BIG CHANGE VIA BUSINESS PROCESS REENGINEERING

Daniel F. Duran Whittier College Operations 342

What BPR Is: Two Parallel Definitions

 “the FUNDAMENTAL rethinking and RADICAL redesign of business PROCESSES to achieve DRAMATIC improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed” It is more than automation.

“BPR is a performance improvement philosophy that aims to achieve quantum improvements by primarily rethinking and redesigning the way that business processes are carried out.” (Omar. A. El Sawy, “Redesigning Enterprise Processes for e-Business”, McGraw-Hill, NY, 2001)

“Fundamental”

   

Must ask “Why do we do what we do? (steps) Question the tacit rules and assumptions underlying the organization’s culture.

Begin with logical specification of what a company must do. (Again goals and steps) Then specify the physical design of how to perform these activities better and simpler

“Radical”

  

Must examine the “root” of business processes, structures, and policies.

Don’t fiddle with the old; cast it away and begin anew. (rethink rather than only change) Reengineering is reinvention, not modification or enhancement.

“Dramatic”

 

Not small, incremental improvements; BPR seeks order of magnitude improve-ments in cost, quality, service, and speed. Use of IT to assist in these.

Redecorating v. demolition and reconstruction!(an analogy)

“Dramatic”: Who Undertakes BPR?

   

Companies in deep trouble -- need order of magnitude improvements!

Companies who foresee trouble - “an ounce of prevention ....” Companies in peak condition who want to further their competitive advantage.

Very similar to reason why Systems Analysis Project Originate

“Processes”

     

“a collection of activities that takes one or more kinds of inputs and creates an output that is of value to the customer”.

Collection of activities -- the “P” of the IPO; related by common goal.

Inputs -- raw material to be processed.

Output -- something that has value to the customer.

Customer -- internal or external.

Information Systems Data converted to Information that is useful to customer

Process Integration: Value Chain

Support Activities Management & Administrative Services Human Resources Management Technology Development Procurement of Resources Primary Activities Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Competitive Advantage

Process Integration

  Two forms:  within a single organization  between two or more organizations Avoids “over-the-wall” thinking and “silo-opia” (Common in Legacy systems or old organizational structures)

What BPR Is NOT

 Although BPR may cause or involve aspects of all of the following, it is  NOT downsizing     NOT restructuring NOT “paving cow paths” NOT reorganizing, delayering, ....

NOT TQM ...

BPR Is NOT TQM

Degree of Change Starting Point Frequency of Change Time Required Process Improvement (TQM)

Incremental Existing Process Continuous Short (weeks-months)

Inception/Participation

Top-Down/Bottom-Up

Scope Risk

Narrow; Task- or Function oriented Moderate

Primary Enabler

Statistical Control

Type of Change

Cultural Source: Adapted from [Davenport 1993]

Process Innovation (BPR)

Radical Clean Slate One-Time Medium to long (depending on scope of BPR effort) Top-Down Broad; Process-oriented High Information Technology Cultural and Structural

Why BPR Is Necessary

 The Virtual Organization: Three C’s Driving Change  Customers take charge.

 Mass market v. a “market of one”   Backward integration Informed consumers  Competition intensifies.

  More and different kinds Big is not better  Technology changes the nature of competition.

Competitive Forces Model

Threat of new market entrants Bargaining power of suppliers The firm Intra industry competitors Threat of substitute products & services Bargaining power of customers

Why BPR Is Necessary

 The Three C’s (continued)  Change becomes constant.

 reduced product cycles   reduced time to develop new products more environment scanning  “Companies created to thrive on mass production, stability, and growth can’t be fixed to succeed in [such] a world.”

Four Revolutions Affecting Business Today

New Technologies New Competitors New Work Force New Rules of Competition

How the Information Age is Changing Business

    

Organization: Breaking down old corporate barriers, allowing critical information to be shared instantly.

Operations: Using IT to shrink cycle times, reduce defects, cut waste, streamline ordering and communications.

Staffing: Eliminating management layers and cutting employment levels; creating “virtual” offices.

New Products: Collapsing development cycles.

Customer Relations: Tapping into companywide databases to solve callers’ demands instantly

Info Technology = Enabler

Old Rule

Information must be processed sequentially.

Only experts can perform complex work.

Business must choose a centralized or decentralized structure.

Only managers have access to information.

Technology

Shared databases & imaging technology Expert Systems Telecomm networks

New Rule

Information can be processed concurrently.

A generalist can do the work of an expert.

Businesses can reap the benefits of both structures.

Decision support tools Decision making is part of everyone’s job.

Info Technology = Enabler

Old Rule Technology New Rule

Field personnel need offices to send and receive information.

The best contact is personal contact.

Wireless data communications & portable computers Interactive videodisc & WWW Field personnel can send and receive information from anywhere.

The best contact is effective contact.

You have to find out where things are.

Automatic identifi cation & tracking technology Things tell you where they are.

