No single financial services firm has yet developed a silver bullet for the competitive challenges looming in the crosshairs of this highly competitive industry. Product differentiation remains relatively minimal. Innovation exists, of course, but no offering has delivered an overwhelming edge in some time. The primary way that firms outgun their competitors is by devising sustainable methods to serve more customers with existing capabilities. Whether a firm wins customers away from competitors or attracts customers who were previously too expensive to acquire, success is currently defined by efficiency.

In the existing competitive environment, organisations succeed not by product differentiation but through process differentiation and process innovation.

That exigency explains the growth of business process management (BPM) over the past four years and, more intensely and with greater sophistication, in the past 12 months to 18 months. At its core, business process management enables companies to transform business strategy into business processes by fully integrating the work that people do with the information systems employed to optimise business performance. A common characteristic of most approaches to BPM is that it helps companies to leverage existing IT investments.

It’s all about efficiency.

Customer satisfaction, cost reduction and compliance

Hold up an important business process within the financial services industry, and there’s a good chance that it has recently become more efficient thanks to an introductory dose of BPM. At the same time, there remains considerable room for improvement.

When fundmanagers direct their broker to make a trade, for example, many firms can now see each major processing step. The problem is that few firms can see into the black hole of what occurs – the system-to-system connections and manual handoffs – between processing steps.

A broker may initiate the customer’s order in a trading system in Japan. The data then zips electronically to North America where the order is validated, run through a pricing computation, subjected to a compliance check, entered into the accounting system and then stored in a data warehouse.

This vital business process, one that may be repeated thousands of times a day, raises several important questions: Did the trade take place? Was the trade completed in time? Did the trade’s terms, as they were executed, match the terms that the broker had communicated to the customer? If something went wrong, where and when did it go wrong, is it being addressed and who is responsible for rectifying the error?

Currently, few companies possess the line of sight into the business process’ execution to answer those questions before uncomfortable results crop up. The process may falter or, worse, grind to a halt because the system or person responsible for a crucial step in the process was unavailable at the right time. Of course, the most expensive time to discover that a trade did not execute as promised is after the fact. Customer dissatisfaction is a painful cost to stomach at a time when firms need to differentiate themselves on the quality of their service and support.

Financial services companies have also sought to make many of their processes, particularly those with a potentially material effect on financial reporting, more transparent. In the post-Sarbanes-Oxley era, visibility into key processes represents both a major risk and a potential reward. US public companies that cannot see the dark spaces between systems and manual hand-offs within processes that influence the financial reporting processes, run the risk of unsavoury opinions from external auditors or even a call from the SEC’s division of enforcement and investigations. Companies that enhance their sight into those shadowy areas can limit the scope and cost of their external audits.

Providing that capability is a major challenge due to the financial services industry’s heavy reliance on highly distributed and complex information technology systems. Those complex webs need to be untangled if companies are to reduce costs, broaden their market spectrum and improve the effectiveness and efficiency of their compliance processes.

Levels of sophistication

Business process management efforts typically begin with a thorough analysis: What, exactly, takes place between the point when a customer requests a trade and the point when the completed trade enters into our accounting system?

Documenting the entire process, usually with the aid of a powerful graphics tool, equips process owners, senior managers, IT departments and others with sharper eyesight. They can prune redundant steps, reduce errors and speed the execution of the process, at least in theory, once they can see how a process works and compare it to how the process should ideally work. Business process analysis uncovers obvious problems and enables organisations to design better processes.

Business process analysis, including simulation, represents a necessary and beneficial step – 20% gains in process improvements are routinely achieved simply through a better understanding of current processes – but this level of improvement is no longer sufficient.

BPM puts the model into practice and continually monitors and manages its execution. Did the trade take place? Yes. Was the trade completed in time? Almost. Why not? This particular system was down and slowed the trade’s execution; and this particular person was alerted and took care of the problem so that it will not occur again.

Those insights aretypically delivered through dashboard and scorecard interfaces. Metrics and really important metrics – those with parameters assigned to them so that they become key performance indicators (KPIs) – are continuously monitored, so that they can be managed if any warning signs emerge before problems arise.

If, for example, the time it takes to execute a trade is X, whenever a trade is executed in X plus 2 minutes, a dashboard may contain a yellow-coloured warning next to the “processing time” KPI. If the time stretches to X plus 5 minutes, the warning turns red. Individuals responsible for manual intervention may be alerted automatically whenever the KPI changes from green to yellow, or from yellow to red.

Activity start, activity completion, size of trade and other operational and business measures represent common KPIs which can be monitored. Of course, business and operational BPM users should be able to specify their own measures and KPIs. An operational user may want to focus on how individual trades are processed. A business user may only want to see summary-level measures: of all the trades that occurred in the past week, how many had problems?

There is also a higher-level perspective on BPM, one that takes a holistic view of all the processes in an organisation.

Enterprise BPM: sight vs. visibility

As wordsmiths know, there is a subtle but far-reaching distinction between sight and vision. Sight is a general term that refers to what one can see. Vision indicates thoughtfulness, foresight or sharpness of understanding.

Where business process management delivers sight, enterprise business process management provides vision. Enterprise BPM peers into all of the important processes across an enterprise and then considers how the systems and people needs of each individual process can be prioritised in the context of the overall organisation’s strategy and objectives.

Run-of-the-mill BPM tends to look at problems on a departmental basis or a single-process basis. There is nothing wrong with that approach; again, it is necessary, but given the competitive landscape, no longer sufficient.

Enterprise BPM provides insight into how systems and human resources can be shared across multiple processes, departments and functions. Finally, and most importantly, enterprise BPM monitors and manages processes from both a system-to-system perspective and a human-to-human perspective. As the reach of BPM expands, all of an organisation’s critical processes are mapped, monitored, managed and prioritised for improvements (vis-à-vis systems or people).

Optimisation requires enterprise BPM

By fully integrating the people, processes and technology, business performance management helps financial services companies optimise their business performance. The extent of that optimisation depends on how quickly and deeply financial services firms leverage BPM.

Business process analyses represent a useful first step, but simulations alone do not ensure that a company adheres to its processes in practice. Business performance management marks the next level of sophistication; it proactively alerts managers when key business processes are not being executed correctly. But even traditional BPM has some limitations – it tends to focus on only one process at a time and often neglects the points of integration between human processes and automated systems.

Enterprise business performance management zeroes in on those gaps by addressing the deployment of resources in a holistic manner, across the entire enterprise.

Laura Mooney is Director of Corporate and Product Marketing at Metastorm