Process Standardization - The New Business Imperative

Irving Wladawsky-Berger has an interesting post on how process standardization fosters innovation and drives competitive advantage. He suggests that "we need to evolve from today's labor-intensive and one-of-a-kind approach to building business solutions, and embrace methodologies based on science and engineering, using sophisticated tools and disciplined processes, much as happened during the Industrial Revolution. And, as was the case with the Industrial Revolution, we need to standardize those processes where differentiation brings little or no incremental value, so as to avoid the huge inefficiencies involved in re-inventing the same process over and over again. We can then apply our energies to innovating around those processes and business models that bring true differentiation and value to the business."

I think this "process revolution" that Wladawsky-Berger discusses will soon emerge as an imperative for competitiveness in modern businesses. Its growth will be abetted by three management trends: an increased organizational emphasis on supply chain costs to produce a healthy return on invested capital, the increasingly information intensive nature of business processes and the increased representation of services in business revenues. Standardization of business processes helps to improve supply chain efficiency and performance and is aided by the information intensive nature of the process. The latter enables technology to be an integral part of the process, which in turn, renders automation and standardization easy. Finally, the increased emphasis on services facilitates rapid permeation of process standardization throughout the company.

Wladawsky-Berger states that standardization will occur for business processes "where differentiation brings little or no incremental value". But, process standardization may well give rise to a class of service providers that, while competing along dimensions of process expertise, best practices and business improvement, may level the playing field sooner and across a wide range of business processes. Therefore, while I agree that process standardization will engender the culture of innovation that Wladawsky-Berger mentions, I also think it improves management focus and reinforces the rise of a new class of function-based companies. Competitive advantage in this emerging class will stem from clarity of understanding on what core functions drive competitive advantage in an industry, and using outsourcing as a tool for process standardization and as a lever to develop scale and skill in such core functions.