Aligning the Technology and Management Models: Business Process Management and Standard Software Solutions1 In Honor of Prof. Dr. Dieter Pressmar

1. Introduction For many years, our approach to organizational management was bounded by the suboptimization of collections of enterprise business processes. Business process-oriented solutions were difficult to obtain and implement, primarily because organizations were not engineered for business process management. While process management was intuitive to industrial engineers, organizational structures were hierarchical, and information systems were aligned with the vertical hierarchy. Early implementations of process management [for example Total Quality Management (TQM)] were not successful in forcing organizations to re-organize around business processes. The reasons are complex, but without process-aligned information systems, control and information flows were directed away from the business processes. The „stovepipe“ managers would not relinquish control to the business process owners, rendering the process managers impotent. Similarly, business process reengineering [in the form advocated by Hammer and Champy (1993)] did not result in significant changes in organizational structure. Business process thinking was a beneficial by product, but after expending significant effort and resources, most organizations could not reorganize around business processes. They could not afford the technology investment to design, develop, and implement the information systems to enable the newly reengineered business processes. As with 1 Published in IT-gestützte betriebswirtschaftliche Entscheidungsprozesse, Bernd Janke and Friederike Wall (Editors). Wiesbaden: Gabler Verlag, 2001.

2. Historical Perspective
This paper addresses a question that has received much attention in the 1990s. The question relates to executive management responsibilities, and simply stated, it is as follows: 2 The author has been under contract to the NAVAIR Enterprise Solutions Program Office since 1999, advising on the selection and implementation of enterprise software. NAVAIR decided to implement SAP R/3 in early 2000 and that implementation is currently underway. 3 The reference here is to the presentations by Joe C. Maggiola on 5 April 2000 and Jamie Hewett on 18 April 2000.

How do senior managers structure the enterprise in order to manage strategic resources to achieve competitive advantage? The issue has been discussed since the advent of modern management, but it has received significant attention in recent years. In the 1990s, there was a subtle change in the way managers viewed information systems and technologies. For much of the history of management information systems, senior executives have viewed systems and technologies as a necessary support cost, with limited linkages to the core business. Information systems management resided almost exclusively in the domain of the information systems specialist. In the early 1990s, it became evident that information systems and technologies were not a necessary cost, but a source of competitive advantage. These technologies could enable cross-functional enterprise integration, and in the late 1990s, extended enterprise integration. The solutions were strategic, expensive, and critical for enabling organizational cross-functional business processes. This shift in importance ignited a struggle in organizations, as senior managers brought information management under corporate control, with strategic decisions being made by the “new technology-savvy” senior executive team, while support and maintenance activities remained in the domain of the information systems division. A number of factors led to this transition, but most important was the rapid growth in IT network infrastructure and the success of enterprise packaged software, such as Oracle Applications or SAP R/3. With packaged software, which was primarily implemented by consultants and line managers, the need for proprietary software development is diminished, hence shifting IT/IS control from the IT/IS staff to corporate business process owners and their representatives.

3. Process Management Process management is as old as the discipline of Industrial Engineering. Localized implementations of process management (e.g., manufacturing processes, shipping processes, etc.) have been prevalent for years. Industrial Engineers commonly used the term “Process Engineer” as opposed to “Process Owner” or “Process Manager” [Grass (1956)]. The process management approach involves: 1. Documenting the process to obtain an understanding of how work flows through the process [Elaborate and paper-based “mapping” methodologies were designed for this documentation process [Mullee and Porter (1956)], 2. The assignment of process ownership in order to establish managerial accountability, 3. Managing the process to optimize some measures of process performance, and

4. Improving the process to enhance product quality or measures of process performance. In the late 1980s, managers discovered that the new information technologies could enable enterprise-wide process management [Davenport and Short (1990)]. Process management provided competitive advantage through cycle-time reduction, and the new information technologies provided managerial control. The constant quest for competitive advantage, enabled by new information technologies, unleashed the private sector management transformation that is still underway. Davenport and Short state that “thinking about information technology should be in terms of how it supports new or redesigned business processes, and business processes and process improvements should be considered in terms of the capabilities that information technology can provide.” Davenport and Short go so far as to call this new approach to process management: The New Industrial Engineering.

4 See, for example, Born (1994), Kirchmer (1999), McHugh, et al. (1995), Ould (1995), Roberts (1994), Rummler and Braiche (1990), and others.

