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Process Innovation Strategies Guide

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Copyright © 1993. Harvard Business School Press, All rights reserved.

May not be reproduced in any form without permission from

the publisher, except fair uses permitted under U.S. or applicable copyright law.

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Process Innovation
Reengineering Work through Information Technology

Thomas H. Davenport
Ernst & Young
Center for Information Technology and Strategy

Harvard Business School Press

Boston, Massachusetts
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the publisher, except fair uses permitted under U.S. or applicable copyright law.

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CONTENTS

Preface

Introduction

Chapter 1 The Nature of Process Innovation

Part I A Framework for Process Innovation

Chapter 2 Selecting Processes for Innovation

Chapter 3 Information Technology as an Enabler of Process Innovation

Chapter 4 Processes and Information

Chapter 5 Organizational and Human Resource Enablers of Process Change

Chapter 6 Creating a Process Vision

Chapter 7 Understanding and Improving Existing Processes

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Chapter 8 Designing and Implementing the New Process and Organization

Part II The Implementation of Innovative Business Processes

Chapter 9 Process Innovation and the Management of Organizational

Change

Chapter 10 Implementing Process Innovation with Information Technology

Part III Innovation Strategies for Typical Process Types

Chapter 11 Product and Service Development and Delivery Processes

Chapter 12 CustomerFacing Processes

Chapter 13 Management Processes

Chapter 14 Summary and Conclusions

Appendix A Companies Involved in the Research

Appendix B The Origins of Process Innovation

Index
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Appendix A Companies Involved in the Research

Appendix B The Origins of Process Innovation

Index
Page ix

PREFACE
Among the technologyoriented consultants and business academics with
whom I associated in the mid to late 1980s, there was a general sense of
great opportunity in the air. The opportunity was to apply information
technology to the redesign of business processes. None of us knew exactly
what this meant, but occasionally we would find a pioneering company that
seemed to have tried it.

Jim Short (then of MIT, now at London Business School) and I decided to
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capture the efforts of these companies, and some general principles about what
worked and what didn't, in an article. It took us a couple of years to find
enough examples of process redesign (as we called it then) to make a good
article. By the time it was published by Sloan Management Review in June
1990, interest in the topic had increased considerably.

When the Sloan article was published I was working at Ernst & Young's
Center for Information Technology and Strategy, which proved to be a great
platform for learning more about this topic. Many firms visited the center for
briefings and informal discussions about process innovation (as we began to
call it), and I could also learn about the implementation of these ideas by
getting involved in various E&Y consulting engagements. We started a
the publisher, except fair uses permitted under U.S. or applicable copyright law.

multiclient research program on process innovation, in which we could try out

ideas and frameworks on a broad variety of companies that were interested or
active in the field. The center played an important role in educating E&Y clients
about process innovation, and in developing the firm's consulting methodology
in this area. Alan Stanford, who did more than anyone else to establish the
center (and who hired me to work in it), and Bud Mathaisel, who ran the
center and ran interference for its researchers, deserve much credit for making
the book and these learning activities possible.

Several members of the center assisted by writing first drafts of chapters: Mary
Silva Doctor with a chapter on approach that was later blended into the first
section of the book; Alex Nedzel

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Page x

with the chapter on ITbased implementation of process innovation; Suzanne

Pitney with the chapter on organizational change management; and Larry
Prusak with the chapter on information as an enabler of process innovation.

Other members of the center who researched or reviewed aspects of the book
include Jennifer Burgin, Scott Flaig, Chris Gopal, Jim McGee, Vaughan
Merlyn, Phil Pyburn, and Greg Schmergel. Carol Oulton, Janet Santry, Jean
Smith, and Susan Sutherland were very helpful with graphics or word
processing.

Working at Ernst & Young, which had a strong consulting practice in total
quality management, also helped me understand how process innovation
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differed from process improvement. I now feel that these two concepts are
poles on a continuum of approaches to operational performance improvement.
Jim Harrington, Pravesh Mehra, and Terry Ozan of E&Y were particularly
helpful in this regard.

Several friends and former colleagues at the Harvard Business School read
and influenced the book. They include Lynda Applegate, Bob Eccles, Nitin
Nohria, and John Sviokla. Jim Cash and Warren McFarlan gave me feedback
on the original article that was useful in writing the book.

Carol Franco, my editor at the Harvard Business School Press, made the
publishing process seem easy, made the book seem better, and made all my
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questions seem reasonable. John Simon and Natalie Greenberg made my

prose much more compact and readable. Two reviewers on behalf of the press
(Judy Campbell at Xerox and an anonymous academic) also made valuable
suggestions on issues of both content and structure.

A book is a family's project, not an individual's. My wife Jodi remained

cheerful and encouraging through the late nights, early mornings, and weekends
devoted to the book rather than the family. Even my sons, Hayes and Chase,
only occasionally resented not being able to play with me or with the family's
best computer.

I am also extremely grateful to the managers of companies that were

undertaking process innovation initiatives, who shared their experiences and
insights with me quite freely. Process innovation (or reengineering, redesign,
and so forth) was invented not by consultants or academics, but by these bold
and intelligent businesspeople. I simply jumped on their bandwagon at a
relatively early stage.

Chapter 1
The Nature of Process Innovation
In the face of intense competition and other business pressures on large
organizations in the 1990s, quality initiatives and continuous, incremental
process improvement, though still essential, will no longer be sufficient.
Objectives of 5% or 10% improvement in all business processes each year
must give way to efforts to achieve 50%, 100%, or even higher improvement
levels in a few key processes. Today firms must seek not fractional, but multi
plicative levels of improvement—10X rather than 10%. Such radical levels of
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change require powerful new tools that will facilitate the fundamental redesign
of work.

The needed revolutionary approach to business performance improvement

must encompass both how a business is viewed and structured, and how it is
improved. Business must be viewed not in terms of functions, divisions, or
products, but of key processes. Achievement of orderofmagnitude levels of
improvement in these processes means redesigning them from beginning to
end, employing whatever innovative technologies and organizational resources
are available.

The approach we are calling for, process innovation, combines the adoption
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of a process view of the business with the application of innovation to key

processes. What is new and distinctive about this combination is its enormous
potential for helping any organization achieve major reductions in process cost
or time, or major improvements in quality, flexibility, service levels, or other
business objectives.

Executives in the organizations we studied and consulted for have expressed

great interest in process innovation. They have spent much money and time on
less structured and less ambitious approaches to business change with little
result. The successes of pioneering firms with process innovation initiatives
offer them new hope.

The early results of process innovation are undeniably attentiongrabbing. IBM

Credit reduced the time to prepare a quote for buying or leasing a computer
from seven days to one, while increasing the number of quotes prepared
tenfold. Moreover, more than half its quotes are now issued by computer.
Federal Mogul, a billiondollar auto parts manufacturer, reduced the time to
develop a new part prototype from twenty weeks to twenty days, thereby
tripling the likelihood of customer acceptance. Mutual Benefit Life, a large
insurance company seeking to offset a declining real estate portfolio, halved the
costs associated with its policy underwriting and issuance process. Even the
U.S. Internal Revenue Service achieved successful process innovation,
collecting 33% more dollars from delinquent taxpayers with half its former staff
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and a third fewer branch offices.

Radical process change initiatives have been called various names—e.g.,

business process redesign and business reengineering. For several reasons, we
prefer the term business process innovation. Reengineering is only part of what
is necessary in the radical change of processes; it refers specifically to the
design of the new process. The term process innovation encompasses the
envisioning of new work strategies, the actual process design activity, and the
implementation of the change in all its complex technological, human, and
organizational dimensions.

Business Drivers of Process Innovation

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That Japanese firms discovered (or at least implemented) process management

long before the West (see Appendix B) helps explain their worldwide
economic success. Process improvement and management have characterized
some Japanese corporate cultures for decades, and enabled firms in a number
of industries to develop fast, efficient processes in such key areas as product
development, 1 logistics, and sales and marketing.2 Often, these highly refined
processes are introduced with little attendant use of advanced technology or
radical approaches to human resource management.3 They simply are logical,
balanced, and streamlined. The Japanese firms that have developed such
processes constitute a major competitive driver for the adoption of process
innovation by their Western counterparts.

Today, with competition extended to the execution of strategy, firms frequently

woo customers on the basis of process innovation.

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The objective of the innovation might be process time reduction— in home

mortgage financing, for example, timely approval of loans, to the extent that it
reduces the period of uncertainty for home buyers and sellers, constitutes a
competitive advantage. Citicorp has reduced process time for some mortgage
approvals to fifteen minutes (although recent losses in its retail bank suggest
that it might also optimize its processes for consistency and risk avoidance).

Process innovation can also support lowcost producer strategies. Companies

that eliminate, for example, costly aspects of their product delivery processes
can pass the savings on to customers. The life insurance firm, USAA, has a
process objective of avoiding the costs of an agency relationship by relying on
telephonebased marketing. USAA's telephone customers are consequently
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paying lower premiums than those offered by other insurers for the same
coverage. The Charles Schwab discount brokerage house also uses this
approach.

Competitive pressure is not the only driver of process innovation; increasingly,

customers are the impetus for radical process change. The automobile and
retail industries offer two notable examples of customerdriven change. Auto
manufacturers, responding to intense foreign competition in the 1980s, forced
suppliers to increase the quality, speed, and timeliness of their manufacturing
and delivery processes. 4 In the retail industry, WalMart has established
practices of continuous replenishment, supplier shelf management, and
simplified communications that have significantly influenced its suppliers,
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including such giants as General Electric and Procter & Gamble.5

Finance is another powerful driver of process innovation. Companies that have

assumed heavy debt loads as a result of leveraged buyouts or fending off
corporate raiders often need to cut expenses substantially to improve
profitability. Process innovation can be more effective at removing unnecessary
costs than many other alternatives such as business unit sales and early
retirement programs (which result in a company's most employable people
leaving to find other jobs). It may be that in the 1990s overburdened
companies will come to terms with their debt through operational, process
based restructurings, rather than financial maneuvering.

There are other occasions that provide "fresh start" opportunities for process
innovation. For example, it may be desirable

to redesign a process that is to be outsourced before turning it over to an

outside firm. A merger can provide an opportunity for replacing redundant
processes with a newly designed process that better accommodates the new
firm's objectives. Even a poor IT infrastructure can be an opportunity for
process innovation; many firms today need to rebuild major systems, but they
should not construct them to support inadequate or inferior processes.

Process innovation can also respond to the need for better coordination and
management of functional interdependencies. 6 Better coordination of
manufacturing with marketing and sales, it is reasoned, will allow a company to
make only what its customers will buy. In the consumer foods business, this
process objective often takes the form of reducing the likelihood that goods
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will become stale; passing information from sales to manufacturing has enabled
FritoLay7 and Pepperidge Farm to realize substantial reductions in stales. The
automobile industry has labeled this type of coordination ''lean production," an
approach cited by a major MIT study as key to Japanese success.8 Achieving
a high degree of interdependence virtually demands both the adoption of a
process view of the organization to facilitate the implementation of cross
functional solutions, and the willingness to search for process innovations.
Existing approaches to meeting customer needs are so functionally based that
incremental change will never yield the requisite interdependence.

Of the many operational reasons that privatesector organizations embark on

process innovation initiatives, almost all can be traced to the need for
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improving financial performance. Process cost reduction translates directly into

that objective. Other process objectives, such as time reduction and improved
quality and customer service, are assumed to translate into higher sales or less
expensive production. Even process objectives that involve worker learning
and empowerment are ultimately oriented toward improving financial
performance, the assumption being that fulfilled workers will be more
productive workers. Because process innovation initiatives consume resources
that might be spent in some other way, it is reasonable to expect that they will
yield financial benefits. However, as will be shown later, improved financial
performance is often problematic as the only stated vision or objective for
process innovation. Nonfinancial objectives are normally more likely to inspire
vigorous efforts to improve work.

A final rationale for process innovation is that it suits our business culture. Even
if Western firms could solve their financial problems and satisfy their customers
through incremental improvement, why should they suppress their appetite for
innovation? Perhaps what American companies need is a process approach
that marries radical innovation and the discipline of continuous improvement. A
Western version of quality might focus on results as well as process. U.S. firms
need a process management approach that embraces both human enablers of
process change and the tool that has changed business most over the past
three decades—information technology. Western firms can only hope that the
combination of process thinking and effective use of technological and human
innovation enablers will allow them to catch up with—and even surpass—their
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global competitors, some of whom have been optimizing and streamlining their
processes for many years. As Xerox CEO Paul Allaire, whose firm has
successfully created and marketed products of worldclass quality, observed:
"We're never going to outdiscipline the Japanese on quality. To win, we need
to find ways to capture the creative and innovative spirit of the American
worker. That's the real organizational challenge." 9

What is a Process?

Adopting a process view of the business—a key aspect of process

innovation—represents a revolutionary change in perspective: it amounts to
turning the organization on its head, or at least on its side. A process
orientation to business involves elements of structure, focus, measurement,
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ownership, and customers. In definitional terms, a process is simply a

structured, measured set of activities designed to produce a specified output
for a particular customer or market. It implies a strong emphasis on how work
is done within an organization, in contrast to a product focus's emphasis on
what.

A process is thus a specific ordering of work activities across time and place,
with a beginning, an end, and clearly identified inputs and outputs: a structure
for action. This structural element of processes is key to achieving the benefits
of process innovation. Unless designers or participants can agree on the way
work is and should be structured, it will be very difficult to systematically
improve, or effect innovation in, that work.

Process structure can be distinguished from more hierarchical and vertical

versions of structure. Whereas an organization's hierarchical structure is
typically a sliceintime view of responsibilities and reporting relationships, its
process structure is a dynamic view of how the organization delivers value.
Furthermore, while we cannot measure or improve hierarchical structure in any
absolute sense, processes have cost, time, output quality, and customer
satisfaction. When we reduce cost or increase customer satisfaction, we have
bettered the process itself.

Some managers view the dynamic nature of processes in a negative,

bureaucratic sense: "We can't do anything around here unless we follow a
process." To the contrary, this book is based on the assumption that following
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a structured process is generally a good thing, and that there is nothing

inherently slow or inefficient about acting along process lines.

A process approach to business also implies a relatively heavy emphasis on

improving how work is done, in contrast to a focus on which specific products
or services are delivered to customers. Successful organizations must, of
course, both offer quality products or services and employ effective, efficient
processes for producing and selling them. But U.S. companies spend twice as
much researching and developing new products as new processes (these
proportions are reversed in Japan 10), and almost all of the amount spent on
processes is targeted at engineering and manufacturing. Marketing, selling, and
administrative processes receive very little investment. Adopting a process
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perspective means creating a balance between product and process

investments, with attention to work activities on and off the shop floor.

