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Are business processes competitive differentiators

Building a case first:

Let us assume a case of a bank:
** This is in the Indian context of operations but then parallels can be drawn to other  geographies as well…

In India there is something called the Demand Draft or the Bankers cheque? It is a payment  instrument guaranteed by the bank – this basically involves the customer depositing the equivalent amount with the bank and then the bank issuing an instrument for the same amount.

The usual process is thus :
1. Fill out a form for application of a demand draft
2. Indicate is the same is to be debited from your account in the bank or if you are going  to pay for the same
3. Hand over the application to the bank
4. Collect the DD

I have overly simplified the process … now the bank earns money from this operation by  way of commissions charged on the amount – because of the amount being guaranteed by the bank.

Now lets examine two process improvements / differentiators :
1. Lets say Bank A decides to offer this services to its clients over the phone – basically  you call the bank and order a demand draft which will be sent to you by courier within 48 hours – a definite improvement – the expected benefits being that the bank can see an immediate spike in its demand draft revenues.

2. Bank B introduces a Teller machine to print out demand drafts -all that you need is a  debit card. – More automated and this will also reduce the workload on its staff.

Examining the costs and benefits of each process improvement :
Increase the workforce for the call center
Introduce systemic processes by which the customer requests can be translated into DD requests and the same can be printed and couriered
Work with existing vendors for courier services
Introduce processes for settlement of claims / disputes for DDs not received / processed wrongly etc etc

Summary :
Predominantly an increase in the workforce to handle requests and systemic processes to handle the same.

Bank B works with its existing ATM technology vendors and looks at improvising the software to handle DD requests
Extensive testing and deployment across its existing ATM network

Summary :
Not much of workforce increase but a more technology oriented approach with higher initial costs.

Now coming to the crux of the question :

All this said and done – these are replicable – to rephrase the same Bank C can essentially wait and watch how the initiatives pan out for Bank A and B and then adopt the more successful model – and soon all other banks will have the same offering which would mean that now the playing field is leveled.

This then would lead to a larger question …..
1. What would be the ideal case for process innovation ?
2. Does this make a case for process standardization across industries – namely – process definitions standardized by a regulatory body – but then in a standardized world – will there be any motivator / impetus for process innovation ?

Assuming standardized processes – say travel booking systems across the world like Amadeus and sabre – they are pretty much standardized – and airline systems are also keyed into the same.

Lets assume that a new company XYZ develops software that helps people books tickets cheaper and easier and at the same time making it easier for airline companies to integrate using web services – basically a technology innovation which changes the way things operate the same right now.
XYZ talks to airlines for 2 to 3 years before they allow the same to integrate and then finally after about 5 years or hard selling – the software takes off and then maybe for about 2 years it is all rosy for XYZ by way of commissions – but then in these 5 to 7 years for the industry to accept the new standard – the established players have taken notice and have built the same feature into their software as well –
this would mean that even if a process is new – it takes a long time for it to get accepted as standard and by then the competitive advantage is gone.

Which questions the reason as to why processes should be changed in the first place??

Does this mean that processes should first be unstructured , then they start getting lean and then finally get standardized. But then in a world of standard processes – when technology forces a paradigm shift / or world events force such shifts – will the same cycle of process standardization repeat or someone somewhere dictates the standard to be ?

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  • Strategists have a term for this – Entry Barriers. In fact most such processes are managed by a couple of global vendors who dominate any kind of transaction e.g. VISA and MasterCard – Credit Card, Amadeus and Sabre – Airline & Hotel booking, NCR & Wincor/Nixdorf- ATM Technology, Reuters & Bloomberg – Financial Analytics/transaction etc. These companies evolve with time brining in new value proposition both in terms of process improvement and technology. Its very difficult (read capital intensive) to break in these dupoly sectors.
    • I definitely accept that in most duopoly cases entry barriers exist – but then my question was more on the aspect of :
      1. What spurs process innovation in an environment where processes are standardized?
      2. In a world where processes are standardized – when technology forces a paradigm shift – do standards evolve first or the processes change first leading to changes in standards.

      The example of Sabre / Amadeus might not have been right but then looking at the evolution of the process….