What Is Process Alignment Risk?
This is the risk that the business processes within a company may not be appropriately aligned with its corporate strategy, resulting in the inability of the organization to meet the demands of its customers efficiently and effectively. Process alignment can be defined as the synchronization of business process objectives and performance measures with organizational objectives and strategies, with a view to avoiding conflicting, uncoordinated activities.
The alignment of business processes is a conscious and systematic coordination of three interrelated organizational driving forces—strategy, culture and infrastructure—to be mutually supportive and to contribute as efficiently and effectively as possible to meet organizational goals.
Weak process alignment may impact any of the following areas within the company:
- Deployment and development of resources
- Business process reengineering and business process improvement efforts
- Management of financial flows
- Enterprise Risk Management (ERM)
- Effective and efficient use of available resources
- Measurement and control of business risks
- Measurement and monitoring of performance
Process Alignment In Value Chains
Most business processes in today’s complex enterprises inevitably end up embedded in the information systems of the enterprise. These business processes are referred to as “value chains,” reflecting the interconnection of the key business processes, and are collections of activities that are performed to design, market, deliver and support its products.
Value chains include the flow of information and physical materials through the various processes from beginning to end, converting ideas and raw materials into finished products or services for customers, and adding unique value at specific steps in the process of the enterprise. For example, the activities such as “concept-to-market” or “order-to-collection” constitute a value chain. The effectiveness of these value chains is ultimately determined by their ability to deliver the right products or services, with appropriate customer value. Their efficiency helps determine the organization’s success, ultimately resulting in reduced cycle times and improved customer satisfaction.
Business Risks Related To Process Alignment
Failure to address process alignment risk can have the following impact:
- The business processes may not be properly designed to carry out the business plan, resulting in various inefficiencies. Unsynchronized processes may result in an inability to handle the intricacy of the global marketplace.
- The processes and overall business strategy may not coordinate well enough to deliver on an organization-wide business initiative, resulting in solutions with various functional risks due to the lack of communication between the team members and various teams.
- The organization’s information flows may not be adequately designed, resulting in weak links between organizational units and fewer monitoring controls over those units.
- Lack of proper communication amongst various strategic business units may result in companies being incapable of delivering sustained growth.
- Operations risks may exist if methodologies, processes and resources are not incrementally funded to allow for business-related operations initiatives.
- Inflexible process design could hamper the ability of the firm to be responsive and agile.
- Organizations may lose their competitive edge in terms of developing innovative or compelling solutions.
- If there is no business plan, or if priorities, time scales, or resource commitments are inadequate, the business project may be at risk of failure or subject to severe cost overruns.
- End-to-end processes may not be well integrated from the customer's viewpoint.
- Manual processes may not be aligned with automated processes.
- Lack of formal processes to handle customer inquiries in the different mediums may result in inappropriate routing of emails, phone calls, web calls, web inquiries, etc.
- Inappropriate process maintenance policies and their related corrective actions, e.g., lack of review of the metrics for decision-making purposes.
- IT planning documents may not reflect and link business strategies and objectives to IT activities in the planning horizon. If IT plans are little more than hardware, software and people budgets, then misalignment may be indicated.
- New technologies may be acquired and implemented and/or significant changes might have been made to the technology architecture without clear business cases for the functional value they bring to the business.
Management Best Practices and Performance Measures
Process management is not merely a way to address specific problems (e.g., poor quality or high costs). Instead, it is a platform for capitalizing on new opportunities. If the company’s processes are not totally reliable, it can forget about developing a value chain or being a supplier to any of today’s fast-paced manufacturers. But, just as important as having smooth, efficient processes is being able to redesign those processes. That is, from order fulfillment to customer service to procurement, operating processes are rarely fixed any more, and the companies have to be prepared to adjust to the changes.
Create a Process Enterprise
One of the best ways for companies to organize and perform to their ultimate potential in the area of process alignment is to start creating a “process enterprise” in which the key structural issue is no longer centralization versus decentralization. Instead, it is process standardization versus process diversity. Among other benefits, process standardization provides companies with the following up-front advantages:
- Lowers overhead costs (since the process requires only one owner with one staff, only one set of documentation and training materials, and only one information system);
- Presents one face to suppliers and customers (reducing transaction costs both for them and for the company);
- Increases organizational flexibility (when all business units are performing a process the same way, a company can easily reassign people from one unit to another to respond to shifts in demand).
Similarly, decentralization also has its own advantages, e.g., the biggest advantage of diverse processes is that they allow different kinds of customers to be served in different ways. One simple rule is that companies should standardize their processes as much as possible without interfering with their ability to meet diverse customers’ needs.
