07. Business Process Reengineering (BPR)Rev: Mar, 2014

Euiho (David) Suh, Ph.D.

POSTECH Strategic Management of Information and Technology Laboratory(POSMIT: http://posmit.postech.ac.kr)

Dept. of Industrial & Management EngineeringPOSTECH

Contents

1 Business Process Reengineering

1) Background

2) Interpretations of BPR

3) Principles and Procedures of BPR

4) BPR vs. Other Programs

5) Reengineering Order Management

2 Case Study

3

Strategic Uses of IT

■ Companies that emphasize strategic business use of IT to gain competitive dif-ferentiation

Products Services Capabilities

1. Business Process Reengineering1) Background

4

The Role of Information Technology

■ IT Plays a major role in reengineering most business processes– Increases process efficiency– Improves communication– Facilitates collaboration

1. Business Process Reengineering1) Background

5

Why BPR?

InnovationInnovation CustomerDriven

CustomerDriven

Core Competence

Core Competence

Globalization !

CustomerCustomer ChangeChangeCompetitionCompetition

1. Business Process Reengineering1) Background

6

Reengineering Business Processes

■ Called BRP or Reengineering

– Fundamental rethinking and radical redesign of business processes– Dramatic improvements in critical contemporary measure of performance, such as

cost, quality, speed, and service

■ Potential payback is high, but so is risk of disruption and failure■ Organizational redesign approaches are an important enabler of reengineering

– Includes use of IT, process teams, case managers

Fundamental Concept of BRP

Process

Fundamental

Radical

Dramatic

Shift from function based thinking to process based thinking

Fundamental rethinking of the way of conducting business

Disregarding all existing structures and inventing complete new ways– not improvement or modification

Making quantum leaps in performance rather than incremental improvement

1. Business Process Reengineering2) Interpretations of BPR

7

Definition of Process

■ A process is a cross-functional interrelated series of activities that convert business inputs into business outputs

Supplier CustomerInput OutputActivity Activity Activity

Process

1. Business Process Reengineering2) Interpretations of BPR

8

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (1/8)

Organize around outcomes, not task

Have those who use the output of the process perform the process

Subsume Information processing workinto the real work that produces the Informa-

tion

Treat geographically dispersed resources as though they were centralized

Link parallel activitiesinstead of integrating their results

Put the decision point where the work is per-formed, and build control into the process

Capture all information at the source

BPRPrinciples

9

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (2/8)

■ 1. Organize around outcomes, not task– One person perform all the steps in a process– Design that person’s job around an objective or outcome instead of a single task

Example) Electronics company» Customer service representative of the five steps between sell and install the equipment

Task 1

Task 2

Task 3

Task 4

Task 5

Product / Service

Task 5

Task 2

Task 1

Task 4

Task 3

Product / Service

Reengi-neer

10

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (3/8)

■ 2. Have those who use the output of the process perform the process– Establish specialized department to handle specialized process • Each department does only one type of work • BUT it’s slow and bureaucratic

– Now that computer-based data are more readily available, departments, units, individ-uals can do more for themselves• Individuals who need the result of a process can do it themselves• Greatly reduced the problem of capacity planning

Example) Electronics equipment manufacturer’s service reengineering» Customer make simple repairs themselves and only for complex problem is a service technician dispatched

End performer

Reengi-neer

Database

End performer

11

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (4/8)

■ 3. Subsume information-processing work into the real work that produces the information– To maintain consistency and to reduce repetitive information process– In the past, why didn’t an organization that produces information also process it?• Not enough time to process the information• Low trust to do both produce and process the information• Belief that people at lower organizational levels are incapable

Example) Ford’s redesigned accounts payable process » Receiving department, receiving and processing the received information from vendor instead of sending it

to accounts payable

12

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (5/8)

■ 4. Treat geographically dispersed resources as though they were centralized– Centralization vs. Decentralization– Decentralizing a resource gives better service to those who use it• BUT at the cost redundancy, bureaucracy, and missed economies of scale

– Using database, telecommunications networks, and standardized processing systems to get the benefit of scale and coordination while maintaining the benefits of flexibility and service

Example) Hewlett-Packard- 50 manufacturing unit’s separated purchasing department» Provided excellent responsiveness and service but prevented realizing the benefits of its scale» So each unit has access to a shared database on vendor and own purchase orders» Separated department centralized by using database» 150% improvement on-time delivery, 50% reduction in lead time, 75% reduction in failure rates

