E-BUSINESS IN SLOVENIA: THE IMPACT OF STRATEGIC IS PLANNING AND BPR

E-POSLOVANJE V SLOVENSKIH ORGANIZACIJAH:VLOGA STRATEŠKEGA NAČRTOVANJA INFORMATIKE IN

PRENOVE POSLOVNIH PROCESOV

Aleš Groznik, Andrej Kovačič

University of Ljubljana, Faculty of Economics, Kardeljeva ploščad 17SI-1000 Ljubljana, Slovenia

tel: 386 1 5892 400, fax:386 1 5892 698e-mail: ales.groznik@uni-lj.si

ABSTRACT

The main goal of the paper is to present the characteristics of business renovation efforts and readiness for electronic business (e-business) in Slovenia. Renovation is presented as the key element e-business orientation and the highest level of strategy for managing change that commonly cannot be handled by continuous improvement and reengineering methods or organizational restructuring. The results of the research about Business Process Reengineering (BPR) projects, methods and tools as well as strategic IS planning are being presented and discussed. The paper stressed the necessity for changes in organizational culture, management techniques, socio-economic restructuring and other changes leading towards a shift in organizational restructuring in the context of globalization (e-business, etc.).

POVZETEK

Prispevek z analizo stanja prenove poslovanja preučuje pripravljenost slovenskih organizacij na elektronsko poslovanje. Elektronsko poslovanje korenito spreminja tradicionalne oblike poslovanja in uspešno uvajanje elektronskega poslovanja zahteva korenito prenovo poslovanja, ki združuje strateško načrtovanje poslovne informatike in prenovo poslovnih procesov. V prispevku so podani rezultati raziskave stanja strateškega načrtovanja poslovne informatike ter prenove poslovnih procesov, ki je bila v letu 2000 izvedena med slovenskimi organizacijami. Rezultati raziskave kažejo na nujnost sprememb načinov vodenja in načrtovanja, organizacijskih, socialnih in drugih sprememb, ki bodo slovenskim organizacijam omogočile vpeljavo elektronskega poslovanja in s tem konkurenčen nastop na globalnih trgih.

1. INTRODUCTION

Competitive conditions and pressures on global market are forcing companies to search for strategies of streamlining the entire value chain. One of the major challenges companies face today is to meet increasing customer demand. Short delivery times, efficient and flexible processes and improved customer service are key to competitiveness. These goals could be reached by

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simultaneous realization of two goals; radical redesign of business processes and implementation of electronic business solutions.

Electronic Business (e-business) is the execution by electronic means of interactive, inter-organizational processes (Cunningham and Froschl, 1999). E-business represents a shift in business doctrine that is changing traditional organizational models, business processes, relationships and operational models that have been dominant for the past 20 years. The new doctrine of e-business requires an enterprise to integrate and synchronize the strategic vision and tactical delivery of products to its customers with the information technology and service infrastructure needed to meet that vision and process execution (Phipps, 2000). In the next few years, successful enterprises will restructure their organization, process and technology infrastructure for successful e-business execution.

Business Renovation (BR) or business process renovation and informatization efforts integrate radical strategic method of Business Process Reengineering (BPR) and more progressive methods of Continuous Process Improvement (CPI) with adequate Information Technology (IT) infrastructure strategies. Process renovation is a re-engineering strategy that critically examines current business policies, practices and procedures, rethinks them through and then redesigns the mission-critical products, processes, and services (Prasad 1999).

In this paper, business renovation is presented as the highest level of strategy for managing change toward electronic business (e-business) that commonly cannot be handled by continuous improvement and reengineering methods or organizational restructuring. BR argues for a balanced approach in which we attempt to manage realistic changes rather than always seeking radical change. According to Jacobson, we view business renovation as an umbrella concept for strategic IS planning, and both BPR and business improvement (Jacobson, 1995). For a thorough and effective renovation, organizations should combine radical shift (BPR) with those that permanently increase business efficiency and effectiveness (CPI).

