Monday, July 11, 2005

SEI's Capability Maturity Model

The Harvard Business Review recently published a piece by Thomas H. Davenport
entitled The Benefits of Business Process Standards.

"A business process is simply how an organization does its work -- the set of activities it pursues to accomplish a particular objective for a particular customer, either internal or external."

"Processes may be large and cross-functional, such as order management, or relatively narrow, like order entry (which could be considered a process in itself or a subprocess of order management)."

Below are edited excerpts:

Firms seek to standardize processes

Within a company, standardization can:
  • facilitate communications about how the business operates
  • enable smooth handoffs across process boundaries
  • make possible comparative measures of performance
Across companies, standard processes can make commerce easier for the same reasons:
  • better communications
  • more efficient handoffs
  • performance benchmarking
The variability in how organizations define processes makes it more difficult to contract for and communicate about them across companies.

Since information systems support processes, standardization allows uniform information systems within companies as well as standard systems interfaces among different firms.

Standard processes allow easier outsourcing of process capabilities.

In order to effectively outsource processes, organizations need a means of evaluating three things in addition to cost:

  1. the external provider's set of activities and how they flow

    • since companies have not reached consensus, for example, on just what comprises cost accounting or HR benefits management, it remains ambiguous what services should be performed between buyers and providers

    • organizations need a set of standards for process activities so that they can communicate easily and efficiently when discussing outsourced processes

    • these process activity and flow standards are beginning to emerge in a variety of businesses and industries, such as:

      • the Supply-Chain Council

        • has more than 800 businesses as members

        • the Supply-Chain Operations Reference (SCOR) model lays out a top-level supply chain process in five key steps:

          1. plan
          2. source
          3. make
          4. deliver
          5. return

        • the model also specifies typical activities for second-, third-, and fourth-level subprocesses with increasing levels of detail

  2. process performance standards that specify process evaluation approaches
    Once companies in a particular industry achieve consensus about which activities and flows constitute a given process, they can begin to measure their own processes and compare their results with those of external providers. If there is agreement, for example, on what it means to "process a new employee," managers can analyze how much it costs the internal HR function to provide that service, on average, and how long it takes. They can also have an informed discussion with external service providers about their process performance measures.

  3. process management standards that indicate how well their processes are managed and measured and whether they're on course for continuous improvement
    Because this third type of process standard doesn't require consensus on process activities and flows, it is the easiest to create and the most widely available today.

    Process management standards are based on the assumption that good process management will eventually result in good process flows and performance.

    In some domains such as information technology and manufacturing, these standards are already in wide use (via the Software Engineering Institute's Capability Maturity Model and the ISO 9000 series, respectively). They are beginning to lead to the commoditization of capabilities that will eventually transform organizations.
Excerpted from "The Coming Commoditization of Processes," Harvard Business Review, Vol. 83, No. 6, June 2005.


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