UNIT 1,2 Business process re-engineering is the analysis and design of workflows and processes within an organization.

According to Davenport (1990) a business process is a set of logically related tasks performed to achieve a defined business outcome. Reengineering is the basis for many recent developments in management. The crossfunctional team, for example, has become popular because of the desire to re-engineer separate functional tasks into complete cross-functional processes. Business process re-engineering is also known as business process redesign, business transformation, or business process change management. Business process re-engineering (BPR) began as a private sector technique to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. A key stimulus for re-engineering has been the continuing development and deployment of sophisticated information systems and networks. Leading organizations are becoming bolder in using this technology to support innovative business processes, rather than refining current ways of doing work. Business Process Re-engineering (BPR) is basically the fundamental re-thinking and radical re-design, made to an organization's existing resources. It is more than just business improvising. It is an approach for redesigning the way work is done to better support the organization's mission and reduce costs. Reengineering starts with a high-level assessment of the organization's mission, strategic goals, and customer needs Within the framework of this basic assessment of mission and goals, re-engineering focuses on the organization's business processesthe steps and procedures that govern how resources are used to create products and services that meet the needs of particular customers or markets. As a structured ordering of work steps across time and place, a business process can be decomposed into specific activities, measured, modeled, and improved. It can also be completely redesigned or eliminated altogether. Re-engineering identifies, analyzes, and re-designs an organization's core business processes with the aim of achieving dramatic improvements in critical performance measures, such as cost, quality, service, and speed. Re-engineering recognizes that an organization's business processes are usually fragmented into subprocesses and tasks that are carried out by several specialized functional areas within the organization. Often, no one is responsible for the overall performance of the entire process. Re-engineering maintains that optimizing the performance of subprocesses can result in some benefits, but cannot yield dramatic improvements if the process itself is fundamentally inefficient and outmoded. For that reason, re-engineering focuses on re-designing the process as a whole in order to achieve the greatest possible benefits to the organization and their customers. This drive for realizing dramatic improvements by fundamentally re-thinking how the organization's work should be done distinguishes re-engineering from process improvement efforts that focus on functional or incremental improvement History In 1990, Michael Hammer, a former professor of computer science at the Massachusetts Institute of Technology (MIT), published an article in the Harvard Business Review, in which he claimed that the major challenge for managers is to obliterate non-value adding work, rather than using technology for automating it.[2] This statement implicitly accused managers of having focused on the wrong issues, namely that technology in general, and more specifically information technology, has been used primarily for automating existing processes rather than using it as an enabler for making non-value adding work obsolete. Hammer's claim was simple: Most of the work being done does not add any value for customers, and this work should be removed, not accelerated through automation.

Instead, companies should reconsider their processes in order to maximize customer value, while minimizing the consumption of resources required for delivering their product or service. A similar idea was advocated by Thomas H. Davenport and J. Short in 1990,[3] at that time a member of the Ernst & Young research center, in a paper published in the Sloan Management Review This idea, to unbiasedly review a companys business processes, was rapidly adopted by a huge number of firms, which were striving for renewed competitiveness, which they had lost due to the market entrance of foreign competitors, their inability to satisfy customer needs, and their insufficient cost structure.Even well established management thinkers, such as Peter Drucker and Tom Peters, were accepting and advocating BPR as a new tool for (re-)achieving success in a dynamic world.During the following years, a fast growing number of publications, books as well as journal articles, were dedicated to BPR, and many consulting firms embarked on this trend and developed BPR methods. However, the critics were fast to claim that BPR was a way to dehumanize the work place, increase managerial control, and to justify downsizing, i.e. major reductions of the work force,[4] and a rebirth of Taylorism under a different label. Despite this critique, reengineering was adopted at an accelerating pace and by 1993, as many as 65% of the Fortune 500 companies claimed to either have initiated reengineering efforts, or to have plans to do so.This trend was fueled by the fast adoption of BPR by the consulting industry, but also by the study Made in America], conducted by MIT, that showed how companies in many US industries had lagged behind their foreign counterparts in terms of competitiveness, time-to-market and productivity. Development after 1995 With the publication of critiques in 1995 and 1996 by some of the early BPR proponents coupled with abuses and misuses of the concept by others, the reengineering fervor in the U.S. began to wane. Since then, considering business processes as a starting point for business analysis and redesign has become a widely accepted approach and is a standard part of the change methodology portfolio, but is typically performed in a less radical way as originally proposed. More recently, the concept of Business Process Management (BPM) has gained major attention in the corporate world and can be considered as a successor to the BPR wave of the 1990s, as it is evenly driven by a striving for process efficiency supported by information technology. Equivalently to the critique brought forward against BPR, BPM is now accused of focusing on technology and disregarding the people aspects of change.BPR definition: "... the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical modern measures of performance, such as cost, quality, service, and speed." "encompasses the envisioning of new work strategies, the actual process design activity, and the implementation of the change in all its complex technological, human, and organizational dimensions." Additionally, Davenport (ibid.) points out the major difference between BPR and other approaches to organization development (OD), especially the continuous improvement or TQM movement, when he states: "Today firms must seek not fractional, but multiplicative levels of improvement 10x rather than 10%." Finally, Johansson[7] provide a description of BPR relative to other process-oriented views, such as Total Quality Management (TQM) and Just-in-time (JIT), and state:

"Business Process Reengineering, although a close relative, seeks radical rather than merely continuous improvement. It escalates the efforts of JIT and TQM to make process orientation a strategic tool and a core competence of the organization. BPR concentrates on core business processes, and uses the specific techniques within the JIT and TQM toolboxes as enablers, while broadening the process vision."

