Greatly improve the performance of enterprises by BPM

Do you want to know all about IDS-Scheer China strategy. This interview article of Professor Scheeer, the Chairman of IDS Scheer, taken by the CEO of e-works, Dr. Pei Huang, will wipe off all your doubts.

IDS Scheer AG is the world leader of Business Process Management. It's my great honor to interview Professor August-Wilhelm Scheer, the founder and Chairman of IDS Scheer, and the professor of University Saarbrücken when he visited Wuhan, China on May 31, 2005.

1.About the company of IDS Scheer.

Pei: Please introduce the background for you to start up IDS Scheer AG in 1984?

Prof. Scheer: I became a Professor for Information Systems in 1975 at the University of Saarbrücken, the capital of Saarland State of Germany. Having worked as a regular researcher at the university, I decided to found a company after 10 years.

The reason for founding a company was because at my research work, I did a lot of research about how to build a bridge between the thinking of the managers who were more interested in describing the business from the business perspective and IT, the tool supporting the business. In my research work, I discovered that the main organizational change which was affected by IT was business process oriented. In the years before, work was all split into smaller pieces, so that employees can handle these pieces. But this was paid by the price that the interfaces between these pieces always went lost. So, many companies have faced the problems to put the pieces of function together to a process. I developed the method for describing the process and so forth theoretically, then I decided to bring these ideas into practice. Therefore, I founded the Company IDS, which changed my research ideas into the software product, the ARIS toolset. ARIS is the tool to link the function together, and it's the tool that can affect reality, not just works as prototype and book note.

Pei: Please introduce some milestones of the company?

Prof. Scheer: We started the company by using Computer Integrated Manufacturing as a process oriented approach to integrate CAD with CAM. We brought the ideas of engineer directly down to the factory, and integrated the CAD database with bill of material and process description. This was our first milestone to provide concrete process orientation for industry companies.

The second milestone was the development of the ARIS toolset as a product based on our theoretical concept.

The third milestone was our partnership with SAP. It was very important for our growth of our company from the very beginning. We did a lot of common development with SAP in the field of the logistics and applying modeling for ERP system.

The fourth milestone was moving from manufacturing industries to service industries. We had built our highest competence of process optimization for manufacturing companies, such as optimizing the processes of shop floor and R&D department. But in the service companies like banking companies, insurance companies or public sectors, the thinking of process was not popular at that time. But we thought that the process thinking could be used in any kinds of organizations. The organizations should have an end to end understanding of the work, not just looking at thousands pieces of work. So, it was a very important milestone in our history that we moved forward our approach from manufacturing into any type of organizations.

The fifth milestone for our company was internationalization. It's very difficult for us to start a company to become international without being financed by venture capital organization. We financed all our growth by ourselves. We used our revenues for financing our next step of the growth.

The sixth milestone was our IPO in 1999. Now, we have tripled our number of employees, revenue and profit compared with1999. In just 5 years, we made great progress.

Pei: Please give us some financial information of IDS Scheer. What's the percentage of BPM tools selling and IT consulting?

Prof. Scheer: The total revenue of 2004 is more than 288 million Euro, and our profit was over 34 million Euro, so we have two digit profit rate. The portion of our product revenue is around 25%, be expected to increase in the future. The reason why it is a little bit low is because in the last years we acquired more consulting oriented companies, so our consulting revenue increased faster even though the growth rate of our product revenue was pretty high. But in the future, we will be more focus on our internal growth, so the growth rate of our product revenue will be higher than consulting. We expect in next three years, our revenue will grow up to 40% of product revenue and 60% of consulting.

Pei: I think that most of your customers are giant companies. Do you also have any SME customers?

Prof. Scheer: Yes, we do. But if you look at this big shift from functional organization to process oriented organization, you will find that big companies which have 10 to 50 years history are forced to split their organization into smaller functional oriented departments, otherwise they couldn't handle such huge companies. But now with the support of IT, they are able to handle the broader parts of such processes, and they can integrate different functions at specific work places. So, big companies need to have more process oriented thinking. IT systems bring a new chance for the big companies to be more productive and innovated by streamlining their processes.

Medium and small companies are more process oriented. But if they want to compete with the big companies, they have to be quicker and accelerate their innovation, so these companies have to use process thinking and use ARIS for improving their processes.

So we started from big companies but now we see more and more medium and small companies using our processes oriented approach not just for implementing ARIS but also for implementing our process oriented approach for ERP systems.