Researchers of innovation in organizations frequently distinguish between

product and process innovation, the former receiving both more attention by
firms and more study by researchers. But at least one recent study has pointed
out that the two types of innovation often seem to occur together.11 Indeed, in
service industries it is nearly impossible to distinguish between innovative new
services offered to customers and the innovative processes that enable them.
As these industries mature and seek innovation in their offerings, it is perhaps
inevitable that they will adopt more of a process orientation.

Processes that are clearly structured are amenable to measurement in a variety

of dimensions. Such processes can be measured in terms of the time and cost
associated with their execution.

Their outputs and inputs can be assessed in terms of usefulness, consistency,

variability, freedom from defects, and numerous other factors. These measures
become the criteria for assessing the worth of the innovation initiative and for
establishing ongoing improvement programs.

Taking a process approach implies adopting the customer's point of view.

Processes are the structure by which an organization does what is necessary to
produce value for its customers. Consequently, an important measure of a
process is customer satisfaction with the output of the process. Because they
are the final arbiters of process design and ongoing performance, customers
should be represented throughout all phases of a process management
program.
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Processes also need clearly defined owners to be responsible for design and
execution and for ensuring that customer needs are met. The difficulty in
defining ownership, of course, is that processes seldom follow existing
boundaries of organizational power and authority. Process ownership must be
seen as an additional or alternative dimension of the formal organizational
structure that, during periods of radical process change, takes precedence over
other dimensions of structure. Otherwise, process owners will not have the
power or legitimacy needed to implement process designs that violate
organizational charts and norms describing "the way we do things around
here."
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Our definition of process can be applied to both large and small processes—to
the entire set of activities that serves customers, or only to answering a letter of
complaint. The larger the process, however, the greater the potential for radical
benefit. A key aspect of process innovation is the focus on broad, inclusive
processes. Most companies, even very large and complex ones, can be
broken down into fewer than 20 major processes. IBM, for example, has
identified 18 processes, Ameritech 15, Xerox 14, 12 and Dow Chemical 9.
Key generic business processes include product development, customer order
fulfillment, and financial asset management. Figure 11 depicts a typical set of
broad processes for a manufacturing firm.

Because a process perspective implies a horizontal view of the business that

cuts across the organization, with product inputs at the beginning and outputs
and customers at the end, adopting a processoriented structure generally
means deemphasizing the functional structure of the business. Today almost
every large

Operational

Product development

Customer acquisition

Customer requirements identification

Manufacturing

Integrated logistics
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Order management

Postsales service

Management

Performance monitoring

Information management
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Asset management

Human resource management

Planning and resource allocation

Figure 11
Typical Processes in Manufacturing Firms

business organization is characterized by the sequential movement of products

and services across business functions—engineering, marketing, manufacturing,
sales, customer service, and so forth. Not only is this approach expensive and
timeconsuming, it often does not serve customers well. In functionally oriented
organizations, handoffs between functions are frequently uncoordinated. As a
result, no one may be responsible for measuring or managing the time and cost
required to move products from laboratory to market or from customer order
to receipt. Process innovation demands that interfaces between functional or
product units be either improved or eliminated and that, where possible,
sequential flows across functions be made parallel through rapid and broad
movement of information.

Major processes such as product development include activities that draw on

multiple functional skills. New product designs are generated by research and
development, tested for market acceptance by marketing, and evaluated for
manufacturability by engineering or manufacturing (see Figure 12). Processes
that involve order management and service cross the external boundaries of
organizations, extending into suppliers and customers. Consequently, viewing
the organization in terms of processes and adopting process innovations
inevitably
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multiple functional skills. New product designs are generated by research and
development, tested for market acceptance by marketing, and evaluated for
manufacturability by engineering or manufacturing (see Figure 12). Processes
that involve order management and service cross the external boundaries of
organizations, extending into suppliers and customers. Consequently, viewing
the organization in terms of processes and adopting process innovations
inevitably entails crossfunctional and crossorganizational change.

Adopting a process view implies a commitment to process

Page 9

Figure 12
A Typical CrossFunctional Process

betterment. Much recent attention has been given to time reduction as an

objective of business change; 13 cost reduction and quality improvement are

also familiar. But no single objective is sufficiently ambitious for a process
innovation initiative. Many firms have found that they can achieve multiple
objectives with each process innovation initiative. Indeed, they must: customers
demand cycle time reduction and output quality improvements, while the
competitive and financial environments simultaneously demand that process
costs be substantially reduced.

Some of these improvement objectives can be found within a functional (i.e.,

nonprocess) context. Manufacturing, for example, has been improving cycle
time and quality for many years. But these improvements often are not
perceived by the customer because of poor coordination with other functions.
A product is manufactured more quickly, for example, but sits in the
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warehouse awaiting a customer credit check or resolution of a discrepancy in

an order. Consequently, the impact of functional betterment, even when fully
achieved, may be limited. Process improvement, on the other hand, whether
internal or external, should immediately benefit the customer.

To some, a process orientation might imply a process industry, that is, an

industry, such as chemicals, that produces a product continuously rather than in
discrete units. But process improvement and innovation as we discuss them
here apply to all industries. It may be easier to apply process thinking to
manufacturing firms (both discrete and process), because structure and
measurement have traditionally been applied to manufacturing processes, but
the benefits of process thinking are clearly attainable by service industries as
well.

What Constitutes Innovation?

Defined simply, innovation is, of course, the introduction of something new.

We presume that the purpose of introducing something new into a process is to
bring about major, radical change. Process innovation combines a structure for
doing work with an orientation to visible and dramatic results. It involves
stepping back from a process to inquire into its overall business objective, and
then effecting creative and radical change to realize orderofmagnitude
improvements in the way that objective is accomplished.

Process innovation can be distinguished from process improvement, which

seeks a lower level of change. If process innovation means performing a work
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activity in a radically new way, process improvement involves performing the

same business process with slightly increased efficiency or effectiveness. The
actual level of benefit derived from operational betterment initiatives falls, of
course, across a continuum, but in practice most firms seek either incremental
or radical change. It is possible that process innovation might yield only
incremental benefit, in which case we would classify it as an improvement. 14
We are also familiar with at least one instance in which a process improvement
initiative yielded radical benefit, albeit in a narrowly defined process.15

For example, a firm that analyzes its customer orderfulfillment process and
then eliminates redundant or nonvalueadding steps is practicing process
improvement. This activity might eliminate several unnecessary jobs, improve
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customer satisfaction, and reduce delivery time from three weeks to two.
Another firm that looked at its order fulfillment process with an eye toward
process innovation might provide customers with order entry terminals,
eliminate its direct sales force, guarantee order fulfillment, arrange for a third
party to manage its warehouse, and empower frontline personnel to handle all
financial and shipping details. The latter firm might halve its costs and order
fulfillment times. Even the best American performers in terms of quality (i.e.,
the highest scores in the Baldrige award competition) improve reliability, cycle
time, inventory turns, and so forth an average of only 5% to 12%;16 firms
undertaking process innovation could not afford to be satisfied with these
results.

There are other important differences between process

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improvement and process innovation, among them, the locus of participation in

organizational change, the importance of process stabilization and statistical
measurement, the enablers and nature of change, and the degree of
organizational risk. These are summarized in Figure 13.

Process innovation initiatives start with a relatively clean slate, rather than from
the existing process. The fundamental business objectives for the process may
be predetermined, but the means of accomplishing them is not. Designers of
the new process must ask themselves, "Regardless of how we have
accomplished this objective in the past, what is the best possible way to do it
now?"
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Whereas process improvement initiatives are often continuous in frequency, the

goal being ongoing and simultaneous improvement across multiple processes, it
is difficult to conceive of continuous process innovation. Process innovation is
generally a discrete initiative. As suggested below, it is best combined with
improvement programs, both concurrently across different processes and in a
cycle of alternation for a single process.

Process improvement can begin soon after changes in a process are identified,
and incremental benefits can be achieved within

Improvement Innovation
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Level of Change Incremental Radical

Starting Point Existing process Clean slate

Frequency of Change Onetime/continuous Onetime

Time Required Short Long

Participation Bottomup Topdown

Typical Scope Narrow, within Broad, crossfunctional

functions

Risk Moderate High

Primary Enabler Statistical control Information technology

Type of Change Cultural Cultural/structural

Figure 13
Process Improvement versus Process Innovation

months. Because of the magnitude of organizational change involved, process

innovation often takes a much longer time. We know of no large organization
that has fully identified and implemented a major process innovation in less than
two years. Ford's widely reported elimination of threequarters of its accounts
payable staff, achieved by paying on receipt of goods and eliminating invoices,
took five years from design to full implementation. 17 This implementation cycle
was long despite the fact that the process Ford adopted was already
operational within Mazda, its Japanese subsidiary, and was a relatively narrow
process. In this situation, managing the changes required in accounts payable
took longer than it should have, but process innovation champions should be
prepared for a change cycle measured in years. Clearly, if the cycle of process
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innovation takes too long, the average improvement per year may not exceed
that of process improvement, and for this reason we urge both haste and
concurrent reliance on process improvement approaches aimed at realizing
shortterm gains in existing processes.

Bottomup participation is a hallmark of continuous quality improvement

programs;18 employees are urged to examine and recommend changes in the
work processes in which they participate. Visitors to qualityoriented
companies frequently see banners, posters, and newsletters bearing quality
related slogans and progress measurements. Some qualitydriven firms boast
that every member of the organization is a member of a quality circle.

Process innovation is typically much more top down, requiring strong direction
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from senior management. Because large firms' structures do not reflect their
crossfunctional processes, only those in positions overlooking multiple
functions may be able to see opportunities for innovation. A clerk in the
shipping department is unlikely to conceive a radical redesign of the entire
ordermanagement process. Ideas from workers and lowerlevel managers,
though they should be solicited, are likely to target incremental improvement.
But inasmuch as workers and lower/middle managers are as likely to resist as
to propose major change, implementers of process innovation must strive to
gain commitment and buyin at all levels of the organization. Encouraging
participation in the process design activity can certainly facilitate this.

Process improvement programs, including those initiated under the quality

banner, are generally applied to existing organizational structures and thus
involve change in narrowly defined

functional or subfunctional processes. Process innovation, on the other hand,

involves definition of and innovation in broad, crossfunctional processes. Just
the identification of such processes, often for the first time, can lead to
innovative ways of structuring work. 19

Both process improvement and process innovation require cultural change. The
necessary focus on operational performance, measurement of results, and
empewerment of employees are all aspects of the cultural shift. But whereas it
is possible to implement a continuous improvement program without making
major changes in organizational structure—indeed, avoiding uncontrolled
change is prerequisite to continuous improvement—process innovation
involves massive change, not only in process flows and the culture surrounding
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them, but also in organizational power and controls, skill requirements,

reporting relationships, and management practices. The wrenching nature of
this organizational change is the most difficult aspect of process innovation and
accounts at least partially for its typically long cycle times.

The primary enabler of continuous process improvement programs is statistical

process control, a technique for explaining and minimizing sources of variation.
Neither this, nor the other key quality techniques, is well adapted to the large
variations in process outcomes produced by process innovation.

Process innovation also implies the use of specific change tools. One of these,
information technology, has been hailed by many as the most powerful tool for
the publisher, except fair uses permitted under U.S. or applicable copyright law.

changing business to emerge in the twentieth century. The dramatic capabilities

of computers and communications are powerful enablers of process
innovation; but though they have yielded impressive benefits for many firms,
they have not been as fully exploited as they might be.

Human and organizational development approaches such as greater employee

empowerment, reliance on autonomous teams, and flattened organizational
structures are as key to enabling process change as any technical tool. In fact,
information technology is rarely effective without simultaneous human
innovations.

If continuous improvement involves relatively little reward, it also involves little

risk. With a few exceptions (such as at Florida Power and Light, where an
awardwinning quality initiative was abruptly discontinued by a new CEO),
quality programs do not die in a visible and obvious way; they are much

more likely to fade into oblivion. Because process innovation initiatives have
(or should have) welldefined and ambitious change objectives, failure to
achieve these objectives, while not beyond coverup, is usually highly apparent.
The level of change involved and the crossfunctional nature of process
innovation greatly heighten the risk of failure. Managers likely to lose people,
power, or other resources as a result of process innovation will naturally be
tempted to resist the change.

However different in character, continuous process improvement and process

innovation present similar challenges. Both require a strong cultural
commitment and high degree of organizational discipline, a process approach,
a measurement orientation, and a willingness to change. A company that is
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unsuccessful at one will probably not succeed at the other.

But although continuous quality improvement may be good practice, it is not a

prerequisite for success at process innovation. The skills and enablers of
change are different. Success at quality initiatives is a qualification for success
in process innovation, but so are many other types of corporate change that
involve seriousness of purpose and flexibility—success in merging large
organizations, success in downsizing, success in major product or service line
innovations.

In practice, most firms need to combine process improvement and process

innovation in an ongoing quality program (see Figure 14). Ideally (though not
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necessarily), a company will attempt to stabilize a process and begin

continuous improvement, then strive for process innovation. Lest it slide back
down the slippery slope of process degradation, a firm should then pursue a
program

Figure 14
Process Improvement and Process Innovation

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of continuous improvement for the postinnovation process. Furthermore,

across an entire organization, innovation initiatives will be appropriate for some
processes, continuous improvement initiatives for others.

In order not to confuse the employees who participate in, or are affected by,
innovation and improvement initiatives, all such activities should be carried out
within the context of a single quality program, and it should be clear which type
of process change is under way for a given process at a particular time. For
example, we found a very confusing situation at an electrical utility in which
both improvement and innovation initiatives were being undertaken at the same
time by different sponsors. The quality organization had begun continuous
improvement programs along functional lines; the information systems function
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was sponsoring process innovation programs with radical change objectives,

structured along major crossfunctional process lines. Even the leaders of these
two initiatives were unsure how they related to one another.

The differences between process improvement and innovation can make it

difficult to combine the two. One way to facilitate their combination is to assign
them to different managers. At Ameritech, where this was done, the manager
with responsibility for process innovation and the manager assigned to quality
and process improvement communicate regularly and the level of cooperation
is high, perhaps because they report to the same person.

A firm should be aware that the risks of process innovation are at least
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proportional to the rewards. Given this equation, organizations that can avoid
such wrenching change should probably do so. In environments that are
relatively noncompetitive or in which basic business practices are not in
question (e.g., some segments of the utility industry or other highly regulated
businesses, or wellfunded government organizations), continuous improvement
may be preferred over process innovation. But competitive and other
pressures force most firms to seek radical change.

Process Innovation and the Voice of the Customer

A correctly designed business process has the voice and perspective of the
customer ''built in." A process should be designed to produce outputs that
satisfy the requirements of the customer.

