SEN 649: Business Process Reengineering

Lec 01: Introduction Faculty: Dr. M. Rokonuzzaman Zaman.rokon@yahoo.com

We have recently discovered a concept that illustrates many of the ways most organizations really operate

SQUARE WHEELS PICTURE FOR 2 LOOK AT THE

MINUTES

Performance Management Company, 1993 Reproduction

Not for

Form Groups of three. Discuss and note down your comments on the cartoon.

Courtesy: DR.Scot J Simmerman

What is process?

Process or processing typically describes the action of taking something through an

established and usually routine set of procedures or steps to convert it from one form to
another, such as processing paperwork to grant a mortgage loan, processing milk into cheese, or converting computer data from one form to another. A process involves steps and decisions in the way work is accomplished, and may involve a sequence of events.

The process that one follows is as important as the results that are produced by the process. Without understanding the underlying process, it is difficult to know how a certain

set of results were achieved, or why they were good or bad. So, if results are viewed as the
"destination", then process can be viewed as the "vehicle" that gets you there (and ideally, you should be able to use the same "vehicle" for many trips...with a few modifications based on the desired destination!)

What is business process?

A business process or business method is a collection of related, structured activities or tasks that produce a specific service or product (serve a particular goal) for a particular customer or customers. It often can be visualized with a flowchart as a sequence of activities.

LETS BEGIN WITH AN EXERCISE

Articulate the work process with clear boundary having clearly defined inputs, outputs and interfaces with other processes.

There are three types of business processes:

Management processes, the processes that govern the operation of a system.

Typical management processes include "Corporate Governance" and "Strategic Management".

Operational processes, processes that constitute the core business and create the primary value stream. Typical operational processes are Purchasing, Manufacturing, Advertising and Marketing, and Sales.

Supporting processes, which support the core processes. Examples include Accounting, Recruitment, Call center, Technical support.

A business process begins with a mission objective and ends with achievement of the business objective.

A business process can be decomposed into several sub-processes[1], which have

their own attributes, but also contribute to achieving the goal of the super-process.
The analysis of business processes typically includes the mapping of processes and sub-processes down to activity level.

Business Processes are designed to add value for the customer and should not include unnecessary activities. The outcome of a well designed business process is increased effectiveness (value for the customer) and increased efficiency (less costs for the company).

Business Processes can be modeled through a large number of methods and techniques. For instance, the Business Process Modeling Notation is a Business Process Modeling technique that can be used for drawing business processes in a workflow.

ORIGIN?

Adam Smith

One of the first people to describe processes was Adam Smith in his famous (1776) example of a pin factory. Inspired by an article in Diderot's Encyclopdie, Smith described the production of a pin in the following way:

One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head: to make the head requires two or three distinct operations: to put it on is a particular business, to whiten the pins is another ... and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which in some manufactories are all performed by distinct hands, though in others the same man will sometime perform two or three of them.

Smith also first recognized how the output could be increased through the use of labor division. Previously, in a society where production was dominated by handcrafted goods, one man would perform all the activities required during the production process, while Smith described how the work was divided into a set of simple tasks, which would be performed by specialized workers. The result of labor division in Smiths example resulted in productivity increasing by 24,000 percent (sic), i.e. that the same number of workers made 240 times as many pins as they had been producing before the introduction of labor division.

IMPORTANCE OF THE PROCESS CHAIN

Business processes comprise a set of sequential sub-processes or tasks, with alternative paths depending on certain conditions as applicable, performed to achieve a given objective or produce given outputs. Each process has one or more needed inputs. The inputs and outputs may be received from, or sent to other business processes, other organizational units, or internal or external stakeholders.

Business processes are designed to be operated by one or more business functional units, and emphasize the importance of the process chain rather than the individual units.

In general, the various tasks of a business process can be performed in one of two ways 1) manually
and 2) by means of business data processing systems such as ERP systems. Typically, some process tasks will be manual, while some will be computer-based, and these tasks may be sequenced in many ways. In other words, the data and information that are being handled through the process may pass through manual or computer tasks in any given order.

THE FOUR MAJOR PROCESS IMPROVEMENT AREAS

The point to note here is that, irrespective of the class of the task -

whether manual or computer assisted - it is important that each task and hence the process as a whole is designed and periodically reviewed, improved, or substituted by another task, with a view to continuous improvement in four major areas:

Effectiveness Efficiency Internal control Compliance to various statutes and policies

EFFECTIVENESS

The overall effectiveness of a process is the extent to which the outputs

expected from the process are being obtained at all, and is therefore a
first measure of the basic adequacy of the process and its capability to fulfill the logical and reasonable expectations of process uses and operators.

For example, consider the material procurement process. One of its important tasks is the sub-process for supplier follow-up to ensure timely deliveries of materials. Such a task is considerably less effective if it does

not provide accurate and timely purchase order status reports for use of
the purchase department staff responsible for follow-up

EFFICIENCY

Supposing it has been observed that the average time taken to

prepare and send out a purchase order after receipt of a properly

prepared intent from the end-user is unacceptably high, leading to delayed customer deliveries and consequent customer complaints.

