Businesses regain control using Process Intelligence

By Ricardo Passchier, IDS Scheer

Now that confidence in businesses is waning, companies are looking for innovative means to increase transparency and improve company performance. Process Intelligence is a new technology that offers solace in these troubled times. The benefits of Process Intelligence are twofold. Process Intelligence provides insight into how results were achieved and is thus fundamental to both performance improvement and risk management.

These are turbulent times for businesses. Confronted by the credit crunch and a slump in share prices, both profitability and confidence have suffered a severe blow. Add to this the failing economy and the equation is complete. How can organizations equip themselves to regain control of business performance and simultaneously manage risks? Sound, and above all, timely management information plays a key role. Although financial indicators reflect the symptoms of possible problems, they do not identify the root causes. Detailed analysis of the underlying process behavior is required in order to determine the cause of poor performance. Better management or improvement of operational performance follows better control or improvement of operational processes. Process Intelligence is the answer.

Improving predictability and reliability
Information that supports decision-making is indispensible for running a company. Information after the fact is simply inadequate with margins under pressure and ongoing exposure to risk. Pro-active management is required in order to take targeted action. Traditional management information systems and conventional business intelligence fall short with respect to the speed and nature with and in which they provide the necessary decision-making information. They are by no means superfluous; they simply serve another objective namely accountability to internal and external stakeholders.

Conventional business intelligence is static in nature – metrics, i.e. performance indicators, are only available in retrospect. Such systems monitor operations on a mid to long-term basis in order to verify successful policy and strategy implementation, and to support the decision-making process. Results expressed as performance indicators and ratios provide an indication of the course that an organization is following, but reveal nothing about the actual causes. There is a serious risk that this will lead to only the symptoms being treated. Measures can even have a counterproductive or short-term effect.

Other – complementary – management information is required with which to take proper action. This information is available to companies in a new form of business intelligence that provides insight into how these results were achieved. Reconstruction of actual processes reveals underlying behavior patterns and identifies the root of the problem. This opens the way to focused and structural management and improvement.

This latest form of business intelligence is often referred to as Process Intelligence. Process Intelligence is dynamic in nature – data is already available even during process execution. Process Intelligence does exactly what is needed in the current market situation and fills a gap. It fulfills repeated calls for the greater transparency needed to counter unnecessary risk taking. Results are then more predictable and make it possible to alter course if things threaten to go wrong. This new technology puts businesses firmly back in charge.

Tools that use Process Intelligence technology monitor business-critical processes on a real time (seconds, minutes, hours) or right time basis (days, weeks, months) to anticipate problems or discrepancies, or to identify possibilities for improvement. Such tools are also known on the market as Process Performance Management (PPM) and Business Activity Monitoring (BAM) software. Because classic and new technologies vary in scope and application, they complement each other very well.

Revealing process behavior
The aim of Process Intelligence is to reveal behavior patterns within business processes and to reveal how and why these results were achieved. Process Intelligence unravels indicators into sequential process steps down to an individual transaction level. Visualizing this process reveals who did what and when.

Below is an example that illustrates end-to-end processes at a manufacturing company: A retailer requests a quotation from a consumer goods manufacturer and then places an order following acceptance. The supplier dispatches the goods, sends an invoice, and receives payment from the customer.

These processes can be followed step by step so that an organization can detect any divergences, bottlenecks, or potential risks in a timely fashion. Intermediate records in supporting source systems form the data with which the end-to-end process path is determined for each transaction. In the example of the manufacturing company, these moments are quotation request, order placement, goods delivery, invoicing, and payment. The process steps are like interconnecting pieces of a puzzle. A timestamp determines the sequence in which the process steps can be visualized. In either of these examples, if payment is structurally in default, or steps are being carried out in a different order, then this becomes immediately apparent. Even during the process, those in charge also have insight into statuses so that they can intervene if required.