In order to achieve the major improvements BPR is seeking for, the change of structural organizational variables, and other ways of managing and performing work is often considered as being insufficient. For being able to reap the achievable benefits fully, the use of information technology (IT) is conceived as a major contributing factor. While IT traditionally has been used for supporting the existing business functions, i.e. it was used for increasing organizational efficiency, it now plays a role as enabler of new organizational forms, and patterns of collaboration within and between organizations [ BPR derives its existence from different disciplines, and four major areas can be identified as being subjected to change in BPR - organization, technology, strategy, and people - where a process view is used as common framework for considering these dimensions. The approach can be graphically depicted by a modification of "Leavitts diamond". Business strategy is the primary driver of BPR initiatives and the other dimensions are governed by strategy's encompassing role. The organization dimension reflects the structural elements of the company, such as hierarchical levels, the composition of organizational units, and the distribution of work between them.Technology is concerned with the use of computer systems and other forms of communication technology in the business. In BPR, information technology is generally considered as playing a role as enabler of new forms of organizing and collaborating, rather than supporting existing business functions. The people / human resources dimension deals with aspects such as education, training, motivation and reward systems. The concept of business processes - interrelated activities aiming at creating a value added output to a customer - is the basic underlying idea of BPR. These processes are characterized by a number of attributes: Process ownership, customer focus, value adding, and cross-functionality. The role of information technology Information technology (IT) has historically played an important role in the reengineering concept. It is considered by some as a major enabler for new forms of working and collaborating within an organization and across organizational borders Early BPR literature identified several so called disruptive technologies that were supposed to challenge traditional wisdom about how work should be performed.

Shared databases, making information available at many places Expert systems, allowing generalists to perform specialist tasks Telecommunication networks, allowing organizations to be centralized and decentralized at the same time Decision-support tools, allowing decision-making to be a part of everybody's job Wireless data communication and portable computers, allowing field personnel to work office independent Interactive videodisk, to get in immediate contact with potential buyers Automatic identification and tracking, allowing things to tell where they are, instead of requiring to be found High performance computing, allowing on-the-fly planning and revisioning

In the mid 1990s, especially workflow management systems were considered as a significant contributor to improved process efficiency. Also ERP (Enterprise Resource Planning) vendors, such as SAP, JD Edwards, Oracle, PeopleSoft, positioned their solutions as vehicles for business process redesign and improvement. Research and methodology Although the labels and steps differ slightly, the early methodologies that were rooted in IT-centric BPR solutions share many of the same basic principles and elements. The following outline is one such model, based on the PRLC (Process Reengineering Life Cycle) approach developed by Guha.

Simplified schematic outline of using a business process approach, examplified for pharmceutical R&D: 1. Structural organization with functional units 2. Introduction of New Product Development as cross-functional process 3. Re-structuring and streamlining activities, removal of non-value adding tasks Benefiting from lessons learned from the early adopters, some BPR practitioners advocated a change in emphasis to a customer-centric, as opposed to an IT-centric, methodology. One such methodology, that also incorporated a Risk and Impact Assessment to account for the impact that BPR can have on jobs and operations, was described by Lon Roberts (1994). Roberts also stressed the use of change management tools to proactively address resistance to changea factor linked to the demise of many reengineering initiatives that looked good on the drawing board. Some items to use on a process analysis checklist are: Reduce handoffs, Centralize data, Reduce delays, Free resources faster, Combine similar activities. Also within the management consulting industry, a significant number of methodological approaches have been developed. BPR Success & Failure Factors BPR does not only mean change, but rather dramatic change. What constitute this drastic change are the overhaul of organizational structures, management systems, employee responsibilities and performance measurements, incentive systems, skills development, and the use of IT. BPR can potentially impact every aspect of how business is conducted today. Change on this scale can cause results ranging from enviable success to complete failure. In spite of the depth of change involved in undertaking BPR efforts, a recent survey showed that some 88 percent of CIOs were satisfied with the end result of BPR efforts (Motwani, et al., 1998). Successful BPR can result in enormous reductions in cost or cycle time. It can also potentially create substantial improvements in quality, customer service, or other business objectives. The promise of BPR is not empty; it can actually produce revolutionary improvements for business operations. Reengineering can help an aggressive company to stay on top, or transform an organization on the verge of bankruptcy into an effective competitor. The successes have spawned international interest, and major reengineering efforts are now being conducted around the world (Covert, 1997). On the other hand, BPR projects can fail to meet the inherently high expectations of reengineering. In 1998, it was reported that only 30 percent of reengineering projects were regarded as successful (Galliers, 1998). The earlier promise of BPR has not been fulfilled as some organizations have put forth extensive BPR efforts only to achieve marginal, or even negligible, benefits. Other organizations have succeeded only in destroying the morale and momentum built up over their lifetime. These failures indicate that reengineering involves a great deal of risk. Even so, many companies are willing to take that risk because the rewards can be astounding (Covert, 1997). Many unsuccessful BPR attempts may have been due to the confusion surrounding BPR, and how it should be performed. Organizations were well aware that changes needed to be made, but did not know which areas to change or how to change them. As a result, process reengineering is a management concept that has been formed by trial and error or, in other words, practical experience. As more and more businesses reengineer their processes, knowledge of what caused the successes or failures is becoming apparent (Covert, 1997). To reap lasting benefits, companies must be willing to examine how strategy and reengineering complement each other by learning to quantify strategy in terms of cost, milestones, and timetables, by accepting ownership of the strategy throughout the organization, by assessing the organizations current capabilities and process realistically, and by linking strategy to the budgeting process. Otherwise, BPR is only a short-term efficiency exercise (Berman, 1994). Some BPR researchers have focused on key factors in the BPR process that enabled a successful outcome. Over the past years, BPR projects and efforts have revealed some interesting findings for both academics and practitioners. Many lessons were learned

