Business Processes

Opening Case- Charles Schwab Considered the only retail operation to have successfully adapted its business to the Web Built on the idea of eliminating stockbrokers and providing only transaction processing services Started offering online trading early (using proprietary software), and was quick to move to Web trading

Work Systems Snapshot: Charles Schwab CUSTOMER Charles Schwab account holder who buys and sells stocks. PRODUCTS & SERVICES Execution of buy and sell transactions Online stock data and stock analysis Monthly account reports

Work Systems Snapshot: Charles Schwab BUSINESS PROCESS Evaluate current status of account Decide what to buy or sell Enter the buy or sell order on-line Receive confirmation of completed trade Receive monthly reports and other brokerage information INFORMATION Market price and purchase price of stocks Analyst’s reports Buy or sell orders Account holder’s current portfolio of stocks, bonds, and other assets TECHNOLOGY Personal Computer Schwab’s hardware and software for tracking portfolios and trades The Internet (Infrastructure) PARTICIPANTS Account Holder Financial professional (if desired) Schwab back office staff

Introduction In order to develop information systems or understand them from a business professional’s viewpoint, one needs to be able to describe and analyze business processes. We will emphasize the relationship between process architecture and process performance. Recall: Improvements in a work system are usually related to the links between the architecture and the performance perspectives. Customer satisfaction is largely determined by product performance. Product performance is determined by a combination of product architecture and the internal work system performance.

From work system architecture to customer satisfaction

Documenting a Business Process Process Modeling Documenting a Business Process

Process Modeling A business process that involves naming business processes and subdividing them into their basic elements Helps clarify the problem the information system attempts to solve Business Process Reengineering (BPR) = the complete redesign of a business process using IT

Ford’s New Payables System New Payables to reduce staff from 500 to 400. Mazda’s A/P Staff had only 5 individuals. Differences in the Business Process Model Consider the degree of structure in Mazda model. Much of Ford’s A/P Staff time was spent on Exception Processing. New System requires only 125 persons.

Ford’s New Payables System What changed in the new Ford system? Are the successes of the Ford and Mazda systems an indictment of management practices in other organizations? Work System Snapshot

Ford Reengineers Its Payables Process Old process: The receiving department accepted orders that did NOT match the purchasing order Lots of overhead to reconcile the inconsistencies New process: ONLY shipments that match the purchase order are accepted The information is entered into a shared database

The business process was changed, by eliminating steps that did not add value The new information system was successful only because of the reorganized work flow

Ford’s New Payables System

Ford’s New Payables System CUSTOMER Ford’s suppliers Ford’s manufacturing and purchasing departments PRODUCTS & SERVICES Verification that the the order was fulfilled correctly by the supplier Payment to the supplier

Ford’s New Payables System BUSINESS PROCESS Major Steps: Order material Receive shipments Reconcile receipts with purchase orders Pay suppliers Rationale: store purchase orders in a shared database accept shipments only if they match the purchase order pay on receipt, not invoice

Ford’s New Payables System PARTICIPANTS Purchasing department Receiving department Accounts payable department INFORMATION Purchase order Receipt confirmation TECHNOLOGY Computer system supporting a shared database

Process Modeling: Business Process Architecture Process Modeling - A method of documenting process architecture by identifying major processes and sub-dividing them into linked sub-processes. Data Flow Diagrams Flow charts Structured English

Data Flow Diagrams (DFDs) Represent the flow of data between different processes within a system Simple & intuitive, not focusing on details Describe what users do, rather than what computers do Limitations: Focus only on flows of information Ignore flows of materials, decision points, etc.

Figure 3.1 - Symbols used in data flow diagrams

Creating Data Flow Diagrams The starting point for a DFD is a Context Diagram, which shows sources and destinations of the data being used and generated. Context diagram – bounds the system + summarizes the data flows The context diagram establishes the scope of the system. Next identify processes, and break them down into sub-processes to describe how work is done. Possible to look at a process at any level of detail The value of DFD’s is in resolving disagreements about how work is currently done, or it should be done in the future. Example: Ford Accounts Payable.