We manage our own companies by process oriented ways. We pass the border of the departments and across the border of the company to manage the whole network of the company as a virtual enterprise.

Pei: What's the core competence of IDS Scheer AG? What are the key success factors of IDS Scheer?

Prof. Scheer: We invented the methodology of process description and optimization, and we developed ARIS, one of the first tools which based on this methodology, not just to model a process, but also to support the whole lifecycle of business process management from strategy over design to implementation, collaborating with SAP so that we can directly configurate and customize SAP systems from our models but also we can do the reverse work. With the integration to implementation, we are able to control and monitor the execution of the process by ARIS. ARIS toolset can also help the management to reorganize and optimize the processes continuously. With this whole lifecycle concept, we have a unique approach for business process management. Other competitors are either in the field of workflow or just modeling the processes, but we are the expert to manage the whole life cycle.

2.About BPM Technology and market.

Pei: What's the similarity and difference between BPM (Business Process Management), BPR (Business Process Reengineering) and BPI (Business Process Improvement)? What's the view of you about BPR?

Prof. Scheer: Buzzwords come and go, but the problems the companies face stay forever. So, I think it is better to talk about the real problems the companies face than just about the buzzwords. Professor Hammer and Champy developed the BPR philosophy on a very high level. I remembered the famous sentences that Professor Hammer preached, "Any process is better than no process, a good process is better than bad process and even a good process can be improved". This is true but can not be the base for a concrete re-organization of a company, therefore, it is necessary to understand the processes in detail and have the background of the specific industries, then, the processes can be streamlined.

If people want to navigate, control and improve a process, they should look at the benefit for the organization, thus, they should measure the quality of the process by time, by cost, and by organizational measurements. So, I think process improvement is really the target of business process management, not the pure implementation of new technology, which just cost money and time and consultant people. People need a better solution of the process, so the focus of BPM is more related to the controlling part.

Pei: How do BPM market and technology progress now, and in your view, how will it develop in the future?

Prof. Scheer: We describe our ideas by a very easy understanding logo. The "Y" on our logo describes the logistic flow and the innovation process of any type of company. As for the ARIS house, it is the framework I developed for describing the business processes and the three-level architectures of BPM.

Investigations show that BPM market will grow to be a big market in the near future. The world class software vendors, such as SAP, Microsoft, IBM and Oracle have discovered that the future software architectures will be process oriented, and they have developed their own process platforms, in which workflow technology, EAI technology and portal technology are assembled to one business process platform. The next generation of the application software will automatically build in a process oriented way, and this will make the customers much easier to implement business processes.

In the past, the ERP systems were developed in a function oriented way, which can easily discovered from the name of the modules, such as finance management, material management, human resource management and purchasing. But when you implement a purchasing system, you need some transactions from bill of material system, warehouse system, controlling system, and finance system, so, the process of the purchasing can not be only supported by the single purchasing module, it has to be integrated and connected with the other modules. In the past, it was very expensive for implementing processes by ERP software. You needed consultants who have the organizational understanding of the whole process and consultants who have technical understanding of ERP software to select the right transactions and integrate them to a process oriented solution, so that the company had to spend a lot of money for consultants to help them realize the processes.

This will be reduced in the future, because the software is already developed in a process oriented way. The customers need consultants who have organizational understanding of the processes and then these processes can easily be implemented by using model driven configuration of process and not hand by hand doing selecting transaction and put them together in a very expensive way.

Pei: How could ARIS integrate with SAP and enlarge the power of SAP?

Prof. Scheer: The process platform of SAP is based on the NetWeaver architecture, and all the application systems which will be released by SAP will be the documented in processes with ARIS methodology. So, ARIS directly forms the link between managerial understanding, which is represented by process models, and the implementation.

There are hierarchies of different models in ARIS because the managerial view of a process is different from the technical view. From the technical view, the transactions in very small technical details are talked about, so, different layers are needed to describe the processes. But there is one integrated concept in ARIS to allow the user view the processed from strategy down to implementation directly. Together with the NetWeaver, part of ARIS product will be automatically shipped with SAP product, so that customers can view the processes and apply the functions linked by the processes. But if the customers also want to add some functions to SAP, or to build an overall enterprise architecture, then they still need the whole ARIS product which is own by IDS and be sold by IDS.

3.About ARIS and IDS consulting service.

Pei:What's the difference between ARIS and IDEF?