and many elements were identified as essential to the success of a BPR activity. Some important BPR success factors, which will be discussed in further details later, include, but are not limited to the following: 1. Organization wide commitment. 2. BPR team composition. 3. Business needs analysis. 4. Adequate IT infrastructure. 5. Effective change management. 6. Ongoing continuous improvement Organization Wide Commitment There is no doubt that major changes to business processes have a direct impact on processes, technology, job roles, and workplace culture. Significant changes to even one of those areas require resources, money, and leadership. Changing them simultaneously is an extraordinary task (Covert, 1997). Like any large and complex undertaking, implementing reengineering requires the talents and energies of a broad spectrum of experts. Since BPR can involve multiple areas within the organization, it is extremely important to get support from all affected departments. Through the involvement of selected department members, the organization can gain valuable input before a process is implemented; a step which promotes both the cooperation and the vital acceptance of the reengineered process by all segments of the organization. Getting enterprise wide commitment involves the following: top management sponsorship, bottom-up buy-in from process users, dedicated BPR team, and budget allocation for the total solution with measures to demonstrate value. Before any BPR project can be implemented successfully, there must be a commitment to the project by the management of the organization, and strong leadership must be provided (Campbell & Kleiner, 1997). Reengineering efforts can by no means be exercised without a company-wide commitment to the goals to be achieved. However, top management sponsorship is imperative for success (Dooley & Johnson, 2001). Commitment and leadership in the upper echelons of management are often cited as the most important factors of a successful BPR project (Jackson, 1997). Top management must recognize the need for change, develop a complete understanding of what is BPR, and plan how to achieve it (Motwani , et al., 1998). Leadership has to be effective, strong, visible, and creative in thinking and understanding in order to provide a clear vision to the future (AlMashari & Zairi, 1999). Convincing every affected group within the organization of the need for BPR is a key step in successfully implementing a process. By informing all affected groups at every stage, and emphasizing the positive end results of the reengineering process, it is possible to minimize resistance to change and increase the odds for success. The ultimate success of BPR depends on the strong, consistent, and continuous involvement of all departmental levels within the organization. It also depends on the people who do it and how well they can be motivated to be creative and to apply their detailed knowledge to the redesign of business processes (King, 1994). BPR Team Composition Once organization wide commitment has been secured from all departments involved in the reengineering effort and at different levels, the critical step of selecting a BPR team must be taken. This team will form the nucleus of the BPR effort, make key decisions and recommendations, and help communicate the details and benefits of the BPR program to the entire organization. The determinants of an effective BPR team may be summarized as follows: competency of the members of the team, their motivation (Rastogi, 1994), their credibility within the organization and their creativity (Barrett, 1994), team empowerment, training of members in process mapping and brainstorming techniques (Carr, 1993), effective team leadership (Berrington & Oblich, 1995), proper organization of the team (Guha , et al., 1993), complementary skills among team members, adequate size, interchangeable accountability, clarity of work approach, and specificity of goals (Katzenbach & Smith, 1993). The most effective BPR teams include active representatives from the following work groups: top management, business area responsible for the process being addressed, technology groups, finance, and members of all ultimate process users groups. Team members who are selected from each work group within the organization will have an

impact on the outcome of the reengineered process according to their desired requirements. The BPR team should be mixed in depth and knowledge. For example, it may include members with the following characteristics:

Members who do not know the process at all. Members who know the process inside-out. Customers, if possible. Members representing impacted departments. One or two members of the best, brightest, passionate, and committed technology experts. Members from outside of the organization (Dooley & Johnson, 2001).

Moreover, Covert (1997) recommends that in order to have an effective BPR team, it must be kept under ten players. If the organization fails to keep the team at a manageable size, the entire process will be much more difficult to execute efficiently and effectively. The efforts of the team must be focused on identifying breakthrough opportunities and designing new work steps or processes that will create quantum gains and competitive advantage (Motwani, et al., 1998). Business Needs Analysis Another important factor in the success of any BPR effort is performing a thorough business needs analysis. Too often, BPR teams jump directly into the technology without first assessing the current processes of the organization and determining what exactly needs reengineering. In this analysis phase, a series of sessions should be held with process owners and stakeholders, regarding the need and strategy for BPR. These sessions build a consensus as to the vision of the ideal business process. They help identify essential goals for BPR within each department and then collectively define objectives for how the project will impact each work group or department on individual basis and the business organization as a whole. The idea of these sessions is to conceptualize the ideal business process for the organization and build a business process model. Those items that seem unnecessary or unrealistic may be eliminated or modified later on in the diagnosing stage of the BPR project. It is important to acknowledge and evaluate all ideas in order to make all participants feel that they are a part of this important and crucial process. Results of these meetings will help formulate the basic plan for the project. This plan includes the following: identifying specific problem areas, solidifying particular goals, and defining business objectives. The business needs analysis contributes tremendously to the reengineering effort by helping the BPR team to prioritize and determine where it should focus its improvements efforts (Dooley & Johnson, 2001). The business needs analysis also helps in relating the BPR project goals back to key business objectives and the overall strategic direction for the organization. This linkage should show the thread from the top to the bottom of the organization, so each person can easily connect the overall business direction with the reengineering effort. This alignment must be demonstrated from the perspective of financial performance, customer service, associate value, and the vision for the organization (Covert, 1997). Developing a business vision and process objectives relies, on the one hand, on a clear understanding of organizational strengths, weaknesses, and market structure, and on the other, on awareness and knowledge about innovative activities undertaken by competitors and other organizations (Vakola & Rezgui, 2000). BPR projects that are not in alignment with the organizations strategic direction can be counterproductive. There is always a possibility that an organization may make significant investments in an area that is not a core competency for the company and later outsource this capability. Such reengineering initiatives are wasteful and steal resources from other strategic projects. Moreover, without strategic alignment, the organizations key stakeholders and sponsors may find themselves unable to provide the level of support the organization needs in terms of resources, especially if there are other more critical projects to the future of the business, and are more aligned with the strategic direction (Covert, 1997). Adequate IT Infrastructure Researchers consider adequate IT infrastructure reassessment and composition as a vital factor in successful BPR implementation (Al-