A process innovation initiative should begin with a good understanding of who

the customers of the process are and what they want out of it. Asking
customers about their requirements and getting them to choose between
process tradeoffs should be explicit tasks. Improvement or innovation
objectives should be primarily those of the customer.

In fact, the customer's perspective should be built not only into the final
process design, but also into the early visioning and postimplementation
activities. When possible, customers should be included on process design
teams and, after a process design has been created, should participate in
prototypes of the process and help refine the design. Ongoing measures of the
process should be from the customer's perspective, with customers assessing
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process performance to the extent possible.

Processes such as order management and customer service extend across firm
boundaries into the customer organization; in these processes, the customer is
not a guest in the design activities, but an owner of them. An interorganizational
process should be jointly designed and managed by the organizations whose
boundaries it crosses. Costs or bottlenecks should not be passed from one
firm to the other, but designed out of the process altogether. This change to a
more "networked" view of processes is already beginning to have important
consequences for daytoday management and organization. 20

Enablers of Process Innovation

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The ides of focusing on enablers of innovation as potential drivers of change is

perhaps radical. Conventional wisdom about business initiatives holds that they
must first be planned in the abstract, without reference to specific tools or
levers of change. In the traditional planning approach, we define
"ends" (corporate objectives), the "ways" in which these ends are to be
achieved (specific visions or critical success factors), and the "means" by which
we expect to bring these ends about (enablers of change). Hayes, observing
that abstract planning only rarely anticipates how a firm will address its
environment with specific initiatives, argues that often the appropriate order is
"means, ways, ends."21 Provide the tools for change (including financial,
technological, and human resources), and the specific directions in which to
apply them will become apparent as the environment changes.

Although fresh and appealing, Hayes's view may not be entirely applicable to
process innovation. Some sort of context for process innovation—a sense of
the "end"—is necessary to provide focus and inspiration. Change enablers for
process innovation are clearly "means" in Hayes's terminology. Rather than
following in some fixed order, ends and means are better viewed as influencing
each other. The use of information technology in processes, for example, can
strongly influence, and should be influenced by, strategy. Regardless of the
order of ends, ways, and means, it is important to consider the means or
enablers of process innovation before a process design is solidified.

By virtue of its power and popularity, no single business resource is better

positioned than information technology to bring about radical improvement in
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business processes. It is the least familiar of key resources, having existed in a

form useful to businesses for a mere 40 years. Especially in hardware and
communications components, IT capabilities have grown faster than those of
other resources or technologies. We are only beginning to understand the
power of information technology in business. But even as we begin to grasp
existing IT capabilities, innovations make our perspectives obsolete.

Its great potential notwithstanding, IT cannot change processes by itself, nor is

it the only powerful resource. There is a welldeveloped literature suggesting
that the primary enablers of change in organizations are technology (including
technologies not based on information) and organizational/human factors. 22
Process innovation can seldom be achieved in the absence of a carefully
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considered combination of both technical and human enablers.23

Possibilities for applying organizational and human factors to process

innovation extend over a broad range. Throughout this book, we treat them as
equal partners with information technology in effecting process change. For
every example of IT as an enabler of new process designs, there is almost
invariably an accompanying change in the organizational or human resource
type. For example, creating a more empowered and diversified work force,
eliminating levels of hierarchy, creating selfmanaging work teams, combining
jobs and assigning broader responsibilities, and upgrading skills are some
organizational and human resource changes that frequently accompany the use
of IT.

Other process innovation resources—new approaches to

assessing financial costs and benefits, 24 and global business management, for
example25—have been in managers' portfolios much longer than information
technology and new organizational forms and thus may have less potential as
enablers of radical innovation. Moreover, even these traditional resources
work best when used in concert with information technology and
human/organizational innovations.

Firms undertaking process innovation initiatives should not, of course, become

preoccupied with particular enablers or tools. The objective of such efforts
should be improved business performance, not a lesson in taking advantage of
a new technology or alternative human resource tactic. But it is just as foolish
to invent new process designs without examining firms that have successfully
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employed IT and human enablers in similar process innovation initiatives. Just

as an architect brings to the design of a building knowledge of the technologies
needed to operate it (e.g., elevators, air conditioning, plumbing, and so forth)
and the types of people who will work in it, so a process designer must be
cognizant of the technologies and people involved in making a process work.

Overview and Background of the Book

This book is the result of more than four years of research into process
innovation, in both academic and consulting contexts. It reflects hundreds of
conversations with executives and professionals in more than 50 companies.
(These companies are listed in Appendix A.) In addition, we reviewed a
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wealth of case materials on other firms that were in the midst of process
innovation. As does most useful business research, our work on process
innovation describes the state of the art, and then attempts to go beyond it in
terms of analysis, development of frameworks, and prescription.

The breadth of the research notwithstanding, process innovation remains more

art than science. Many of the process innovation initiatives we studied had only
recently begun. The approaches and methods described here are not the only
possible routes to success. This book is for the managers of companies now
embarking upon such initiatives, who need information about the nature of
process innovation and the experiences of early movers. In describing the
efforts of pioneers, the book is itself pioneering. The book is organized in three
parts. We first present the

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components of a general approach to, and context for, process innovation.

These components, although they do not form a detailed methodology, must be
aspects of a successful process innovation program. The components of the
approach are depicted in graphic form in the introduction to Part I and are
discussed in detail in the chapters that follow. Chapter 2 examines the selection
of processes for innovation, Chapters 3, 4, and 5 the enablers of process
innovation, including information technology, information, and organizational
and human resource approaches. In Chapter 6 we discuss the creation of a
vision for processes and its relation to corporate strategy, and in Chapter 7,
the issue of measurement and shortterm improvement of existing processes.
Chapter 8 concludes Part I with a detailed review of the design and
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implementation of new processes.

Part II is devoted to implementation issues associated with radical process

change. We recommend in Chapter 9 approaches to managing successfully the
kind of largescale organizational change that attends process innovation. In
Chapter 10, we view the implementation of information systems within a
process innovation context—that is, we examine how, given a new process
design, we can employ IT to rapidly and effectively implement systems that
support it.

In Part III, we focus on specific approaches that firms are employing to

innovate key operational and managerial processes. Chapter 11 examines
innovative approaches to product design, development, and manufacturing
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processes. Chapter 12 focuses on customerfacing processes, including

marketing and sales management, order management, and customer service.
Chapter 13 discusses innovation in management and administrative processes,
which have been neglected even by firms undertaking process innovation
elsewhere.

In Chapter 14, after summarizing key points of the book, we urge both caution
and haste in adopting process innovation. Given the rapidly growing popularity
of this approach to business improvement, a balanced view of risks and
rewards is essential. But neither these cautions, nor the myriad complexities
introduced throughout the book, should be permitted to diminish the appeal of
this exciting approach to enhancing business performance.

Appendix B traces the historical roots of process innovation. This discussion

further elucidates the distinctions between process innovation and earlier
approaches to operational improvement. The current relationship of process
innovation to quality,

sociotechnical, work design, and competitive systems initiatives is also

discussed.

Notes

1 See Hirotaka Takeuchi and Ikujiro Nonaka, "The New New Product
Development Game," Harvard Business Review (JanuaryFebruary 1986):
137148. For comparisons between automotive firms, see Kim B. Clark and
Takahiro Fujimoto, Product Development Performance: Strategy,
Organization, and Management in the World Auto Industry (Boston:
Harvard Business School Press, 1991).
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2 See, for example, Kaoru Ishikawa, What Is Total Quality Control? The
Japanese Way (Englewood Cliffs, N.J.: PrenticeHall, 1985): 171184.

3 James P. Womack, Daniel T. Jones, and Daniel Roos, The Machine That
Changed the World (New York: Rawson Associates, 1990).

4 Susan Helper, "How Much Has Really Changed Between U.S. Automakers
and Their Suppliers?," Sloan Management Review (Summer 1991): 1528.

5 For a rigorous discussion of these types of processes in the retail industry,

see James V. McGee, "Implementing Systems Across Boundaries: Dynamics
of Information Technology and Integration," Ph.D. diss., Harvard Business
School, 1991.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

6 This movement toward interdependence with reference to information

technology has been described in John Reckart and James Short, "IT in the
1990's: Managing Organizational Interdependence," Sloan Management
Review (Winter 1989): 718.

7 Melissa Mead and Jane Linder, "FritoLay, Inc.: A Strategic Transition (A),"
91187012. Boston: Harvard Business School, 1987; also Nicole Wishart
and Lynda Applegate, "FritoLay, Inc.: HHC Project FollowUp," 9190
191. Boston: Harvard Business School, 1990.

8 See, for example, John F. Krafcik, "Triumph of the Lean Production

System," Sloan Management Review (Fall 1988): 4152.

9 Allaire is quoted in Brian Dumaine, "The Bureaucracy Busters," Fortune,

June 17, 1991: 37.

10 Edwin Mansfield, "Industrial R&D in Japan and the United States: A

Comparative Study," American Economic Review 78 (1988): 223.

11 Urs E. Gattiker, Technology Management in Organizations (Newbury

Park, Calif.: Sage Publications, 1990): 1920.

12 The 14 processes identified by Xerox apply only to its document

processing business. Since they were originally identified, Xerox has added
and changed some processes, and the firm is now developing a new process
architecture.

13 The most prominent example of this movement is George Stalk, Jr., and
Thomas M. Hout, Competing Against Time (New York: Free Press, 1990).
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12 The 14 processes identified by Xerox apply only to its document
processing business. Since they were originally identified, Xerox has added
and changed some processes, and the firm is now developing a new process
architecture.

13 The most prominent example of this movement is George Stalk, Jr., and
Thomas M. Hout, Competing Against Time (New York: Free Press, 1990).

14 See, for example, R. D. Dewar and J. E. Dutton, "The Adoption of Radical

and Incremental Innovations: An Empirical Analysis," Management Science
32:11 (1986): 14221433.

15 Thomas H. Davenport, "Rank Xerox U.K. (A) and (B)" N9192071 and
N9192072. Boston: Harvard Business School, 1992.

16 U.S. Government Accounting Office, "Management Practices: U.S.

Companies Improve Performance Through Quality Efforts," Report to the
Honorable Donald Ritter, House of Representatives, May 1991.
Page 21

17 The Ford example is described in Thomas H. Davenport and James E.

Short, "The New Industrial Engineering: Information Technology and Business
Process Redesign," Sloan Management Review (Summer 1990): 1127; also
Michael Hammer, "Reengineering Work: Don't Automate, Obliterate,"
Harvard Business Review (JulyAugust 1990): 104112.

18 Dean M. Schroeder and Alan G. Robinson, "America's Most Successful

Export to Japan: Continuous Improvement Programs," Sloan Management
Review (Spring 1991): 6781.

19 This aspect of the difference between improvement and innovation

programs is discussed in Robert B. Kaplan and Laura Murdock, "Core
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Process Redesign," McKinsey Quarterly (Summer 1991): 2743.

20 Raymond E. Miles and Charles C. Snow, "Organizations: New Concepts

for New Forms," California Management Review 18:3 (Spring 1986): 62
73.

21 Robert Hayes, "Strategic Planning: Forward in Reverse?" Harvard

Business Review (NovemberDecember 1985): 111119.

22 For a review of this literature from the process perspective, see Dorothy
LeonardBarton, "The Role of Process Innovation and Adaptation in Attaining
Strategic Technological Capability," 1991007. Boston: Harvard Business
School, Division of Research, 1990; republished in th e International Journal
the publisher, except fair uses permitted under U.S. or applicable copyright law.

of Technology Management 6 (1991): 34. For a review of the

sociotechnical literature, see Kenyon B. DeGreene, Sociotechnical Systems
(Englewood Cliffs, N. J.: PrenticeHall, 1973).

23 See Shoshana Zuboff, In the Age of the Smart Machine: The Future of
Work and Power (New York: Basic Books, 1988) and Richard E. Walton,
Up and Running: Integrating Information Technology and the
Organization (Boston: Harvard Business School Press, 1989).

24 On the cost side, see H. Thomas Johnson and Robert S. Kaplan,

Relevance Lost: The Rise and Fall of Management Accounting (Boston:
Harvard Business School Press, 1987); on the benefit side, Tom Copeland,
Tim Koller, and Jack Murrin, Valuation: Measuring and Managing the
Value of Companies (New York: John Wiley, 1990).

25 Christopher A. Bartlett and Sumantra Ghoshal, Managing Across

Borders: The Transnational Solution (Boston: Harvard Business School
Press, 1989).

PART I
A FRAMEWORK FOR PROCESS INNOVATION

Introduction

Hundreds of firms throughout Europe and America are undertaking process

innovation initiatives. Close examination of a number of early initiatives has led
us to create a highlevel framework to guide process innovation. We present
the primary components of a process innovation approach over several
chapters. The purpose of these chapters is not to provide a detailed
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methodology, inasmuch as specific activities undertaken by specific firms will

be variations upon these components, differing in order, emphasis, and flavor.
Rather, we believe that each component is necessary in some form for a
successful innovation initiative. We know of no completed radical process
change that has not involved all of these components in some form, whether
implicit or explicit, and we are aware of several failed efforts that did not
employ all these steps.

Process innovation initiatives are inherently distinct from business as usual. In

fact, a number of researchers have argued that the existing Western
management paradigm views both improvement and innovation as lying outside
routine management activities. 1 Our experience suggests that companies can
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institutionalize incremental improvement through organizational and cultural

change programs, with those doing the work identifying and implementing small
changes in product and process. But we see no realistic way to conduct
process innovation during the normal course of business. Companies typically
treat innovation activities as special tasks, assigned to project teams or task
forces. We believe that the project or special initiative structure is the only way
to accomplish radical innovation. A project orientation appears to be the best
way to introduce and gain experience with process thinking and innovation
within an organization, and only

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ad hoc, crossfunctional teams may be able to innovate processes that traverse

organizational boundaries and areas of management responsibility.

The matrix in Figure I1 categorizes various processbased operational

improvement methods in terms of the relationship between level of change and
context or frequency of application. Value analysis approaches such as
process, overhead, and activity value analysis are projectoriented, but yield
only incremental improvement. Qualityoriented methods such as business
process improvement and activitybased costing mechanisms are intended to
yield continuous but incremental improvement. These approaches are treated in
greater detail in Chapter 7, where we discuss improvement of the existing
process in the overall context of process innovation.
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Only process innovation is intended to achieve radical business improvement.

It is a discrete initiative that must be combined with other initiatives for ongoing
change. The notion of continuous innovation advanced in the management
literature pertains to product, rather than process innovation; 2 we have not
observed continuous process innovation of the type and scale seen in a typical
onetime process innovation effort and believe that such levels of innovation
would be difficult to maintain and coordinate on a continuous basis. If nothing
else, people and organizations need periods of rest and stability between
successive innovation initiatives.

