Business Process Modeling

Proceedings of the International Conference for Entrepreneurship, Innovation and Regional Development ICEIRD 2008

1

International Conference for Entrepreneurship, Innovation and Regional Development -

ICEIRD2008

BUSINESS PROCESS MODELLING

Ana Meskovska Trajkovski & Partners Management Consulting, Sv. Kliment Ohridski 24/2-1, Skopje, Macedonia, [email protected]

Keywords Business Model Business Process Procedures Entrepreneurship Software solutions

1. Introduction Entrepreneurship is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities. One of the main reasons for starting up a business or changing directions of existing business is revenue.

To extract value from an innovation, a start-up (or any firm for that matter) needs an appropriate business model. Business models convert new technology to economic value.

In some cases, usually for start-ups who are engaging in modern business, familiar business models cannot be applied. That means that a new model must be designed. Not only is the business model important, in some cases the innovation rests not in the product or service but in the business model itself. [1]

The paper will explore the different types of business models. Graphical interpretation of business models will be presented. Benefits of designing the business processes according to the needs of the company will be pointed out. Methodologies used by successful organizations will be presented. Model for competitive advantage will be shown. The paper will also include ways to support your business processes with technology i.e. using appropriate software solutions.


2

2. Process Approach Best practices showed that process approach is very practical, effective and efficient in managing business. Presenting how one company functions using graphical representation is very convenient and unambiguous.

A business process is a collection of activities designed to produce a specific output for a particular customer or market. A process is thus a specific ordering of work activities across time and place, with a beginning, an end, and clearly defined inputs and outputs. [2]

Every process, in general, results with specific output. For that required output to be achieved certain activities need to be preformed using specific resources. A model of generic process is shown on the figure below. This representation is usually used for description of technical processes, but it is found to be very practical for description of business processes also.

EFFECTIVENESSOF PROCESS =Ability to achievedesired results

Interrelated or interactingactivities and control

methods

Monitoring and Measuring

InputRequirements Specified

(Includes resources)

OutputRequirements Satisfied(Result of a process)

EFFICIENCY OFPROCESS =

Results achievedvs. resources used

Figure 1 Generic process

This model for process approach is used in ISO 9000 and other management system standards.

ISO 9000 is a family of standards for quality management systems. All of these standards are process standards. ISO 9000 standards apply to all kinds organizations in all kinds of areas. Some of the requirements in ISO 9001 (which is one of the standards in the ISO 9000 family) include:

• a set of procedures that cover all key processes in the business; • monitoring processes to ensure they are effective; • keeping adequate records; • checking output for defects, with appropriate corrective action where necessary; • regularly reviewing individual processes and the quality system itself for effectiveness; • facilitating continual improvement.


3

The process approach is a management strategy. When managers use a process approach, it means that they manage the processes that make up their organization, the interaction between these processes, and the inputs and outputs that glue these processes together. [3]

3. Business Process Modelling Companies have many processes and those processes interconnect all the time. An output from one process is input to another process. Processes depend on each other in space, on time and they create complex relationships. To make all processes more efficient we need to define their relationships and how they depend on each other. That is why we design business process models.

Business process modelling a set of technologies and standards for the design, execution, administration, and monitoring of business processes. [4]

A business model draws on a multitude of business subjects, including economics, entrepreneurship, finance, marketing, operations, and strategy. The business model itself is an important determinant of the profits to be made from an innovation. A mediocre innovation with a great business model may be more profitable than a great innovation with a mediocre business model. [1]

Having a defined process model doesn’t mean limiting creativity by default. Every company can model their processes depending on their requirements. Every company has different focus on different activities. That is why every company has to design their own processes according to their needs.

In this chapter I will present one simple way how you can design a business model that will be suitable for your company.

3.1 Identification of processes

The first step for modelling your business processes is identification of all processes in your company. Focus should be on identification of the key/critical services i.e. on the critical processes. For that to be achieved different aspects of your business need to be taken in consideration. First a clear vision and mission should be defined. That means that you should know exactly what you want to achieve in near future and you have directions how you will get there. The strategic objectives of the company need to be put on paper, meaning that you need to have a plan how to achieve your goals. The middle part of this diagram is the most important that is why you should pay more attention when you analyze those parts of your business. • Clients / Internal users – first and most important, you need to know exactly who your

customers are; • Key / Critical services – you need to identify what are your key services, what do you to

your customers; • Underlying processes – what are the main things you need to do to provide those

services to your customer; • Inputs / resources – what do you need for realization of those processes; • Suppliers / Internal suppliers – who provides those resources for you?

After analyzing the main points in your business model, critical success factors, risk and underlying assumptions should be considered in description of your company’s environment.


4

We all take for granted this factors that have big influence on every company. Defining them and documenting them gives managers big advantage because that’s how you can follow their status. That’s how you can have clearer picture if the working environment had changed or if some assumptions don’t apply anymore etc. That is the way you can prevent or change things. When all this aspects are analyzed you will have much better picture about your overall business and it will be very easy to define, adjust or tune up your processes.

Figure 2 Business process modelling.

3.2 Porter’s value chain

If you have just start up new business and you are not very experience in managerial organization you might have a problem identifying your core processes. In that case, as help, you can use Porter’s value chain model.

Michael Porter’s value-chain model identifies the set of key generic activities that all businesses perform to generate value for customers. This model can be used for the modelling of you business processes, first because it identifies generic activities that are common to a wide range of companies and than because it helps to analyze specific activities through which firms can create value and competitive advantage.


