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Written by: Agus Hendryanto — Strategic Management Expert
Organizations in all forms are established with objective to create tangible or intangible values for society. These values can take form in goods, services or other conveniences which can be experienced. How an organization creates values can be understood through value-chain model introduced by Michael E. Porter, a strategic management and competitive advantage lecturer from Harvard University Business School.
The value-chain model describes the main activity and other supporting activities conducted by an organization to create values. The activities form a process, which converts an input into a desired output. The most common example we encounter is the process of cooking food by our mothers: the process starts from shopping for groceries and raw materials (as input), which will be put in the refrigerator, taken out to be cleaned and processed based on the family recipe, served as food on the table (as output) until the family enjoys the dish, and concludes with the mother cleaning the utensils and storing it in the kitchen. This cooking process is repeated in time perpetually.
In the business world, the value creating process, as demonstrated by the mother above, must be standardized and documented in a business process with the objectives of :
While arranging a business process, the business practitioner typically starts by defining the standard activities undertaken by each individual or division in the form a basic activity document. A potential issue might arise when compiling individual activities into a business unit process, which will then be grouped into department level business processes and yield an output of a company business process. This may be caused by having one or more activities which connect and channel activities from several different divisions/units/departments unaccounted for (missing/disconnecting) as well as the possibility of having the same activity undertaken by two or more individuals from different divisions or units (overlapping).
Ideally, an organization should organize their business process from the highest level (organization level) which is then broken down to lower levels. Taking an example from the cooking process above, the process can be lowered (cascaded) or explained in greater detail (detailing) into: shopping process, storage process, cleaning process, cooking process, serving process and cleaning process. Each sub-process can also be detailed further into shopping process into grocery listing process, budget preparation process, and so on.
If the current business process is still considered less than optimal, the practitioner should reorganize the existing business process into a value-chain model of the highest level (mentioned in the cooking process above) and map the business process using the SIPOC method (Supplier-Input-Process-Output-Customer). This mapping will identify missing and overlapping processes to be added or to be removed and to ensure the data/information/output from a process will form a coherent flow to the next process.
Based on the writer’s experience, oftentimes an existing IT system is incapable of fulfilling the needs of an organization due to lack of effective and integrated business processes that can adequately to deliver the required data from one section to another that allows the system output to be received by every unit of the organization and provide the required information by the management to make strategic decisions.