Although it may not be possible to achieve radical innovation

the publisher, except fair uses permitted under U.S. or applicable copyright law.

Context\ Project/OneTime Continuous

Outcome Improvement/Ongoing

• Activity value analysis • Total quality management

Incremental • Overhead value • Business process
Improvement analysis improvement
• Process value analysis • Activitybased costing

Radical Process innovation Not meaningful

Innovation (reengineering, business
process redesign)
Figure 11
Approaches to Business Improvement

while practicing continuous improvement, companies need to learn how to do

both—concurrently across different processes, and cyclically for a single
process. Ultimately, a major challenge in process innovation is making a
successful transition to a continuous improvement environment. A company
that does not institute continuous improvement after implementing process
innovation is likely to revert to old ways of doing business.

Our framework for process innovation consists of five steps: identifying

processes for innovation, identifying change enablers, developing a business
vision and process objectives, understanding and measuring existing processes,
and designing and building a prototype of the new process and organization
(Figure I2). Excepting change enablers, each step is discussed in a chapter;
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each of the three major enablers of change merits its own chapter.

Although the sequence of the activities in Figure I2 may vary, aspects of the
ordering are important. Selecting processes for innovation, for example, should
be done early in order to focus effort and resources.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Figure I2
A HighLevel Approach to Process Innovation

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Our highlevel approach also presumes the establishment of an infrastructure

for process innovation. As with any projectoriented business initiative, a
project team must be selected and trained. Aspects of team selection that
influence the change management process are discussed in Chapter 10. The
team infrastructure required for innovation, though similar in some respects to
that required for organizationwide continuous improvement, 3 differs most
significantly in the need for innovation teams to be familiar not only with
particular processes, but also with the enablers of change discussed later.

Notes

1 Richard D. Sanders, Gipsie B. Ranney, and Mary G. Leitnaker, ''Continual

Improvement: A Paradigm for Organizational Effectiveness," Survey of

Business (Summer 1989): 1220.

2 Ikujiro Nonaka, "The KnowledgeCreating Company," Harvard Business

Review (NovemberDecember 1991): 96104.

3 H. James Harrington, Business Process Improvement: The Breakthrough

Strategy for Total Quality, Productivity, and Competitiveness (New
York: McGrawHill, 1991).
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Chapter 2
Selecting Processes for Innovation
Process innovation must begin with a survey of the process landscape to
identify processes that are candidates for innovation. Both the overall listing of
processes and the focus on those requiring immediate innovation initiatives are
crucial to the success of innovation efforts. The selection process establishes
the boundaries of the processes that are to be addressed, enabling a firm to
focus on those most in need of radical change.
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The principal activities in the selection process are listed in Figure 21. The first
is to identify the major processes in the organization. An informed selection can
be made only when all of the organization's processes are known. A survey
also serves to determine process boundaries that help establish the scope of
initiatives for individual processes.

Enumerate Major Processes

Considerable controversy revolves around the number of processes

appropriate to a given organization. The difficulty derives from the fact that
processes are almost infinitely divisible; the
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• Enumerate major processes

• Determine process boundaries

• Assess strategic relevance of each process

• Render highlevel judgments of the "health" of each process

• Qualify the culture and politics of each process

Figure 21
Key Activities in Identifying Processes for Innovation

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activities involved in taking and fulfilling a customer order, for example, can be
viewed as one process or hundreds. The "appropriate" number of processes
has been pegged at from two to more than one hundred. The three major
processes identified by Rockart and Short—developing new products,
delivering products to customers, and managing customer relationships 1—are
themselves highly interdependent; and Harvard researchers working on order
management issues have argued for only two processes (1) managing the
product line, and (2) managing the order cycle.2 A wellknown management
consulting firm has asserted that there are only three or four "core" processes,
though not all business activities are part of these processes.3 Finally, at least
one firm, Xerox Corporation, has identified a larger number of processes, but
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has focused its change efforts on those it considers most critical or core. IBM,
which in the 1980s had defined at least 140 processes across the corporation,
is today working with 18 much broader processes.

The objective of process identification is key to making these definitions and

determining their implications. If the objective is incremental improvement, it is
sufficient to work with many narrowly defined processes, as the risk of failure
is relatively low, particularly if those responsible for improving a process are
also responsible for managing and executing it. But when the objective is
radical process change, a process must be defined as broadly as possible. A
key source of process benefit is improving handoffs between functions, which
can occur only when processes are broadly defined. Moreover, if a process
output is minor, radically changing the way it is produced is likely to result in
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suboptimization or, at best, only minor gains.

As noted earlier, most of the companies that have identified their processes in
the context of process innovation have enumerated between 10 and 20. Key
processes identified by IBM, Xerox, and British Telecom4 are presented in
Table 21. The appropriate number of processes reflects a tradeoff between
managing process interdependence and ensuring that process scope is
manageable. The fewer and broader the processes, the greater the possibility
of innovation through process integration, and the greater the problems of
understanding, measuring, and changing the process.

Our experience leads us to set the appropriate number for major processes at
between 10 and 20. Within this range—which

Table 21 Key Business Processes of Leading Companies

IBM Xerox British Telecom

Market information Customer engagement Direct business

capture

Market selection Inventory management Plan business

and logistics

Requirements Product design and Develop processes

engineering
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Development of Product maintenance Manage process

hardware operation

Development of Technology Provide personnel

software management support

Development of Production and Market products and

services operations management services

Production Market management Provide customer

service
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Customer fulfillment Supplier management Manage products and

services

Customer relationship Information Provide consultancy

management services

Service Business management Plan the network

Customer feedback Human resource Operate the network

management

Marketing Leased and capital asset Provide support

management services

Solution integration Legal Manage information

resource

Financial analysis Financial management Manage finance

Plan integration Provide technical

R&D

Accounting

Human resources

IT infrastructure

leaves us with some crossprocess activity, but renders each process small
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Human resources

IT infrastructure

leaves us with some crossprocess activity, but renders each process small
enough to be understood—change management is only very difficult, rather
than impossible. Constricting the range also permits us to identify both
operational and management processes and to find different approaches to
redesigning each type. This does not mean that all of the identified processes
will be of the same importance, or even that innovations will be identified for all
of them.

Some firms may wish to maintain both broad and narrow processes. While
addressing broad processes in an innovation context, they may also be
working on narrow processes from an improvement context. In order to avoid
confusion, some mapping of
Page 30

narrow processes to broad processes should be developed. That is, a broad

process like order management should be broken down into its constituent
processes (or subprocesses, if that is the preferred terminology). The mapping
need not be perfect—a narrow process, for example, could cut across two
broader processes—but it should provide some orientation for all participants
in process management initiatives. Among the firms we have researched, only
British Telecom has developed such a hierarchy of broad and narrow
processes.

Whatever the number of processes identified, the identification process should

be understood to be exploratory and iterative. As a process becomes the
focus for innovation or improvement efforts, its boundaries and relative
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importance become much clearer. Most companies that have worked on their
processes for a number of years have revised their original lists.

Certain strategicplanning and systemsplanning approaches that have a

business process perspective may be useful for identifying processes. For
example, Porter's framework for organizing a company's business activities
emphasizes the usefulness of identifying and exploiting linkages in the value
chain as a means of identifying both competitive opportunities and highlevel
processes, 5 and Ives and Learmonth have developed a generic customer
resource life cycle that describes the process by which a customer acquires,
uses, and disposes of resources as a vehicle for identifying strategic information
systems.6 Neither of these approaches describes explicitly how a company
the publisher, except fair uses permitted under U.S. or applicable copyright law.

should define these frameworks for its own use.

In the context of business process improvement, Harrington suggests having

executives jot down the processes for which they are responsible and analyzing
and distilling their lists to arrive at the company's slate of processes. This top
down approach, guided by our rule of thumb of 10 to 20 major processes, can
be fairly effective. A major manufacturing concern used a similar approach to
define its key processes. A candidate set of processes was developed by the
corporate processinnovation staff and external consultants and presented to
senior executives, who refined and revised the process list during a facilitated
workshop discussion.

Determine Process Boundaries

Once the processes have been identified at a high level, the boundaries
between those processes need to be managed. Because

process definition is more art than science, boundaries are arbitrary. A number
of questions may help to define boundaries, among them:

• When should the process owner's concern with the process begin and
end?

• When should process customers' involvement begin and end?

• Where do subprocesses begin and end?

• Is the process fully embedded within another process?

• Are performance benefits likely to result from combining the process

with other processes or subprocesses?

Inasmuch as the end of any process is the beginning of another, either within or
outside the organization, process innovation will often result in changes to
upstream and downstream processes. Consequently, process management is
best viewed as an iterative activity, in which subsequent innovation in one
process gives rise to a need to reinnovate, or at least modify, others.

Assess Strategic Relevance

Having identified the boundaries of its major processes, a company must select
individual processes for innovation. Our experience suggests that the scope of
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the innovation effort should be based on an organization's capabilities and

resources. IBM has innovation initiatives under way in all 18 of its key
processes at once, but most companies cannot successfully deal with
innovation on such a scale. Even given a clear need to redesign, most
organizations would lack sufficient resources—people, funds, and time—to do
so. Beyond resources, most organizations could not endure the magnitude of
organizational change that innovating all processes simultaneously would
precipitate. An organization must understand the level of change and upheaval
it can endure and must use that knowledge to determine how many processes
it can successfully innovate.

Moreover, simultaneous change in multiple processes can be difficult to

coordinate. Because redesigned processes must still interface with upstream
and downstream processes, process owners or managers must communicate
frequently about directions and interface points. If changes in one process must
be coordinated

with changes in, say, 17 others, it will be very difficult to make much headway.

Nevertheless, some firms find that they must work on groups of processes to
solve particular business problems. Xerox, for example, found that to affect the
time it takes to bring products to market it had to address not only its product
design and engineering processes, but also processes such as manufacturing,
service, and logistics. Similarly, IBM discovered that to speed delivery of
custombuilt products to customers, it had to address the production, logistics,
and customer fulfillment processes.

Most companies choose to address a small set of business processes in order

to gain experience with innovation initiatives, and they focus their resources on
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the most critical processes. Each successful initiative becomes a model for
future efforts. We have identified four criteria that might guide process
selection: (1) the process's centrality to the execution of the firm's business
strategy, (2) process health, (3) process qualification, and (4) manageable
project scope. Ideally, all four factors should favor the selection of a particular
process; in practice, results are often ambiguous, and differential weighting of
the factors must be applied.

The most obvious approach to process selection is to select the processes

most central to accomplishing the organization's strategy (this presumes that the
organization has a wellarticulated strategy). Many firms' strategies, for
example, focus on improving relationships with customers. One aspect of a
the publisher, except fair uses permitted under U.S. or applicable copyright law.

customerfocused strategy is the provision of superior customer service at

every point at which customer and enterprise meet. Such companies are likely
to select for innovation processes at the customer interface, such as order
management and customer service. In a more formal approach, the
associations between business goals and business processes are identified and
some sort of prioritization is done, based, for example, on the number and
importance of goals the process supports. This approach to process selection
is part of a number of planning and improvement methods. 7

Selection on the basis of health targets redesign processes that are currently
problematic and in obvious need of improvement. Among the many symptoms
of unhealthy processes is the existence of multiple buffers, reflected in workin
process queuing up at each step. One study of idle versus processing time for
workinprocess revealed that, for the average process, actual working time
comprises only .05% to 5% of total elapsed time.8 IBM Credit

Corporation discovered, for example, that valueadded time for the financing
approval process amounted to only 90 minutes out of a three to fourday
cycle time. We have seen several insurance companies in which the time spent
actively processing and underwriting an insurance policy was only two or three
hours, in an overall process cycle of more than 20 days. Process health is also
suspect if a process crosses many functions and involves many narrowly
defined jobs or has no clear owner or customers. Good indicators here are if
no one gets upset when the process product is late or over budget, or no one
is sure whom to call when deficiencies are noted.

Process health assessment at Cigna is aided by a process innovation group

created by the insurance company to assist business units in their process
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innovation efforts. Upon receiving a request from a business unit, the group
conducts a brief study to evaluate opportunities for process improvement. The
group then advises the business unit whether to proceed with the innovation. 9
Among the first processes Cigna selected for innovation were in reinsurance, a
relatively small business in which it was losing ground. Believing that the
division had no choice but to pursue radical change, the head of the business
unit told her employees: "If we succeed, half of us will no longer have a job in
this division. If we fail, none of us will."

Even after a specific process has been selected, the enterprise must define the
process in a way that results in a manageable innovation project scope. Some
of the common ways of defining the process are by geography or by product
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line. One manufacturer seeking to improve the product development process

decided to focus on its most profitable product line. Afar achieving dramatic
results for this product, the next step was to begin introducing the other
products to the new process.

A final point regarding process selection relates to process "qualification," an

activity we observed in nearly every company in which we observed process
innovation. The primary goal of process qualification is to gauge the cultural
and political climate of a target process. A process "consultant," a key role
discussed in a later chapter, is engaged to select only processes that have a
committed sponsor and exhibit a pressing business need for improvement.
Where commitment is lukewarm or the business need less than dramatic, the
consultant would be expected to advise against attempting process innovation.

The determination of highpriority processes is often fairly obvious. At

Continental Bank, because the firm had focused heavily on building broad
relationships with corporate customers, the relationship management process
was a natural place to start. At Bethlehem Steel, the process of scheduling a
customer order into the production schedule was chaotic and inefficient and
often led to customer dissatisfaction and sales force frustration. Therefore, the
customer service process, which included production scheduling, was an easy
selection. When Federal Mogul's Chassis Products Division analyzed its
business, executives concluded that the failure to deliver new product
prototypes quickly was a major impediment to increased sales. Applying
radical change to this process was then not a difficult decision.
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Regardless of how much care is taken in the identification and selection of

processes, the process landscape will almost inevitably change with time and
experience. The firms we have studied spent several years traveling the
process innovation path, in the course of which most changed the number of
processes they defined, the boundaries of individual processes, and the relative
priorities of processes as candidates for innovation initiatives.

The Fate of Processes Not Selected

Processes not selected for early innovation initiatives must still be addressed.
Recognizing that it can only be approximate, since business directions often
change quickly and the resources for process innovation may rise and fall
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unpredictably, we advise creating a timetable for initiating innovation efforts.

We do not recommend extending such a timetable over more than three years,
since beyond this period predictions of business priority and resources are
likely to be poor. Finally, innovation initiatives should be undertaken soon after
detailed process qualification activities, since management commitments and
process capabilities are also volatile over a period of several years.