Prof. Scheer: I think IDEF has not specific process methodology but more focus on data modeling. I also started my research work with data modeling, then, I found out that data models were not enough for describing the processes. It can only describe the need of function, but could not describe the flow of function. So, IDEF is a SADT (System Analysis and Design Technique), but is not really a process oriented approach. We studied all these methods before, then, we started to develop the method by our own. I think that ARIS is a better approach to link the organizational description, the data modeling, the functions of software, the products and services with processes. So, you can see that even in the United States, the DOD (Department of Defense), which formerly promoted IDEF, has changed to ARIS. And you can see our approach is more process oriented, more modern.??

Pei: There are many products on ARIS platform, what's your advice for customer to deploy ARIS?

Prof. Scheer: With ARIS, I developed a methodology as a compromise between managerial thinking and the formulism you need for using your organization description for the configuration of information system. Therefore it is necessary to have more formulary description. I would not say that ARIS is complicated, the reality is complex. When you look at the processes of a steel company, then thousands of people are involved and maybe 10,000 of functions have to be executed, so, it is a very complex reality we have to face. ARIS uses step by step methodology that allows us to start at very high level with a value chain diagram, which can be easily understood, then, we explored this very high level diagrams into more detailed one.

The customers need some expertise to deploy ARIS because modeling is something like art, in the very high level, the result is obvious, but when the processes are described in detail, then nobody will understand all the details, and nobody is interested in them. Therefore, the customers should find the right balance when they navigate the processes, and they need some supports by the consultants who have done this several times, and know the dangers of modeling, so they can help the customers to avoid them. Of course, not all the companies need simulation for them, there is a customer of ARIS, which is a banking company in South Africa, does a lot of simulation because the efficiency of process is a key factor for banking company to win. It is very important for banking company to look very close and in detail with sub-processes but for some other industries, simulation may be not necessary. So, it depends on the kinds of process to determine which modules to deploy.

Pei: Compared with other consulting partners of SAP, what's the feature of IDS SCHEER?

Prof. Scheer: I think we are the only consulting company, which has a brand name for the methodology, which is as popular as our company. When the customers hear IDS, then automatically they will think that this is the company which owns ARIS methodology. All of our consulting work are based on our method and are supported by our tools. But when you hear the name of other A or B consulting companies, they will not automatically think about their methodology. Even when they have some methodologies, they are not as known as it is for us. So this is really a unique selling point for us. So, method driven and process driven are our key difference with other consulting partners of SAP.

After 20 years of gathering experience from many consulting projects and also the cooperation with software vendors, not just with SAP, but also with other software vendors, we have the combination of theoretical thinking which led to our methodology, and the experience in different types of industries, so that we really understand the problems of customers and the value of industries. We use ARIS tools to do consulting works and help our customers to handle their process knowledge and process warehouse. We make the processes readable and manageable, so that the customers could have transparent view on their organizational knowledge of their companies.

Our consulting business is organized by industries, such as machine industry, automotive industry, and service oriented industries, such as public sectors, banking and insurance. We have a broad band of different services. We have our own software. Not only we provide strategic level consulting service, but also we provide technical level consulting services.

4.About Chinese strategy of IDS.

Pei: You have been to China for five times, so, how do think about IT application market in China? How do you think about the opportunity of IDS Scheeer in China?

Prof. Scheer: The Chinese companies are in a change, and I think that this is our big opportunity because when companies are in a change, then they are interested in looking at new organizational concept where they want to go. China is on the way of becoming the modern industrial countries, so Chinese companies are not much interested in the old fashion concepts, thus, they are more interested in modern concepts. China has similar situation with the Eastern States of Europe, where the organizations are changing to western market style. We are very successful in these countries, especially those countries which are on the way to be more market oriented, not only in high developed countries like, Germany, France, and U.S.

Chinese companies need the way to describe the western models of process in specific industries, and we can show them with the reference models, so we are more concrete than just to send some consultants and they have all the knowledge and let the customers believe that we are experts. We can show them how we document the knowledge and I think this is a good chance for IDS Scheer in China.

Our customers in China are huge companies. The reason why they choose us is that we can offer services and products which they can not get from our competitors. I think this is a good starting point and good bases for us to grow in the next months and years very rapidly in China.

Pei: Many Chinese manufacturing companies invest heavy money on IT but do not get very good ROI. Could you give them some advices on IT application? What's the right process to deploy IT projects?