SUPPLY CHAIN MANAGEMENT & Porter’s Value Chain

MARKETING & SALES PRODUCTION PLANNING CUSTOMER SERVICE PROCUREMENT ACCOUNTING & FINANCE SHIPPING & DISTRIBUTION PRODUCTION & MANUFACTURING INVENTORY

BPR and E-Business

   E-Business is a facilitator and an enabler.

EC is more than just automating existing processes.

EC creates new business models e.g. Dell Computers

PARADIGM SHIFT

  PARADIGM IS A COMPLETE MENTAL MODEL OF HOW A COMPLEX SYSTEM FUNCTIONS A PARADIGM SHIFT INVOLVES RETHINKING THE NATURE OF THE BUSINESS, THE ORGANIZATION; A COMPLETE RECONCEPTION OF HOW THE SYSTEM SHOULD FUNCTION

BPR Objectives

     Streamline – remove waste, consolidate Lose Wait – squeeze out delays Orchestrate – let the most able enterprise execute, outsource Mass Customize – any time, any place, any way Synchronize – both the physical and virtual parts of the process, real time processing of data

BPR Objectives

    Digitize and Propagate – capture information digitally at the source and propagate it through the process Vitrify – provide glass like visibility of the process Sensitize – fit the process with sensors and feedback loops for prompt action Analyze and Synthesize – generate added value by enhancing the process, constant improvement and iteration .

RISKS & REWARDS

High RISK Low Low RETURN High

BUSINESS REENGINEERING STEPS: 1. Develop business vision, process objectives 2. Identify process to be redesigned 3. Understand, measure performance of existing processes 4. Identify opportunities for applying information technology 5. Build PROTOTYPE of new process

FEASIBILITY

    TECHNICAL: Assess hardware, software, technical resources ECONOMIC: Will benefits outweigh costs?

OPERATIONAL: Is solution desirable within existing conditions?

INFORMATION REQUIREMENTS: Detailed statement of new system needs

Characteristics of Reeng. Processes

 Several jobs are combined into one.  Compress the organization horizontally and vertically.

   Replace several task specialists with one ‘case worker.’ Group task specialists into case teams.

Benefits: improves efficiency, reduces errors and administrative overhead, and increases accountability.

Characteristics of Reeng. Processes

 Workers make decisions.  Compress organization vertically to reduce chain of command.

  Tie decision making to getting the work done: Those who do the work make the decisions.

Benefits: reduces delays, lowers overhead, provides better customer response, empowers workers.

Characteristics of Reeng. Processes

  The process steps are performed in a natural order. Eliminate process linearity and sequence where possible.

 Perform tasks concurrently to reduce process cycle time.

Characteristics of Reeng. Processes

 Processes have multiple versions.  Standardization is dead: One size does NOT fit all.

  Create multiple versions of the same process, each tuned to meet the needs of different inputs, situations, or markets.

Benefits: eliminates complexity and exceptions that must be incorporated in a standardized process.

Characteristics of Reeng. Processes

 Work is performed where it makes the most sense. (Manufacturing Example)  $100 in internal costs to purchase $3 worth of batteries or supplies!!!

  Accountants buy their own pencils; customers repair their own equipment; spare parts are stored at the customer site.

Benefits: eliminates administrative costs, reduces process cycle time, improves customer service.

Characteristics of Reeng. Processes

 Checks and controls are reduced. (Tricky)  Checks and controls don’t add value; use them only when they make economic sense.

  Tolerate limited, modest abuse to reduce costs of prevention.

Provide effective systems for detecting abuse, e.g., audits.

Characteristics of Reeng. Processes

 Reconciliation is minimized. (Carefully)  Reconciliation doesn’t add value.

   Benefits: reduce number of external contact points for each process, thereby reducing the likelihood of inconsistent data.

Ford’s accounts payable process: eliminated vendor’s invoice.

WalMart’s PO-less purchasing system.

Characteristics of Reeng. Processes

 A case manager provides a single point of contact. (Loans or other service)  Acts as a buffer between a complex, multistep/multiperson process and the customer.

 Accepts responsibility as though s/he were performing the whole process.

 Requires access to process-related data and effective communication with process workers.

Characteristics of Reeng. Processes

 Hybrid centralized/decentralized operations are prevalent.  Reap the advantages of both operating modes!

 Operate as though units were autonomous (decentralized), yet enjoy the economies of scale that centralization creates.

 Notebook equipped sales force; software imposes controls to prevent unreasonable quotes or promised delivery dates.

People Issues

    Fear of change Emphasis on Team work Viewing “Big Picture” rather than a job or step in a process IS designers to act as facilitators

Technology Issues

     Careful use of unproved technologies Quick deployment of cost effective technologies Resistance to Change from Old technology; Why change when “NOT” Broke Dealing with legacy systems Changes in Information Systems Architectures.

Organizational Issues

    Top Management Champion High visibility and High Expectations Structural and cultural changes Problems Moving Decision Making and Control points; may lead to replacement of organizational units