Another alternative, discussed in the previous chapter, is to apply process

improvement to processes not selected for innovation. This poses two
problems. One, process improvement relies on a completely different set of
methods and approaches. And two, it is difficult to apply incremental
improvement to processes scoped broadly for purposes of achieving radical
change. Because the bottomup, participative nature of process improvement
presumes

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Page 35

a process that workers at lower levels in the organization can get their arms
around, it may be necessary to break up the process into less unwieldy
subprocesses. Should it later become a candidate for an innovation initiative,
the process can be attacked in its broader form.

At least one firm, IBM, is pursuing improvement efforts concurrently with

process innovation within the same process. The innovation efforts focus on
broad processes, the improvement efforts on narrower constituent
subprocesses. But it is not clear to many lowerlevel IBM process
improvement teams how their efforts relate to the enterpriselevel process
innovation initiatives. Although the notion of conducting topdown innovation
and bottomup improvement at the same time might seem appealing, much of
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the process improvement activity is likely to be for naught, inasmuch as teams

might strive to improve narrow processes that do not even exist in the new
process design. Whenever these activities are to be attempted simultaneously,
it should be made clear to all parties that the improvements are likely to be
shortlived and should therefore be implemented quickly if they are to yield any
benefit.

Summary

Identifying and selecting processes for innovation is an important prerequisite

to process change. But this step is also significant in its own right. Without
some focus on critical processes, an organization's energies, resources, and
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time will be dissipated. Especially during the early phases of process

innovation, it is important that an organization demonstrate some successes. It
can do so only if it is selective in the processes it chooses to innovate.

After a process has been selected for innovation, a firm can begin to think
about how it will create quantum improvements in the process and what
change tools it will employ. The next three chapters address the issue of how
radical change in process designs is enabled. Each considers a different enabler
of process change. Chapter 3 begins this discussion with an indepth analysis
of the role played by information technology in process innovation. Chapters 4
and 5 address the enablers of information and human/organizational factors.

Notes

1 John F. Rockart and James E. Short, ''Information Technology and the New
Organization: Towards More Effective Management of Interdependence,"
working paper CISR 180, MIT Sloan School of Management, Center for
Information Systems Rasearch, September 1988.

2 Benson P. Shapiro, John J. Sviokla, and V. Kasturi Rangan, "It Fell Through
the Cracks," 9591098. Boaton: Harvard Business School, 1991; and
Sviokla's presentation at Ernst & Young, October 1990.

3 Robert B. Kaplan and Laura Murdock, "Core Process Redesign,"

McKinsey Quarterly 2 (Summer 1991): 2743.

4 British Telecom has identified multiple levels of processes. The 15 listed in

Table 21 are at the second level; the firstlevel processes are: (1) Manage the
Business, (2) Manage People and Work, (3) Serve the Customer, (4) Run the
Network, and (5) Support the Business.

5 Michael E. Porter, Competitive Advantage: Creating and Sustaining

Superior Performance (New York: Free Press, 1985).

6 Blake Ives and Gerard P. Learmonth, '"The Information System as a

Competitive Weapon," Communications of the ACM (December 1984):
11931201.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

7 Maurice Hardaker and Bryan K. Ward, "Getting Things Done," Harvard

Business Review (NovemberDecember 1987): 112120.

8 George Stalk, Jr., and Thomas M. Hour, Competing Against Time (New
York: Free Press, 1990).

9 Marlene Ammarito, director, Agency & Financial Systems, Cigna Systems

presentation at Management in the Information Technology Era, R&D Forum,
Workshop on Organizational Transformation, Cambridge, Mass., October
2223, 1990.

Chapter 6
Creating a Process Vision
Creating a strong and sustained linkage between strategy and the way work is
done is an enduring challenge in complex organizations. Because business
processes define how work is done, we are dealing with the relationship
between strategy and process. Process innovation is meaningful only if it
improves a business in ways that are consistent with its strategy. In fact,
process innovation is impossible—or at least only accidental—unless the lens
of process analysis is focused on a particularly strategic part of the business,
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with particular strategic objectives in mind. Even the powerful enablers of

process innovation discussed above should be applied, not indiscriminately, but
in the context of a strategic focus. Earlier, we discussed the selection of
strategic processes for innovation. Here, the focus is on embodying an
organization's strategy in a vision of the future process state.

Inspiring a vision for operational processes clearly is not the only role for
strategy. Highquality, low cycletime products and services are only useful if
they fit the external environment and satisfy a customer demand. This is not
always the case with companies that make quality—which is not a strategy, but
a way of implementing strategy—a key aspect of their strategies. Examples of
this problem abound. A defense industry that has invested heavily in quality at a
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time when governments are determined to spend less on defense might better
have devoted resources to finding commercial markets for its products and
expertise. The Cadillac division of General Motors won the Malcolm Baldrige
quality award, yet continues to lose market share to LincolnMercury, even
among buyers of American luxury cars. 1 This lack of fit between operations
and strategy has been called "the sixsigma buggywhip company" problem.

Congruence or alignment between strategies and processes is essential to

radical change in business processes. Strategy and process objectives must
reinforce one another and echo similar themes. The concept of strategic "fit" is
not new; it underlies the

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notion of fit as developed by James Brian Quinn, 2 and Anthony Athos and
Richard Pascale's "7S" model, which calls for alignment among strategy,
structure, style, systems, skills, staff, and superordinate goals.3

What is missing in the discussions of strategy experts is the notion of process

or process innovation. Fit between strategy and process, always important, is
particularly important when the goal is radical business change. A welldefined
strategy, in particular, is essential to provide both a context for process
innovation and the motivation to undertake it. Radical change cannot be
accomplished without clear direction.

But strategy cannot motivate innovation in the absence of a welldefined

process vision. A process vision consisting of specific, measurable objectives

and attributes of the future process state provides the necessary linkage
between strategy and action. Unless such a vision is shared and understood by
all the participants in a process innovation initiative—before redesign begins—
the effort will all too easily slip from innovation to improvement.

Use of the terms "process simplification" or "process rationalization" in a

process change initiative usually indicates that no vision is present, and that only
marginal change is likely to be achieved. These terms pertain to the elimination
of obvious bottlenecks and inefficiencies, with no particular business vision as
context. Rationalization has a long tradition in industrial engineering, as
evidenced in a 30yearold manufacturingoriented reference note from the
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Harvard Business School:

A good manager . . . is expected . . . to show that job improvement or
simplification of work is not only important but also is based on commonsense
questioning aimed at uncovering the easiest, most economical way of
performing a job.4

Process innovation is much more than rationalization or simplification, and

more than common sense. It questions conventional wisdom about what is
easy and economical and thus at times leads to more complex, rather than
simpler, processes. Phoenix Mutual Insurance's new underwriting process,
which speeded underwriting by making activities parallel rather than serial, is a
much more complex process than its predecessor,5 and Federal Mogul's new
process for producing automobile component prototypes, though it has more
steps than the old process, takes oneseventh the time. Not only are
rationalization and simplification invalid objectives for process innovation, they
can be distracting

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or even misleading as a way of communicating what the effort is all about.

Process visions, like strategies, should be easy to communicate to the

organization, nonthreatening to those who must implement (or who are affected
by) them, and as inspirational as measurable targets can be. These criteria
generally make cost or headcount reduction objectives less than satisfactory,
since they are rarely inspiring and are almost certain to be perceived as
threatening by employees. When cost reduction is the ultimate objective, it
should be mixed with other intermediate objectives, such as time reduction or
quality improvement, that might lead to cost savings. In the several firms we
have observed in which cost savings is the stated rationale for process
innovation initiatives, there has been a notable reluctance to participate in or
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otherwise aid the program.

Although the empirical evidence is slight, we believe that firms that have quality,
improved work life or learning, or timeoriented objectives often achieve cost
reduction in their process innovation initiatives, while those that strive only for
cost reduction may not achieve even that. The futility of focusing exclusively on
cost was observed in an Ernst & Young survey of factors leading to product
competitiveness, 6 though it did not take an explicit process perspective.

Process change without strategy and vision seldom goes beyond streamlining,
with a resulting incremental reduction in time and cost. Even process
improvement is most valuable in a strategic context; streamlining is most useful
the publisher, except fair uses permitted under U.S. or applicable copyright law.

in areas that really matter to a business. Change is much more likely to be

successfully implemented by and to benefit a business when it is focused on
what matters most. General Electric's corporatewide "WorkOut" program for
eliminating unnecessary work, for example, is focused on no particular business
strategy other than productivity improvement and lacks specific objectives
regarding the level of work to be eliminated. A masterpiece of employee
communication that encourages overworked employees to try to find ways to
reduce their own workloads, the program has been praised in the popular
press, and analysis has revealed examples of functional productivity
improvements.7 But several managers we interviewed reported that WorkOut
had yielded at best incremental results, and that the program's methods were
better described as process improvement than innovation.

Far more impressive results have been achieved by General

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Electric in a more focused effort at its Salisbury, Maryland, electrical

equipment plant. This plant's business strategy was to reverse several years of
poor financial results in the circuit breaker business through innovation in
process, organizational structure, and technology. The plant adopted self
managing work teams, established electronic linkages with customers, and
developed highly visible measures of process performance. These process
innovations have reduced customer complaints tenfold, costs by 30%, and
delivery cycles from three weeks to three days.

This contrast of two operational improvement initiatives at GE suggests that

business units are the appropriate locus for process innovation efforts. When
multiSBU corporations define strategies at the corporate level, they generally
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involve financial or market share objectives such as GE's desire to be the

largest or secondlargest business in every industry in which it participates. It
may not be possible for an organization the size of General Electric to define at
the corporate level strategies that can inspire process innovation in specific
businesses.

Key activities required to create visions for process innovation are listed in
Figure 61. A firm's business strategy provides the overall context for an
innovation effort and is assumed to be an input into the innovation initiative. The
primary output is process vision, consisting of specific objectives and
attributes.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

In this chapter, we discuss how business strategy should inform process visions
and what role customer perspectives and external benchmarking should play in
formulating them, and we consider in depth what their context ought to be,
including performance objectives and specific process attributes.

Figure 61 Key Activities in Developing Process Visions

• Assess existing business strategy for process directions

• Consult with process customers for performance objectives

• Benchmark for process performance targets and examples of

innovation

• Formulate process performance objectives

• Develop specific process attributes

Assessing Existing Business Strategy

Whereas most recent literature on strategy and vision focuses on the content of
strategy and the formulation of strategic position relative to environment,
customers, competitors, and so forth, 8 here we are concerned with the
implementation of strategy as a means to guide and inspire process innovation.
Definitions of strategy and vision abound. We view strategy as longterm
directional statements on key aspects of a firm or business unit, and vision as a
detailed description of how, and how well, a specific process should work in
the future. Vision is thus more tactical than strategy, although both must be
formulated at a high level. Moreover, a strategy should be visionary (i.e., look
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into the future), and a vision strategic (i.e., have a broad, key issue focus). This
gives rise to possibilities for confusion.

We assume for purposes of this book that a welldefined business strategy is

antecedent to a process innovation initiative. We do not assume that there is a
single, correct strategy for an industry or product. Companies can succeed
with very different strategies as long as they are well executed.

A defined strategy is a primary determinant in both the selection of, and

development of process visions for, processes to be innovated. The roles of
business strategy and other aspects of a firm's environment in selecting
processes for innovation were discussed earlier; here, we examine the
relationships between strategy and process visions.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Because it bears a heavy load in establishing a context for process innovation,

a strategy, in addition to positing a broad view of a future state, must also meet
the following criteria.

• Strategy should be at least partially nonfinancial. Revenue, profitability,

or ROIbased visions often lack meaning for those who will not necessarily
benefit from their achievement (i.e., most employees). Nor do such visions
help employees understand how their targets are to be achieved. It is, in fact,
all too easy for executives to state financial strategies without knowing how
they will be achieved. Financial goals, though important, must be combined in a
balanced way with processand productoriented goals.

• The components of a strategy should ultimately be measurable.

Nonfinancial strategies are not as easily measured as

financially oriented strategies. Yet a strategy is meaningless unless progress

toward its goals can be assessed, a requirement frequently violated in many
companies as noted in the literature on nonfinancial performance measures
9
and "strategic control."10

• Strategy should focus an organization on specific aspects of its business

to which process innovation can be usefully applied. To strategize about
becoming a "worldclass" company is not terribly useful; becoming the world's
best at logistics and distribution is a much more workable strategy.

• Strategy should be distinctive to an industry and company. We are

familiar with many steel industry strategies that don't mention steel, airline
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company strategies that don't mention flying, and so forth. This aspect of
strategy, although not important in itself, renders other requirements more likely
to be met.

• A strategy should be inspirational. In order to inspire, a strategy must be

clearly understood and meaningful to its audience and be the genesis of a
considerable amount of work. An inspirational strategy can provide energy
when setbacks occur or implementation teams lose momentum. The emotional
content of a strategy is sometimes captured in its mission statement. This issue
has often been ignored or paid lip service, but companies that have
acknowledged it have had successful results.11
the publisher, except fair uses permitted under U.S. or applicable copyright law.

• A strategy should be for the long term—five or even ten years. It should
be broad enough to encompass a variety of opportunistic directions within its
overall context.12 The notion of a longterm yet flexible strategy is captured in
the recent literature on "strategic intent."13 A flexible strategy should be capable
of accommodating movement into new businesses built around information and
information technology. For example, Baxter Healthcare, American Airlines,
and a number of other firms that have created electronic distribution processes
now use them to distribute products well outside their mainstream businesses
(in Baxter's case, office supplies, in American's, flowers and candy).

• The method employed to create a strategy, like the change

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levers that enable process innovation, should be broadly focused and

address key tools for change. The planning method that best seems to do
so is scenariobased planning. 14

Among the companies pursuing process innovation that have strategies well
suited to their process needs is Continental Bank, which has a strategy that
calls for being a business bank that provides excellent service to a small
number of mediumsized customers. Continental Bank's chairman Thomas
Theobald's frequent spoken and written comments about the need for radical
change in banks and banking regulation—e.g., "Frankly, I just don't think that
cuts of 10 or 15 percent will do the job"—motivate innovation rather than
improvement.15 Continental is struggling to adhere to its strategy and achieve
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strong financial results, but it clearly has come a long way since its bankruptcy
in the early 1980s.