We observe that IT is now taking significant roles in business processes-creating new needs, causing new product development and commanding new procedures. Following full implementation of IT in an organization, these internal changes may also lead to broader shifts in products, markets, and society as a whole (Chang, 2000). The relationship and influence between BPR and IT strategies is a key part of the classic texts in the area (Davenport, 1993), (Hammer and Champy, 1993). In this paper we accept and expand this framework, present results or relevant surveys, and assess current status of BPR and strategic IS planning practices in Slovenia.

1.1. The impact of IT in e-Business

To explore the impact of IT in e-business, we categorize the contributions of IT in two different ways (Chan, 2000). First, It contributes heavily as facilitator to the process of reengineering. At another, IT contribute as enabler to master the new process in the most effective way (Davenport and Short, 1990)

IT serves as a facilitator through time saving and efficient application such as business modelling and computer aided design tools. Such technology can affect both the product of the design and the process design itself through its analytical, structural, and design capabilities (Chan, 2000). In the first case IT is initiator or driver (not only a facilitator), which is normally seen within those organizations that sell IT as a part of their reengineering solutions (packages...). Business modelling, analysis and simulation, including Computer-aided System Engineering (CASE) tools, are good examples of forms of IT used in the process designing.

IT plays a crucial role as enabler in business process renovation. It should be pointed out that the higher level of procedures' automation brings more or less negative results. Even if some of the

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achievements of such actions are positive, they prevent the managers from seeing all the opportunities offered by the informatization of a redesigned business process and an infrastructure role of informatics. The business process should be analysed the first in order to find out if they are well defined, adequate, and ready for the implementation of new information technology. Only in that way, an improvement of quality, lower costs, and shorter performance times of renovated business procedures and activities could be expected.

While we were working on IS renovation projects in the last few years, we noticed (Kovacic, 1999) that IT plays the key role as an enabler in business process renovation and that there is a strong correlation between the quality of IS within an organization; and the improvement of an overall corporate culture and the organizations’ strategies (Lederer and Sethi, 1996). Grover et al. have recognized vital links between process reengineering initiation and success to corporate strategic planning, strategic IT planning and the innovative environment in the organization (Grover et al., 1995). Additionally to this research Teng et al. explore how the information system function may affect reengineering initiatives in terms of IS maturity and influence, recognizing that IT often takes on an enabling role in altering traditional patterns of work flow through reengineering projects (Teng et al., 1998). Our analysis on BPR projects also showed that the informatization of business processes should cause several changes and enhancements. It must be stressed that application of IT has the strongest impact on standardization or elimination of process variations. Because of that informatization cannot start before the work process improvement has been successfully implemented. For that reason, BPR and IT infrastructure strategies, which are both derived from organizational strategy are in need of effective alignment to ensure the success of the BR initiative (Al-Mashari and Zairi, 1999).

As the Internet becomes very important component of companies' information systems, it plays a significant role. The Internet enables companies of all sizes to develop new online business models, which means improving and altering the ways in which companies operate and interact with business partners, customers and suppliers. Companies are now pursuing more intensive and interactive relationships with their suppliers, collaborating in new product development, integrating key business process and cross-functional information sharing on a range of issues (McIvor et al, 1997). The Internet enables complete integration of inter-organizational processes in BR projects (Alt et al, 2000) and extends the strengths of BR to the new strategic options (e.g. electronic distribution), the new possibilities for processes (e.g. order entry, distribution, on-line payment) as well as the technical issues (e.g. integration of Enterprise Resource Planning systems (ERP) with Electronic Commerce (E-commerce), Supply Chain Management (SCM), Customer Relationship Management (CRM) etc.). Figure 1 shows how those extended business processes relate to the technical issues or so called e-business applications.

Figure 1. Electronic Business Process and E-business Applications

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Suppliers&Partners Enterprise Customers&Consumers

Supply ChainManagement

Enterprise ResourcePlanning

Electronic Commerce(B2B, B2C)

Customer RelationshipManagement

1.2. Strategic IS planning

The strategic IS planning has been perceptible as a top concern of many organizations. Despite a widely held view by (Davenport and Linder, 1994), (Karimi, Gupta and Somers, 1996), (Lederer and Salmela, 1996), (Porter, 1985), (Porter and Millar, 1985) that the strategic IS planning can play a critical part in helping organizations to increase efficiency, effectiveness and competitiveness, empirical research on the strategic IS planning is scarce.

