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IS5600 - 5

IT Based Organisational Transformation:

BPR and Organisational Structures

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Business Process Re-engineering

“The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance...”.

Hammer and Champy (1993)

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A Generic Model for BPR

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4. Identify IT Levers

5. Pilot/Trial New Process

1. Develop Vision & Objectives

8. Ongoing Continuous Improvement 2. Identify Process

for Redesign

3. Understand & Measure Existing Process

6. Develop Support Solutions

7. Make New Process Operational

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IT as an Enabler of BPR

1. Automation: Elimination of human labour

2. Informational: Capturing/tracking process information

3. Sequential: Changing process sequence, or enabling parallel processing

4. Analytical: Improving analysis of information and decision making

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IT as an Enabler of BPR

5. Geographical: Coordinating processes across time and space

6. Integrating: Coordination between tasks and processes

7. Learning: Capturing and distributing intellectual assets

8. Disintermediating: Eliminating intermediaries from a process

(adapted from Davenport, 1993)

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Choosing the Processes to Re-engineer

• Symptom - Extensive information exchange, data redundancy, rekeying

• Disease - Arbitrary fragmentation of a natural process

• Symptom - Inventory, buffers, and other assets• Disease - System slack to cope with uncertainty and

mistakes

• Symptom - High ratio of checking and control to value-adding

• Disease - Fragmentation, confusion, and mistakes

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Example: AA + Sabre 1970s

• Symptom – Data redundancy, rekeying of data, double bookings, telephone calls to confirm seat availability

• Disease – the process is fragmented across multiple systems, multiple technologies

• Solution - Sabre, a Reservation System for Travel Agents– For all airlines, but AA flights came up first– 50% of agents select 1st or 2nd choice on the

screen

• What was the role of IT in coordinating & integrating?

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Example: Freq Flier Progs – 1990s• Symptom – Flights are not always full;

passengers fly based on cost, convenience.

• Disease – (our) passengers are fragmented across multiple airlines

• Solution – A Frequent Flier System– For airlines in our team, with bonus points,

check-in and luggage privileges, occasional upgrades

– If your airline is not part of a major team (e.g. Star Alliance, Sky Team, OneWorld, Asia Miles), then what?

• What was the role of IT here?

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Example: Outsourcing – 2000s• Symptom – We lose money on packaging,

logistics, even R&D.• Disease – we are doing many things that

are not our core competence• Solution – Stick to what we are best at

and outsource everything else– UPS/FedEx are no longer just transport

companies.– They do warehousing, logistics, customer

delivery.

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Common IT Problems in BPR Projects

1. Team members unfamiliar with IT possibilities.2. IT professionals not part of BPR teams.3. IT people don’t understand the business.4. IT professionals not knowledgeable about how

IT can support BPR.5. IT consultants brought in too late to have any

major impact on process redesign.6. BPR team members too preoccupied with

process analysis and redesign to explore IT applications.

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IT Lessons Learned1. IT is not a solution

i. It must be applied sensitively

2. IT-enabled BPR should be part of the corporate agenda

3. IT people must be involved from the beginningi. But BPR is about business processes, so…ii. Business people should lead the effort

4. Processes should be redesigned with IT in mind5. Targets should be realistic6. BPR is not trivial. It requires creative thinking.

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Getting Serious about BPR

1. What is likely to be the hardest part of reengineering for our company?

2. How can we develop our people so that they can do the jobs that re-engineering will create, and use the IT appropriately?

3. Are we prepared to adapt our HR policies to the needs of a reengineered environment?

4. How may we have to adapt our organizational structure for the aftermath of re-engineering?

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Will Re-engineering work in China?

• Does anyone have experience of process improvement in China?

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Changes to the Organisational Structure

• The extension of organisational boundaries– Including customers, suppliers &

partners• Not just process redesign, but

structural redesign– X-engineering (BPR-II)(Champy, 2002)

• Realisation that success involves managing dependencies (with IT), and perhaps changing our culture

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WalMart

• US$4B investment in IT to develop the “Retail Link” private exchange

• All manufacturers/suppliers wishing to do business with WalMart must buy and use it

• Top 100 suppliers must use RFID as well.

• Huge cost advantage over competitors – because they integrate with IT.

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But IT is not just for the big

• Anyone can leverage IT to their advantage

• IT is for both radical & incremental change

• IT can be used to transform an industry

• IT can be used to drive up the competitive advantage of the traditionally small and weak.