Rank Xerox U.K.'s strategic shift from selling copiers to marketing document
management systems might seem a subtle distinction, but the firm's executives
have developed explicit measures of success (e.g., 50% of revenues from
systems by 1990) and oriented new process designs toward improving these
measures.16 In contrast, IBM has launched an ambitious process innovation
program based on a strategy of "marketdriven quality," which, though
admirable and likely to yield some benefits, may not be sufficiently focused to
bring about truly radical change or inspire specific and aggressive process
visions. Indeed, in attacking 18 key processes simultaneously, the company is
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more likely to achieve process improvement than innovation.17

Satisfying the foregoing criteria for strategy improves a firm's chances of

success in the search for process innovation. Yet any of these requirements can
be taken too far. Nonfinancial strategies make sense only to the degree that
they lead to better financial performance. Overemphasis on measurability and
an overly detailed focus can inhibit both a strategy's longterm applicability and
its ability to inspire employees. Strategy, moreover, provides only an internal
perspective in creating a process vision. There are many ways to implement
even a welldefined strategy. Many innovative ideas for process design and the
use of enablers can come from sources outside the organization, including
customers, competitors, and firms in completely different

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businesses. To incorporate these sources into its visioning activity, an

organization must include in its process innovation initiative both a structured
exercise to understand customer perspectives and a round of external
benchmarking.

Customer Inputs into Process Visions

A key aspect of creating a process vision is to understand the customer's

perspective on the process. As noted previously, the customer of a process
can be either internal or external to the firm; in practice, most firms are more
concerned about the perspectives of external customers, and therefore place a
high priority on customerfacing processes.
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Asking customers what they require of processes serves multiple purposes. In

the context of creating visions, the customer perspective furnishes both ideas
and objectives for process performance. Seeking customer input also
demonstrates a desire for a close relationship, although this input must be
actually factored into process designs to fully achieve this objective. Finally,
new processes may require that customers change their own behavior for the
process to be fully effective. Seeking input at an early stage starts building
customer commitment to the needed changes and lets customers begin their
own process transition.

Of course, most processes have multiple customers. It is often not very useful
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to treat all customers equally; a written questionnaire sent to hundreds of

customers, for example, will seldom deliver meaningful results. It is much more
valuable to select a limited set of customers, based either on their importance
to the firm or their ability (and willingness) to furnish thoughtful input, and spend
more time with each one. Focusing on a few customers also allows for less
structured interview processes in which innovative ideas can be sought.

The type of inputs that should be solicited from customers are broad,
encompassing desired process outputs, performance, flow, enablers, and other
relevant factors. The method of customer contact may take several forms. A
focus group may be the best way to deal with individual, rather than
organizational, customers. Some firms prefer to send consultants to talk to
customers, so that they will not hold back on their true feelings. Other firms
would never pass up an opportunity to build closer personal relatiouships with
customer executives. Sometimes the solicitation

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of opinions from customers can be done in an informal setting. For example,

the discussions that led to Procter & Gamble's continuous replenishment
processes for WalMart took place during a fishing trip by Sam Walton and a
P&G executive.

In our experience, customers rarely provide breakthrough ideas for process

innovations. Instead, their objectives are to improve the existing process
incrementally: ''I would like to have more ontime deliveries." These types of
inputs are important, however, because they specify the areas in which
innovation should take place. If the customer feedback process is somewhat
iterative, taking place throughout a process innovation initiative, customers can
react to successively more concrete process designs. As is true for user
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participation in the design of information systems, customers often do not know

what they want until they see what they can get, or until they see something that
they know they don't want.

Process Benchmarking

As practiced in the quality movement, benchmarking helps companies

formulate objectives for continuous improvement programs. But it can also be
an effective tool for determining process objectives and identifying innovative
process attributes. Insofar as it enables companies to look outside for
alternative ways of designing processes, benchmarking can help to break a
company's inwardly focused mindset.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Most appropriate for the purposes of process innovation is a "best practice" or

"innovation" benchmark that selects companies on the basis of the performance
of a particular process, without regard to the industry, and addresses specific
innovations and uses of change enablers as well as overall process
performance. A company attempting to innovate its order management
process, for example, might study Digital Equipment Corporation's expert
systems for automated configuration or USAA's empowered customer service
representatives, whereas a firm studying new product development might
analyze how J.C. Penney employs videoconferencing to place new fashion
designs in stores. Benchmarking can identify realistic performance objectives
and target characteristics for companies to match or surpass, information that
can be used during innovation brainstorming workshops to fuel the redesign
process.

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Innovation benchmarking need not focus on the traditional concerns of

benchmarking. Process measures and costs may help to establish objectives
for a new process, but even a poorly performed process in a poorly
performing company can have innovative aspects. It is also important to
benchmark distinctive uses of enablers and innovative work designs. Even
relatively narrow aspects of processes can be worthy of analysis. Several firms
that are redesigning their order management processes, for example, have
visited a division of AT&T in which field personnel use laptop computers and
portable networking to work without offices. This innovation, although it does
not comprise a complete process, can be an important component of an order
management approach.
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Other industry innovations should not be neglected in formulating the objectives

and attributes of a process vision, but managers may be more readily disposed
to adopt innovations for which there is evidence of use in their own industry.
Benchmarkers must therefore strike a balance in presenting valuable cross
industry innovations and clearly competitive, relevantwithinindustry
innovations likely to gain quick acceptance.

The sources of benchmarks are varied, ranging from company visits to

telephone discussions with consultants and executives in other firms to industry
publications and academic case studies. Because thirdparty accounts of
process innovations may gloss over important issues or stop short of the final
chapters of a story, a company is wise to contact benchmarked organizations
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directly at some point in the benchmarking process. Details of benchmarking,

such as the etiquette of contacting firms, are similar for quality and innovation
oriented benchmarking (see Camp 18 for specifics).

Linking Strategy and External Information to Produce Process Visions

Strategy, customer perspectives, .and external benchmarks are necessary, but

not sufficient, to establish the context for process innovation. For a process to
be transformed, the context must be made explicit and operational through a
set of visions that define the desired process functionality, specify change
objectives for the redesign of the process, and identify qualitative attributes

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of the process's future state. These visions provide necessary direction for the
design team.

Process visions link strategy and action; they translate highlevel strategies into
measurable targets for process performance and understandable characteristics
of process operations, and they set targets both for the designers of a process
and for those who must subsequently manage it. Just as analysis of corporate
strategy is combined with information from external sources to create process
visions, so process visions give rise to objectives and attributes (see Figure 6
2).

Formulating Process Objectives

Process objectives include the overall process goal, specific type of

improvement desired, and numeric target for the innovation, as well as the time
frame in which the objectives are to be accomplished. Both general process
functionality and change goals should be addressed by these objectives.

Process objective creation begins with a vision team asking itself, and key
stakeholders, "What business objective is this process supposed to
accomplish?" This analysis should broadly address
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Figure 62
Strategies, Visions, Objectives, and Attributes

the functions and value the process is expected to bring customers. To avoid
what Ted Levitt has called "marketing myopia," it should concern itself not only
with traditional outputs of the process, but also with real customer needs. A
team redesigning a company's order management process might discover, for
example, that its customers need additional services to take better advantage
of the company's products, or customers might be interested in purchasing
products in a lessfinished state. The analysis should also address the aspects
of the business that are most important to customers. Firms sometimes find that
they are focusing on one process objective when another is more important to
customers— for example, stressing product variety when customers want
faster, more reliable delivery, or striving for cost reduction when customers
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would willingly pay more for a better product or service.

Process objectives must be quantified as specific targets for change. Examples

of quantitative process objectives for various industries might include:

• reduce new drugdevelopment cycle time by 50% in three years;

• double customer service satisfaction levels in two years;

• reduce involuntary employee turnover to 10% by the end of the next

fiscal year; and

• reduce processing costs for customer orders by 60% over three years.
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Process objectives should be derived from strategy. Continental Bank's

strategy of being a business bank led naturally to a process objective of
doubling relationship managers' time spent with customers. Although this
objective was appropriate, the executive who "owned" customer contact (now
CEO of another bank) chose not to publicize it to the relationship managers.

Rank Xerox U.K.'s process vision was not so easily derived from its strategy
of selling systems rather than copiers. The strategy applied to numerous
different processes and was difficult to translate into specific redesign goals for
any one. The substantial benefits realized from the first round of process
redesign (e.g., reducing jobs not involved in customer contact and reducing
order delivery time from 33 to 6 days), did not reflect the level of business
change desired by the senior management team. Consequently, the company is
undertaking a second round of process

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innovation in which the objectives are more specific and more closely tied to
current strategy. This round should be much easier than the first, because the
company now has a strong process orientation.

Process objectives, like strategies, should meet a number of established

criteria. For example, the level of change targeted should be radical. This
usually means greater than 50% improvement. Some firms have much more
ambitious goals. IBM, for example, is attempting to reduce time, cost, and
defects by a factor of 10 by 1992 and by a factor of 100 by 1995. However
unlikely the achievement of these goals for most processes, establishing them
has clearly stimulated a great deal of work by process design teams, and some
improvement is certain to be achieved.
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Developing Process Attributes

Process attributes, the descriptive, nonquantitative adjunct to process

objectives, constitute a vision of process operation in a future state. They
address both highlevel process characteristics and specific enablers. Process
attributes for an order management process, for example, might specify that the
process will employ expert systemsbased credit checking, automated
proposal generation, increased worker empowerment, and a financial structure
resembling dealerships for customerfacing teams. Other attributes might
specify that the process be performed by one person or team, and that credit,
shipping, and scheduling functions will be performed by the customerfacing
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individual. It is sometimes useful to categorize attributes as "technology,"

"people," "process outputs," and so forth.

Process attributes might be considered principles of process operation. 19 Like

principles, they are simple statements that describe an organization's
philosophy and intent regarding process operations and can be an effective
means of engaging senior managers in discussions about visions for new
processes.

The enablers of process innovation that have been identified as relevant in

earlier stages of the innovation initiative also become attributes of the process.
These may involve information, information technology, or organizational and
human factors.

An example of an organizational attribute is to collapse the division of labor in a

process, that is, to organize it in such a way that the entire process is overseen
by a single employee or group.

In many banks, for example, relationship managers are responsible for handling
all aspects of a customer relationship, and many hospitals employ case
managers to coordinate all aspects of a patient's stay.

An example of a human factors attribute is to push decision making down in

the organization. One manufacturer that had made pricing decisions the
responsibility of the division general manager moved that decision making
down in the organization to crossfunctional product development teams; in
doing so, it realized overall cycletime improvements. Other companies, by
applying this attribute, have eliminated layers of management and hierarchy.

A common technologyoriented attribute is the offloading, whenever possible,

of process activities to process customers by giving them access to the

provider's computer systems. One future vision of Federal Mogul's customer
driven product development is to allow customers to examine its online
product catalog to determine whether an existing product might satisfy their
requirements, an activity currently performed by product engineers. Federal
Express and other firms in the shipping industry have given customers terminals
to check the progress of parcel shipments.

These are only a few examples of attributes that might be employed within
process visions. The enablers selected by a design team, along with inputs from
customers, external benchmarking partners, and the business strategy, should
suggest many more.
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When NCR reengineered its order management process in 1988, a set of

attributes (called "goal states" by NCR) were developed as part of the
visioning activity. Managers of the initiative credited the goal states with
presenting "a case for action" and being a vehicle for achieving buyin by
process owners and participants. Among the 20 attributes (some were really
performance objectives) they declared were the following:

• link order management systems worldwide, but keep them local;

• create automated sales assistant tools for product information and

pricing;

• offer direct shipments from manufacturing to customers—no

warehouses; and

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• render invoices and payments electronically.

Since the original attributes were defined at NCR, they have continued to
evolve. As the envisioned process was implemented, both the business and
relevant technology continued to change; it was only natural that the process
attributes would also change through the implementation period.

The Visioning Process

Process objectives and process attributes are derived from multiple sources—
among them, analyses of corporate strategy and vision, highlevel overviews of
the roles of technology and people (as both opportunities and constraints),
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customer interviews, benchmarking of the best processes in other companies,

and a firm's performance objectives—during visioning sessions at the beginning
of a specific process initiative.

These visioning sessions should be a series of workshops, with increasing

specificity about the vision at each step (see Figure 63). In earlier stages of
the process, the focus is on attributes and objectives, as described above.
After these have been articulated, later workshops can address the critical
factors for the successful implementation of the vision, and any barriers that
might stand in the way.

Regardless of the topic focus, all aspects of the vision must be stated with a
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high degree of specificity. The specificity of process visions is the source of

both their power and their difficulty. Specific attributes and measurable
objectives are powerful because they clearly express the purpose of process
innovation efforts. But because they may be formulated well before the process
team begins detailed analysis of the existing process, they are difficult to
formulate with accuracy, and they rely on prediction more than precision. A
process vision should therefore be determined on the basis of what is
necessary from a business standpoint, rather than what seems reasonable or
accomplishable.

Process objectives should be stretch targets for an organization. Unless their

reach seems to exceed an organization's grasp, they will not motivate design
teams to go beyond incremental improvement. An improvement objective of
10% permits a team to streamline a process—to eliminate a step here, a
person there.

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the publisher, except fair uses permitted under U.S. or applicable copyright law.

Figure 63
The Visioning Process "How could we do things differently?"

Specifying an objective of 100% improvement ensures that a process will be

examined with an eye toward radical change. The purpose of stretch targets is
primarily behavioral—to let designers and implementers know that innovation
and creativity are expected. To target low levels of improvement, or to say,
"Let's just look at the process and see what we can get," is to invite marginal
improvement at best.

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A vision must not be completely unrealizable. A design team that perceives, for
example, that a stretch objective cannot be achieved—either because it is
unreasonable or because environmental constraints are too great—becomes
disillusioned, a lesson learned in research on highcommitment organizations. 20

Process objectives and attributes are important not only for new, but also for
existing processes. As explained in the next chapter, it is important to
understand an existing process before designing a new one. This understanding
must include measurement of the aspects of the process upon which the new
process is to improve, and comparisons of the attributes of the old and new
processes. Without an explicit process vision for a new process, it is difficult to
know what to examine in the old one. "Safe" measures, such as the cost of and
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time consumed by an old process, should not be examined to the neglect of

other, more visionspecific measures.

Process visions are a means of enabling some degree of wider participation in

an activity that needs to be driven from the top of the organization. They place
on the shoulders of lowerlevel members of process teams the work of
designing new processes to achieve objectives and attributes clearly stated by
senior management. Because process team members are typically drawn from
corporate staff and middle management groups, it is not accurate to refer to
process implementation as "topdown vision, bottomup implementation"; at
best, implementation is "middle up." The middle ranks of an organization will
also be responsible for managing the new process to achieve full benefits.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Process visions and the strategies that support them are key elements of a
context for process innovation. Like other aspects of management practice,
clear strategies and visions are a good idea for all companies, but they are
essential to process innovation.

Senior management plays an important role in creating process visions. The

foundation of Hallmark's innovation efforts is a vision of the company's ideal
future state as articulated by its top 40 managers.21 Process innovation teams
at Xerox are guided by Xerox 2000, a corporate, highlevel description of
core competencies for the millennium developed by senior management, with
strategic goals for specific process initiatives supplied by divisional
management. Some senior managers must be participants in process visioning
activities; others must be aware of the process visions that result.

