Part of the process

2006 has been a good year for business process management (BPM) with more and more companies coming to the conclusion that its deployment can benefit their company in a number of ways. According to one leading consulting group, BPM in the financial services industry alone is expected to exceed UK£8 billion by 2008. With evidence to suggest that BPM can result in improvements in customer service and a reduction in errors and waste it’s no wonder companies are eager to test it out.

In light of recent research by Exeter University in the UK, it seems that managing processes effectively is still a sore point for many organisations. The purpose of the survey was to benchmark performance across retail financial services and to share the learning from companies engaged in BPM. The research highlighted how “few companies are successfully managing ‘end to end’ processes across business units, from first customer contact right through to fulfilment. As a result companies are failing to meet customer requirements, first time, every time.”

Hindrances to deployment
With this in mind, it is understandable why organisations would want to deploy BPM in an attempt to maximise efficiency and to ensure that all their processes are running smoothly. However, despite good intentions institutions often run into difficulties. “FSIs are known for their technology innovation,” highlights Scott Byrnes, Vice President, Marketing and Product Management at Handysoft. “Many pride themselves on being able to develop and deliver highly sophisticated systems tailored specifically to their business needs. Building IT systems is as much a core competency as selling xyz product. So going with an off-the-shelf application such as BPM is a departure from past practices. In ramping up the new application they run into unforeseen roadblocks, not due to the technology but more due to how in the past they have approached application development.”

And what are these roadblocks? “BPM requires significant forethought around workflow – how do people do what they do and why,” he continues. “Before implementing any BPM application you really need to analyze the process. Modelling then helps to refine it. Creating the business logic should then be straight forward.”

Other challenges inhibiting the adoption of BPM in the finance industry are outlined by Steve Craggs, and Dr Ronan Bradley, both directors at Lustratus Research. These include the fact that “BPM requires a certain level of process maturity to be effective, and many companies lack that clarity in terms of the way their IT implementations underpin individual processes.”

Another big issue they both highlight is the fact that implementation of tools is a costly undertaking. “BPM is a major investment, both in terms of training and in terms of development and licence costs,” they warn.

Lastly, a third issue is the fact that BPM is more risky than workflow. “In a human-based workflow process, things tend to move at a slower speed, giving time to react when problems occur,” they continue. “BPM deals with a more automatic level of response, meaning that the effect of any mistakes can be rapid and damaging. But having said this, one problem for the finance industry in particular is that although BPM is typically more responsive than workflow, its origins stem from industries such as manufacturing where performance is less critical than in financial operations. For example, the use of standards such as XML enable BPM to effectively drive process flows across different technologies, but add overhead to processing.”

Despite these misgivings, BPM is a popular choice for those in the industry. “You would probably be hard pressed these days to find a major financial services firm that is not experimenting with BPM,” identifies Derek Miers, Co-Chairman of BPMI.org. “Some of them are adopting BPM and rolling it out throughout the organisation.”

For Miers, at the heart of BPM is a management philosophy. “It’s about running the business for the people around its processes, rather than in a functionally driven, hierarchy structured organization,” he says. One important observation he has made is that there has been a shift in the position of technology. “Back in the days of BPR, technology was at the core,” he continues. “It was all about technology and reducing resources involved. Now, it’s about using technology to continually drive performance improvement (in an iterative fashion) across the whole organisation.”

Miers has also noted that these days the focus is very much on growing an organisation’s process maturity. Miers defines this ‘maturity’ in the same sense as CMM (capability maturity model), which is “a way of thinking about the organisation and how mature it is from a process point of view.” He cites General Electric (GE) as a perfect example of a very mature organisation particularly in comparison with other companies. “GE has been in business for a long time and its people are very attuned to the issues around process and how to drive the business forward. Some people are just getting into this and will be at a much lower level. They probably struggle to standardise their processes even at departmental level let alone across the whole organisation. So there are different start points. The emphasis has now moved toward growing organisational maturity. And the technology is about facilitating that transformation (at a cultural level) inside the organisation.”

