Business Process Re Engineering - Pgdm IV Trimester

BUSINESS PROCESS REENGINEERING

PGDMIV TRIMESTER

Business Process Reengineering: A sensitive issue for Indian organizations

A successful business process reengineering (BPR) exercise should understand the 'people aspect' while meeting business objectives. R N Moorthy, the senior general manager for information technology at Jet Airways (India) Ltd. says that a CIO should be careful when balancing these two acts.

What things should a business keep in mind while conducting a business process reengineering (BPR)

exercise?

Organizational preparedness. Management's acceptance. BPR also impacts people, which is a very

critical factor (especially in a country like India).

This may bring drastic changes. At Jet Airways, we started our ERP journey

in 2000. We re-implemented ERP again in 2005, as we moved from purely domestic operations to international operations.

Can you share your step-by-step approach

for process reengineering with our readers?

First of all, a CIO and his team should understand and document the organization's current processes.

It is important that the team has a change management plan.

Third, there are objectives for any project in terms of cost reductions, revenue earnings, manpower reductions required, etc. All of these should be considered as the project's return on investment.

CONTD… A CIO should keep in mind that

business is never constant -- requirements keep on changing.

For example, the airline industry in India is now moving towards low-cost models. These might require a totally different way of doing business, which you may not have thought of three years ago.

What is the role of business stakeholders in

process reengineering?

Business stakeholders have an equally important role as that of IT, since they will be affected and will benefit by the entire exercise. So there can be two parties: some people are affected as their roles change, whereas others benefit as their roles become simpler.

What are the challenges in process reengineering? How can a CIO overcome

these challenges?

The major challenge is in terms of people.

In India, if you go to the management level and tell them that you can halve manpower requirements with an IT implementation, the proposal will not be acceptable to department heads.

Paradigm Shift

Industrial Model – That was about production, factory handling, less competition.

In today’s environment more than ever, mangers of “old economy” companies need the right tools to support and improve their effectiveness.

Contd… Because the large “old economy”

companies from consumer products to industrial manufacturing have begun to see relatively small pieces of their markets taken away by new firms.

As a result they have started to push toward more efficient digital strategies based on optimizing customer experience integrating their value chains and accelerating information flow.

Business Process Reengineering Business reengineering has been described

as “not a voyage of guided discovery but more like a walk in the fog”.

Also called business reengineering or simply reengineering.

It is a radical(Business reinvention vs. business improvement, Arising from or going to a root or source) way to enhancing the capabilities of a business, improving its performance and allowing it to achieve sustainable competitive advantage.

Business Process Reengineering Hammer argued that many things were

done in organizations because “that was the way they always be done”, not because they added value.

He said: Computer technology made it possible to combine simple tasks previous performed by many different people in to more complex one-person jobs that provided higher level of customer services.

Traditional Functional Organizations

Senior managers

Middle managers

Knowledge anddata workersOperationalmanagers

Strategic level

Management level

Knowledge level

Operational level

Sales Manufacturing

Finance etc. HR

Hammer’s Process-Centered Organization Hammer, Beyond Reengineering, 1996, p.126(and Harvard Business Review, Nov-Dec 1999)

Coach Coach Coach Coach

Owner

Owner

Owner

Processes

Centres ofExcellence

CUSTOMERS

Business Process Reengineering

It focuses on business flows that bring value to the customer (product development, order fulfillment, account management).

Credit decision

After:

Credit request

Case manager

Before:Financing

Credit checking

Approval IssuanceCredit decision

Credit request

IBM Credit (Source: Sia and Neo, JMIS 1997, p.71)

Business Process Reengineering Hammer argued that if employees were

treated as creative, responsible people (empowered), they would contribute much more value to the organization.

Several different kinds of benefits can flow from reengineering. They include cost savings; reduction in staff members; reduction in unit costs; improved profitability; improved customer satisfaction.

Business Process Reengineering

Example – Electronic Commerce can be defined as “reengineering the supply chain”.

Examples of applied BPR

Hammer’s Ford Accounts Payable example

Clerks in Accounts payable checked to ensure Purchase Requisitions (from manufacturing), Purchase orders, Receiving reports, Supplier invoices, Statements that for each invoice, there was both a purchase order and a receiving report. If OK, they authorized payment.