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Summary

The creation of process visions relies on assessing an organization's strategy,

gathering external inputs into process design and performance, and translating
this information into specific process objectives and attributes. The
relationships among these factors must not be oneway. Lessons learned
through process innovation should influence strategy. If process orientation is
to become a key determinant of how business is conducted, results of process
management should feed back into all aspects of the organization. Strategies
should eventually be phrased in terms of which processes must be changed,
and their success measured through processgenerated information. Objective
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setting should be tied to results achieved in previous processes.

As firms become more comfortable and experienced with information and

information technology as enablers of process innovation, strategies and
objectives should shift to better exploit these competitive resources.
Information management, when it becomes a core competence, opens entirely
new competitive alternatives, including the sale of information, information
management services, and alternative products through informationbased
channels. 22

Thus far, we have focused primarily on shaping designs for new ways of doing
business. But the current process must also be the focus of analysis, both in
terms of understanding and measurement and in terms of shortterm
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improvement. It is to this that we turn in the next chapter.

Notes

1 Jeremy Main, "Is the Baldrige Overblown?," Fortune (July 1, 1991): 6265.

2 James Brian Quinn, Strategies for Change: Logical Incrementalism (New

York: Richard D. Irwin, 1980).

3 Anthony G. Athos and Richard T. Pascale, The Art of Japanese

Management: Applications for American Executives (New York: Warner
Books, 1982).

4 "Reference Note on Work Simplification," 9609060. Boston: Harvard

Business School, 1961.

5 B. Birchard, "Remaking White Collar Work," Enterprise (Digital Equipment

Corporation: Winter 1990): 1924.

6 William Smith, The American Competitiveness Study: Characteristics of

Success (New York: Ernst & Young, 1990).

7 Thomas A. Stewart, "GE Keeps Those Ideas Coming," Fortune (August

12,1991): 4149.

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8 Michael E. Porter, Competitive Strategy: Techniques for Analyzing

Industries and Competitors (New York: Free Press, 1980) and Michael E.
Porter, Competitive Advantage: Creating and Sustaining Superior
Performance (New York: Free Press, 1985).

9 Robert G. Eccles, ''The Performance Measurement Manifesto," Harvard

Business Review (JanuaryFebruary 1991): 131137.

10 See, for example, Michael Goold, "Strategic Control in the Decentralized

Firm," Sloan Management Review (Winter 1991): 6981.

11 Andrew Campbell, Marion Devine, and David Young, A Sense of

Misssion (London: Economist Books, 1990).

12 See Daniel J. Isenberg, "The Tactics of Strategic Opportunism," Harvard

Business Review (MarchApril 1987): 9297.

13 Gary Hamel and C. K. Prahalad, "Strategic Intent," Harvard Business

Review (MayJune 1989): 6376.

14 For a discussion of scenariobased planning, see Peter Schwartz, The Art

of the Long View (New York: Doubleday Currency, 1991).

15 Thomas Theobald, "Restructuring the U.S. Banking System for Global

Competition," Journal of Applied Corporate Finance 3:4 (Winter 1991):
the publisher, except fair uses permitted under U.S. or applicable copyright law.

2124.

16 These Rank Xerox strategies have been supplanted by others since their
original creation. See "Rank Xerox U.K., Office Systems Strategy (C):
Developing the Systems Strategy," case study from Henley—The Management
College, Soptember 1988. Also see Thomas H. Davenport and James E.
Short, "The New Industrial Engineering: Information Technology and Business
Process Redesign," Sloan Management Review (Summer 1990): 1127.

17 Though innovation initiatives exist for these 18 processes, there are some
signs that IBM is beginning to focus its major initiatives on a smaller number of
processes.

18 Robert C. Camp, Benchmarking: The Search for Industry Best

Practices That Lead to Superior Performance (Milwaukee, Wis.: ASQC
Quality Press, 1989).

19 Thomas H. Davenport, Michael Hammer, and Tauno J. Metsisto, "How

Executives Can Shape Their Company's Information Systems," Harvard
Business Review (MarchApril 1989): 130134.

20 Richard E. Walton, "From Control to Commitment: Transformation of

Workforce Management Strategies in the United States," in Kim B. Clark,
Robert H. Hayes, and C. Lorenz, eds., The Uneasy Alliance: Managing the
ProductivityTechnology Dilemma (Boston: Harvard Business School Press,
1985).

21 Allan E. Alter, "The Corporate MakeOver," CIO (December 1990): 32

42.
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22 The concept of core competence is defined and discussed with reference to
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Robert H. Hayes, and C. Lorenz, eds., The Uneasy Alliance: Managing the
ProductivityTechnology Dilemma (Boston: Harvard Business School Press,
1985).

21 Allan E. Alter, "The Corporate MakeOver," CIO (December 1990): 32

42.

22 The concept of core competence is defined and discussed with reference to

strategy in Gary Hamel and C. K. Prahalad, "The Core Competence of the
Corporation," Harvard Business Review (MayJune 1990): 7991. Some
Japanese firms appear to have this core competence; see James Matarazzo
and Laurence Prusak, Japanese Success and Information Management
(Washington, D.C.: Special Libraries Association, 1991).
Page 137

Chapter 7
Understanding and Improving Existing Processes
It is important to understand an existing process before designing a new one.
Some approaches to process redesign and reengineering do not include this
step, and some companies have omitted it in their process innovation
initiatives—to their regret. One process team at a large telecommunications
firm, for example, estimates that not taking the time to understand an existing
process left it unable to establish the benefit of adopting the new process. The
team found it difficult to get funding for the initiative, resuiting in an 18month
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delay.

There are at least four reasons to document existing processes before

proceeding with innovation. One, understanding existing processes facilitates
communication among participants in the innovation initiative. Models and
documentation of current processes enable those involved in the innovation
activities to develop a common understanding of the existing state. This aspect
is particularly important in the case of business and management processes
performed by professionals or other employees engaged in relatively
unstructured, nonroutine work, which such individuals find difficult to view as a
process.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

For example, a large defense contractor attempting to innovate its information

systems development processes was unable to get its professionals to
recognize (or admit) that a process underlay the work they performed. The
firm was forced to use an incremental improvement approach to the
development activities, with no process context or measurement of either
current or improved activities. The merchant banking group of a major
investment bank wanted to take a process perspective to define more
systematic ways of identifying new business opportunities after investment
opportunities took a downward turn in the late 1980s.

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Chapter 8
Designing and Implementing the New Process and
Organization
Ironically, there is less to say about the design phase of process innovation than
about the activities that lead up to it. The design activity is largely a matter of
having a group of intelligent, creative people review the information collected in
earlier phases of the initiative and synthesize it into a new process. There are
techniques for facilitating the review process, but the success or failure of the
effort will turn on the particular people who are gathered together.
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The choice of participants for a new process design team should be governed
by both design and implementation considerations. A balance must be struck
between team members who can deliver the most creative and innovative
process solutions and those who can help to ensure that they are implemented.

Although in most organizations, the same individuals who participated in the

process selection and visioning phases will participate in the design phase, it is
particularly important that key process stakeholders feel their interests are
represented during the latter phase. Stakeholders who should participate on
the team during the design phase include heads of key functions intersected by
the process, key general managers with operational responsibility for the
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process, suppliers of important change resources (e.g., the IT, human

resource, and financial functions), and process customers and suppliers, both
internal and external. It is worth noting that a number of consumer goods
manufacturers, among them Procter & Gamble, Scott Paper, and Black &
Decker, invited a few large retailers to participate in the redesign of their order
management processes for quick response and continuous replenishment. In
fact, exclusion of important customers

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such as WalMart from the design phase would be virtually unthinkable. Inclusion
make a design team unwieldy, but time lost achieving large group consensus can
implementation times.

Our discussion here covers the implementation of new process designs, including
and the implementation of new organizational structures and systems designed to
ways of working. Key activities in the design phase are listed in Figure 81.

Brainstorming Design Alternatives

Design innovation is best accomplished in a series of workshops, and brainstormi

surfacing creative process designs. 1 By brainstorming, we refer to any group faci
Copyright © 1993. Harvard Business School Press, All rights reserved. May not be reproduced in any form without permission from

that encourages participation from all group members, regardless of their roles an
organization. Emphasis during brainstorming sessions should be on creativity and
judgmental atmosphere is essential. Any idea should be fair game, and participant
can share their thoughts without risk. The objective of brainstorming sessions is t
pragmatic new process designs, taking as input the process vision, change enable
knowledge developed in the earlier phases of process innovation.

Graphic representation of a process design can be extremely helpful in understan

of computerbased tools for design display and simulation is discussed in a later c
technological approaches can also be very useful.

Figure 81 Key Activities in Designing and Prototyping a New Process

the publisher, except fair uses permitted under U.S. or applicable copyright law.

• Brainstorm design alternatives

• Assess feasibility, risk, and benefit of design alternatives and select the pre

• Prototype the new process design

• Develop a migration strategy

• Implement new organizational structures and systems

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Firms have successfully employed large whiteboards and large pieces of colored
affixed to walls. Most computerbased tools use a rigorously defined set of symb
different process entities, but these are not essential. The primary purpose of the
is communication and recording, and any consistent set of easily understood sym

It is often useful to define the new process in an iterative fashion, with greater det
successive level (see Figure 82). To begin with, a highlevel flow of the overall p
be created. This should not be difficult, given a wellarticulated process vision. At
of detail, each subprocess can be described with roughly the same thoroughness
describing the general process in the first iteration. Finally, each major activity sh
described in terms of such factors as who will perform it, the information needed
and so forth. For the sake of coherence and consistency, different graphic icons s
Copyright © 1993. Harvard Business School Press, All rights reserved. May not be reproduced in any form without permission from

to portray each level.

Subprocess Level (Boxes) Activity Level
Process Level (Icons)
• Inputs • Objective • Information
• Outputs • Performance Metrics • Decision Poi
• Interfaces • Who Performs • Who Does It
• Flow • IT Enablers • ValueAdde
• Measures • Information Needs/Activities
the publisher, except fair uses permitted under U.S. or applicable copyright law.

• ValueAdded (prerequisites)
• Activities in the Process
(narrative)

Figure 82
Levels of Process Design

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Page 156

Assessing Feasibility, Risk, and Benefits

The minds of design team participants should be full of information as the

design activity begins. Participants should be well versed in the highlevel vision
for the process, including performance objectives and attributes, and be aware
of opportunities and constraints presented by likely enablers, both
technological and human/organizational, of the target process. They should be
familiar at least with the broad performance parameters of the current process.
Analysis of the current process need not be rigorous, but highlevel aspects of
the analysis should be inputs to the design deliberations.

Brainstorming sessions usually produce a number of design alternatives, which

must be submitted to feasibility analyses to evaluate their relative benefits,

costs, risks, and time frames. The new design and current state must be
compared in terms of structure, technology, and organization to fully
understand the implications of each alternative. The results of these analyses
provide the basis for selecting the optimum design.

Prototyping the New Process

Developing a prototype is a way to simulate and test the operation of a new

process. It is an iterative process in which the fit between new process
structure, information technology, and organization is refined and rerefined. A
prototype might be considered the analog of a scientific experiment performed
the publisher, except fair uses permitted under U.S. or applicable copyright law.

in a laboratory setting. Our definition is a smallscale, quasioperational version

of a new process that can be used to test various aspects of its design. This
kind of prototype is known as an organizational prototype. 2

There is no way to predict the organizational impact of a redesigned process

and associated information technology with complete accuracy. The goal of the
prototyping is to gradually shape the organizational environment or,
alternatively, to revise the technology. Prototyping must be viewed as a
learning activity by process designers and users alike. Many iterations may be
necessary to achieve a proper fit; thus, the need to reiterate must not be
viewed as failure.

A new process for taxpayer collections that was not prototyped by the Internal
Revenue Service, although far superior to the old

process and well supported by a new information system, had an unanticipated

and negative impact on workers and supervisors. Workers were forced to
spend all their time at their terminals or on the phone, supervisors to spend all
their time monitoring workers. Both resigned in large numbers, forcing the IRS
to reevaluate the new process and job roles. Eventually, it was necessary to
spend more than a million dollars to modify the systems to support a team
based rather than individual process design.

Prototyping can itself be viewed as a series of phases that yield increasing

degrees of tangibility (see Figure 83). Computer simulation, one of the
techniques discussed later, is a kind of limited process prototyping, beyond
which it may be reasonable to create a paperbased information test of the
Copyright © 1993. Harvard Business School Press, All rights reserved. May not be reproduced in any form without permission from

process. In subsequent phases, the prototype might be taken to a standalone

process test, using personal computers for information support, and interfaces
to other processes and existing information systems might then be added to it.
The ultimate prototype would include all enabling technologies, skills, and
organizational structures. Each phase helps refine the process design and the
information required to support it; taken together, these phases help reduce
implementation risk.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Figure 83
Levels of Process Prototyping

Phases of Prototyping

A videotape that illustrates a new process can be useful for persuading

customers to change interfacing processes and senior managers to fund
implementation of the new process. Seeing a process on tape lends it a
tangibility that paper reports and thirdhand discussions seldom achieve. 3

Clearly the organizational learning perspective needs to extend beyond

prototyping. It sometimes takes a few cycles to arrive at an effective process
design. IBM Credit Corporation, for example, has implemented a number of
different process designs over the past five years. When desired objectives
were not obtained, it tried again. In fact, one of the lessons managers at IBM
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Credit have learned is that process innovation never really ends. Having
achieved tenfold improvements in cycle time and quote volume, the
organization is attempting to push process performance into the field to achieve
even greater benefits.

Migrating to a New Process

Having designed and tested a prototype process, an organization faces the

considerable challenge of migrating from the current process environment to
the radically new design. A full “cutover'' may be difficult or impossible. If the
new process involves customers, revenues, or valued employees, or if the
process change will be highly visible internally or externally (and for what
the publisher, except fair uses permitted under U.S. or applicable copyright law.

important process are these conditions not true?), the firm may not want to risk
an abrupt transition. Alternatives to full cutover include phased introduction,
creating a pilot, or creating an entirely new business unit.

A pilot is a smaller scale, but fully operational, implementation of a new

process in a relatively small unit of the organization based on a particular
geography, product, or set of customers. Although pilots are often viewed as a
means of testing a new process (or other type of intervention), the goal should
be to achieve success rather than merely objectively test. Thus, the unit
selected should be the one most capable of achieving successful change.

One migration approach is to begin with a pilot and follow with a phased
introduction. A firm might, for example, implement new systems capabilities
and skills as they become available. A phased approach may be the most
economically feasible, in that

companies can derive some financial benefit from the process change earlier
than might otherwise be possible; it is not, however, necessarily less disruptive
than a full cutover. In fact, the sense of constant change and instability may be
difficult for some employees to handle.

