Driven by a realization that inefficiency in any part of the business can lead to severe competitive disadvantage, there has been a major shift in the way companies are approaching the subjects of business processes and return on investment (ROI) over the past year. Smart executives realize that it is not products or clever advertising slogans that win business wars, but rather a disciplined approach to managing the transactional aspects of the organization that will companies a competitive edge.
Michael Hammer, author of Re-engineering the Corporation, endorses the concept of the importance of focusing on processes. According to the September 2001 issue of Fast Company, Hammer believes that processes are even more critical today than 10 years ago and all the more urgent with a slumping economy. Obsessing over processes and getting them right is the only way a company can survive, especially now that the new economy has left early childhood and grown into a gangly, unpredictable adolescent.
But why the new emphasis on business process and ROI? There are five major catalysts that have led to a renewed focus on improving efficiencies in business processes.
· The need to increase shareholder value. Corporate profits have shrunk over the past year and the new mantra is "accomplish more with less." Markets are growing slowly, if at all, and the spotlight has shifted from growing revenues to running a more efficient business.
· Mergers and acquisitions. Running a stable business can be tough enough, and adding the complexity of consolidating two or more sets of business processes can magnify the difficulty. Unless one or more of the merging entities has an extremely good process mapping methodology, the combined operation will usually become more inefficient than the original companies.
· New, maturing or changing ERP systems. When an organization installs its first enterprise resource planning (ERP) system, or changes its existing system, glaring process inefficiencies are often brought to the forefront. Depending on the supplier, users may be asked to adopt an entirely new set of processes that can take months or years to get used to. As we suggest in the following section, the ability to leverage enterprise resource planning [ERP] systems is one of the hallmarks of an efficient operation.
· Growth Spurts. Almost all successful companies run into good news/bad news time periods when the demand for their products or services exceeds their ability to efficiently process and fill orders, as well as provide service to their many new customers. These time periods often expose major weaknesses in business operations that, unless corrected, can have a detrimental impact on the future health of the organization.
· Regulatory Pressures. Companies faced with new governmental regulations often find it necessary to make changes in their business processes. Flexibility is one of the most important keys to make these changes as painless as possible.
Six Steps to Achieve Efficiency and Drive Rapid ROI
Today, many organizations are looking for ways to mine additional value from their existing infrastructure. Efficiency and productivity have taken on added importance in companies with tightened budgets and reduced workforces.
Even those companies that aren't feeling an economic pinch want more efficient business processes to hone their competitive edge. Whatever the situation specific efficiency requirement, any solution made today must also promise quick ROI.
Opportunities to generate rapid ROI by maximizing efficiencies can be broken down into these six categories.
1. Leveraging the Value of ERP Systems
Large organizations have spent millions of dollars and dedicated thousands of employee hours to implementing sophisticated enterprise resource planning (ERP) and other line of business (LOB) systems. In midsize companies the investments may only be hundreds of thousands of dollars, but the stakes are equally high.
Despite these massive investments, the promise of ERP systems has not been realized due to bottlenecks that continue to exist in the way companies actually use the systems. These bottlenecks, which are referred to as business choke points, are found in three primary areas:
· Capture, storage and retrieval of data, documents, images, etc: A great deal of the efficiency of ERP systems is lost without the ability to quickly find and retrieve structured and unstructured data.
· Mapping of critical business processes: Unless ERP and LOB systems that interface with other parts of the organizations are based on efficient workflow models, much of their value will be wasted.
· Collaboration between internal and external resources: Analyst studies have shown that on average, between 10 to 15 percent of business transactions do not comply with the receiving systems. According to Aberdeen Group, as much as 40 percent of the total costs of managing transactions are spent on these "unruly" transactions. The inability of companies to collaborate electronically to resolve these problems costs them dearly, not only in lost productivity, but also in strained relationships with their customers and suppliers.
2. Reducing Labor Resource Requirements
The majority of investment returns are often generated through process efficiency gains and the elimination of handling costs. The gains achieved are valuable because they are reached throughout the organization, at the processor and clerk level, as well as the management level.