6. Business process modeling (supported by simulation5) allows more predicable results for change initiatives. 7. The business process repository (i.e., enterprise model) allows managers to focus on realizing business goals that are linked to processes – not just IT considerations of time, functionality, and cost. 8. Continuous knowledge transfer (i.e., about business processes and their importance) and documentation builds valuable assets within the organization. 9. Business process models are essential as organizations make the next step to eBusiness. As organizations enter the world of extended enterprise integration (i.e., supply chain management, customer relationship management, etc.), the business processes will be revisited and reengineered many times. There are other benefits, but the primary benefit for modern organizational management is discussed in the following sections.

4. Organizing for Process Management Much has been written on this issue, but we use the IBM Corporation as a baseline, since the IBM experience is instructive for understanding the issues that relate to our project work at NAVAIR. The IBM model (Hewett, 2000) is depicted in Figure 1. This figure indicates the traditional “stovepipe” owners (Business Information Executives) in the vertical rectangles. Since IBM retains profit and loss (P&L) responsibility in the stovepipes, the model does not represent process management in the pure sense; i.e., financial control still resides in the vertical hierarchy. The business process owners (Business Process Executives) are represented by the seven horizontal rectangles appearing on the top of the chart, while the support processes are represented by the three horizontal rectangles in the lower section of the chart. Our research team has an interest in the IBM case study, since it relates directly to our project work at NAVAIR. Our primary interest is in how the IBM structure relates to NAVAIR, as opposed to how IBM arrived at the structure6. The alignment of the IBM structure with NAVAIR follows in a later section; hence, the IBM structure is the Organizational Reference Model for the case study that follows.

5. The Case Study Domain The case study domain for this paper is the U.S. Naval Air Systems Command (NAVAIR). “The Naval Aviation Systems Team (TEAM), in partnership with industry, serves the Nation and the Navy by developing, acquiring, and supporting naval aeronautical and related technology systems with which the operating forces, in support of the Unified Commanders and our allies, can train, fight, and win7.” In short, NAVAIR is responsible for life-cycle management for Naval Aviation, including: 1. Acquisition management, 2. Government technology development, 3. Testing and evaluation, 4. In service engineering and logistical support, 7 Background information on NAVAIR may be found at http://www.navair.navy.mil/

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Standard Software Solutions 7

5. Repair and modification, and 6. Interaction with industry, supply organizations, and the fleet. NAVAIR is considered a public sector innovator in implementing private sector management and technology methodologies and systems. NAVAIR‘s ongoing objectives are to increase effectiveness while managing cost. NAVAIR continues to reengineer its business processes and implement activity-based costing with success, and will be implementing process-oriented packaged software for many years. The Enterprise Resource Planning (ERP) implementation project was initiated in the spring of 2000, and NAVAIR preparations for the project began in 1999. The Enterprise Solutions Program Office (ESPO) was created to select the software solution, select the implementation consultants, and to manage the project. Condor Technology Solutions and George Mason University (GMU) were selected by NAVAIR as consultants to help with the planning for and the managing of the ERP implementation (Dunn, 1999). While there are some unique characteristics of the NAVAIR environment, we believe that the NAVAIR approach is a model for other public sector implementations.

6. The NAVAIR Organizational Problem NAVAIR is currently organized around core processes, as indicated in Figure 2. These core processes are Acquisition Management, Test & Evaluation, In-service Engineering & Logistical Support, Technology Development, Repair & Modification, and Support Operations. Through an extensive activity-based costing study, NAVAIR has a good understanding of these processes, including the resources that are consumed at the sub-process level. 6.1 Enterprise Resource Plannning and the NAVAIR Organizational Structure NAVAIR has just completed the Business Process Blueprinting Phase of Accelerated SAP (ASAP). This has provided a modular scope document, with an unclear understanding of the how the SAP modules map to Figure 2. This unclear understanding is a partial motivator for this paper. While Figure 2 represents core processes, these are not cross-functional business processes as enabled by modern packaged software. The NAVAIR core processes are functional „stovepipes,“ and functional „stovepipe“ owners manage them.

The equivalency to the IBM situation in Figure 1 is obvious. “Stovepipe” owners manage the NAVAIR core processes; the IBM equivalent being the Business Information Executives. In the NAVAIR organizational structure, the functional “stovepipe” owners are called Business Process Owners. The inconsistency is that the business processes that are implemented in SAP span the current NAVAIR core processes. The situation is indicated in Figure 3. Now, it is clear why the IBM case study is so instructive. NAVAIR has to make the final organizational change in order to achieve true process management. The cross-functional processes must be identified, documented, and managed. Or course, this means that additional reorganization would be required.