Mashari & Zairi, 1999). Hammer (1990) prescribes the use of IT to challenge the assumptions inherent in the work process that have existed since long before the advent of modern computer and communications technology (Malhotra, 1998). Factors related to IT infrastructure have been increasingly considered by many researchers and practitioners as a vital component of successful BPR efforts (Ross, 1998). Effective alignment of IT infrastructure and BPR strategy, building an effective IT infrastructure, adequate IT infrastructure investment decision, adequate measurement of IT infrastructure effectiveness, proper information systems (IS) integration, effective reengineering of legacy IS, increasing IT function competency, and effective use of software tools are the most important factors that contribute to the success of BPR projects. These are vital factors that contribute to building an effective IT infrastructure for business processes (Al-Mashari & Zairi, 1999). BPR must be accompanied by strategic planning which addresses leveraging IT as a competitive tool (Weicher, et al., 1995). An IT infrastructure is made up of physical assets, intellectual assets, shared services (Broadbent & Weill, 1997), and their linkages (Kayworth, et al., 1997). The way in which the IT infrastructure components are composed and their linkages determines the extent to which information resources can be delivered. An effective IT infrastructure composition process follows a top-down approach, beginning with business strategy and IS strategy and passing through designs of data, systems, and computer architecture (Malhotra, 1996). Linkages between the IT infrastructure components, as well as descriptions of their contexts of interaction, are important for ensuring integrity and consistency among the IT infrastructure components (Ross, 1998). Furthermore, IT standards have a major role in reconciling various infrastructure components to provide shared IT services that are of a certain degree of effectiveness to support business process applications, as well as to guide the process of acquiring, managing, and utilizing IT assets (Kayworth, et al., 1997). The IT infrastructure shared services and the human IT infrastructure components, in terms of their responsibilities and their needed expertise, are both vital to the process of the IT infrastructure composition. IT strategic alignment is approached through the process of integration between business and IT strategies, as well as between IT and organizational infrastructures (Al-Mashari & Zairi, 1999). Most analysts view BPR and IT as irrevocably linked. Walmart, for example, would not have been able to reengineer the processes used to procure and distribute massmarket retail goods without IT. Ford was able to decrease its headcount in the procurement department by 75 percent by using IT in conjunction with BPR, in another well-known example (Weicher, et al., 1995). The IT infrastructure and BPR are interdependent in the sense that deciding the information requirements for the new business processes determines the IT infrastructure constituents, and a recognition of IT capabilities provides alternatives for BPR (Ross, 1998). Building a responsive IT infrastructure is highly dependent on an appropriate determination of business process information needs. This, in turn, is determined by the types of activities embedded in a business process, and their sequencing and reliance on other organizational processes (Sabherwal & King, 1991). Effective Change Management Al-Mashari and Zairi (2000) suggest that BPR involves changes in people behavior and culture, processes, and technology. As a result, there are many factors that prevent the effective implementation of BPR and hence restrict innovation and continuous improvement. Change management, which involves all human and social related changes and cultural adjustment techniques needed by management to facilitate the insertion of newly-designed processes and structures into working practice and to deal effectively with resistance (Carr, 1993), is considered by many researchers to be a crucial component of any BPR effort (Towers, 1996). One of the most overlooked obstacles to successful BPR project implementation is resistance from those whom implementers believe will benefit the most. Most projects underestimate the cultural impact of major process and structural change and as a result, do not achieve the full potential of their change effort. Many people fail to understand that change is not an event, but rather a management technique. Change management is the discipline of managing change as a process, with due consideration that employees are people, not programmable machines (Covert, 1997). Change is

implicitly driven by motivation which is fueled by the recognition of the need for change. An important step towards any successful reengineering effort is to convey an understanding of the necessity for change (Dooley & Johnson, 2001). It is a well-known fact that organizations do not change unless people change; the better change is managed, the less painful the transition is. Organizational culture is a determining factor in successful BPR implementation (Zairi & Sinclair, 1995). Organizational culture influences the organizations ability to adapt to change. Culture in an organization is a self-reinforcing set of beliefs, attitudes, and behavior. Culture is one of the most resistant elements of organizational behavior and is extremely difficult to change. BPR must consider current culture in order to change these beliefs, attitudes, and behaviors effectively. Messages conveyed from management in an organization continually enforce current culture. Change is implicitly driven by motivation which is fueled by the recognition of the need for change. The first step towards any successful transformation effort is to convey an understanding of the necessity for change (Dooley & Johnson, 2001). Management rewards system, stories of company origin and early successes of founders, physical symbols, and company icons constantly enforce the message of the current culture. Implementing BPR successfully is dependent on how thoroughly management conveys the new cultural messages to the organization (Campbell & Kleiner, 1997). These messages provide people in the organization with a guideline to predict the outcome of acceptable behavior patterns. People should be the focus for any successful business change. BPR is not a recipe for successful business transformation if it focuses on only computer technology and process redesign. In fact, many BPR projects have failed because they did not recognize the importance of the human element in implementing BPR. Understanding the people in organizations, the current company culture, motivation, leadership, and past performance is essential to recognize, understand, and integrate into the vision and implementation of BPR. If the human element is given equal or greater emphasis in BPR, the odds of successful business transformation increase substantially (Campbell & Kleiner, 1997). Ongoing Continuous Improvement Many organizational change theorists hold a common view of organizations adjusting gradually and incrementally and responding locally to individual crises as they arise (Dooley & Johnson, 2001). BPR is a successive and ongoing process and should be regarded as an improvement strategy that enables an organization to make the move from traditional functional orientation to one that aligns with strategic business processes (Vakola & Rezgui, 2000). Continuous improvement is defined as the propensity of the organization to pursue incremental and innovative improvements in its processes, products, and services (Dooley & Johnson, 2001). The incremental change is governed by the knowledge gained from each previous change cycle. It is essential that the automation infrastructure of the BPR activity provides for performance measurements in order to support continuous improvements. It will need to efficiently capture appropriate data and allow access to appropriate individuals. To ensure that the process generates the desired benefits, it must be tested before it is deployed to the end users. If it does not perform satisfactorily, more time should be taken to modify the process until it does. A fundamental concept for quality practitioners is the use of feedback loops at every step of the process and an environment that encourages constant evaluation of results and individual efforts to improve (Gore, 1999). At the end users level, there must be a proactive feedback mechanism that provides for and facilitates resolutions of problems and issues. This will also contribute to a continuous risk assessment and evaluation which are needed throughout the implementation process to deal with any risks at their initial state and to ensure the success of the reengineering efforts. Anticipating and planning for risk handling is important for dealing effectively with any risk when it first occurs and as early as possible in the BPR process (Clemons, 1995). It is interesting that many of the successful applications of reengineering described by its proponents are in organizations practicing continuous improvement programs. Hammer and Champy (1993) use the IBM Credit Corporation as well as Ford and Kodak, as examples of companies that carried out BPR successfully due to the fact that they had long-running continuous improvement programs (Gore, 1999).

