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BUSINESS PROCESS REENGINEERING: IBM CREDIT CASE

By

Samuel Gibbs

www.splendidresearchers.com

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QSM 858 Assignment 2: IBM Credit Case

Introduction

Reengineering is a process that entails changing all aspects of business so as to foster

improvements. The chief intent of business process reengineering is to attain quick and

substantial gains in the firm’s performance (Attaran, 2004). This paper presents an analysis of

the reengineering process case at the IBM Credit Corporation.

Organizational Profile

IBM Credit Corporation is a business that offers financing solutions for software,

computers, and IT services that the IBM Corporation sells. IBM Credit Corporation is a

subsidiary of the IBM Corporation. It is responsible for financing the purchases of IBM’s

consumers. The company provides credit facilities to consumers who want to purchase IBM

products. It is an extremely profitable business

Stakeholders

A good reengineering process should identify improvement strategies that address all

major perspectives and the needs of all stakeholders of the organization (Mohajeri, Nayeri &

Mashhadi, 2009). A significant stakeholder in the reengineering process is the management

team. The management team is interested in the growth of the company and the realization of

business objectives. The reengineering process had to cater to this need so as to attract the

backing of the senior management team. The support of senior management team is essential to

the success of the reengineering process as without this support the project would not receive

adequate resources.

Another stakeholder that is critical to the reengineering process is the shareholder. The

shareholder is the owner of the company. Consequently, members of the organization have a

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fiduciary duty to promote the interest of the shareholder. The shareholder is interested in the

expansion of the value of the company and increased profitability. The reengineering process

need to meet this need. Customers were also critical stakeholders in the reengineering process.

The goal of organizational processes is to deliver value to consumers (Hammer & Champy,

2007). Consequently, the reengineering process had to consider the wishes of the customers so as

have meaningful improvement in the organizational processes.

Employees are also critical stakeholders in the reengineering process. The reengineering

process requires a change in the typical way of executing tasks within the organization (Hammer

& Champy, 2007). This change can only take place when employees support the change process.

Therefore, active engagement of employees is essential to the success of the reengineering

process. Suppliers are also critical stakeholders in this benchmarking process. IBM Credit

Corporation has a number of suppliers who have an impact on the process cycle time of the

organization. Therefore, IMB Credit could not have realized the desired changes without

involving these suppliers.

Another critical stakeholder in the reengineering process is the government. IBM Credit

Corporation operates under the confines of laws that govern competition, financial and other

issues that relate to its operation. The government is interested ensuring that IMB Credit

Corporation adheres to these regulations (Mohajeri, Nayeri & Mashhadi, 2009). The organization

must meet this essential need of the government during the reengineering process so as to avoid

penalties and other risks that come with non-compliance.

Leadership Team

Leadership is a key enabler of the business reengineering process. The business

reengineering process must receive the full backing of senior management so as to succeed. The

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organizational leadership provides a vision that guides the reengineering process and rallies other

members of the organization behind the vision (Hammer & Champy, 2007). Leaders provide a

sense of direction to the reengineering process by establishing and communicating a clear vision.

Leaders are different from managers as they do not order but focus on inspiring and coaching

(Weicher, Chu, Lin, Le & Yu, 2000). They focus on empowering and facilitating organization

members to implement the desired changes. They also play the critical role in quelling the fears

of workers and the force of resistance. They appeal to the human aspect of the change process.

They focus on preparing the members of the organization for the change process.

The leadership team of IBM Credit played a critical role in the reengineering process.

The senior managers of the corporation had a brainstorm and gathered information from the

personnel so as to get to the heart of the problem. Problem-solving is one of the critical

leadership skills that the IBM senior management team was able to exhibit in this case. They

management team took a walk around through all the five stages of the credit processing process

so as to get to the root cause of the problem. IBM leaders also provided a vision for change.

They highlighted the reasons as to why the firm needed to change the current way of doing

things. They were able to offer guidance on what the organization needed to change in order to

fill the existing performance gap. IBM leadership also facilitated the reengineering process by

showing concerns towards the problem. Leaders create a sense of agency regarding a particular

issue when the pay attention to this issue (Weicher, Chu, Lin, Le & Yu, 2000). This attention

tends to rally the rest of the members of the organization behind the reengineering process. IBM

leaders were on the forefront in the implementation of the reengineering process.

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Current Status and Performance Gaps

Long process cycle time characterizes the operations of IBM Credit. Once they get a

prospective client, the company’s sales representatives go through five steps the client can

receive financial services. First, the company’s operators in the central office writes down the

representative request once the representative calls. The request is then dispatched to the credit

department where a specialist assesses the creditworthiness of the prospective customer and

writes the results on a piece of paper. The result is dispatched to the third stage, which is the

business practice department. The business practice department crafts the loan contract in line

with the customer’s request. Next, the business practice department forwards the contract to the

pricing department where a price determines the appropriate interest rate for the customer.