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Case: TAL Group (talgroup.com)

• Founded in 1947, HQ in Hong Kong• Turnover of US$590M in 02/03• 11 factories• 23,000 employees• 50M garments a year • 78% of sales in the US market

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TAL’s IT Investments

• Integrating ERP + SCM systems (US$10M)

• End-to-end fully integrated system for– Capacity planning – Production scheduling – Inventory management– Raw material purchases– Finished garment sales

• Extensive R&D > manufacturing patents

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Vendor Managed Inventory

• Persuade the customers (retailers) to let TAL control the Inventory Management.

• TAL is the sole supplier for those goods• TAL has total control of inventory

monitoring & replenishment; no more ‘purchase orders’

• TAL’s systems constantly monitor inventories at the store level– Reduce stock levels (and wastage); On-

demand production; Rapid stock replacement

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From Linear and Sequential to Integrated and Synchronised

• Traditional information flows are linear and sequential.

• Information quality degrades down the value chain• Coordination problems are frequent• TAL have an integrated & synchronised hub

arrangement• This connects all their suppliers, customers and

partners seamlessly and enforces mutual dependence.

• Collaboration & information exchange are routine.

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Inbound Logistics Operations

Outbound Logistics

Marketing & Sales Service

Manufacturer's Value Chain (TAL)

Retailer’sValue Chain(J.C. Penney)

Purchase & receive raw materials (natural / synthetic

fibre, yarn, etc.)

Manufacture according to

customer specs (cut fibre, sew,

buttonhole, & iron)

Package & ship to

retailer’s warehouse

Receive consumer

feedback for product

enhancement/ new product

Marketing, merchandizing, and selling to

end consumers

Re-pack & distribute to retail outlets

Perform inventory

control, sales monitoring & forecast; place replenishment

orders

Purchase & receive garment

from manufacturer at

central warehouse

A Sequential/Linear Value Chain for Apparel Manufacturing and Retailing

Lee et al., 2004

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Inbound Logistics Operations

Outbound Logistics

Marketing & Sales Service

Manufacturer's Value Chain (TAL)

Retailer’sValue Chain(J.C. Penney)

Select & order raw materials according to

sales patterns & new design

requirements

Design product

according to sales pattern; manufacture according to design specs

Distribute orders

directly to customer’s

retail outlets

Focus on after-sales service to

end consumers

Focus on marketing

& sales service to

end consumers

Streamlined product delivery &

vendor-managed inventory at the store level

Perform test marketing of new products

at retail stores

An Integrated and Synchronized Value Network for Apparel Manufacturing and Retailing

Monitor retail sales, replenish inventory, and design

new products

Hub(shared data and processes)

Lee et al., 2004

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Impacts?

• US$2M in annual savings for J.C. Penney

• 35% increase in inventory turnover• 19% increase in sales• 5% increase in gross margin• Reduced ‘out of stock’ situations

and zero local (warehouse) inventory

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Implications?

• Radically transformed industry structure & new rules of competition

• Much higher switching costs for customers.

• Access to real-time sales data at the store level– Useful for TAL as it seeks new

customers.

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Lessons• Innovation can be driven by a weak

member– Strong networks, manufacturing

expertise– Use IT to leverage strengths

• IT changes the value chain– Develop an integrated and synchronised

value network– Shared data, systems, processes and

performance indicators

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Lessons for IT Based Org Change

• Top Management must be the change architects• IT cannot transform an organisation – IT enables

transformation• Enterprise-wide business-IT Partnerships are needed • The pace of change must match the rate of

acceptance• Individual transformation is as important as

organisational transformation• Change champions must be diverse, yet work

together• Offshoring IT development sounds attractive, but it is

not just an IT project.

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Consequences of Transformation

• Organisational culture and identity– There will be pressure for change here too– People who support ‘the old way’ will feel

left out, marginalised or discriminated against

• A new, more flexible set of cultural norms may be necessary– Guided by new principles, new values, …

and perhaps new managers?– A Culture of Blogging? The CEO’s blog-desk?

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The Value of IT?• IT can enable transformation• But IT is not cost-free

– The price is the price of change, the acceptability of change

• If management doesn’t want change, then handle IT carefully

• IT is only IT, but IT enables people to do things that were previously impossible– Even email can produce radical changes in

organisations

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Whiteboard Questions• What kinds of barriers would normally exist

to hinder companies like TAL to leverage and re-engineer the supply chain?

• What is the strategic advantage for TAL?• Why should JC Penney trust TAL?• Can TAL replicate its success in other

industries?• Imagine you are an IT consultant. How

would you try to persuade CEOs to make more of their IT investments?