In conclusion, successful BPR can potentially create substantial improvements in the way organizations do business and can actually produce fundamental improvements for business operations. However, in order to achieve that, there are some key success factors that must be taken into consideration when performing BPR. BPR success factors are a collection of lessons learned from reengineering projects and from these lessons common themes have emerged. In addition, the ultimate success of BPR depends on the people who do it and on how well they can be committed and motivated to be creative and to apply their detailed knowledge to the reengineering initiative. Organizations planning to undertake BPR must take into consideration the success factors of BPR in order to ensure that their reengineering related change efforts are comprehensive, well-implemented, and have minimum chance of failure. The value chain approach was developed by Michael Porter in the 1980s in his book Competitive Advantage: Creating and Sustaining Superior Performance (Porter, 1985). The concept of value added, in the form of the value chain, can be utilised to develop an organisations sustainable competitive advantage in the business arena of the 21st C. All organisations consist of activities that link together to develop the value of the business, and together these activities form the organisations value chain. Such activities may include purchasing activities, manufacturing the products, distribution and marketing of the companys products and activities (Lynch, 2003). The value chain framework has been used as a powerful analysis tool for the strategic planning of an organisation for nearly two decades. The aim of the value chain framework is to maximise value creation while minimising costs (www.wikipedia.org).

Main aspects of Value Chain Analysis Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organisation, and have the potential of a sustainable competitive advantage for a company. Therein, competitive advantage of an organisation lies in its ability to perform crucial activities along the value chain better than its competitors. The value chain framework of Porter (1990) is an interdependent system or network of activities, connected by linkages (p. 41). When the system is managed carefully, the linkages can be a vital source of competitive advantage (Pathania-Jain, 2001). The value chain analysis essentially entails the linkage of two areas. Firstly, the value chain links the value of the organisations activities with its main functional parts. Then the assessment of the contribution of each part in the overall added value of the business is made (Lynch, 2003). In order to conduct the value chain analysis, the company is split into primary and support activities (Figure 1). Primary activities are those that are related with production, while support activities are those that provide the background necessary for the effectiveness and efficiency of the firm, such as human resource management. The primary and secondary activities of the firm are discussed in detail below.

Primary activities The primary activities (Porter, 1985) of the company include the following: Inbound logistics These are the activities concerned with receiving the materials from suppliers, storing these externally sourced materials, and handling them within the firm. Operations These are the activities related to the production of products and services. This area can be split into more departments in certain companies. For example, the operations in case of a hotel would include reception, room service etc. Outbound logistics These are all the activities concerned with distributing the final product and/or service to the customers. For example, in case of a hotel this activity would entail the ways of bringing customers to the hotel. Marketing and sales This functional area essentially analyses the needs and wants of customers and is responsible for creating awareness among the target audience of the company about the firms products and services. Companies make use of marketing communications tools like advertising, sales promotions etc. to attract customers to their products. Service There is often a need to provide services like pre-installation or after-sales service before or after the sale of the product or service.

Support activities The support activities of a company include the following: Procurement This function is responsible for purchasing the materials that are necessary for the companys operations. An efficient procurement department should be able to obtain the highest quality goods at the lowest prices. Human Resource Management This is a function concerned with recruiting, training, motivating and rewarding the workforce of the company. Human resources are increasingly becoming an important way of attaining sustainable competitive advantage. Technology Development This is an area that is concerned with technological innovation, training and knowledge that is crucial for most companies today in order to survive. Firm Infrastructure This includes planning and control systems, such as finance, accounting, and corporate strategy etc. (Lynch, 2003).

Porter used the word margin for the difference between the total value and the cost of performing the value activities Here, value is referred to as the price that the customer is willing to pay for a certain offering (Macmillan et al, 2000). Other scholars have used the word added value instead of margin in order to describe the same (Lynch, 2003). The analysis entails a thorough examination of how each part might contribute towards added value in the company and how this may differ from the competition.

How to write a Good Value Chain Analysis The ability of a company to understand its own capabilities and the needs of the customers is crucial for a competitive strategy to be successful. The profitability of a firm depends to a large extent on how effectively it manages the various activities in the value chain, such that the price that the customer is willing to pay for the companys products and services exceeds the relative costs of the value chain activities. It is important to bear in mind that while the value chain analysis may appear as simple in theory, it is quite time-consuming in practice. The logic and validity of the proven technique of value chain analysis has been rigorously tested, therefore, it does not require the user to have the same in-depth knowledge as the originator of the model (Macmillan et al, 2000). The first step in conducting the value chain analysis is to break down the key activities of the company according to the activities entailed in the framework. The next step is to assess the potential for adding value through the means of cost advantage or differentiation. Finally, it is imperative for the analyst to determine strategies that focus on those activities that would enable the company to attain sustainable competitive advantage. It is important for analysts to remember to use the value chain as a simple checklist to analyse each activity in the business with some depth (Pearson, 1999). The value chain should be analysed with the core competence of the company at its very heart (Macmillan et al, 2003). The value chain framework is a handy tool for analysing the activities in which the firm can pursue its distinctive core competencies, in the form of a low cost strategy or a differentiation strategy. It is to be noted that the value chain analysis, when used appropriately, makes the implementation of competitive strategies more systematic overall. Analysts should use the value chain analysis to identify how each business activity contributes to a particular competitive strategy. A company may benefit from cost advantages if it either reduces the cost of individual activities in the value chain or the value chain is essentially reconfigured, through structural changes in the activities. One of the problematic areas of the value chain model, however, is that the costs of the different activities of the value chain need to be attributed to an activity. There are few costing systems that contain detailed activity level costing, unless an Activity Based Costing (ABC) system is in place in the company (Macmillan et al, 2003). Another relevant area of concern that analysts must pay particular attention to is the