Finally, the contract and the pricing results are forwarded to the administration department where

all the information is turned into a quotation that is delivered to the field sales representative.

Each of these five stages is handled by a different department within the organization.

There was a different department for pricing, credit check, and other tasks. The numerous steps

that the customer has to go through increases the time it takes before the client can receive

services. Additional time is also consumed in the process of passing the customers’ forms from

one department to the next. Customers take an average of six days before they can obtain

financing services from the organization. This process cycle time is too long since customers

have six days to look for alternative services. The way the current processes are structured also

creates problems for sales representatives when they try to track the progress of their request. It

becomes difficult for the operators to know the stage at which a given transaction has reached

causing problems with clients.

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Causes of Existing Gaps

a. Structural Issues

This performance gaps in IBM Credit mainly originate from structural issues.

Organizational structures refer to the relationships among the various roles of a given

organization (Grossi, Royakkers & Dignum, 2007). Different organizations have different

structures. Organizational structures affect the shape and functioning of the organization; hence,

it can be an underlying cause of workplace problems. For instance, an organizational structure

that is too hierarchical can hinder communications thereby slowing down the pace of doing

things within the organization. The organization structure also affects the behaviors of individual

employees and the relationship between employees (Massa & Zhang, 2010). An organization

that has rigid organizational structures hinders open communication among employees of

different departments. Communications among employees in such organizations is usually very

formal and has many bureaucratic processes.

StartSpecialist assess credit worthiness

Business practice department crafts the

covenant

Pricing specialist determine interest

rates

Administration department makes

the quotation

Central Office writes down request

End (6 days)

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IBM Credit exhibits a series structural issues. First, the activities involved in processing

customers’ transactions are highly structured and departmentalized. There are different

department for executing the pricing, credit checks, and other activities. This structuring of the

credit process increased the quantity of time that customers take to complete the entire credit

process. A significant amount of time is lost moving forms from one department to another. The

company compounded the problem further after the organization installed a control desk.

Installing a control desk meant that customers’ forms would go back to the control desk after one

department has completed processing for it to be forwarded to the next department. Departments

could no longer deal with each other directly.

b. Cultural Issues

The performance gap may also originate cultural issues. The culture of the organization is

another probable cause of the existing gaps. Culture within an organization’s setting refers to an

assortment of shared values, beliefs and norms that influence how members of the organization

act, feel or think (Lunenburg, 2011). Organizational culture has a momentous effect on the

practices of the organization as it influences the behaviors and way of thinking of the members

of the organization. Organizational culture develops over time through a complex interaction of

factors such as organizational leadership, tradition, values, and messages.

Cultural issues are also responsible for the existing performance gaps in IBM Credit. For

a long time, IBM Credit held the belief that every bid request was unique and hard to process

thereby required the intervention of four different and highly trained specialists. The two

executives found that this assumption were not true. In fact, most of the client requests were easy

to process; hence, can be executed by a single person. Organization need to challenges and

change such cultural element in order for the reengineering process to succeed (Ahmad, Francis

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& Zairi, 2007). Cultural issues also contribute to the delay in the movement of customers’ forms

from one department to the next. It appears that the culture that exists in IBM Credit is hindering

effective communication and interaction between members of different departments.

IBM Credit’s Reengineering Process

At first, IBM credit tried to solve the problem by installing a control desk so as they can

answer the sale representatives’ queries about the status of their requests. This change meant that

that each order had to move back to the control desk after being processed in a given department.

This change solved the problem of knowing the status of the request, but increased the process

cycle time. Eventually, two senior managers took a walk around through the five steps and noted

that the problem lied in the process and not the tasks or people performing them.

IBM credit replaced the four specialists in charge of performing credit checks, drafting

the covenant, pricing and drafting quotations with a single generalist. This change meant that the

generalist performs all the tasks involved in the five stages, from the beginning to the end. IBM

also developed a computer system to support the new structure. The computer system is designed

to assist the generalist in process the client transactions.

Role of Technology

Information technology assumes a vital role in the business reengineering process. It is an

essential enabler of the reengineering process (Lam, 2010). Information technology enables

organizations to break conventional assumptions and rules of existing processes. IBM employed

information technology to assist in the reengineering process. IBM developed sophisticated

computer systems to support the generalists by providing guidance and data. Through the use of

this sophisticated system, the company was able to transfer the tasks that were performed by four

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specialists to a single generalist. The technology provides the single generalist with requisite data

and guidance to implement all the five steps of the credit processing transaction.

