Ch2-1: Background of the use of Process Mining - Why do we need Process Mining?

Test only. Before proofread.

Chapter 2: Why do we need Process Mining?

Process mining is becoming more and more useful due to changes in the business environment. Advancing servitization has increased the need to improve business processes, and digitalization has created a variety of data that can be analyzed by process mining.

Process mining mainly contributes to cost reduction and improvement of customer satisfaction, but it is also highly effective in reducing the time and cost of analysis itself, compared to conventional business analysis methods.

1 Background of the use of process mining

Let me start by explaining the changes in the business environment that have made process mining valuable to companies and essential for promoting DX.

First of all, there are two environmental changes that I would like to mention as major trends in society as a whole. First, there are two major trends in our society: the "service economy" and the "digital economy".

(1) Service economy - servitization

 What has supported economic development up to now has been the mass production and mass sales of various products, mainly by the manufacturing industry. By efficiently producing a large number of excellent products, the unit production cost is reduced and the products are sold in large quantities, mainly through wholesale and retail channels.

 What is important for manufacturers is to develop, manufacture, and ship high quality products, and the process of delivering them to consumers is the role of distributors. In addition, purchased products are literally used and consumed freely by individual households and consumers. Manufacturers have not placed much emphasis on the use, consumption, and disposal processes of their products, although they have of course taken care of malfunctions.

 However, with the emergence and development of various service industries other than the manufacturing industry, and with the intensification of competition among manufacturing industries, more and more companies are providing services related to their products (such as installation of products, insurance, usage, and content that teaches proper disposal methods). In other words, the approach is to provide a "total solution" that includes a variety of services, rather than just the product itself. (Incidentally, a total solution is called a "whole product" in marketing.

 In addition, in recent years, rather than selling out the product, the value of use is provided on an ongoing basis. In other words, there has been an increase in recent years in the form of renting out products for a monthly or annual fee. This is the so-called "subscription type" of business, and in effect, it is a sales method that provides a service rather than a product that is on the rise. This shift from products to services is occurring in all industries. We are in a "service economy".

 The service has the following four features;

Intangibility: Service is not a physical entity.

Simultaneity: Services are consumed as soon as they are produced. For example, the services of haircutting and styling at barber stores and beauty salons are provided to customers in real time. Unlike products, there is no concept of "inventory".

Variability: When there is a large human element, the quality of service delivery will vary. The quality of service provided may vary when there is a large human element. Some people may provide good service while others may provide terrible service.

Extinguishability: Related to the characteristics of intangible and simultaneity, a service disappears as soon as it is provided.

 Among these characteristics, those that are relevant to the process are simultaneity and variability. A service is provided in real time, and each time it is provided, the value and quality of the service will vary. Therefore, it is extremely important for the service provider to manage the process appropriately and try to maintain the service quality as homogenously as possible. 

(2) Digital Economy - Digitization

The beginning of digitalization was probably the lifting of the ban on commercial use of the Internet in 1995, and since then, various services using the Internet have emerged one after another. Since 1995, various services using the Internet have emerged one after another, and consumers can now easily use the Internet not only through PCs but also through cell phones. In this respect, it can be said that the progress of digitalization has greatly promoted the service-oriented development of the previous section in various industries.

In this digital economy, it is still a major challenge for companies to properly manage the process of providing value. Even though online services often involve the movement and consumption of some physical product, they are essentially "services" with the four characteristics described in the previous section. Therefore, it is essential to control quality, especially in difficult situations of simultaneity and variability.

Now, I will discuss the factors that will help companies adapt to the major macro trends of the service economy due to the progress of service technology and the digital economy due to the progress of digitalization.

First of all, when it comes to the external environment, the two key words are "Customer Experience" and "Operational Excellence".

(3) Improving the customer experience

Customer experience is closely related to servitization. In the past, for manufacturers, making a good product and selling it was the end of the story. As mentioned earlier, they paid little attention to how the buying public would use and consume their products.

However, as companies start to offer a variety of services along with their products, increase subscriptions, or sell directly through their own websites, it is also important to optimize the behavior of the prospective customer leading up to the purchase (purchase experience) and the process from product use and product disposal. It is also important to optimize the process of product use and disposal.

In other words, it has become necessary not only to design the specifications of the product itself appropriately, but also to "design the customer experience" to ensure that the customer's experience with the product, from purchase to disposal, is the best it can be.

(4) The importance of pursuing operational excellence

With the growing importance of considering the entire superior customer experience, Operational Excellence has become increasingly important as a fundamental strategy for establishing competitive advantage.

There are three basic strategies for establishing competitive advantage: product leadership, customer intimacy, and operational excellence.

However, the effectiveness of the "product leadership" strategy is declining because it is becoming increasingly difficult to differentiate products from each other.

Customer intimacy, which aims to form a close relationship with customers, is also quickly being copied by many companies with similar services due to the progress of digitalization. (For example, think of a loyalty system.) As a result, it is no longer effective enough as a point of differentiation.

However, operational excellence, or "operational excellence," is not something that can be easily imitated. It is not a straightforward task due to the increasing sophistication and complexity of products and services, and it is easy to differentiate between companies that can do it well and those that cannot. Therefore, it has become necessary to work on operational excellence in order to establish competitive advantage. What's more, if we can achieve operational excellence, it will lead to improved customer satisfaction, which will have a positive impact on "customer intimacy. And operational excellence has a lot to do with proper management of the process.

Now let's consider the internal environment. While much of the change in the internal environment of companies and organizations is brought about by digitalization, let's mention two key words: "process invisibility" and "digital footprint.

(5) processes being invisible

The emergence of ERP in the 1990s marked the beginning of digitalization, or the systemization of various business operations in the enterprise. As mentioned above, after the ban on the commercialization of the Internet in 1995, the so-called "Internet Revolution," business systems and applications based on Internet technologies have been developed.

Furthermore, with the emergence of SaaS, such as Salesforce.com, which avoids huge initial development costs and is easy to implement, the business operations of many companies, from large enterprises to small and medium-sized enterprises, are changing from the traditional manual work style to a system-driven work style.

The problem is that the systemization of work has made it impossible to see how work is being done from the outside. When all the staff members were present in the office and the work was done mainly by paper, telephone and fax, it was possible to know who   was working and how they were working, albeit sensibly.

Nowadays, however, the phone rarely rings, and each employee works silently at his or her PC. Furthermore, with telework, it is difficult to visually check the status of work execution.

As you can see, the digitalization of business operations has made many operations invisible, making it very difficult for management to properly manage operations and progress.

(6) Enabling the use of digital footprints

On the other hand, as more and more business operations are digitalized and systemized, it is possible to record the entire operation status of the system as data. By capturing, recording, and analyzing the operation history of individual users of applications such as ERP and CRM, as well as office software such as Excel and PowerPoint, it is possible to make invisible business processes visible again. By capturing, recording, and analyzing the operation history of each user's application, whether it is an application such as ERP or CRM, or office software such as Excel or PowerPoint, it is possible to make invisible business processes visible again.

In other words, "process mining," which automatically reproduces business processes based on event logs extracted from business systems, etc., and is useful for continuous improvement of business processes, has emerged as an indispensable analysis method for current and future corporate and organizational management because of the environmental changes described above. This is because of the environmental changes described above. 

Ch2-1: Background of the use of Process Mining - Why do we need Process Mining - An Introduction to Process Mining in Practice and Improvement approach from BPM perspective