customers view point of value. The customers of the firm may view value in a generic way, thereby making the process of evaluating the activities in the value chain in relation with the total price increasingly difficult. It is imperative for analysts to note that the overall differentiation advantage may result from any activity in the value chain. A differentiation advantage may be achieved either by changing individual value chain activities to increase uniqueness in the final product or service of the company, or by reconfiguring the companys value chain. The difference between a low cost strategy and differentiation in practice is unlike the rigidity that is provided regarding the same in theory. Analysts must note that the difference between these two strategies is one of the shades of grey in real life compared to the black and white that is offered in theory. For example, Emerson Electric, which is a cost leader, has quality as a strategic concern in achieving its best costs strategy (Pearson, 1999). Ivory Soap, a leading product of P&G, is a broad differentiator that turned into a cost leader. Quality is a strategic concern for managers of Ivory Soap, along with delivering a high value product consistently. Note that in a company with more than one product area, it is appropriate to conduct the value chain analysis at the product group level, and not at the corporate strategy level. It is crucial for companies to have the ability to control and make most of their capabilities. In the advent of outsourcing, progressive companies are increasingly making their value chains more elastic and their organisations inherently more flexible (Gottfredson et al, 2005). The important question is to see how the companies are sourcing every activity in the value chain. A systematic analysis of the value chain can facilitate effective outsourcing decisions. Therefore, it is important to have an in-depth understanding of the companys strengths and weaknesses in each activity in terms of cost and differentiation factors. The strategy of Wal-Mart worked when the company improved its business through innovative practices in activities such as purchasing, logistics, and information management, which resulted in the value offering of everyday low prices (Magretta, 2002). It is important to note that refining business models on a constant basis is as critical to the success of the company as its business strategy. Notably, both the strategy and business model of an organisation are crucial for the robustness of the overall value chain. For example, 7-Eleven had been vertically integrated, controlling most activities in the value chain by itself. The company has now outsourced many parts of its business including functions like HR, IT management, finance, logistics, distribution, product development, and packaging. According to Gottfredson et a,l the value chain decisions of companies will increasingly shape their overall organisational structure. Moreover, the value chain decisions will play a role in determining the type of management skills

that companies may need to develop or acquire to survive in fiercely competitive business markets. The Apple podcasting value chain is comprised of nine steps that essentially move from raw content to the listener. All the steps of the value chain include content, advertising, production, publishing, hosting/bandwidth, promotion, searching, catching, and listening. It is important to note that each step in the value chain adds value to the podcast in distinctive ways, has its own sets of challenges and opportunities. It is important to note that the nature of value chain activities differs greatly in accordance with the types of companies and industries. For companies with complex systems like IBM, Accenture and Cisco etc., it is not possible for one member of the value chain to provide all the products and services from start to finish. The marketing function in such companies focuses on aligning with key partners and allies that must collaborate with each other. For example, installing SAP's ERP system requires direct involvement from companies like HP, Oracle, and Accenture, along with indirect involvement of companies like EMC, Cisco, and Microsoft, and collaboration between many departments within the company. The market assets contrast starkly between the companies with complex systems and those that are driven by volume operations. For example, in case of Apples leading products like Macintosh and the iPod, the entire offer is inside a package, and the entire value chain is preassembled. The change of supplier for the Macintosh from IBM, to Intel, improved the system performance while retaining the value in terms of price to the consumer. The only variable to manage in Apples case is the consumers preferences. The role of creating differentiation through unique quality features, along with promotion in order to create brand awareness, image and eventually brand equity becomes imperative for volume operations driven companies like Apple (Moore, 2005). It is imperative to note that the value chains of companies have undergone many changes over the last two decades, due to the rapidly changing business environment. Information technology and the Internet have played a fundamental role in transforming certain parts and the interlinkages between parts of the value chains of companies today. Moreover HRM is increasingly becoming a vital asset in the value chain that contributes to competitive advantage. Strategic alliances are also becoming an integral part of the value chains. For example, IBM once enjoyed backward vertical integration into the disk drive industry and forward vertical integration into the consulting services and computer software industries (Hill et al, 2007). According to the changing business environment, IBM had more than 400 strategic alliances as of 2003 (Thompson et al, 2003). Herein, the value chain analysis is useful in providing a framework to examine the advantages that partners can give to each other (Pathania-Jain, 2001). It is important to note the source of competitive advantage of a company for the value chain analysis. The competitive advantage for IBM, for example, lies in depth, breadth and the

geographic spread of its global operations (Rai, 2006) and the loyalty that the big blue enjoys from its clientele. Lastly, analysts should look for the managerial implications that the new era of capability outsourcing may bring. The value chain decisions of companies will increasingly shape their organisational structure. Furthermore these decisions will determine the types of managerial skills that companies may need to develop to survive in an increasingly competitive business environment.

Where to find information for Value Chain Analysis Analysts can explore various sources to find information necessary for conducting the value chain analysis. Up to three years of annual reports of the company can be analysed to see how the costing of the activities are changing over the period and whether they are in unison with the competitive strategy of the firm. These annual reports of the company can be compared to the annual reports of the key competitors in order to see how competitive strategies differ between the companies, along with finding the difference in the contribution of activities to the companys profitability. In order to gain knowledge about the core competence of the company, analysts can look at the company and competitor websites. SWOT analysis of the companies done by companies like Datamonitor etc. can help the analyst to understand the key strengths and weaknesses of the company and how the firm differs from its competitors. Furthermore, journal articles, trade publications and magazines are useful sources of information to identify how value is created in the particular industry in which the company operates and which activities play a key role in the generation of that value.

