and meets customer expectations. A process is known efficient when it achieves the desired result with minimal waste and expense, in other words, a high ratio of output to input. A process is known adaptable when it has a degree of flexibility and can react quickly to sudden changes in market demand or new competition.
Benchmarking is the process of measuring the current state of business performance and identifying the gaps in different business areas. In doing so, organizations need to measure key business metrics and practices and compare them against a competitor, industry peers, or other companies in a different industry. The desired result is to bridge performance gaps and comprehend how the organization needs to change to improve, grow, and thrive through change. A simple example of benchmarking is a city benchmarking its quality-of-life measurements against other cities in the region or the world aiming to improve the quality of life of its residents. Benchmarking could also be used to strengthen the strategic focus of the organization by identifying and building core competencies, developing new business lines, penetrating new markets, and establishing enhanced risk management systems. Cost, quality, and timeliness of business operations are always subject to benchmarking analysis.
Business Process Reengineering
Changing business processes increases in complexity as the business grows, this is mainly due to habits and the huge investments in old adopted methods. However, it is not possible to improve process performance without applying a change, and the change could sometimes be dramatic. Companies could be meeting targets and achieving business objectives, but their business operations are not as efficient as they want them to be. Therefore, processes have to be reengineered.
Business Process Reengineering BPR is a total review and reconstruction of the organization’s core processes to better support the overall strategy and cut down costs. It is known as the radical redesign of processes to achieve outstanding improvements in critical aspects like cost, speed, and quality of production.
BPR is sometimes viewed as a component of BPI. Despite their similarities, there is a fundamental difference that distinguish the two. BPI is focused on fine tuning operations, adjusting teams/processes and tweaking few rules here and there, whereas BPR is considered as an unconstrained approach to review beyond the defined boundaries and apply substantial changes. Moreover, BPR is focused on eliminating unproductive business layers, redundancies, and radically remodel the process.
Notwithstanding the load of benefits achieved by BPR, there is a noticeable downside for it. Although the idea is easy to digest, the practical implementation is very complex, risky, timely, and costly. It is worth to mention that many businesses could not survive BPR, and the end result was a dead end for the business. Therefore, organizations must carefully consider the suitability of BPR to their business, as it either drives dramatic improvements and growth, or it puts the business down. In simple terms, BPR is a two-way street, there is no access to a third lane.