Prof. Scheer: I have done research works and IT consulting business for more than 25 years, so I have got a lot of experience about IT application. In the first 20 years, technical problems are the dominant issue which the customers care about. The companies were looking for the newest technology, changing from network oriented databases to relational databases, changing to new generation of operating systems, and implementing the new software, etc. But the customers will not automatically get the benefit from the newest IT technology and just paying money to the hardware vendor, network vendor, or software vendors. The key successful factor of IT application is to improve the business process. Only when you improve your business processes, and only when you use IT as an enabler for better business process, you can get benefit from IT. But this was not taken into account too much in the past because the customers were driven by hardware vendors, by software vendors. But the customer did not get the benefit.

This is in a change because now the company rethinks why they pay money to expensive consultants, to expensive hardware vendors, to expensive software vendors,therefore, it is necessary first to think about how to organize the processes, make a plan about how much money you have to spend on new technology, and what will be the benefit. It is also necessary for you to spend money on controlling processes, so that you can evaluate the process behavior and measure the improvement. Only when you measure the behavior of processes, you can also find out the benefit of IT application.

5.About the individual success.

Pei: Why you chose to become an entrepreneur after working as a professor for many years? What's the key difference between you and regular professors?

Prof. Scheer: When I was a student, I did some research works with my professor, got a lot of practice experience and many awards. I was very proud when I became a professor. In Germany, professor has a very high reputation in the society and it is among the most admired profession, so I could live a very good life to be a professor. But after I worked for 10 years as a regular professor, I found that it was not enough for me to just write books, just to write foot notes in books and to think about new solution. I thought that it was also very interesting to find out whether my ideas really work in practice. Therefore, I needed another organization to develop the product. I could not do the product in a research lab, because most researchers were more interested in documentation, they didn't have the marketing concept, they didn't have sales channel, and they didn't want to work for longer time supporting the product development, etc.

Therefore, it was necessary to have a professional organization. So I still worked as a professor and also founded the company to realize the ideas. It was not an easy thing to deal with because I had all different aspects to take into account that I had to be sales man and also to be the marketing man and not a R&D person. But I thought that it could let me keep up with time to develop new ideas and bring them into practice.

Professors are interested to bring their ideas to other people, but normally they do it with writing articles, but developing the product is another way to distribute the ideas. I do both. I still educate people and do research work, but I think that the most important achievement of mine was the invention of ARIS product line. In ARIS product line, most of my ideas are embedded.

Pei: How do you manage your time? How many percent of times do you spend on researching, and how many percent of time on business?

Prof. Scheer: I am still a professor. In my case, it can not be distinguished between research work and the business. Just yesterday, when I visited Shanghai, I had three meetings with research labs of Tongji University. By the way, I am an advisory professor at Tongji University. I taught them how to apply ARIS and exchanged the experience from the researcher oriented point of view. Also as today, I will give a lecture at the Huazhong University of Science and Technology. I do it as a professor and as an entrepreneur. I cannot distinguish between these two things. This is the reason why I prefer staying as a professor at university and not moving completely to IDS Scheer.

Pei: I'm very surprised that besides professor and entrepreneur, you are also a music genius and are a very good Saxophone player. Are there any relationships between music and your success in business?

Prof. Scheer: Yes, I think so. I like to play Jazz music, a specific type of music. It is special for the improvisation, which means that the musicians invent new lines and new melodies at the same time when they play. Of course, they need some structures for doing this, so they have to have very good understanding of homonym, and they need some theoretical background. What the musicians invented was the balance between the mode of rules you need to control an organization, a team and the degrees of freedom to be creative. And this balance between being creative and having degree of freedom and on the other hand, to be a part of the team, this is really something special. I think that it is similar to do research work at the university.

We do research work also by teams, and everybody has to be creative, but also we have to take into account all the interfaces to the other people, because at the end, we have to complete the whole research work, not just a piece of it, or individual achievement.

At IDS Scheer, we are also working in such teams. When we do consulting works, the team will include 10 or 20 people. We also need the creativity of all the individual and all the team members should care about the interface with others. So, I think the organizational model of the JAZZ band is a very good example how modern companies will work in the future. I'm not the only one who has discovered this. There are many theories and investigation from sociologist and psychologist with the specific organizational model of a JAZZ band.?

If you look close how the band is organized, you will find very big difference between the European classical music band and JAZZ band. In the classical music band, all the musicians have to follow the director to stop and play, but in JAZZ band, though the players still follow some rules, but they can have their own improvisation. It is a good example to analyze the change of the organizational structure of enterprise.

Editor: Valli Yang

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