Labor and resource requirements are reduced through the following:
· Amount of time required to process a transaction: By enhancing the effectiveness of the business process, companies can experience reductions in the time it takes to process information from days to minutes. With the utilization of electronic storage for the retrieval of documents and reports, users of critical business systems gain faster access due to the elimination of manual handling and increased speed of searching for relevant documents and report information.
· Number of times a transaction must be handled: The incorporation of a predefined series of rules and routes for the automated flow of transactions enables the user community to action other tasks. An automated transaction process (ATP) system performs an evaluation of the steps to be taken based upon user input.
· Paper processing cost savings: Every time a piece of paper or printed report is touched, it costs money. This becomes even more expensive when a large amount of data must be captured from the paper. Capturing the data or eliminating the paper on the front end of the automated process reduces processing time.
· Audit access requirements: Audit activities can typically be a very labor-intensive process. An automated Web interface for users can perform the functions of a filing clerk, doing spot retrievals that eliminate the usual manual gathering and collection time required during a formal audit. For additional audit support, there is the ability to electronically batch output requested information, eliminating the need for a manual retrieval and duplication of documents. These capabilities save auditor time and staff time that is required to provide the information.
· Reduce inquiries through selfservice and collaboration: By making information available in a portal-type interface, partners and customers can look up information themselves, thus reducing the inquiry burden on internal staff. At the same time, if collaboration is required, partners and customers can interact in near to real time, enhancing the overall efficiency and sharing of information, and reducing the number of times a transaction must be touched.
· Resolution of discrepancies: The speed with which a process solution can identify, present and facilitate collaboration around an issue or discrepancy creates a unique opportunity to reduce costs. Essentially, this is accomplished by lowering the amount of user interaction required, not only from the organization utilizing the solution, but also from its partner and customer organizations.
· Elimination of errors and loss: Two key areas where business process savings are achieved include the elimination of duplicate data entry and document loss. The capture of documents on the front-end of a process not only expedites the process but also eliminates the potential for document loss on the back end when a document must be retrieved.
· Streamlining internal communication: Going beyond the traditional view of the organization and looking at the time-savings of personnel tangential to the process is important as well. For example, in an Accounts Payable application, the individuals in warehouse, distribution and purchasing can leverage the information collected in the process without having to contact an A/P representative. Auditors responsible for reviewing and evaluating the process or contractors performing additional duties also have the tools to become more efficient in their interaction with information. They become less dependent on the individuals responsible for maintaining the day-to-day operations.
3. Achieving Physical Plant Savings
An area frequently overlooked in achieving ROI is physical plant savings. There are three components to physical plant savings opportunities.
· Storage of documents: Electronically storing documents, reports and other correspondence eliminates the need for maintaining large and usually expensive storage space. Savings can be achieved by making the space available for other activities, as well as eliminating the transfer and storage costs associated with long-term, off site storage.
· Occupancy: When saving time and effort by using an automated process, the opportunity exists to perform the same duties or expanded duties without adding additional staff. This ultimately results in a decrease of the occupancy costs associated with maintaining or expanding a business process.
· Maintenance and Repair Operation (MRO) savings: As occupancy and storage requirements decrease, the amount of time and money invested in the repair and maintenance of facilities or equipment (computers, monitors, phone systems, fax equipment, etc.) decreases as well.
4. Reducing Materials and Shipping Costs
To execute a business process, time-critical information is often delivered via expensive mediums to the facility responsible for the processing. A good example of this is in the case of a retail or manufacturing organization where goods are received remotely, but ordered and paid for centrally. In this instance, the packing slip documents are delivered to a central processing facility in expedited fashion to take advantage of discounts for early payment.
This is just one of many examples where data and documents are captured remotely and must be consumed or utilized elsewhere.
By leveraging the distributed capabilities of an automated transaction process, including remote capture and access to information, typical material and shipping costs are reduced, both from the perspective of input into the process as well as output from the process. This is how it works:
· Postage: Information can be brought into the process remotely, potentially without capturing a physical document, thus eliminating or significantly minimizing storage and postage requirements. In addition, outbound postage can be decreased as information is presented over the Web.
· Overnight Shipping: Due to efficiencies in the business process, when information enters the process after having been captured remotely, the requirement to ship documents or reports overnight can be reduced or eliminated. If there is still a need to ship some information centrally, organizations can do so using a cheaper alternative to overnight shipping. However, from an outbound perspective, the ability for customers to receive information over the Web eliminates many requirements for overnight shipping.