Limitations of Value Chain Analysis One of the limitations of the value chain model is that it describes an industrial organization which essentially buys raw materials and transforms these into physical products. Notably, at the time when the model was introduced (Porter, 1985), service industries in the western countries employed lesser workforce compared to todays statistics of the same (www.wikipedia.org). Academics and practitioners alike have critiqued the model and its applicability in the context of service organisations. Partnerships, alliances and collaboration along with differentiation and low costs are common drivers of value today. The limitations of the model include the fact that value for the final customer is the value only in its theoretical context (Svensson, 2003), and not practical terms. The real value of the product is assessed when the product reaches the final customer, and any

assessment of that value before that moment is only something that is true in theory. Despite this limitation, analysts can effectively use the value chain model to determine the value to the final customers in a theoretical way. Use of other planning tools and techniques like Porters generic strategies, analysis of critical success factors etc. is recommended in conjunction with the value chain framework for a more comprehensive analysis of a companys strategy and planning. The Product-Process Matrix was first introduced by Robert Hayes and Steven Wheelwright in the Harvard Business Review in 1979. It helps organizations identify the type of production approach they should use for a product, based on the volumes of the product being produced, and the amount of customization it needs. The matches between products and processes are shown in Figure 1 below. (This diagram shows an example that we'll refer to later in this article.)

A Product-Process Matrix Example Here's a quick example to illustrate how the matrix could help make production more efficient. Sarah has just opened her first small bicycle shop. All of her bikes are custom designed and built for clients, which is a very lengthy and expensive process. Sarah's business is in the 1a square on the matrix: she makes and sells one bike at a time, operating a low volume job shop. Sarah's products are very well made, and business starts to improve as more customers place orders for her custom bikes. But Sarah doesn't change her process. She continues to build and sell one bike at a time, and her reputation suffers because there's such a long waiting list.

This means that she's moved to the 3a square. She still builds bikes as if there's a lowvolume demand although, in reality, she now has a high-volume business. If Sarah doesn't change her process, she might ultimately go out of business, or at least lose customers who don't want to wait for a bike. However, if she looks at the ProductProcess Matrix, she'll realize that she needs to hire staff and set up an assembly line to handle the higher volume of orders. Based on her increasing demand, she really needs to be in the 3c square. The Product-Process Matrix in Detail Although the Product-Process Matrix was originally created with manufacturing in mind, we can use this tool to help make our own tasks and projects run more efficiently. Let's look at the key squares in greater detail, and then discuss how you can apply the Product-Process Matrix in your own life. 1a Job Shop/Low Volume, Low Standardization Job shops carry out small, unique production. Each item or task is done by hand, one at a time. There's very little, or no, standardization. Example: Sarah creates custom-made products from start to finish. Benefits flexibility, uniqueness, quality. Disadvantages not cost-effective, not efficient. 2b Batch/Multiple Products, Low Volume

Batch production occurs when parts of a project or product are processed together to increase efficiency. This is still a lower-volume process, but it can handle more than the job shop. Example: In Sarah's bike shop, she could attach the wheels onto 10 bikes that will all be built to the same specification. Then she can attach the pedals, brakes, and so on. Benefits increased efficiency for each step due to repetition. Disadvantages potential for confusing flow as half-completed projects or products begin to pile up. 3c Connected Line Flow/Few Major Products, High Volume

When volume continues to increase, an assembly line is set up. Each worker has a specific role, or task, to complete. Example: Sarah sets up a production line to assemble bikes. One person attaches wheels to each frame as it passes, then it goes to someone else to add pedals, and so on. The production line is stopped and adjusted periodically so that a different model can be made.

Benefits very efficient, easy-to-maintain standards. Disadvantages little flexibility, less ability to customize products.

Note: Since this matrix was developed in 1979, some companies Dell is a famous example have worked out how to customize products on a high volume basis. However this matrix is still relevant in many industries. 4d Continuous Flow/High Volume, High Standardization

When volume is extremely high and the range of products is extremely small, continuous flow is set up. Continuous flow means that production never stops. This approach is used primarily in factories. Example: operates 24 hours per day

Benefits low cost to operate, ability to handle very large volumes. Disadvantages no flexibility, very limited product/project range, expensive to set up.

Note: Once a production system has got to 2b, it can EITHER move to 3c OR 4d. 3c is used where discrete units such as bikes, bottles of soda, or garments are being produced. 4d is only suitable for processing "bulk" raw materials such as liquids, gasses, or granular solids such as sand or coal. The output from 4d production is often an input into a 3c system (for example, soda feeds into a soda bottling process). The progression which has a sugar refinery as the process for 4d in Figure 1, could start at stage 1a with a farmer slicing up sugar beet, boiling it in a single pan, and then pressing out the sugar, and so on. By Stage 2b, the farmer would have invested in enough equipment and people so that each activity was handled by a different person. Someone would slice sugar beet all day, passing his "output" to someone else who boiled pan after pan, and so on.

