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Get Ready: The Rules Are Changing
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June 13, 2005 (Computerworld) -- When business processes become commodities, all the rules change in ways that can revolutionize business, says Thomas Davenport. In this month's Harvard Business Review, Davenport, academic director of the Process Management Research Center at Babson College in Wellesley, Mass., lays out his reasons for believing that those changes are beginning to happen. He told Computerworld's Kathleen Melymuka what he thinks business process commoditization will mean to business and IT.
Thomas Davenport, academic director of the Process Management Research Center at Babson College
What's the value of standard business processes to business and IT? For virtually anybody, a standard process can be a starting point—a point of departure from which to design a new process. When people are designing organizational charts, they often look at other organizational charts.
It also simplifies the commodity stuff that people do. There are so many processes in an organization that don't confer any competitive advantage, and doing them in an innovative way wouldn't make much difference to revenues or profits. So you might as well do them in a standard way. And application packages all assume some sort of process by which they're used.
What sorts of revolutionary changes do you foresee if standard processes are adopted in a big way? Over the years, I've seen this whole idea of business process outsourcing become popular, [but] there is really no basis for choosing to contract with external suppliers. You can turn accounts payable over to an outsourcer, but you have no indication that the outsourcer can do better—no objective measure except how shiny the consultant's shoes were. So it often comes down to cost.
If you could decide with some confidence that someone could do better than you could, that would be a big impetus for the whole idea that we are going to do only those things we think are distinctive and let others do the rest. Disaggregating the company into commodity and distinctive activities could be greatly accelerated if process standards took off.
And you see this beginning to happen? There are these really cheap resources available in places like India, and we have a process standard in CMM [the Capability Maturity Model] that says, "People can do this as well over there—if not better—than people here." CMM isn't a perfect standard, but it's certainly decent. That gave people a lot more trust that they could hire someone they may have never seen to do work, so that's starting to happen, but it's not as far along in some other business process areas.
You talk a lot about CMM. Why do you think it has been so successful? The government had a lot to do with it. For any of these standards to take off, you need a bunch of people getting together to agree, or you need one big 800-pound gorilla to say, "If you want to do business with us, here's how you'll do it." In the case of CMM, the government said, "If you're going to write code for us, you have to be Level 3," and that provoked a host of systems integrators, both here and around the world, to move in that direction.
The simplicity of it is another reason. When people try to develop a standard, they often get very complex about it. But the simplicity of Level 1 to Level 5 was very appealing. And the fact that it had a group like the Software Engineering Institute—people could get together and talk about how to implement CMM, so it became a little social movement.
Some standards—such as the ISO standards in manufacturing—have been around since the 1940s. Why, after all these decades of work on standards, do you think we're approaching some sort of critical mass of adoption? There are all these potential providers of services where you can save a lot of money, so the need for standards is higher. And there's more electronic interchange between companies than there has ever been, and things like XML have made it somewhat easier to agree on how people will exchange information in these standard process environments.
How soon will this happen? Everybody always thinks things will be revolutionary, and it turns out to be evolutionary because it takes so long to agree on things. And there's a natural tendency to go slowly on process standards because if you can maintain some competitive advantage by your process, you want to do that until your customers and suppliers force you to standardize it. It's happening faster in some areas than others. Certainly, supply chain has taken off pretty dramatically. The CMM stuff is going great guns, and also I've heard in the past year that 20 or so organizations are doing stuff with ITIL [IT Infrastructure Library], which is a process model for IT.
If I'm a CIO, what should I be doing about all this? Since IT is probably the most advanced of the business processes to use standards, you should be thinking about ITIL and CMM and other performance standards to see what makes sense for you to adopt within your own shop. Then, since a lot of systems relate to areas where there are already pretty well-developed process standards, like SCOR [Supply-Chain Operations Reference Model] and ISO 9000, you ought to be familiar with how your processes relate to those and what that means to how you relate to your software vendors. Is there a standard in your industry for how you do basic activities? If not, does it make sense to start developing one? So there are a lot of things CIOs need to be thinking about and acting upon.
This is the latest in a series of monthly discussions with Harvard Business Review authors on topics of interest to IT managers.
Process Standards
Here are three kinds of evolving process standards and how they apply to business:
STANDARD
WHAT IT DESCRIBES
EXAMPLE
Process activity and flow
The key steps typically performed in a process and the order in which they occur
The SCOR standard lays out five key steps in a supply chain: plan, source, make, deliver, return. Sublevels describe each step in increasing detail.
Process performance
How much time and cost is involved in each step of a process
Using the supply chain example, the time and cost of each step, such as ordering and receiving an item from a vendor.
Process management
Factors necessary for a well-managed process
In a supply chain, a process model that’s been agreed-upon, owned, communicated to suppliers and customers, linked to those of your business partners, measured and so on.
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