On paper, goods delivery would appear to be a relatively simple process, but in practice, many things can go wrong, e.g. outstanding orders, outstanding invoices, or incorrect or late delivery. These factors all affect customer satisfaction, profit margins, and above all, continuity. By applying statistical methods, Process Intelligence can automatically identify the factors that have the greatest influence.

Aggregated representations assist with trend analysis. Individual process paths can be laid on top of one another like transparency sheets on an overhead projector to show the path most-commonly followed, branches (exceptions), and interdependencies. Because the technology also allows cross-sections to be made, processes can be studied from a variety of perspectives and benchmarks can be established. For example, how do processes within the Dutch subsidiary differ from those in the British subsidiary? How does processing of different types of product or transaction relate to one another? Or, to what extent does the actual process deviate from the process design? Business analysts can reuse process models and data derived from source systems for process simulation purposes.

Synergy benefits
There are three primary motives why companies decide to deploy Process Intelligence:
•  Improved customer satisfaction, quality, and margins;
•  Compliance-cost reduction and increased reliability of compliance activities;
•  Risk reduction and prevention.

This allows us to conclude that Process Intelligence is an extension of the three divergent yet related disciplines: Performance Management, Compliance Management, and Risk Management. This implies that various parties benefit from the deployment of this technology: the Chief Operating Officer (COO), who is responsible for operational results and process quality; the Chief Financial Officer (CFO), who is responsible for financial results and stakeholder/shareholder accountability; and the Chief Risk Officer (CRO), who is the deal breaker that acts as the organization’s conscience vetoing decisions at the right moment to safeguard the company from any risks. There are also groups of professionals whose work is simplified from a financial, economic, or risk perspective. These include controllers, accountants, auditors, risk managers, compliance officers, process managers, quality managers, and business analysts. Given the broad base and wide-ranging impact within an organization, Process Intelligence deployment will certainly create a degree of synergy.

Foresight is the essence of government
In conjunction with traditional instruments, Process Intelligence is an innovative means of control that provides organizations with new insights for performance improvement and/or risk management. Various target groups benefit from the deployment of this technology including COOs, CFOs, and CROs, as well as a diverse group of professionals involved with performance, compliance, and risk management. Once companies start using this technology, they then have a powerful tool with which to regain control, especially now that markets are in decline and confidence is waning. Those companies that can take a lead in this area will establish a competitive advantage and emerge as the absolute winners once the economy recovers. Please find more information on www.ids-scheer.com/CxO.

Broad application spectrum

There are countless applications where the use of Process Intelligence clearly provides added value. Typical scenarios include support for continuous improvement (Lean Six Sigma), cost reduction, monitoring and evaluating service levels, outsourcing, and supply chain logistics optimization. Two relevant but less obvious applications are highlighted below:

Governance, risk and compliance
Reconstruction of the actual process flow is ideal for anticipating the risks that may be encountered during the course of a process. Open positions and abnormal transactions or processes that are not proceeding according to predefined agreements become immediately apparent. Moreover, this demonstrates compliance with statutory legislation and regulations such as Sarbanes-Oxley, FDA, and GxP, or corporate governance implementation measures. Organizations can easily present auditors with observed process behaviors to demonstrate that process management is functioning correctly and that required control measures have been implemented. Visualizations provide direct answers to questions such as who did what and when, is there proper segregation of duties, are people keeping to their agreements, and are procedures being followed? Visualization of actual processes can also serve as reference-to-evidence. An additional benefit is that Process Intelligence is not limited to monitoring operational processes. An organization can deploy Process Intelligence in order to investigate its compliance processes, e.g. are we in control, are we conducting random checks correctly and on time, are we on schedule, who has conducted which audits and when?

ERP system implementation and upgrades
ERP system introductions most often provide streamlining, harmonization, or even standardization of operational processes. Their success depends fully on a configuration following the process design, implementation according to specification, and sufficient user acceptance. A classic IT challenge is often the discrepancy between documentation, implementation, and execution. Process Intelligence provides immediate insight into user behavior and process paths after go-live or even during testing. This reveals any workarounds and usage efficiency, and demonstrates to what extent actual implementation matches the approved blueprint. If the rollout takes place across several locations, then organizations can use Process Intelligence insights to identify benchmarks and best practices.

