Business Process: Definition, Importance, and Management

What’s it: A business process refers to a series of interrelated actions, activities, or work to achieve a business goal. They shape the business operation and, therefore, must be done.

Companies usually group internal processes into several functional areas or departments. They include:

• Procurement
• Product development
• Production
• Logistics
• Accounting and finance
• Human Resources
• Information and technology
• Marketing
• Customer service

In each functional area, managers actively examine processes to identify and eliminate potential inefficiencies and bottlenecks. It aims to make business processes more effective and efficient. And, it can involve:

• Fix production system flaws to avoid system failure
• Reduce time to do work and tasks
• Reduce cost and resource consumption
• Improve output quality
• Increase customer and employee satisfaction

Why are business processes important?

Business processes reflect how efficient and effective operations are within a business. That ultimately explains how superior the company is.

Superior business processes can be a valuable capability to support competitive advantage. For example, a well-defined and effective process enables a company to deliver products on time. It can also eliminate unnecessary costs or activities. And, finally, it makes business processes effective and efficient along the value chain, enabling companies to create superior value.

What is the difference between business processes, procedures, and functions?

As defined above, a business process is a series of actions or work to achieve the desired result. Whereas a business procedure is a defined way to execute a process, usually documented. Procedures detail who does and what must be done in each part of the process.

Meanwhile, a business function is an organizational unit within a business to carry out business operations. In it, it can involve several business processes and procedures.

Take customer complaint service in the marketing function as an example. It can involve several processes such as establishing and verifying complaints, identifying solutions and providing solutions to resolving complaints. Who does and what to do when dealing with customer complaints; it’s all documented in business procedures.

What are some examples of business processes?

Business processes can vary between companies. It depends on the nature of their business. Some may be categorized into the following three groups:

• Operational process. It relates to the company’s core activities. For example, it could include logistics, production, marketing, and customer service for a manufacturer.
• Support process. It includes processes in core business support activities. It could include functional areas such as human resources, accounting, legal, and information technology.
• Management process. It relates to management functions, including measuring, monitoring, and controlling activities. Examples are the processes involved in strategic planning, governance, and budgeting.

Then, the above categories can cover many activities in functional areas. For example, in production, it could involve processes such as handling raw materials, converting inputs into outputs in a manufacturing system, checking output quality, and maintaining production machinery.

The following are examples of business processes in the other four functional areas:

• Finance: risk management, financial control, billing, invoice handling, budget monitoring, and financial bookkeeping.
• Marketing: advertising development, product delivery, product development, and marketing research.
• Human resources: recruitment, training, development, and monitoring of staff performance.
• Logistics: planning, organizing, and handling goods (input or output) and related information during shipping and warehouses.

How does the company manage processes within the organization?

Business process management (BPM) is a systematic approach to dealing with business processes within a company. It aims to ensure the process runs smoothly. Thus, it ultimately supports the established strategy and helps the business achieve its goals.

BPM involves discovering, modeling, analyzing, measuring, improving, and optimizing the processes in which a business operates. Typically, companies utilize software to monitor and control automated and non-automated business processes. It involves steps such as:

• Design and modeling
• Execution
• Monitoring
• Optimization
• Reengineering

Design and modeling

This step maps the workflows and processes within the business. It describes the tasks or jobs, including standard operating procedures, service level agreements, and task handover mechanisms.

Modeling requires real analysis and representation to understand and describe processes, including clear beginnings and endings, desired outcomes in each process, and sequences of actions and work performed. In addition, models are important for determining how processes might operate under different circumstances.

Execution

This stage is about executing the defined or modeled process. It can involve both manual and automated tasks. Manual processes are carried out by staff, while automated processes are driven by software.

For example, in handling a customer’s order at an online retailer, the software requests payment and requests a shipping address automatically to the customer before the order is processed. When the money has come in, the system notifies the staff. Then, the staff packs and ships the item to the customer’s address.

Monitoring

Monitoring includes tracking every part of the process. So, its actual condition can be monitored. Usually, it is aided by predefined performance statistics.

Take the customer order handling process as an example. Monitoring makes it possible to see when an order is received by the business, how long it should take, who is handling it, when it should be shipped, and when it should have reached the customer.

Such monitoring allows the business to identify and fix possible problems in each process. In addition, monitoring is also important to find the potential to save costs or improve process effectiveness.

Optimization

Optimization involves identifying potential or actual problems in the process and then fixing them. For example, in the above case, the customer may not have received the goods on time due to a problem in the internal procedures for handling the order.

Optimization checks for such issues or bottlenecks. Then, the team defines the improvements and implements them in the process design. So, the same problem does not arise in the future.

Optimization isn’t just about bottlenecks in the process. But, it can also involve finding ways or solutions to make the process more efficient and effective than before.

Reengineering

This usually involves redesigning the entire process cycle instead of small improvements in some parts. Business processes may become too complex and cumbersome because, for example, customer orders have increased dramatically. It makes the existing process ineffective and inefficient in managing orders.

For example, previously, companies might divide teams or functions based on customer groups. Each team carries out the entire process, from handling orders to monitoring orders until they reach the customer. Management may find it ineffective and efficient.

Later, the company’s steering committee proposed to reengineer. Instead of each team handling the entire job, the new process design divides each process into multiple work areas. Each team in each area handles the same tasks and jobs. It makes them more specialized and more skilled.

What to read next

• Business: Definition, How it Works, Compete
• The Role of Business in Society and the Economy
• What Are Business Resources Examples
• Examples on How Businesses Add Value to Products
• Business Activities: Definition, Importance, Classification
• Enterprise: Meaning, Purposes, Types
• How Businesses Build Competitive Strategy
• How does a business work?
• Business Process: Definition, Importance, and Management
• Manufacturing Process: Definition, Examples, and Types
• How Low-Cost Inputs Affect A Company’s Competitiveness
• Human Resources in a Business