From an internal control point of view, there were good reasons for this process design.

There were 500 staff in Ford’s Accounts Payable dept. Presumably, the dept. was running efficiently.


In the late 1980s, Ford had a traditional purchasing and accounts payable system:

Purchase Requisitions (from manufacturing), Purchase orders, Receiving reports, Supplier invoices, Statements


In the late 1980’s, Ford bought a 25% stake in Mazda and compared staffing levels in different departments. There were only 5 staff in Mazda’s Accounts Payable. Yet Mazda was not 100 times smaller. Q: How come?

A: Mazda had a different process. So Ford changed its process and reduced Accounts

Payable staff by about 75%. (370 people; more than $10M p.a.)

Q: What did they do?

1: Hammer’s Ford Accounts Payable example

A: They placed computer terminals in the Receiving dept. When goods arrived, Receiving checked the goods had been ordered. If accepted, funds were transferred automatically to the supplier.

Hammer argues that to save the money, Ford had to shift from functional thinking, i.e., improving the efficiency of the Accounts Payable dept., to process thinking.

The process was procurement: ordering, receiving, and paying.

The Accounts Payable function added little of value to the process (and ultimately to the customer).


“Reengineering is the radical redesign of business processes for dramatic improvement.” (Hammer, 1996)

Radical: 500 staff dropped to 130

Process: cross-functional

Computer Technology: enabling

Summary

Integrated Business Model

An integrated business model has been developed by work systems associated that describes how an organization should guide its work with both customer focus and process improvement woven through out the fabric of the business.

Vision

Vision captures the emotional spirit by defining a dream that embodies the soul and spirit of organization.

Corporate Vision is a short succinct and inspiring statement of what the organization intends to become and to achieve at some point in the future.

Vision Statement of some Companies

Toyota – Harmony with People, Society and the Environment.

Nestle – Nestle Norden’s aim is to meet the various needs of the consumer everyday by marketing and selling food of a consistently high quality.

Vision Statement of some Companies

ONGC – To be world-class oil and gas company integrated in energy business with dominant Indian leadership and global presence.

ITC – Sustain ITC’s position as one of India’s most valuable corporations through world class performance, creating growing value for the Indian Economy and the company’s stakeholders.

Alignment

Alignment is the process by which the organization is able to convert its vision, values and guiding principles in to a defined high level plan.

Customer focus is not achieved through special program, or a periodic survey. Rather, it is part of the fabric of the vision goals and all operational processes and activities, as well as one of the key measurements of success.

Reengineering

“Reengineering is new and it has to be done” – Peter F. Drucker.

Definition – “Reengineering is the radical and redesign of business processes for dramatic improvement”.

Reengineering

Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, services and speed”.

Reengineering

Fundamental:

Why do we do what we do? Ignore what is and concentrate on what

should be.

Reengineering

Radical

Business reinvention Versus Business improvement.

Reengineering

Dramatic – Reengineering should be brought in

“when a need exists for heavy blasting” Companies in deep trouble. Companies that see trouble coming. Companies that are in peak condition.

Reengineering

Process – A collection of activities that takes one or more kinds of inputs and creates an output that is of value to a customer.

Reengineering

Reengineering is essentially a redesign process, which takes place in a strategic context.

It consists of the three key components: Distinctive Capabilities of the business. Relevant markets and segments. Sustainable competitive advantage.

Distinctive Capabilities of the business applied to Relevant Markets yields

Competitive Advantage

SustainableCompetitiveAdvantage

DistinctiveCapabilities ofThe business

Relevant Markets& Segments

Reinforces

Applied to

Yields

Distinctive Capabilities

How can business strategies add value?

Companies with distinctive capabilities have attributes which other cannot replicate, and which others cannot even after they realize the benefit they offer to the company which originally possesses them.

Distinctive Capabilities John Kay says there are three

distinctive capabilities – Architecture - a structure of relational contacts

within or around the organization with employees and with customers and suppliers.

Reputation - built up through customer's own experience, quality signals, demonstrations and free trails, warranty, guarantee, word of mouth spreading, association with other brands, staking the reputation once it is established.

Innovation - provided the innovation is translated to competitive advantage successfully.

Distinctive Capabilities Through continued use, capabilities

become stronger and more difficult for competitors to understand and imitate.