Figure 3.2 - Context diagram for the Ford purchasing system

F 3.3 - Data flow diagram showing the main processes in Ford’s original purchasing system

F 3.4 - Data flow diagram dividing PCH 1 into four subprocesses

Example Data Flow Diagram: Student Grading Final Grades REGISTRAR’s OFFICE STUDENTS Current Grade Test Scores Current Score CALCULATE CLASS GRADES CALCULATE UNIVERSITY GRADES TEACHER Final Grades Final Score CLASS/GRADE FILE STUDENT FILE

Other Process Modeling Techniques DFD’s are used extensively. However, other techniques can also be used to fill in some details not expressed by DFD’s. DFD’s do not express the sequence and timing of processes nor the detailed logic of processes. Flowcharting - represent the sequence and logic of procedures Structured English - “pseudo-code” - represent the precise logic of a procedure by writing it down.

F 3.6 – Flowcharts demonstrate conditions

Please note… Idealized business process – the way the process is supposed to work Assumes that the participants follow the rules Workaround – a divergence Necessary when the rules built into the system become an obstacle to getting the work done May indicate a poor design or that an external change has occurred

Reality Check Can you identify a business process that was overly idealized and you had to develop a “work around” in order to accomplish a goal?

Process Characteristics

Architectural Characteristics of a Business Process Eight Characteristics that often affect business process performance: 1. Degree of Structure Range of Involvement Level of Integration Rhythm Complexity Degree of Reliance on Machines Prominence of Planning and Control Attention to Errors and Exceptions

#1: Degree of Structure The extent to which a task or business process can be scripted in advance, e.g., Order of steps Required information Validation Relationships between inputs and outputs

Structured Tasks Structured task = possible to exactly specify how the task is to be performed and the evaluation criteria Ex.: totaling invoices, ATMs, etc. information requirements known exactly methods of processing known precisely desired format of information known exactly decisions or steps within the process are clearly defined and repetitive. Criteria for making decisions clearly understood. Success in executing the task can be measured precisely

Semi structured Tasks Semistructured task – information requirements and procedures are generally known, but some aspects rely on human judgment Ex.: medical diagnosis

Unstructured Tasks Unstructured task – cannot specify what information is to be used, how to use it, nor what the evaluation criteria should be so poorly understood that the information to be used, method of using the information, criteria for deciding when task is done can not be specified. Unstructured tasks are performed based on experience, intuition, trial and error, rules of thumb, and very qualitative measures. Ex.: choosing a picture for the cover of a fashion magazine The desired degree of structure is sometimes a matter of controversy

Figure 3.7 - Structuring loan authorization

Successful Information systems impose the amount of structure appropriate for the task being supported Too much structure stifles creativity Too little structure may lead to inefficiencies and errors

DEGREE TO WHICH STRUCTURE IS IMPOSED Highest: Substitution of technology for people High: Enforcement of rules or procedures Low: Access to information or tools Problem if the level is too high: People doing the work are prevented from their judgement. People doing the work feel like cogs in a machine because they have too little autonomy. Problem if the level is too low: Easily foreseeable errors occur because well-understood rules are not applied consistently. Outputs are inconsistent. Review Table 3.2 – p. 98.

#2: Range of Involvement Refers to the organizational span of people associated with the business process Too narrow decisions are made from a local viewpoint, often missing enterprise-wide opportunities Too wide business processes slow down

The Role of Information Systems: RANGE OF INVOLVEMENT too many participants or too few the organizational span of people involved in a process. Problem if the level is too high: Work is slowed down because too many people get involved before steps are completed. Problem if the level is too low: Work is performed based on narrow or personal considerations considerations, resulting in decisions that may not be the best for the overall organization. The Role of Information Systems: Information systems can be designed to broaden or constrict the range of involvement. Executive Information Systems Case Manager Approach TQM: Reduce involvement and empower workers Note separation of duties from an internal audit perspective.

#3: Level of Integration Often a confusing term The right level of integration is not obvious Too little disorganized & unproductive Too much complex & hard to control INTEGRATION = mutual responsiveness & collaboration between distinct activities or processes Related to the speed with which one responds to events in the other

#3: Level of Integration Integration is the mutual responsiveness and collaboration between distinct activities or processes. In general, the extent of integration between two processes or activities is related to the speed with which one responds to the other. The speed depends on the immediacy of communication and the degree to which the process responds to the information communicated. e.g. level of integration between NJIT Registrar and Rutgers-Newark Registrar Five Levels of Integration: common culture common standards information sharing coordination collaboration

Five levels of integration Common culture Shared understandings & beliefs Common standards Using consistent terminology & procedures Information sharing Independent business processes can share each other’s data Coordination Separate but interdependent processes respond to each other’s needs and limitations Collaboration Strong interdependence; the unique identity of each process begins to disappear

Five levels of integration between business processes

Five levels of integration between business processes - continued

Five levels of integration between business processes - continued

Level of Integration LEVEL OF INTEGRATION Problem if the level is too high: Steps in the process are too intertwined. Participants in different business processes get in each other’s way. To change one step it is necessary to analyze too many other steps or processes. Problem if the level is too low: Steps in the processes are too independent. The process needs greater integration to produce results.