The process of converting the end-users intent to a purchase order is effective because a purchase order is being somehow generated, but its efficiency is very low since it takes an inordinate amount of time and costs considerably more in terms of the cost to the company of the salaries of staff members involved.

INTERNAL CONTROL

In a scenario where quantities of major raw materials are regularly ordered and consumed, rates are fixed with selected, reliable, approved vendors for an extended period commonly a year. Moreover, let us say that the rate contract does not contain a price escalation clause. This safeguards the organisation from unanticipated price escalation during the period. The rate contract data are stored in the ERP systems database. Whenever materials are to be ordered (with or without a delivery schedule), purchase orders are generated mentioning the rate finalised in the rate contract. An internal control exists to keep the purchase rate constant throughout the year.

Suppose, however, it is found that the rate on a purchase order based on a current rate contract is changed to a different value, and the purchase order then sent out to the supplier. This is a serious lapse in internal control, since a change to a higher rate exposes the company to a higher financial liability. Moreover, the editability of the rate in such a purchase order completely nullifies the internal controls provided by having a rate contract in the first place and including a no-escalation clause in it. There would be a further breach of internal control if it were found that such a PO amendment is actually authorised before sending the purchase order to the supplier.

COMPLIANCE TO VARIOUS STATUTES AND

POLICIES

There are certain situations where payments made to consultants or

service contractors must be statutorily made after deducting tax at

source (T.D.S.), and such T.D.S. amounts must be deposited in government treasury accounts with banks on or before a specified date in the month following the month in which the payments are made.

In such cases, if a business process does not provide for deduction of T.D.S. and/or fails to ensure deposition into government accounts by the specified date, then this is a statutory compliance issue that makes the concerned executives liable to civil / criminal legal action.

BPR?

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.

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 worldclass 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. [1]

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 redesigns an organization's core business processes with the aim of achieving dramatic improvements in critical performance measures, such as cost, quality, service, and speed.[1]

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 redesigning 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.[1]

BASIC THEME:

Where are we now?

How will we integrate technological & organisational change?

Where do we want to go?

HOW DOES IT FIT INTO BPR?

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

STRUCTURE OF WORK PROCESS

Software/IT is a tool to improve work processes and/or engineering artifacts. Basic structure of work processes
Man/Woman Machine/Tool
Software Database Hardware
Policy Procedure Standard Process Performanc e Goal Purpose to be met

Computing Non-Computing

Communication network

BASIC PERFORMANCE INDICATORS?

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Efficiency (degree of utilization of inputs) Effectiveness (conformance to purpose) Wastage Pilferage Accuracy Time Cost Ease of use Predictability Availability Reliability Security Safety etc

Our strategy is to reassign roles of system elements for significantly improving system performance.

WHAT DOES PERFORMANCE IMPROVEMENT MEAN?

1. 2. 3. 4. Improve value of delivery Reduce cost of delivery Shorten time of delivery Increase predictability of delivery

How can software or ICT help?

Perform cost/benefit analysis and optimize role allocations to system elements.

Model/redefine business process

Implement redefined process

Redefine roles of system elements at each step with focus of giving more roles to software.

Define, measure, and compare KPIs

Analyze existing roles of system elements at each activity, subprocess and

Target for improved values of KPIs

BASIC ELEMENTS OF WORK PROCESS?

PROCESS ELEMENTS: 1. Production purpose(s) 1.1. Performance goals 1.2. Key performance indicators or parameters (KPIs) and high level breakdown of it into measurable data. 1.3 Current performance level (i.e., base line) 2. Policies to follow to achieve performance goals in meeting purpose(s) 3. Practices and the Procedure of their execution, along with terminal and intermediary inputs/outputs

4. Terminal as well as intermediary inputs and outputs and their standards

5. Knowledge and skill required to perform activities in compliance with policies in meeting performance goals 6. Tools, machines along with software applications to perform activities in producing outputs 7. Environment and resources for doing the job

8. Breakdown of KPIs into measurable data developing measurement framework; defining and taking
Measurement for monitoring progress of producing outputs and assessing performance levels 9. Control for ensuring planned outputs and targeted performance goals 10. Improvement for meeting enhanced performance goals and additional purposes

EXAMPLES OF USAGES OF IT IN BPR?

Information technology (IT) has historically played an important role in the reengineering concept[9]. It is considered by some as a major enabler for new forms of working and collaborating within an organization and across organizational borders[citation needed]. Early BPR literature [10] 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.

Basic Steps of BPR?

1. Business process modeling 2. Define key performance indicators (KPIs) 3. Measure and benchmark KPIs 4. Assess current roles of system elements 5. Assess contribution of System elements roles to existing values of KPIs 6. Target improved values of KPIs by redefining roles to system elements 7. Redefine business process, policy, procedures and standards 8. Manage the development and deployment of improved roles of system elements 9. Change management

10. Risk and Business continuity management

Innovate to Close the Gap:

More

hype
technological potential

Performance

reality gap
actual performance Less Time

Productivity during changes of BPR Exercise

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Begin with the end in mind.

-- Stephen R. Covey from The Seven Habits of Highly Effective People.

and, measure your progress accordingly

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Do not forget

Everyone thinks of changing the world, but no one thinks of changing himself. - Leo Tolstoy
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