Outsource Information Intensive Business Processes
Various industries have started relying on specialized business processes firms in the areas of accounting, inventory control, customer service, call-centers, database analysis, telemarketing and logistics. These business process outsourcing (BPO) specialists then own, manage and administer the selected processes based on measurable metrics. The idea is that the BPO specialists can help align the company’s processes to its business strategy in a more effective, efficient and practical manner, based on their in-depth knowledge and vast industry experience in their specialized areas. BPO is also very attractive for management because of greater asset utilization.
Deploy an Integrated IT Platform
Market leaders should design an integrated IT platform for the new virtual business model. They should experiment with various technological alternatives as they strive to align their business strategy with the IT strategy. The internet allows for a common platform supporting intra and inter-organizational coordination on a scale not previously possible.
Create Information Flow
In both financial and non-financial, or quantitative and qualitative systems, information must be useful not only in measuring performance, but also in monitoring and controlling it. A common problem with designing new processes or changing old ones is that existing accounting and performance measurement systems do not fit in the new structure. A company that adopts a team-based structure, for example, will have difficulty managing activities, motivating personnel, and producing results if existing systems only measure individual, business unit and overall financial performance.
Make Changes to an Ongoing Process
In the past, business crises typically motivated process re-alignment, leading to employee perceptions that redesign is connected to failure. Most companies are now beginning to realize that retooling can be most effective during periods of robust health. Successful companies communicate that belief to all employees, and dispel the misconceptions associated with restructuring. Successful companies in the new economy continually retool in response to customer needs and market forces. Ongoing redesign is best accomplished with a well-developed methodology such as business process reengineering (BPR).
A comprehensive methodology includes:
- Analyzing how work gets done
- Flattening functional hierarchies
- Designing a new measurement system
- Establishing a customer-focused value system
- Seeking technology-based efficiency gains
Some companies make the mistake of assigning to IT the role of change agent, rather than that of enabler. In contrast, successful reorganization requires holistic, companywide participation. It also requires testing, because the company cannot predict the effects of the redesign on customer service, productivity, profitability or morale.
Additional Leading Practices
Following is a list of some additional leading practices regarding process alignment:
- Funding should exist to support the business function. Funding should also exist to promote the business capabilities and to acquire the tools required to enhance the business processes.
- Companies should have resources assigned to developing, maintaining and supporting the IT infrastructure in support of the business.
- The organization should align its technical and business leaders, and they should share a common vision.
- Requisite technical skills and industry expertise should be in place to support the front-end technology and back-end processes.
- External and internal training programs should regularly be provided, and accreditation should be encouraged.
- Third-party outsourcing (ISPs, web hosting firms and website developers) should be properly utilized and managed.
- A mentoring program should exist to enhance web development and management skills.
- The value chain should be flexible enough to support the demands of building a web infrastructure and of supporting clients and trading partners.
- Quality should be considered an intrinsic part of applications and systems processes related to business activities. The processes should be flexible and dynamic.
- Specific task forces should be used to quickly identify and solve problems.
- The process should have input from many constituencies in the organization – ranging from sales to support to customers to R&D – representing all potential users or contributors.
- Vendors and contractors should be managed and used for non-strategic development efforts. Core competencies should not be outsourced unless by design.
- The firm should assess alternative organizations to learn about potential improvements.
- The organization should have an overall business project plan in place with ROI indicated, management and resources assigned, and project management tools in place. Project directives should be properly described in a project document.
- The firm should try to improve its ability to maintain and attract needed talent. Similarly, the organization should assess how it competes against its peers in terms of value chain performance.
Questions to Consider
- To what extent do you and others inside the organization understand who your customers are? In addition, how does the organization know what customers think about its products or services?
- Does the company set performance measures for i) overall organization; ii) business process; and iii) people? Are these measures linked together in a sequential, "top-down" approach?
- To what extent do you think the organization is making progress in improving performance? In addition, how does your organization compare with its competition in the industry?
- What are the core business processes? How do they support business growth?
- How does the organization become aware of technological development in its industry?
- How complex is the organization's legal structure? How does the organization become aware of political, legal and social developments that might affect the business processes?
- How does the organization ensure adequate response to market changes in a real-time environment?
- Do you consider process outsourcing as the best way to allocate internal resources to high-value-adding areas? Do you still carry out processes that may best be done outside?
- Can you create interdependencies within your processes across organizational boundaries? Are they seamless and supported by IT?
- Can your sourcing strategy dynamically respond to make-partner-buy decisions? Is it structuring and managing a portfolio of relationships for obtaining the required capabilities?
This information was taken from KnowledgeLeader’s Process Alignment Risk Key Performance Indicators Benchmarking Tool.
Other tools related to this topic include:
- Internal Audit Performance Measures Key Performance Indicators (KPIs)
- IT Performance Risk Key Performance Indicators
- Business Process Benchmarking Tool