#4: Rhythm The frequency and predictability with which a process occurs Periodic Event-driven Haphazard E-business makes it possible to support more responsive business rhythms

#5: Managing Complexity Complexity – how many types of elements the system contains + the number and nature of their interaction Complex systems are difficult to develop and understand Difficult to anticipate the consequences of changes

How to handle complexity? Eliminate low value variables Different versions of processes and information that exist simply because of historical accident Recognize variations explicitly and treat them differently, instead of using a fundamentally similar process

Complexity Systems that are too simple don’t handle the complexity of the problem; systems that are too complex are hard to understand, maintain, and fix. Complexity can be measured by the number of elements it contains, and the number and nature of their interactions Reduce Complexity by reducing low value variations, reducing the number of interacting components, and simplify the nature of interactions. COMPLEXITY Problem if the level is too high: Participants, managers, and programmers have difficulty understanding how the system operates or what will happen if it is changed. Problem if the level is too low: The system cannot handle the different cases that it should be able to handle.

#6: Degree of Reliance on Machines Tasks assigned to computers are: Totally structured Can be described completely Require speed, accuracy, endurance Tasks assigned to people require: Common sense Intelligence Judgment Creativity

Degree of Reliance on Machines Not everything can be automated! DEGREE OF RELIANCE ON MACHINES Problem if the level is too high: People become disengaged from their work. People’s skills may decrease. Mistakes occur because people overestimate what the computers are programmed to handle. Problem if the level is too low: Productivity and consistency decrease as bored people perform repetitive work that computers could do more efficiently.

#7: Prominence of Planning and Control Participants in a business process need to know what to do, when to do it, and how to make sure it was done right. Planning - decide what work to do and what outputs to produce when. Executing - process of doing the work Controlling - use information about past work performance to assure goals are attained and plans carried out.

Planning, Execution, and Control- Figure 3.10

Comparison of Planning, Execution, and Control Time focus: Future Important issues related to information: Having reliable methods of projecting into the future by combining models, assumptions, and data about the past and present EXECUTION Time focus: Present Providing information that tells people what to do now to meet the plan and adjust for any problems that have occurred recently Using current information to identify problems or errors in current work Collecting information without getting in the way of doing the work CONTROL Time focus: Past Having reliable methods of using data about the past to develop or adjust plans, and to motivate employees Provide information current enough that it can be used to guide current actions

Attention to Planning, Execution, and Control Problem if the level is too high: Too much effort goes into planning and controlling within the process, and not enough goes into execution. Problem if the level is too low: Insufficient effort in planning and control leaves the business process inconsistent and unresponsive to customer requirements

#8: Attention to Errors & Exceptions The process architecture should specify how the process should respond when errors, exceptions, or malfunctions occur Tradeoff: Wasting resources by being unsystematic vs. diverting resources from the main system goals through excessive formalization of exception handling

Treatment of Exceptions, Errors, and Malfunctions Exceptions: The system does not handle special cases properly. Operational failures: The system fails to operate as intended. Bugs: The system does not correctly reflect the ideas of the system designers. Design errors: The system does what the designers intended, but they failed to consider certain factors. Capacity shortfall: The system cannot meet current output requirements. Displacement of problems: The system creates problems that must be absorbed and fixed somewhere else. Computer crime: The system is used for theft, sabotage, or other illegal purposes often based on fraudulent data inputs.

Treatment of Exceptions, Errors, and Malfunctions The danger in designing systems is not planning for the unexpected. A mistake should be as easy to correct as it was to commit in the first place! TREATMENT OF EXCEPTIONS, ERRORS, AND MALFUNCTIONS Problem if the level is too high: The process focuses on exceptions and becomes inefficient and inconsistent. Problem if the level is too low: The process fails altogether or handles exceptions incorrectly, resulting in low productivity or poor quality and responsiveness perceived by customers.