Successful practical deployment

Various companies have been using Process Intelligence for management and improvement purposes for several years now. Such companies operate across a variety of industries ranging from capital goods, manufacturing, chemicals, pharmaceuticals, and consumer goods to service sectors such as banking, insurance, IT, professional services, retail, logistics, telecommunications, and utilities. A random selection is presented below:

Bank
An internationally operating banking conglomerate with headquarters in Switzerland applies the technology to manage and optimize its securities services. Carrying out these processes entails inevitable risks. The conglomerate calculates the value of all outstanding transactions and can determine exactly where they are in the process. This acts as a barometer for operational risk. The financial controller can charge for any orders that have been cancelled at the customer’s request. Activity-based costing is thus within reach. Manual intervention is readily apparent allowing the bank to ascertain whether it is achieving its straight-through-processing targets. Furthermore, the bank is working to improve customer satisfaction and quality control, since it has total insight into which orders are still on hold.

CosmosDirekt
A leading German direct writer uses Process Intelligence to meet explosive market demand. Growth has been accelerating rapidly since 1994, which in turn has placed a significant burden on processes, systems, and organization. In order to deliver its operational excellence strategy and realize sustainable improvements, the insurance company has embedded process monitoring into its improvement methodology that closely resembles Six Sigma. Within a year, throughput time was reduced by 50% and complaints by 60%.

SAP
The largest business software vendor in the world deployed Process Intelligence to become a best-run business. The company strives for operational excellence and aims to achieve best-in-class purchasing processes by simplifying and – wherever possible – automating processes using insights provided by Process Intelligence. The transparency thus generated leads to improved decision-making and allows the software vendor to compare purchasing processes across its various sites and locations. On the one hand, the company uses process data as part of its improvement program (based on Six Sigma) and on the other, as part of its Sarbanes-Oxley compliance program. The data obtained demonstrates whether processes were carried out as prescribed and to what extent control measures have proved effective.

Yodobashi Camera
A large Japanese consumer electronics retail chain was having structural challenges guaranteeing delivery dates for the products it sold online. Within its supply chain, the retailer is dependent on credit card companies for processing online financial transactions, and on transport companies for home-delivery of the goods ordered. Prior to implementing Process Intelligence, the retailer was unable to exert any influence on the process and/or its business partners. By implementing Process Intelligence, processes are now transparent and the retailer is able to make better agreements with its partners. Whenever deliveries look as though they may be running late, the retailer can intervene far more quickly and is able to inform the customer. This has a positive effect on customer satisfaction and stock turnover. It has also led to less variation and reduced throughput time. The time between order confirmation and dispatch has been reduced to a minimum of 6 hours and a maximum of 12 hours, from 24 and 48 hours respectively.

Swisscom
A privatized Swiss telecommunications provider investigated one of its core processes – closing telephone subscriptions – in order to reduce its throughput times and the volume of customer complaints. It used to take the telecom provider days or even weeks to determine the cause of disruptions within its process. It was only apparent that there even was a delay once customers started to complain. Using Process Intelligence, the company was able to respond pro-actively rather than reactively. The department responsible for contracts is alerted whenever a contract has not been received within five days. The time required to process contracts has been drastically reduced meaning that customer payments are received far sooner. This places a reduced burden on working capital and simultaneously improves customer satisfaction.

Ricardo Passchier heads business development at the Netherlands branch of IDS Scheer, worldwide leader in Business Process Management (BPM). Ricardo has worked as a management consultant in a variety of industries, advising leading multinational companies on BPM for many years. Leveraging this experience, Ricardo is now responsible for the go-to-market and presales of IDS Scheer’s solutions for Enterprise BPM and Process Intelligence & Performance Management in the Netherlands. E-mail: ricardo.passchier@ids-scheer.com.