Managing in a Complex World

4 Processes

4.1 The Growing Importance of Process-Oriented Design Work

The value creation of today’s organizations is characterized by intense division of labor and specialization (→ INT, 2.2). The work required to create a product or service is more or less differentiated into specific value creation activities. This involves employee specialization.

Tasks and employees possessing the same or similar technical expertise are grouped into functional areas (e.g., procurement, production, sales, HR, or finance; → TPP, 5.3.3). These areas or departments deploy specific expertise and infrastructure to perform specific tasks within overall value creation. Establishing specialized units or departments enables purposefully developing, pooling, and efficiently utilizing the specialist expertise required for specific value creation.

The organization-specific division of value creation activities into specific specialist areas can be illustrated with an organizational chart. This visualizes an organization’s hierarchical structure, i.e., organizational configuration (→ TPP, 5.3). This structural or institutional view of an organization emphasizes the competence and responsibility of employees, organizational units, and their managers in fulfilling important value creation tasks.

In recent decades, economic, technological, political, and societal developments have strongly dynamized the environment. Increasing customer demands, the deregulation and globalization of many markets, yet above all the rapid development of new information and communication technologies (digitalization) have drastically intensified competition.

Time is increasingly becoming a scarce resource. Hence, speed and punctuality are gaining massive importance alongside quality and price, and have become a decisive competitive criterion. Time competition is becoming more and more dominant (Stalk & Hout, 1992): The bigger no longer “eats” the smaller, but the faster the slower (or the faster learner the slower one). Strategic agility is becoming a decisive prerequisite for success. [58]

Thus, temporally structuring specialization by division of labor and cooperation is becoming increasingly important. This development requirement collides with historically evolved, highly specialized areas of expertise. As these tend to optimize themselves internally (“blinkered thinking”), or even become little “fiefdoms,” they tend to degenerate into more or less isolated “operational islands” in terms of overall value creation (Figure 5).

Figure 5: Fragmentation trend of organizations Operational Islands

What is needed, instead, is designing organizational value creation across departments “from customer to customer,” i.e., carefully designing customer-centric processes. This requires careful temporal structuring of task fulfillment in order to meet the new needs of one’s value creation addressees (e.g., flexibility, speed, and responsiveness). Designing customer-centric processes takes priority (Osterloh & Frost, 2006): “Structure follows process.”

At the same time, the target groups of today’s organizations increasingly expect integrated organizational value creation from a single source (“one face to the customer”) – as if the entire organization comprised a single, fully informed, and competent person approachable at any time and oriented completely toward the constellation of customer needs.

This desideratum is particularly evident in service-intensive organizations (e.g., banks and hospitals). There is a demand for reliable, trustworthy contacts (“case manager”): one consultant for all banking services or one doctor for an entire treatment process. How a bank or a hospital structures itself internally is irrelevant for value creation addressees. Two other factors, however, are crucial: First, the relationship with the organization needs to be transparent; second, the “one face to the customer” experience needs to be positive. [59]

4.2 Process-Oriented Design Concepts

Since the early 1990s, these expectations have been met by process-oriented design efforts based on the latest information and communication technologies. These include concepts such as Business Process Redesign, Business Process Reengineering (Hammer & Champy, 1993), Process Management and Process Organization (Hammer & Stanton, 1999). All these concepts strive to make an organization’s value creation processes as lean as possible. This goal is pursued by minimizing error-prone interfaces, by systematically eliminating any “idle steps” generating no customer benefit (i.e., non-value-adding work, e.g., unnecessary waiting times or transportation, multiple clarification of the same facts), and by orienting these toward exhausting one’s core competencies.

Several other approaches also serve this purpose: Lean Production (Ohno, 1988) or Lean Management (Womack et al., 1990), as well as process-oriented approaches designed to continuously improve value creation processes, e.g., Kaizen (Imai, 1986) or Total Quality Management (Seghezzi et al., 2013).

All of these concepts increasingly highlight the systematic process-oriented interconnecting and optimizing of organizational value creation activities rather than institutional questions of establishing formal, hierarchical structures and departments. Design efforts ought to focus on customer-centric and well-coordinated organizational value creation rather than on creating optimal organizational units (Figure 6).

Horizontally oriented design supplements an organization’s traditional vertical structure by functional areas with the horizontal customer-oriented optimization of all business processes (e.g., service innovation, service provision). The horizontal perspective enables considering the value chain in terms of the customer, i.e., to consistently bundle value creation activities in order to maximize customer benefit. For instance, order processing begins (e.g., first contact with a customer advisor) and also ends with the customer (e.g., when the goods are shipped, when the customer settles the invoice, or when after-sales services are provided). The same applies to other processes: approving an extensive construction project, processing a complex loan application, or treating a serious illness. [60]

Today, the process-oriented design of organizational value creation (i.e., cross-departmentally or even cross-organizationally coordinating and synchronizing timely task fulfillment) is decisively supported by suitably applying modern information and communication technologies.