As a source of competitive advantage, a capability “ should be neither so simple that it is highly imitable, nor so complex that it defies internal steering and control”.


The competitive advantage model learns that competitive strategy is about taking offensive or defensive position in the industry in order to cope successfully with competitive forces and generate a superior return on investment.


Price is rarely, if ever, a sustainable advantage because typically your competitors can match it if they want to and they can do it quickly.

The longer it takes your competitors to match your offer, the more sustainable your advantage is.


It answers “Why should I buy from you?” or “How are you better than my current supplier?”

Exercise: Make a list of. Why should I buy from you?

100 of companies had this common list. Good Customer Service Quality Reputation Good Results Our Employees Knowledge Staff Consistent Management Responsiveness Innovativeness Trust


List is generic and common across industries.

And if you sound the same as your competitors: Why not buy based on price? And you clearly don’t have a competitive

advantage or if you do, you are dooing a good job of hiding it.


Having a competitive advantage, even a sustainable one, does not necessarily mean that you and your customers are aware of it.

So there is a need to create an offer or positioning in the market that clearly states your competitive advantage.


We call this a unrefusable market offer or a “Mafia Offer.

As you probably know, a Mafia offer is an offer so good that: Your customers cant refuse it. Your competitors cant or wont match.

Reengineering

Reengineering takes place at several levels in the value stream mentioned below: Individual Group Infrastructure Organization Business and Management Processes Methods and Tools Capabilities Outputs Customer

Value Stream

A Value Stream is an end-to-end business process which delivers a product or service to a customer or consumer.

It can also be called as Value Chain.

Characteristics of BPR

It requires a critical rethinking of the business.

It views the business as a set of processes rather than as functional departments.

Customer focus is critical to the success of reengineering.

Its planning, design and implementation involves the entire organization.

Rethinking the business How will organizations deliver revenue growth

in an increasingly competitive and fast changing business environment?

How will they optimize their cost structure while offering more values to their customer?

How must they position themselves in the global value chain to differentiate their organization and create a sustainable quantitative advantage?

Rethinking the business The changes are driven primarily by three

factors: The need to respond to new opportunities in

emerging markets (where the old ways of doing business may not work).

The impact of new technology. Changing customer requirement.

Rethinking the business It involves complete rethinking about the

processes that deliver what is most important to your customers. See values through the customers eyes.

Business reengineering is successful only when it is applied to the critical few processes.

The business is viewed as a set of processes.

Process is an organized group of related activities, that together create a result to customers.


A process is a group of activities, not just one value is created not by single activity, but the entire process in which all these tasks merge in a systematic way for a clear purpose.

Activities are related and organized. They present a stream of relevant, interconnected activities that must perform in sequence.


All the activities in the process work together toward a common goal. People performing different steps of a process must all be aligned around a single purpose instead of focusing on their individual tasks in isolation.

Processes are not ends in themselves. They have a purpose they create and deliver results that customer care about.


…. a group of logically related tasks using the firm's resources to provide customer-oriented results to support organisation's objectives.

…..an operational or admin. system that transforms inputs into valued outputs - typically a task sequence arranged as a procedure perhaps involving machines, depts. & people.

• making sandwiches to order• seeing a sales order through from beginning to end• stock replenishment procedures• aircraft maintenance e.g. in hanger or on tarmac between

flights…. includes service support processes e.g. engineering change or

payroll process, manufacturing process design.

Kinds of Processes. Operational (production) – directly achieves operational

objectives Control – goal to maintain a state relating to another

process Generic – applicable to any group member (an

abstraction or class, essentials of a process that may be shared)

Customised – adaptation of a generic process to suit specific objectives and using identified resources

Enactable – defined + executed using process technologies

Meta-process – concerned with another process(es)

Customer Focus is critical to the success of reengineering

Customer focus is paramount. The aim, the raisons d’etre, of

business reengineering is to make the business products and services more appealing in our market place than your competitors.

Business Reengineering involves the entire organization

It must be led from the top. The “Process Design” work is done by

people drawn from all staff levels. Consequently, everyone will need to

communicate more effectively and thoroughly than in necessary in the normal course of business.

Business Process Re Engineering - Pgdm IV Trimester

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