5

A company has a competitive advantage over its rivals when it sustains profits that exceed the average for its industry. [5]

Michael Porter suggested that the organisation is split into ‘primary activities’ and ‘support activities’. The Porter’s value-chain model is shown on the diagram below. [6]

Figure 4 Porter’s Value Chain

Primary Value Chain Activities The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin. • Inbound logistics include the receiving, warehousing, and inventory control of input

materials. • Operations are the value-creating activities that transform the inputs into the final

product. • Outbound logistics are the activities required to get the finished product to the customer,

including warehousing, order fulfillment, etc. • Marketing & Sales are those activities associated with getting buyers to purchase the

product, including channel selection, advertising, pricing, etc. • Service activities are those that maintain and enhance the product’s value including

customer support, repair services, etc. Support Activities The primary value chain activities described above are facilitated by support activities. Porter identified four generic categories of support activities, the details of which are industry-specific. • Procurement – the function of purchasing the raw materials and other inputs used in the

value-creating activities. • Technology Development – includes research and development, process automation,

and other technology development used to support the value-chain activities. • Human Resource Management – the activities associated with recruiting, development,

and compensation of employees. • Firm Infrastructure – includes activities such as finance, legal, quality management, etc. After you have identified the processes that are most important for your business, you need to analyze them, so you can make them more efficient.


6

3.3 Process description

For description of your services you can use the Process Description methodology shown on the figure below. First thing you need to do is name your processes, so you can make distinction between them. They can be named according to their function, they can be number or you can mark them by your wish. Every process needs to be assigned with responsible person for realization for that process i.e. process owner. For every process trigger events needs to be pointed out. Input and output of this process should be described. Every process interacts with other processes, that why it is good to clear out which process comes before and which process comes after the realization of the described process. All activities that need to be preformed during the realization of the process should be identified. If you want to create firm management system in your company it is recommended that you describe and document all those activities. After identification of main activities of the process it will be very easy to identify the needed resources, criteria that should be used for realization of those activities and records that will be produced by those activities. For continual improvement of your processes, their effectiveness should be measured. Effectiveness is represented by the KPI – Key Performance Indicator which presents a measure of how much are the set goals achieved. Depending on the value of the KPI changes for improving the process can be initiated.

Figure 3 Process description


7

Using this methodology all key activities are identified. If the manager wants to have solid management system, more precise direction on the activities is needed. In that case they should be documented, stored and distributed as procedures.

3.4 Procedure description

Some business depending on their nature require strictly defined procedures, others require complete creativity. Some businesses depend on more technical processes. These processes are realized through strictly defined procedures. Some business depend on the competence of the employees, these processes are following the competence model.

For business processes that require a creativeness and imagination general guidelines for the employees are enough, but for business processes that require successiveness, discipline, following mandatory steps and having strict rules a well defined procedures are recommended.

ISO 9000 are process oriented standards. ISO 9000 standards recommend that procedures should cover following information: • purpose – why this procedure need to be realized; • scope – which part of the business is affected by this procedure; • activities, steps, recommendations - successive list of things that need to be done; • responsible person - assigning a person that will be responsible for realization of the

procedure or assigning different persons for different steps of the procedure; • referent materials - materials that need to be used in order to perform the steps of the

procedure; • records - documents that are outputs of the procedure.

4. Software support Business process modelling these days can be significantly helped by technology using different software solutions.

For the designing and description of the processes the following solutions are available: • MS Visio, SmartDraw, ConceptDraw - software for drawing can be used for graphical

presentation of processes and procedures • Oracle Business Process Analysis - Suite for modelling business processes and

converting them into IT executables. Allows business users to design, model, simulate, and optimize business processes to achieve maximum operational efficiency.

Software applications can be used for realization of the designed processes. There are different kinds of application that can be used as document management systems, allowing following the document flow and versioning and control of the documents and records.

Examples of such applications are:

• PaperMaster is software for document management. It enables you to turn paper documents into digital files. Save, share, organize, and retrieve them from your desktop.

• Wiki is a database of pages which can be edited in real time and searched. Option for viewing updates since last visit is possible. Additional features can include calendar sharing, live AV conferencing, RSS feeds etc.


8

• Mayetic Village is a collaborative workspace. It is designed for users who need to bypass electronic messaging as a teamwork collaboration tool. It is used for managing documents and activities using calendar, task list, attaching files, debates forum etc.

These are just a few simple examples of software solutions that can be used as technical support in modelling your business processes. There are a lot of more software solutions (free or licensed) that you can choose, depending on your needs, for modelling your business processes.

5. Conclusions This paper will help managers or people who start their own businesses to direct their enterprises towards successful, productive and profitable future by modelling their business according their needs and circumstances.

First step for designing your business model is to understand the need and benefits of the business process modelling.

Designing of your business process starts with identification of your core processes. Than those processes need to be analyzed and the analyses should be documented. Porter’s value chain can help you identify your core processes. For enhanced management system all activities should be documented. During all these phases of modelling your business processes, software applications can be use as technical support. During the realization of your designed processes different software applications can be use as technical support also.

In this paper I presented one simple way you can model your business to fit your needs. Good luck.

References 1 http://www.quickmba.com/entre/business-model/ , 17.03.2007 2 http://www.sparxsystems.com.au/downloads/whitepapers/The_Business_Process_Model.pdf,

17.03.2007 3 http://www.praxiom.com/process-approach.htm, 17.03.2007 4 http://www.onjava.com/pub/a/onjava/2005/07/20/businessprocessmodeling.html,17.03.2007 5 http://www.quickmba.com/strategy/competitive-advantage/ , 17.03.2007 6 http://strategis.ic.gc.ca/epic/site/stco-levc.nsf/en/Home, 17.03.2007 7 http://lef.csc.com/foundation/library/value/RP01.asp, 17.03.2007