An organization’s processes do not end at its boundaries. Rather, they “couple” an organization with its specific environment by manifoldly involving stakeholders in organizational value creation.

Consistently applying a process view enables understanding every organization as an interconnected interplay of processes. Between these exist manifold interdependencies as well as customer and supplier relationships. This interplay of processes can also be described as process architecture (Österle, 1995).

Figure 6: Interplay of functions and processes in a process-oriented organization [61]

4.3 Process Categories

The idea to systematically consider an organization’s value creation is not new. Porter’s (1985) approach to the value chain distinguishes primary activities, which contribute directly to customer benefit, and supporting activities, which create the conditions for primary activities to be customer-centric (Figure 1).

Figure 7: Interplay of process categories

Similarly, the SGMM assumes that an organization’s value creation processes can generally be assigned to three large categories of higher-level processes (Figure 7): management processes; business processes and business model; support processes. [62]

4.3.1 Management Processes

Management processes comprise task complexes needing repeated handling and related to designing, stabilizing, and further developing either organizational value creation as a whole or an organization’s essential subsystems. This involves, for example, appropriately structuring task areas (e.g., budgeting, multi-year financial planning, evaluating major investments, project initiation and monitoring, strategy development, clarifying basic normative questions, acquiring and integrating other organizations). The SGMM distinguishes three basic categories of management processes: normative orientation processes, strategic development processes, and operational coordination processes.

Before explaining these categories, we briefly clarify the terms normative, strategic, and operational. These are used to describe key design dimensions of management practice (see also P. Ulrich & Fluri, 1995).

• The term normative refers to questions and tasks concerning ethically legitimizing organizational value creation (as outcome and process) and arising from assuming societal responsibility beyond primary value creation. The focus lies on high responsiveness to societal values, on questions of meaning, and on recognizing moral intrinsic values.

• The term strategic refers to questions and tasks relating to securing an organization’s long-term future. In view of changing stakeholder expectations, new opportunities, and development trends, this requires pronounced responsiveness. Two processes are central to such strategic efforts: establishing and further developing the prerequisites for successful long-term organizational value creation.

• The term operational refers to questions and tasks relating to running and stabilizing everyday business, above all efficiently utilizing scarce resources.

Thus, we understand the three categories of management processes as follows (Figure 8):

• Normative orientation processes serve reflecting on and clarifying the normative foundations of organizational activity. This may involve developing basic (procedural) behavioral principles for dealing with various stakeholders, in case of controversial concerns and interests, or for applying hazardous technologies. [63]

• Strategic development processes comprise integrated strategy and change work (Müller-Stewens & Lechner, 2011; Nagel & Wimmer, 2014). Such tasks must be performed when developing a robust strategy and successfully implementing it in everyday operations.

• Operational coordination processes involve diverse prioritization and coordination processes, e.g., prioritizing tasks and orders, or allocating scarce capacities (personnel, infrastructure), including holiday regulations, maintenance, etc.

Figure 8: Overview of management processes

4.3.2 Business Processes and Business Model

Business processes (sometimes also referred to as service- or patient processes depending on the type of organization) include an organization’s primary value creation. This includes target-group-oriented core activities intended to contribute directly to creating benefits for primary value creation addressees (e.g., customers, citizens, students, patients) (→ INT, 2.3). [64]

Customer-oriented business processes are central to an enterprise’s value creation – from identifying specific customer needs to effectively and efficiently creating customer benefits.

Business processes can be further subdivided, e.g., in the case of an enterprise as follows: Customer processes include customer acquisition and customer retention as subprocesses. Customer processes ultimately lead to repeat purchase decisions. Service provision processes comprise all activities resulting in customers receiving the agreed service at the agreed time and in the agreed quality. This includes subprocesses such as order processing, logistics, and production. Service innovation processes include subprocesses that contribute to systematic product innovation. In the case of industrial goods, R&D activities are central (Bieger, 2019; Bieger et al., 2009).

In line with the common term core competencies, business processes helping an organization to create strategic differentiation are often referred to as core processes (→ TPP, 5.2.4). For instance, the product development process can be a core process in an enterprise widely known for its innovation leadership. Core processes contribute significantly to customers’ perception of a superior benefit compared to the enterprise’s competitors.

In recent years, a new, expanded way of thinking about organizational value creation has emerged, above all due to rapidly developing information and communication technologies, as these create the prerequisites for completely new forms of organizational value creation. Innovative business models are central to the corresponding strategic development efforts (Gassmann et al., 2014).

A business model (Figure 9) describes how added value is generated for all stakeholders involved in organizational value creation processes, and how customers pay for this added value (commercialization).