Information technology did not just facilitate the reengineering process but was also a

central part of the reengineering. The technology was instrumental in the creation of the new

process by providing options that support the replacement of specialists with a single generalist.

Information technology provided the infrastructure for managing information and supporting the

evolution of the organization (Attaran, 2005). It also enables IBM credit to replace labor thus

making the process more cost effective.

Results

Business process reengineering is a result oriented process whose sole goal is to enhance

the performance of the organization (Damij, 2003). Therefore, the success of the reengineering

process is determined by assessing the outcomes of the process against the goals of the process.

The goal of the IBM Credit’s reengineering process was to reduce process cycle time so as to

make IBM services more competitive. IBM was able to achieve this goal. The reengineering

process has enabled IBM credit to reinvent itself and improve the performance of the entire

organization.

The time for processing customers request reduced from six days to four hours. IBM was

able to achieve this significant reduction in the process cycle time without increasing its

personnel. In fact, the restructuring process led a reduction in the personnel headcount as the new

structure replaced four specialists with one generalist. Cost and waste reduction is one of the

significant goals of the business process reengineering (Kock, Vervilee, Pajou & Deluca, 2009).

The process also led a noteworthy improvement in the productivity of the firm. The process

increased the number of deals that IBM credit processes by 100 times.

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What I would reengineer differently

I would focus on changing the culture of the organization. Changing the technical aspect

of business process is easy. The most difficult task entails changing the human aspect of the

business process (Kock, Vervilee, Pajou, & Deluca, 2009). Reengineering introduces changes

that threaten the status quo and create uncertainties among organizational members. It is

common for members of the organization to feel threatened by the reengineering process; hence,

cause resistance to the change process. Therefore, the reengineering process also requires

organizations to change the way people think and behave. It requires the organization to change

people beliefs and attitude.

I would also change IBM Credit’s organizational culture by creating a sense of urgency,

building consensus among stakeholders, forming a vision for change, enlisting the support of the

members of the organization, removing barriers to change, generate short-term milestones,

accelerating change and instituting change (Doll & Miller, 2007). Too much attention of

structural issues and little attention on human issues can stall the reengineering initiative. Some

of the cultural enabler that I would focus on includes empowerment of employees and ensuring

that all members partake in the decision-making process (Goksoy, Ozsoy & Vayway, 2012).

Training is also a critical cultural enabler.

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References

Ahmad, H., Francis A., & Zairi, M., (2007). Vital success factor for business process

reengineering. Business Process Management. 13 (12), 451- 469

Attaran, M., (2005). Exploring the link between business process reengineering and information

technology. Retrieved from

https://www.csub.edu/~mattaran/home2/body_content/slides/MGMT602/Exploring-

IT.pdf

Damij,T., (2003). Using an object-oriented methodology in business process reengineering.

Object Technology. 2 (2), 151- 168

Doll, Y. & Miller, B., (2007). Leading and making transformational changes. Available from

http://usa.army.mil/cac2/cgsc/repository/dcl_leadingmakingtranschange.pdf

Goksoy, A., Ozsoy, B., & Vayway, O., (2012). Business process reengineering as a strategic tool

for managing organizational change. Journal of Management and Business. 7 (2), 89-

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Grossi, D., Royakkers L., & Dignum, F., (2007). Organizational structure and responsibility.

Artificial Intelligence Law. 1 (15), 223- 249

Hammer, M. & Champy, J., (2007). Reengineering the corporation: manifesto for business

revolution. New York, NY: Harper Business Publications

Kock, N., Vervilee, J., Pajou, A., & Deluca, D., (2009). The orientation of communication flow

in business process modeling and its impacts on redesign success. Decision Support

Systems. 46 (1), 562- 575

Lam, K., (2010). A study of business process reengineering. Retrieved from

http://www.doctoroal.ac.us/surprise/journal/vol2/article2.html

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Lunenburg, F., (2011). Relationship between organizational culture and performance. National

Forum on Administration and Education. 29 (4), 1-9

Massa, M., & Zhang, L., (2010). The role of organizational structure. Retrieved from

http://www.apjfs.org/conference/2010/cafm2010/6-3.pdf

Mohajeri, K., Nayeri D., & Mashhadi, M., (2009). A model for stakeholder-oriented

benchmarking process. Journal of Applied Sciences. 9 (1), 237- 247

Weicher, B., Chu, C., Lin, H., Le Y., & Yu, F., (2000). Business process reengineering: analysis

and recommendations. Retrieved from http://www.netlib.com/bpr1.htm