Evaluating Business Process Performance Seven Main Performance Variables

Process Performance Variables Activity rate Output rate Consistency Productivity Cycle Time Downtime Security

Evaluating Business Process Performance PROCESS PERFORMANCE VARIABLES: Rate of output - the amount of output it actually produces in a time period consider capacity and scalability How can I handle special needs? Consistency A Basic TQM tenet: “unwarranted variation destroys quality”. Carefully specify how something should be performed and monitor the process to ensure it is performed consistently.

Activity Rate and Output Rate Output rate = the amount of outputs produced per unit of time Activity rate = the number of interim work steps performed per unit of time The distinction is important mainly for systems that take long to complete and/or are complex The activity rate is a good predictor of the output rate

You should consider capacity and scalability – How can you handle special needs? Capacity = the theoretical limit for the output rate The challenge to determine the ideal capacity and output rate Scalability = the ability to increase or decrease the capacity without major disruption or excessive costs

Consistency Consistency = applying the same techniques in the same order to obtain the same results Basic TQM Rule: “unwarranted variability destroys quality” Information systems may force organizations to do things consistently Emphasizing consistency often makes it difficult to be flexible Flexibility = the ease with which the process can be modified to: Meet customer needs Adapt to external changes

Control chart for monitoring consistency of a business process Carefully specify how something should be performed and monitor the process to ensure it is performed consistently

How to achieve FLEXIBILITY WITHIN A FRAMEWORK OF CONSISTENCY: Avoid restrictions that can be left to the judgment of the process participants Delay as long as possible converting information to physical results that are hard to change Use technical tools and methods that are themselves flexible

Waste = any activity that uses resources without adding value Productivity Productivity = the amount of output produced vs. the resources consumed Waste = any activity that uses resources without adding value Reduces productivity Built into the way many processes operate Ford example IT does not always lead to increased productivity

Cycle Time Cycle time = the length of time between the start of a process and its completion Processing time for each step Waiting times between steps Dependencies between steps Bottleneck = an essential step where a capacity shortage induces consistent delays

Figure 3.13 Identifying the causes of long cycle times

Downtime Downtime = the amount of time the process is out of operation Unexpected failures Planned maintenance Especially important consideration for e-business

Security Security = the likelihood that the process is not vulnerable to unauthorized uses, sabotage, or criminal activity Depends on procedures that insure accuracy and prevent unauthorized access

Finding the Right Level for Each Process Performance Variable ACTIVITY RATE Problem if the level is too high: Wasted effort and buildup of unneeded inventory Problem if the level is too low: Inefficient resource usage and imbalanced work in process RATE OF OUTPUT Lower productivity and consistency due to increasing rates of errors and rework Lower productivity due to the cost of unused capacity

Finding the Right Level for Each Process Performance Variable PRODUCTIVITY Problem if the level is too high: Too much emphasis on cost per unit and too little emphasis on quality of the output Problem if the level is too low: Output unnecessarily expensive to produce CONSISTENCY Inflexibility, making it difficult to produce what the customer wants Too much variability in the output, reducing quality perceived by the customer

Finding the Right Level for Each Process Performance Variable CYCLE TIME Problem if the level is too high: Lack of responsiveness to customer Excess costs and waste due to delays Problem if the level is too low: Product produced too soon is damaged or compromised before the customer needs it Delivery before the customer is ready FLEXIBILITY Too much variability in the output, reducing quality perceived by the customer Inflexibility, making it difficult to produce what the customer wants or to modify the process over time SECURITY Excess attention to security gets in the way of doing work Insufficient attention to security permits security breaches

Process Performance Variables and Related Roles of Information systems Review Table 3.5 p. 111.

Introduction to Communication and Decision Making

Activities that are part of business processes include: Processing data Communicating * Making decisions * Thinking/creating Taking physical action

Improving Communication and Decision Making Performance within Business Processes ACTIVITY RATE AND OUTPUT RATE Improve communication: Make sure communication does not cause delays in performing work steps Communicate more information or more types to more people Improve decision making: Make sure information for decision making is readily available Make more decisions using better, more complete information CONSISTENCY Improve communication: Make sure different people receive the same communication Improve decision making: Make sure repetitive decisions are made in the same way PRODUCTIVITY Improve communication: Achieve more communication with less effort. Permit efficient communication in many different forms. Improve decision making: Make better decisions with less effort. Maintain decision quality across a wider range of situations.