If constraints within the existing environment are too great, it may be desirable
to create a new organization for the new process. This organization can run
parallel to the existing one and be the locus of specific products, channels, or
customers. The most prominent example of process innovation in the banking
industry involved establishing a new organization. Midland Bank in the United
Kingdom established an organization called First Direct to service retail
customers without normal branches or other “bricks and mortar." The new
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bank employs innovative customer service processes that rely on the telephone
and automated teller machines. It also makes extensive use of information
technologies to identify patterns of customer behavior that reflect credit risk.
Because its processes do not involve expensive real estate, First Direct can
offer 24hour service and higher interest rates that compete with Midland’s
more traditional banking organization as well as with other U.K. banks.

Implementing New Organizational Structures and Systems

Firms and organizations today tend to be structured in a way that works

against the success of their new process designs. Most organizational
structures are based either on function or product, with little or no process
the publisher, except fair uses permitted under U.S. or applicable copyright law.

orientation. Functionally organized firms have difficulty meeting customer needs

seamlessly across different functions because no one “owns" the issue of how
long it takes or how much it costs to fulfill customer requests. Certain key
processes—typically new product development and order management—
cross so many parts of the organization that the only manager to whom all their
activities report is the CEO.

A firm organized around product structure has a difficult time ascertaining total
business done with individual customers or “crossselling" different products to
the same customer. The latter problem is particularly pressing in banks, which,
being organized around product lines (for example, many have a trust system
for trust customers, a demand deposit accounting system for checking

account customers, a consumer loans system for consumer loan customers,

and so forth) are encountering severe problems establishing integrated
customer databases.

A number of banks, including Continental and Chemical, are attempting to

impose an “overlay" architecture that would enable a customer relationship
manager to reach into the various databases in which customer information is
contained to create a composite customer file. 4 But until the basic
organizational structure is no longer productdriven, this activity will be
contrary to the systems, reporting responsibilities, and culture of the bank.

Although the problem of rigid functional organizations is widely recognized, the

proposed solution—to abandon any form of structure beyond the self

managing team—is frequently worse than the problem, or at least much less
well defined.5 We cannot imagine that real firms will abandon structure to the
degree suggested by the set of concentric circles,6 the orchestra,7 or something
else, or that they would be effective if they did so. We are, Elliot Jacques has
noted, creatures of structure, and have been since the beginning of formal
organization.8 A more processbased, rather than poststructural, organization
offers a powerful compromise between the need to maintain structure and the
desire to adopt a flexible approach to the way work is done. Until a process
based organization is established, a new design for work cannot be considered
fully implemented.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

We do not recommend that processes become the only basis for organizational
structure. Functional skills are important to a process orientation, as is concern
for product management and the running of strategic business units. Most firms
are well advised to adopt a multidimensional matrix structure, with process
responsibility as a key dimension. An organization that wishes to benefit from a
process perspective must be prepared to tolerate the wellknown problems
with matrix structures, including diffusion of responsibility, unclear reporting
relationships, and excessive time spent in coordination activities and meetings.

There is another reason a purely processoriented structure will not solve all
structural problems. Firms such as IBM and Xerox, which are vigorously
pursuing multiple process innovation initiatives, have made interesting
observations about structure. Just as key activities can fall between the cracks
of functions, important activities can fall between the cracks of processes, even
broadly defined processes. If organizations converted fully to

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Page 161

processbased structures, some future researcher would undoubtedly speak of

the need for crossprocess integration. Multiple dimensions of structure can
help bridge the gaps created by a single structural dimension.

But only when firms adopt more processbased organizational structures will
processes be managed in congruence with other aspects of the organization.
Then, instead of cutting across the organization, process responsibilities will be
a key focus of the organization. Process ownership, rather than constituting a
“shadow" organization, as some companies have referred to it, will be a
primary dimension of reporting and performance measurement.

In effect, a processbased organizational structure is a structure built around

how work is done rather than around specific skills. A number of

organizational theorists have argued that organizations need to reduce their
levels of hierarchy and adopt actionbased rather than formal structures. 9 A
processbased structure combines an action orientation with some degree of
formal structure.

There is a harbinger of the effectiveness of processbased structures in the way

several Japanese automobile manufacturers approach product development.
Kim Clark and Takahiro Fujimoto have described the concept of the
“heavyweight product manager" in these firms.10 This role has coordination
responsibility for product development from concept to market, across such
functional areas as engineering, manufacturing, marketing, and sales. Although
the publisher, except fair uses permitted under U.S. or applicable copyright law.

relatively high in the organizational hierarchy, the heavyweight product manager

exercises relatively direct influence over the activities of engineers at the
worker level.

Although Clark and Fujimoto do not take an explicit process perspective, the
heavyweight product manager role might be equated to ownership of the
product development process. Only through such a role can companies
develop products as complex as the modern automobile with speed, efficiency,
and design and marketing coherence.

Yet we know of no Western organization that has made radical strides toward
a processbased structure. Most companies that have undertaken substantial
process innovation initiatives have simply imposed process management as an
additional dimension of structure—on top of the existing dimensions—assigning
process ownership to managers who may also have functional and/or

product responsibilities. In almost none of these firms has process

responsibility been accorded organizational legitimacy.

The hesitation to move to processbased structures goes beyond simple

unfamiliarity with process as an organizational unit. When asked why they were
reluctant to move toward processbased structures, processoriented
managers offered, among other reasons:

• concern that the level of organizational change from process innovation is

already high and converting to a processbased organization might constitute
too much change;
Copyright © 1993. Harvard Business School Press, All rights reserved. May not be reproduced in any form without permission from

• fear that if functions are no longer the primary basis of organization,

functional skills will be lost; and

• a belief that process is an unstable basis for organization because

processes change more quickly than functions.

Only the first objection, we believe, has any real merit. Although it may be
more difficult to preserve strong functional skills in a processbased
organization, it seems quite possible. Marketing research skills, for example,
are just as important to a product development process as they are to a
marketing function. But because such skills may be spread throughout several
processes, there must be structural or systemic approaches to nourishing and
preserving them. With regard to the stability of processes, the premise of the
the publisher, except fair uses permitted under U.S. or applicable copyright law.

objection may be valid, but not the conclusion. The fact that processes may
change often to better meet customer needs is not an argument for abandoning
them as a basis for organization. In fact, many organizational theorists have
argued that a more dynamic basis of organization is exactly what is needed.

Only the concern that. changes in organizational structure— on top of

organizational changes imposed by process innovation— might be too much
change all at once is well founded. Companies can begin their process
innovation initiatives with shadow process organizations, and then slowly
migrate toward a full processbased structure. As Beer et al. have observed, a
congruent organizational structure is important, but many companies too
quickly create new structures in major change programs rather than address
organizational development and individual behavioral change first. 11 The timing
and management of the change

considerations involved in moving to a process structure are explored further in

the next chapter.

Beyond Process Design

The innovation approach outlined in the last several chapters is only the first
step toward fullscale implementation of new processes. The complete
innovation cycle is depicted in Figure 84. Innovation and the creation of a new
organizational structure must be followed by detailed systems design,
development of new performance measurement systems and skills, and
systems construction and deployment. A fully implemented process innovation
occurs over several years, and although our approach is outlined as a
Copyright © 1993. Harvard Business School Press, All rights reserved. May not be reproduced in any form without permission from

sequential process, it should, in fact, be executed in a highly iterative fashion.

Rigid partitioning of the activities will not yield the maximum benefits of
innovation.

Figure 84
The Process Innovation Cycle

Companies involved in process innovation initiatives often act as if the most

difficult aspect of the effort is over when the new process design has been
developed. But realization of process innovation benefits is not, at this stage, a
the publisher, except fair uses permitted under U.S. or applicable copyright law.

fait accompli. Like those of any other innovation, the benefits of process
innovation appear gradually in response to active management. A number of
companies, including SeaLand 12 and Du Pont, employ specially designated
teams to follow innovations well after implementation in order to determine
whether benefits from ITenabled business changes are being realized.
Although such teams typically do not take a process perspective, the concept
of benefit management and postimplementation assessment would be
facilitated by process thinking, with its emphasis on measurement and outputs.

Notes

1 Gini Graham Scott, “Making Effective Decisions Through Brainstorming,"

Manage, 41:3 (NovemberDecember 1989): 3436.

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Page 164

2 Dorothy LeonardBarton, “The Case for Integrative Innovation: An Expert

System at Digital," Sloan Management Review (Fall 1987): 719 and
“Implementation as Mutual Adaptation of Technology and Organization,"
Research Policy (February 1988): 251267.

3 I am grateful to Professor James Cash of Harvard Business School for this

suggestion.

4 Stuart Madnick and R. Wang, “Evolution Towards Strategic Applications of

Data Bases Through Composite Information Systems," Journal of MIS, 5:2
(Fall 1988): 562.
Copyright © 1993. Harvard Business School Press, All rights reserved. May not be reproduced in any form without permission from

5 See, for example, Steven Dichter, “The Organization of the 90’s," McKinsey
Quarterly 1 (1991): 145155.

6 Shoshana Zuboff, In the Age of the Smart Machine: The Future of Work
and Power (New York: Basic Books, 1988).

7 Peter F. Drucker, “The Coming of the New Organization," Harvard

Business Review (JanuaryFebruary 1988): 4553.

8 Elliot Jacques, “In Praise of Hierarchy," Harvard Business Review

(JanuaryFebruary 1990): 127133.

9 See, for example, Robert G. Eccles and Nitin Nohria with James D.
the publisher, except fair uses permitted under U.S. or applicable copyright law.

Berkley, Beyond the Hype: Rediscovering the Essence of Management

(Boston: Harvard Business School Press, 1992).

10 Kim B. Clark and Takahiro Fujimoto, Product Development

Performance: Strategy, Organization, and Management in the World
Auto Industry (Boston: Harvard Business School Press, 1991).

11 Michael Beer, Russell A. Eisenstat, and Bert Spector, The Critical Path
to Corporate Renewal (Boston: Harvard Business School Press, 1990).

12 Michael L. SullivanTrainor, “IS Keeps SeaLand on the Move,"

Computer World (April 29, 1991): 6776.

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Process Innovation Strategies Guide

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Process Innovation Strategies Guide

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Copyright © 1993. Harvard Business School Press, All rights reserved.

May not be reproduced in any form without permission from

Harvard Business School Press

Chapter 1 The Nature of Process Innovation

Part I A Framework for Process Innovation

Chapter 2 Selecting Processes for Innovation

Chapter 3 Information Technology as an Enabler of Process Innovation

Chapter 4 Processes and Information

Chapter 5 Organizational and Human Resource Enablers of Process Change

Chapter 6 Creating a Process Vision

Chapter 7 Understanding and Improving Existing Processes

Chapter 8 Designing and Implementing the New Process and Organization

Part II The Implementation of Innovative Business Processes

Chapter 9 Process Innovation and the Management of Organizational

Chapter 10 Implementing Process Innovation with Information Technology

Part III Innovation Strategies for Typical Process Types

Chapter 11 Product and Service Development and Delivery Processes

Chapter 12 Customer­Facing Processes

Chapter 13 Management Processes

Chapter 14 Summary and Conclusions

Appendix A Companies Involved in the Research

Appendix B The Origins of Process Innovation

Appendix B The Origins of Process Innovation

multiclient research program on process innovation, in which we could try out

with the chapter on IT­based implementation of process innovation; Suzanne

questions seem reasonable. John Simon and Natalie Greenberg made my

A book is a family's project, not an individual's. My wife Jodi remained

I am also extremely grateful to the managers of companies that were

The needed revolutionary approach to business performance improvement

of a process view of the business with the application of innovation to key

Executives in the organizations we studied and consulted for have expressed

The early results of process innovation are undeniably attention­grabbing. IBM

and a third fewer branch offices.

Radical process change initiatives have been called various names—e.g.,

Business Drivers of Process Innovation

That Japanese firms discovered (or at least implemented) process management

Today, with competition extended to the execution of strategy, firms frequently

The objective of the innovation might be process time reduction— in home

Process innovation can also support low­cost producer strategies. Companies

Competitive pressure is not the only driver of process innovation; increasingly,

including such giants as General Electric and Procter & Gamble.5

Finance is another powerful driver of process innovation. Companies that have

to redesign a process that is to be outsourced before turning it over to an

Of the many operational reasons that private­sector organizations embark on

improving financial performance. Process cost reduction translates directly into

Adopting a process view of the business—a key aspect of process

ownership, and customers. In definitional terms, a process is simply a

Process structure can be distinguished from more hierarchical and vertical

Some managers view the dynamic nature of processes in a negative,

a structured process is generally a good thing, and that there is nothing

A process approach to business also implies a relatively heavy emphasis on

perspective means creating a balance between product and process

Researchers of innovation in organizations frequently distinguish between

Processes that are clearly structured are amenable to measurement in a variety

Their outputs and inputs can be assessed in terms of usefulness, consistency,

Taking a process approach implies adopting the customer's point of view.

Because a process perspective implies a horizontal view of the business that

Customer requirements identification

Human resource management

Planning and resource allocation

business organization is characterized by the sequential movement of products

Major processes such as product development include activities that draw on

Adopting a process view implies a commitment to process

betterment. Much recent attention has been given to time reduction as an

objective of business change; 13 cost reduction and quality improvement are

Some of these improvement objectives can be found within a functional (i.e.,

warehouse awaiting a customer credit check or resolution of a discrepancy in

To some, a process orientation might imply a process industry, that is, an

What Constitutes Innovation?

Defined simply, innovation is, of course, the introduction of something new.

Process innovation can be distinguished from process improvement, which

activity in a radically new way, process improvement involves performing the

There are other important differences between process

improvement and process innovation, among them, the locus of participation in

Whereas process improvement initiatives are often continuous in frequency, the

Level of Change Incremental Radical

Chapter 12 CustomerFacing Processes

with the chapter on ITbased implementation of process innovation; Suzanne

The early results of process innovation are undeniably attentiongrabbing. IBM

Process innovation can also support lowcost producer strategies. Companies

Of the many operational reasons that privatesector organizations embark on

Frequency of Change Onetime/continuous Onetime

Participation Bottomup Topdown

Typical Scope Narrow, within Broad, crossfunctional

Bottomup participation is a hallmark of continuous quality improvement

of continuous improvement for the postinnovation process. Furthermore,

processes. Chapter 12 focuses on customerfacing processes, including

12 The 14 processes identified by Xerox apply only to its document

Process Redesign," McKinsey Quarterly (Summer 1991): 2743.

of Technology Management 6 (1991): 34. For a review of the

ad hoc, crossfunctional teams may be able to innovate processes that traverse