Big trends for the year
BPM is set to evolve in 2007 and as a consequence there are a number of hot trends likely to set the industry on fire. One of these is dynamic process management, which according to Byrnes is set to make an impact. Byrnes cites how BPM is used for many reasons by financial services institutions including to streamline claims processing, mortgage lending, customer enrolment, regulatory breach tracking, time sensitive trades, and policy enrolment. He predicts, however, that BPM will be used for more dynamic processes in the future. “Think of how many of the processes I just mentioned are quite structured,” he asks. “Client makes request. Customer service representative captures information. Loan officer or agent reviews forms, etc. Now think of a contract negotiation for a new lease or large client engagement. One task can simultaneously create dozens of actions. Lots of different people engaged all at the same time. Modelling and automating this type of process is very difficult. So people still use email or Microsoft Project to kick-off and monitor these types of dynamic processes. But we know that email can create black holes.

“Executives and contract officers quickly lose visibility into tasks as they are sent and forwarded to others. Or they get inundated with email on the back-end as task participants reply, cc, and collaborate. Soon enough they can't see into task status. Accountability is lost. Deadlines are missed. With recently developed BPM functionality, FSIs can kick-off dynamic tasks that in turn can be subdivided and sub-delegated to others all while retaining complete visibility and control for those ultimately responsible for delivery.”

He continues his predictions by outlining how BPM is likely to evolve. “BPM has already progressed from a niche solution automating administrative processes to a strategic business tool being used to standardise mission-critical operations. I think we will continue to see BPM Suites mature and deployments continue to move beyond departmental implementations to enterprise-wide solutions,” he says.

“We will also continue to see a change in mind set as processes become recognised as business assets and deployments move beyond departmental implementations to enterprise-wide solutions.”

Other trends predicted for the year include the likelihood of BPM usage to come in through the back door. “Companies have mostly adopted messaging middleware-based infrastructures, which are particularly well suited to finance industry needs, and are now getting very interested in service-oriented architectures (SOA) where code is turned into reusable, business related services,” say Craggs and Bradley.

In fact, SOA’s potential is finally being recognised including how it and BPM can be used together. Therefore it comes as no surprise that it’s promise is being picked up by financial institutions.

“As companies start to move towards SOA, something that can be done incrementally rather than with large upfront investment, BPM may start to be used for individual processes or sub-processes, although perhaps not in mainstream operations. This lighter-weight BPM usage may well be combined with workflow too. Therefore, BPM will start to creep in piece by piece, a much more practical approach with considerably less business risk than taking on a major BPM initiative up front.”

MFID
The introduction of the Markets in Financial Instruments Directive (MFID) and similar directives around Europe is a major concern for the financial services industry, therefore how to make complying profitable, particularly by using BPM solutions, will also be a major consideration this year. “It is important to make compliance to regulations such as MiFID profitable,” says Scott Winzeler, VP EMEA at Global 360. To do this, the industry must make an important distinction between ‘better regulation’ and ‘better governance’. Financial organisations should adopt strategic internal reforms based on risk assessment to protect assets and reputation.”

According to Winzeler BPM can help with this by identifying areas where gains in value can be used to offset the cost of compliance. “Where possible, information and procedures should be shared across the entire company so that corporate governance standards are high,” he says. “Adopting an effective process with BPM helps to link people with documents and data and sharing knowledge across an organization is paramount in minimizing operational risk and achieving good governance. Companies that use BPM are able to ensure different departments share knowledge on customers and drive revenues by facilitating cross selling to the existing customer base. Furthermore, systems that improve a company’s knowledge of its customers will ensure that complaints are dealt with efficiently and in a timely fashion. Policies and procedures that improve corporate governance will ensure compliance and ultimately drive profit. In 2007, finance companies must increasingly focus on the business and not the regulator and be strategic about competitive advantage”.

The New Year provides ample opportunity for the financial industry when it comes to BPM. This is likely to play a crucial part in improving overall performance and visibility, efficiency and consequently, customer service in the financial services sector.