Key Points We often work on projects or tasks without looking at the big picture. If we do something on a regular basis, it might be more efficient to standardize the process and delegate it to a team. This leaves us open to work on higher-value tasks. Use the Product-Process Matrix to help identify your tasks and determine if they're matched with the correct processes. activity analysis

Definition Identification and description of activities in an organization, and evaluation of their impact on its operations. Activity analysis determines (1) what activities are executed, (2) how many people perform the activities, (3) how much time they spend on them, (4) how much and which resources are consumed, (5) what operational data best reflects the performance of activities, and (6) of what value the activities are to the organization. This analysis is accomplished through direct observation, interviews, questionnaires, and review of the work records. See also job analysis, performance analysis and task analysis. An activity analysis is an assessment of a company or workplace which is designed to gather information about the activities engaged in there and ways in which they can potentially be made more efficient or valuable. The term activity analysis is also used in occupational therapy to describe an evaluation of a patient who is getting ready to start therapy, in which case the purpose is to identify activities performed by an individual for the purpose of directing therapy more effectively. In this type of analysis, the occupational therapist looks at activities the patient engages in or wants to resume

after an injury, breaks them into their component parts, and determines the best way to help the patient on the basis of activity-based needs. In the business world, an activity analysis starts with identifying activities which take place in a given company, office, or environment. For example, if a company sells widgets, a number of activities related to widget sales are going to be identified, including marketing widgets, taking orders, packaging orders for shipment, working with suppliers of raw materials, and managing human resources to ensure that personnel are available to perform all of these tasks. The analysis may also include a specific detailed breakdown of each identified activity. With activities laid out, the activity analysis moves on to who engages in which activities, how the activities are performed, and why they are performed in a particular way. The analysis looks specifically at how resources are utilized to complete activities successfully, looking at people, time, money, and supplies involved in each activity. The activities are also evaluated in terms of the value they add to the business. An analysis of activities can usually reveal weak points and areas in which improvement is needed. These can include activities which are not being completed as well as activities which are being performed in an inefficient manner. The preparation of the analysis includes a discussion of areas in which improvement is possible and how to approach that improvement. For example, the activity analysis might point out that widgets could be better packaged by robotic equipment than human workers. Businesses use the results of an activity analysis to improve their operations with the goal of streamlining and making sure that they accomplish specific goals. Such analysis can also be useful when businesses are preparing to restructure, sell, or make major changes in their operations. For employees, there are advantages to cooperating with the analysis, including opportunities to offer input about areas for potential improvement.

'Cost of Quality', refers to the costs associated with providing poor quality product or service. Cost Of Quality When it comes to making decisions, most managers speak money. The Cost Of Quality theory provides the vocabulary to communicate between the quality professionals and their managers. The Meaning of "Quality Costs " The term quality costs has different meanings to different people. Some equate quality costs with the costs of poor quality due to finding and correcting defective work. Others equate the term with the costs to attain good quality. Others use the term to mean the costs of running the quality department. In my site, the term "quality costs" means the cost of poor quality.

Quality processes cannot be justified simply because "everyone else is doing them" but return on quality (ROQ) has dramatic impacts as companies mature. Research shows that the costs of poor quality can range from 15%-40% of business costs (e.g., rework, returns or complaints, reduced service levels, lost revenue). Most businesses

do not know what their quality costs are because they do not keep reliable statistics. Finding and correcting mistakes consumes an inordinately large portion resources. Typically, the cost to eliminate a failure in the customer phase is five times greater than it is at the development or manufacturing phase. Effective quality management decreases production costs because the sooner an error is found and corrected, the less costly it will be. When to use it? Cost of quality comprises of four elements: 1 External Failure Cost cost associated with defects found after the customer receives the product or service ex: processing customer complaints, customer returns, warranty claims, product recalls. Internal Failure Cost cost associated with defects found before the customer receives the product or service ex: scrap, rework, re-inspection, re-testing, material review, material downgrades. Inspection (appraisal) Cost cost incurred to determine the degree of conformance to quality requirements (measuring, evaluating or auditing) ex: inspection, testing, process or service audits, calibration of measuring and test equipment. Prevention Cost cost incurred to prevent (keep failure and appraisal cost to a minimum) poor quality ex: new product review, quality planning, supplier surveys, process reviews, quality improvement teams, education and training.

Cost of Quality Effective quality management strategy requires metrics which are aligned with organizational overall strategic objectives. Keeping score for all quality management activities, investments, and operating expenses is critical. A mix of operational and financial metrics is required for tracking and reporting of quality management results. The cost of quality analysis helps organizations to focus productivity improvement efforts effectively and to evaluate the cost and benefit tradeoffs of quality improvement alternatives.

Joseph Juran divided the costs of quality into 4 categories: prevention, appraisal, internal failure, and external failure. By using this cost of quality approach we can analyze and identify all costs related to quality activities and at the same time this approach gives us a clear picture on how the costs are allocated among different quality activities and categories. We can learn how reactive versus proactive our quality management system is and identify areas for improvement in quality, productivity, and cost structure. Prevention - costs associated with preventing quality nonconformance such as product defects, service errors, etc. Example: quality inspections, process analysis, data collection, reporting. Appraisal - costs associated with determining compliance within specified quality requirements. Example: testing and associated activities. Internal Failure - costs associated with identifying quality nonconformance in house (before product delivery to customers). Example: Defect management, rework, retesting.

External Failure - costs associated with dealing with quality nonconformance detected by the customer (after product delivery to customers). Example: customer service, technical support, returns, warranties. Example of Cost of Quality Analysis:

Steps in performing Cost of Quality Analysis: 1. Identify all activities related to managing quality 2. Assign cost associated to each activity 3. Group all quality activities into the four categories Management accounting is a system of measuring and providing operational and financial information that guides managerial financial information that guides managerial action, motivates behaviors, and supports ,creates the cultural values necessary to organizations strategic objectives The involvement of management accountants is seen as another important success factor for.ERP implementations. The more active the role played by the management accountants, higher the level of perceived success for the ERP implementation. Reduction in stock levels due to improved planning Monthly accounts closing in fewer days Improved financial accuracy and financial Meaningful reports Improved visibility and access Improved financial control Reduction in staff due to automation of tasks Cost saving through shared services Reduction in cost of maintaining multiple systems More time for managing the business Change in the Role of the Management Accountant Reduction in time spent on data collection Increase in time spent on data analysis Increased involvement in decision making Improved focus on internal reporting Improved focus on external environment Shift in focus from historical to forward looking analysis

Shift from domain specific to cross--functional analysis