There is no suggestion that NAVAIR should adopt the IBM structure; however, there are aspects of the structure that could be beneficial8. At present, NAVAIR does not have Business Process Executives in the IBM sense. The NAVAIR competencies are similar to the Business Information Executives. NAVAIR should eventually reorganize around cross-functional processes as indicated by Hammer and Stanton (1999), assigning Business Process Executives that have real power. These ideas will be further discussed in the conclusions, but consider the transitional steps that have been executed by NAVAIR: 1. Reorganization around core competency, 2. Activity-based costing, 3. Business process reengineering, 4. Enterprise resource planning, and the yet to be executed 5. Process-centered organization.

While the path has been painful with many setbacks, this path may be optimal. After twelve years of constant change, NAVAIR has the end goal in sight, with ERP providing the final discipline to achieve true cross-functional business process management. It remains to be seen if the goal will be achieved, but it is certainly reachable.

7. Analysis While not uniformly applicable to other organizations, the NAVAIR case study has implications for many large and complex organizations. This is especially true for public sector organizations. „Big Bang“ approaches to organizational change are difficult to implement, especially in large organizations. While IBM’s transition was more abrupt, the NAVAIR approach was crisis-driven (i.e., declining budgets at the end of the Cold War), and the phased-transition approach has been orderly and much less destructive, allowing NAVAIR to reduce its size by 50% and through normal attrition. The early implementations of process reengineering and activity-based costing prepared NAVAIR for the difficult part of the journey; i.e., aligning cross-functional processes with SAP and reorganizing to manage those processes. Many private sector companies (e.g., Eastman Chemical) selected the same path, with similar outcomes.

7.1 Implications of Cross-functional Process Management If organizations can use the discipline of business process-oriented standard software to enable cross-functional process management, the implications are significant. The benefits flow to the customer, since organizational management and information systems are now aligned with the business processes. Since the business processes are the mechanisms for adding value to the customer, the benefits are obvious. The losers, of course, are the „stovepipe“ owners. Their power and control is diluted as information now flows to the cross-functional process owners. The dilution may require sharing, as between the IBM Business Information and Business Process Executives (see Figure 1), or it could be more absolute, with the cross-functional business process owners dominating.

8. The Technology-enabled End-state and Extended Enterprise Integration The end-state is directly related to the theme of these papers in honor of Prof. Dieter Pressmar: IT-enabled Business Decision Processes. With true cross-functional process management with information system alignment, one can move to global business process optimization, with extensions to customers, suppliers and other organizational claimants. While Operations Researchers were optimizing bounded processes, Dieter Pressmar had the vision to understand that the future was the interface between management science and business information systems. His constant theme of combining optimization with technology-enabled business process management approaches was truly revolutionary and far ahead of its time. Now, as organizational management models are being aligned with enterprise systems, we are posed to see the convergence of enterprise computing and Operations Research. This result must provide Dieter Pressmar with much satisfaction.

9. Conclusions This paper uses a case study from a large US organization to examine the importance of aligning the organization’s management and technology models. The assertion is that efficient and effective cross-functional business process management requires such an alignment. The assertion is presented relative to an Organizational Reference Model from the IBM Corporation. This model has not been executed as a total business process management model, since P&L control still resides with the „stovepipe“ owners. Never-the-less, the model is instructive as a solution for other large and complex organizations. The IBM model is examined relative to a case study from a large U.S. organization to understand a normal progression to business process management with information system alignment. The organization, the U.S. Naval Air Systems Command, has not yet achieved its vision of becoming a true process-oriented organization. Standard software from SAP is envisioned as providing the necessary framework and discipline for achieving that vision. This paper, in addition to delineating a normal progression for achieving business process management, identifies the final step that NAVAIR will have to take in order to achieve true cross-functional business process management. In this case, reorganization is inevitable. The current designated process owners are „stovepipe“ owners, with the yet to be identified cross-functional processes spanning their domain. Without reorganization, ERP will be less effective, because of the disconnect between managerial control and managerial information flow. Effective and efficient implementation requires that the management model and the technology model

be in alignment. Since SAP identifies the technology model, alignment can only be achieved by identifying process executives to own and manage the cross-functional processes, whether they are enabled by SAP or fall outside the scope of the ERP implementation.

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Standard Software Solutions 13

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