Manufacturing units #1

Manufacturing units #2

Manufacturing units #3

Manufacturing units #4

Purchasing department #1

Purchasing department #2

Purchasing department #3

Purchasing department #4

Reengi-neer

Database

Central-ized

13

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (6/8)

■ 5. Link parallel activities instead of integrating their results– Forge links coordinate parallel functions during the process-not after it’s completed– Communication networks, shared database can bring independent group together– Usually, used in the product development • Having people do development work simultaneously save time

Example) Development of photo copier» develop each subsystem(optics, paper handling, power and etc.) in a separated unit» Easy to fail to work together

R&D department for optics

R&D department for paper handling

R&D department for power

Inte-grated result

Suc-cess!

Reengi-neer

Database

Links, communication networksFail-ure!

14

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (7/8)

■ 6. Put the decision point where the work is performed, and build control into the process– Suggests that the people who do the work should make the decisions and can have

built-in controls– Self-managing, self-controlling, disappearing hierarchy through IT or Expert system

Example) MBL (Mutual benefit Life)» Case manager provides end-to-end management of the process, reducing the need for traditional manager

Case Manager

Issuance Application

Department AStep 1

Department AStep 2

. . . .

Department EStep 30

Issuance Policy

Reengi-neer

15

1. Business Process Reengineering3) Principles and procedures of BPR

Seven Principles of BPR (8/8)

■ 7. Capture information once and at the source– In the past, information was difficult to

transmit– It made sense to collect information re-

peatedly– Today, company store it in on-line data-

base for all who need it • Bar coding(POS: Point Of Sale), relational

database, electronic data interchange(EDI) Example) Insurance company» ‘Stovepipe’ computer system support and inte-

grate, connect the different function.

» As a result, company was able to eliminate re-dundant data entry

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1. Selection of project

2. Analysis of initial capability

3. Selection of process and project scope

4. Work analysis

5. Redesign of alternative process

6. Cost/benefit analysis for each alternative process

7. Selection of alternative process

8. Implementation of process

9. Change of process information

1. Business Process Reengineering3) Principles and procedures of BPR

Common procedures when performing BPR

17

BPR vs. Other Programs (1/3)

■ Taylorism vs. BPR

Taylorism BPR (Hammerism)

Orientation Task, Function Process

Tool Stopwatch IT

Domain Production Management Entire organization

Goal Mass production Customer satisfaction

Age Industrial revolution Information revolution

1. Business Process Reengineering4) BPR vs. Other Programs

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Business ImprovementBusiness Process Reengi-neering

Level of Change Incremental Radical

Process ChangeImproved new version of process

Brand-new process

Starting Point Existing processes Clean slate

Frequency of Change

One-time or continuous Periodic one-time change

Time Required Short Long

Typical Scope Narrow, within functions Broad, cross functional

Horizon Past and present Future

Participation Bottom-up Top-down

Path to Execution Cultural Cultural, structural

Primary Enabler Statistical control Information technology

Risk Moderate High

1. Business Process Reengineering4) BPR vs. Other Programs

BPR vs. Other Programs (2/3)

■ BPR vs. Business Improvement

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BPR vs. Other Programs (3/3)

Reengineer-ing

RightsizingRestructur-

ingTQM Automation

Assumptions Questioned

Fundamental StaffingReporting

Relationships

Customer Wants and

Needs

Technology Applications

Scope of change

RadicalStaffing, Job

ResponsibilitiesOrganizations Bottom-up Systems

Orientation Processes Functional Functional Processes Procedures

Improve-ment Goals

Dramatic Incremental IncrementalIncremen-

talIncremental

1. Business Process Reengineering4) BPR vs. Other Programs

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Reengineering Order Management

Supplier-managed inventory systems using the Internet and ex-tranets

Cross-functional ERP software to integrate manufacturing, distribu-tion, finance, HR processes

CRM systems using corporate intranets and the Internet

Customer-accessible e-commerce websites for order entry, status checking, payment, and service

Customer, product, and order status databases accessed via in-tranets and extranets

IT that supports the reengineering process…

1. Business Process Reengineering5) Reengineering Order Management

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Reference

■ Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)

■ O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”, McGraw – Hill, Chapter 2