· Fax: By leveraging Web capabilities, customers can achieve savings by the amount of Web traffic generated. The opportunity to receive orders, applications, claims or correspondence via the Web will increase, while decreasing the need for fax. When faxes can't be eliminated entirely, an electronic transaction results in an automatic process for capturing and delivering faxes into the business process and/or to an archive where they can be easily retrieved alongside other information content.
· Copying: The need for hard copies and duplicates is eliminated, as well as the management of those copies and duplicates.
· Resources and supplies required to support material handling costs: By minimizing and potentially eliminating the need for such things as faxes and copies, the materials required to support the processes are reduced, including paper output (especially in the case of reports), copy paper, fax machines, copy machines and printer ink. In addition, phone-line savings can be generated through the utilization of Web applications and/or delayed faxing.
5. Decreasing Collection Time and Fees
Many organizations derive significant benefit from cost savings provided by automating their processes. However, the ability to drive ROI continues into areas where cash management savings and cash generation opportunities can be executed. The opportunity to save and collect money is available from both the receipt and payment aspect of virtually any application in the financials, approvals or claims processing arenas.
· Discounts taken for early pay opportunities: In the case of a payables oriented process, an ATP application enhances the ability of taking advantage of early payment discounts. By providing an efficient process that delivers all relevant information in a more timely manner (especially the packing slip documents), this application creates the opportunity to take advantage of discounts at a more efficient level.
· Elimination of duplicate payments: For many organizations it can be difficult to identify duplicate submissions and duplicate payments. The ATP application creates an expanded environment where the system can clearly identify whether a duplicate exists and take steps to address it. This is achieved without significant human intervention, saving time and money.
· Decrease Day Sales Outstanding (DSO): From the receivables side, the ATP solution creates the opportunity to decrease DSOs. Information may be presented over the Web so the, I never got a copy of that invoice call is reduced or eliminated. In addition, there are specific modules available to readily identify and facilitate the resolution of items that are out of tolerance. Out of tolerance items, due to short shipments, wrong shipments and damage can cause DSOs to increase.
· Track and control rebates and/or warranty claims: Just as with payables and receivables, an ATP solution creates the opportunity to gain greater control of a process and provides the ability to take advantage of rebates or warranty claims. At the same time, on the opposite side of the transaction, the application can be used to manage the efficient response and payment of warranty claims or rebates.
· Regulatory fines and fees: By having all information readily available and accessible, an ATP application ensures that regulatory responses are efficiently produced and submitted, reducing and/or eliminating exposure to regulatory fines and fees.
· Reduce lost business and lost opportunity costs: In the Internet age, time to process is of the essence. Having a Web site that can accept orders and applications is just the tip of the iceberg. Behind the walls of the organization, a company must have an efficient process to facilitate the response to an order or application. By delivering content to the relevant business participants based upon pre-defined business rules, an ATP solution creates rapidly available access to data and documents, and the ability to respond quickly increases the opportunity to capture more business.
6. Improving Customer and Partner Satisfaction
As specific automated components are added to the mix, the opportunity to create revenue opportunities increases. This is typically, but not always, a softer benefit. However, due to the increases in the comprehensiveness and timeliness of a response to a customer/partner inquiry, the organization is likely to see an increase in business from that same customer or a reduction in costs from that same partner.
Increases in revenue due to better customer service can often be found in the manufacturing arena when a manufacturer is delivering a product that is a commodity. By operating the organization with an efficient process and enhanced collaboration, the customer or partner will be more inclined to interact with the organization.
In addition to the revenue opportunity due to increased customer service, other internal opportunities exist, as well. The ability to attract and retain quality personnel is critical in today's market. Employees are likely to be more productive and the organization is more likely to retain employees when automated, streamlined tools are utilized. The organization is viewed as being more innovative and concerned about making the employee's job easier.
Finding hidden treasure within your organization's business processes is imperative, especially as the Internet age forces organizations to respond faster and faster. Time is money and an automated transaction process will help decrease task time and increase response time.
Mark Ruport is the president and CEO of Optika Inc.