Improving Communication and Decision Making Performance within Business Processes CYCLE TIME Improve communication: Eliminate undesirable delays in communication Improve decision making: Eliminate unnecessary delays in decision making DOWNTIME Improve communication: Provide backup channels to continue communication even if the regular channel is not available. Improve decision making: Automate certain decisions to minimize the impacts of process downtime. SECURITY Improve communication: Make sure communications go only to the intended recipients Improve decision making: Make sure decisions are controlled only by those authorized to make the decisions

Basic Concepts of Communication

Communication Communication is an interpersonal process of sending and receiving symbols with messages attached to them.

General Model of a Communication System Feedback Receiver Decoder Transmitter encoder Source Destination Channel Noise and Distortion

Basic Communication Concepts Social Context Personal, Impersonal, and Anonymous Communication Time, Place, and Direction of Communication

Social Context The situation and relationships within which communication takes place. Social presence (perceives as a personal interaction) Organizational position Relationships Cultural Norms Age Gender The topic being discussed Nonverbal communication Media Richness Theory

Personal, Impersonal, and Anonymous Communication Personal - the relationship between sender and receiver matters. It affects form and content. Impersonal - The sender and receiver’s relationship does not matter. Both serve as agents of the organization. Anonymous - The sender’s identity is hidden from the recipient. IT can make communication more personal AND more impersonal.

Time, Place, and Direction of Communication Synchronous - The sender and Receiver are available simultaneously Asynchronous - The sender and receiver are not available simultaneously. Place Involves Physical Presence Direction: One-way vs. Two Way communication.

Common Communications Classified By Time and Place Presentation Systems Copyboards PC Projectors Facilitation Services Polling Systems Group Decision Rooms Transaction databases World Wide Web Shared Files Electronic Mail Voice Mail Shift Work Communications SAME PLACE EDI Transaction databases Electronic Mail Computer Conferencing Voice Mail Fax Pre-recorded Radio/TV DIFFERENT PLACE Typical Telephone Video Telephone Video Conferencing Live Radio TV Broadcast SAME TIME DIFFERENT TIME

What are some approaches for Information Systems to improve communications?

Approaches for Improving Communication Permit communication that could not take place otherwise. Make communication situations more effective. Eliminate Unnecessary Person to Person Communication Make Communications more systematic Combine and Extend Electronic Communications

Permit Communications That Could not Take Place Otherwise

Making Face to Face Communication More Effective Presentation Technologies: Blackboard Prepared Paper Handouts Overhead projector or slide projector with color transparencies Electronic Blackboard Computer LCD Display panels Computer for “What-If” Scenarios Computer-controlled Multi-media Computer controlled multi-media with interactive control.

Eliminate Unnecessary Person to Person Communication Substitute on-line Access to data Example: Supplier/Customer Relationships as discussed in Inter-organizational Information systems ATM access Automated Telephone Attendants Danger of becoming too impersonal

Making Communication Systematic Contrast communication between people vs. communication between machines. The business Memo Header: To: From: Date: Re: Having structure reduces the effort required to figure out what the communication means. Even with communication between groups of people, repetitive aspects of communication are systematized.

Combine and Extend Electronic Communication Functions Early communication technologies have been combined and extended to create more powerful communication technologies. Example: Telegraph, Telephone, Radio Broadcast Consider how more modern technologies are being combined. More convergence of computing and communications technologies.

Question: How have the different degrees of social presence in communication, or how have time, place, and direction of communication affected a situation in which you have been involved?

Basic Decision-Making Concepts Steps in a decision process Problem finding All too often resources are spent finding good solutions to the wrong problem! Problem solving Decision processes typically iterate between the various phases

Four-phase Decision Making Process Figure 3.15

Rationality vs. satisficing Rationality – a common model for explaining how people should make decisions “Rational” people are expected to attempt to maximize their welfare Satisficing – how people actually behave when making a decision Looking for a satisfactory alternative, rather than the optimal one bounded rationality

Common flaws in decision making (To Be Discussed Later) Poor framing Recency effects Primacy effects Poor probability estimation Overconfidence Escalation phenomena Association bias Groupthink

Have important advantages when Automating decisions Have important advantages when A great deal of information must be processed; or Small delays affect the outcome Only acceptable when every aspect of the decision is fully understood