It is essential to consider value creation – and this includes both business and support processes – across various organizations. Central to a business model is the entire value creation chain or value creation configuration – and often also a new self-understanding of value creation if, for example, a railway company develops into a mobility service provider (e.g., car rental, car-sharing services, Park & Ride, bicycle stations). Embedding organizational value creation in a comprehensive value creation configuration emphasizes developing new roles and functions, for both cooperation partners and value creation addressees (e.g., customers). [65]

Figure 9: Business Model Canvas as a widely used instrument for structuring business models (Osterwalder & Pigneur, 2010)

New technological possibilities enable an organization to outsource essential subprocesses (e.g., ordering processes to customers), or to develop completely new value creation configurations (e.g., in transport or accommodation services). This corresponds to increasingly and newly differentiating value creation, which is attractive as the latest developments in information and communication technology (e.g., apps, GPS) establish the conditions for integrating all participants’ business and support processes into the desired value creation configuration far more efficiently.

4.3.3 Support Processes

Support processes provide basic infrastructures and resources. Many such processes are critical to success and enable effectively and efficiently conducting management and business processes.

• For example, HR processes serve recruiting, developing, evaluating, and appropriately rewarding employees.

• Occupational training serve systematically further qualifying employees and developing an enabling teaching and learning culture.

• Facility management serves providing and cost-effectively maintaining all types of infrastructure facilities.

• Data and information handling serve processing customer, operational, financial, and risk data. [66]

• Corporate communications and public relations serve developing and maintaining robust stakeholder relationships far beyond safeguarding direct economic interests (corporate identity, public relations). In particular, this includes professional crisis communication (“issue management”).

• Risk management serves appropriately evaluating and handling the market-related, financial, technical, and communicative risks associated with business activities.

• Legal and compliance serve meaningfully designing, monitoring, and supporting business activities, from stakeholder claims to the regulatory design of governance.

These processes are designed and further developed as part of human resource management, training management, facility management, information management, communications management, risk management, and legal management. No difference in value exists between business processes and support processes. It is, for instance, crucial that professional service firms (consultancies, law firms, auditing firms) recruit, integrate, promote, and further develop qualified staff. The same applies to information and communication technology in a financial services company or in a hospital.

4.3.4 Financial Management Processes

In many organizations, financial management issues play an important role because finances are scarce resources and hence critical to an organization’s development opportunities. Which process categories can these processes be assigned to?

In fact, no single financial management process exists, but several subprocesses. These can be assigned to different process categories depending on task and effect:

• Financing, i.e., capital procurement and liquidity management as well as external accounting and reporting, provides the resource configuration with the necessary funds. These, in turn, enable making investments, building up potentials, and meeting payment obligations at any time. These processes significantly influence an organization’s financial stability (risk) and profitability. Thus, profitability indicates not only economic capacity but also spaces for action and development.

The SGMM regards these processes as support processes because they involve providing an appropriate resource configuration, one also including sufficient liquidity. The latter is a vital resource as it is the most [67] malleable of all resources: In a sense, liquidity is sheer potential, since its possession in no way determines when funds are spent, nor by whom or for what purpose.

• On the other hand, annual and multi-year financial planning, including investment planning, operational accounting and controlling, serve to create financial transparency. These are key preconditions for ensuring that the overall impact of an organization’s decisions (e.g., major investments or acquisitions) can also be adequately assessed from a financial viewpoint.

The SGMM regards these processes as management processes. They help to ensure that value creation can be designed to flourish in the short and long term in association with a dynamic environment. In addition, financial planning processes may also be used to fundamentally question the status quo of organizational value creation and, if necessary, to realign it.

4.4 Process Development

In practice, designing and developing processes frequently involves flow charts and process maps. These reflect an understanding of design instruments crucially important to the SGMM: “Tools” are aids for structuring communication in collaboratively seeking to advance organizational value creation (→ PPP, 1.3).

Process maps are used to visually reconstruct and illuminate the complex and intertwined nature of the routinized interactions structuring everyday business (Figure 10). As such, they have two important benefits: First, they clearly and comprehensibly visualize the spatially and temporally distributed communication, decision-making, and action patterns shaping everyday organizational flux; second, they enable discussing these patterns together.

Hence, process maps allow developing idealized theoretical concepts of organizational value creation. Importantly, they also enable making the effects (advantages and disadvantages) of the concrete division of labor and specialization accessible to enabling discussion. Such visualization permits participants to capture the overall dynamics of routinized interaction patterns and, on this basis, to collaboratively identify and unlock optimization and innovation potentials. [68]

Using process maps to carefully and jointly examine one’s working reality is indispensable to understanding and sustainably changing routinized interaction patterns. This is important because neither optimized nor newly designed processes serving one’s value creation addressees, nor the routinized communication and cooperation this requires, can simply be imposed on and implemented in an established organization. Instead, they require experimental testing, anchoring, and continuous optimization. This clearly reveals the limits of simply disseminating and multiplying “best practices.”

Figure 10: Detail of a process map (project documentation, ITEM-HSG) [69]