According to Lederer and Salmela (Lederer and Salmela, 1996) the strategic IS planning is the process of identifying a portfolio of computer-based applications that assists an organisation in executing its business plans and realising its business goals. It will significantly improve enterprise performance if done appropriately. But planning in an effective way requires real insight. Now the organization is faced with the greater challenge of planning for an environment that is changing faster than ever before, and it must get it right if the enterprise is to achieve the effective management of this increasingly critical resource. IT is now as important as labour, capital funds, and knowledge itself. It is a common reaction of IS and business personnel to want to throw up their hands when it comes to strategic planning for IT, given the radical pace of change, the unpredictability of what is coming and the added uncertainty of business needs on top of the already rapidly changing technology. They say that no business will be able to succeed if it waits to develop its plan rather than take prompt action before their competitors do. They cannot afford to take the time, as they will fall behind the pace of the new economy. This is the wrong response. Strategic planning can still play a valuable role despite operating in “Internet time or e-business.” The planning process must change to adapt to these new conditions (Rosser, 2000). We must also keep in mind that an incorrect or inadequate strategic IS planning can bring partial solutions where the system is not considered as a whole, which makes these solutions unsatisfactory.

1.3. Roles of BPR and CPI

BPR is an organizational method demanding radical redesign of business processes in order to achieve better efficiency, quality and more competitive production (Hammer and Champy, 1993). It is also a method of improving the operation and therefore the outputs of organizations (Kovacic and Vintar, 1998). It means analyzing and altering the business processes of the organization as a whole. BPR was first introduced in a research program at MIT (Massachusetts Institute of Technology) in the early nineties. The term was used in the description of Davenport and Short's 1990-research project (Davenport and Short, 1990). They found out that the implementation of modern information technology in organizations means not only automation of managerial and production tasks but also has an enormous and direct effect on the means and quality of the work done. Many leading organizations have conducted BPR in order to improve productivity and gain competitive advantage. A study by J. Dhaliwal (1999) showed that about 50% of firms surveyed in Singapore (in some cases comparable to Slovenia) were engaged in BPR projects, with 37% of the firms indicated their intention to take up BPR projects in next few years. However, regardless of the number of companies involved in re-engineering, the rate of failure in re-engineering projects is over 50% (Hammer and Champy, 1993). Some of the frequently mentioned problems related to BPR include the inability to accurately predict the outcome of a radical change, difficulty in capturing existing processes in a structured way, shortage of creativity in process redesign, the level of costs incurred by implementing the new process, or inability to recognize the dynamic nature of the processes.

On the other hand CPI integrates methods such as industrial engineering, systems analysis and design, socio-technical design and total quality management (Davenport, 1993) (Galliers, 1998). Continuous improvement refers to programs and initiatives that emphasize incremental improvement in work processes and outputs over an open-ended period of time (Davenport and

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Beers, 1995). Several researchers suggest that using CPI techniques increases dramatic gains, TQM is particularly suggested to be integrated with BPR (Al-Mashari and Zairi, 1999).

For a thorough and effective renovation project, organizations should first meet certain conditions before starting such a project. First, organizations should abandon all the obsolete rules and procedures that have been used up to that time. Breaking rules is how we recommend that people learn to think inductively about technology during the reengineering process (Hammer and Champy, 1993, p.91). Application of Information Technology (IT) can break old rules that limit the manner in which work is performed (Some typical examples are given in Turban et al., 1998). In addition they should abandon other inadequate organizational and production principles (Kelly, 1998). Global competition, economic downturn, and the potential offered by emerging technologies are pushing organizations to fundamentally rethink their business processes (Kettinger and Grover, 1995). At this point, the design of a renovated and redesigned organization should start.

2. BUSINESS RENOVATION EFFORTS IN SLOVENIA

The managers of Slovenian organizations have very different attitudes about strategic IS planning, BPR projects and attempts of business renovation. Difficulties in the public sector are greater than those in the private sector. Increased employment in the public sector during the past few years has further entrenched bureaucracies; the problems of efficiency are then most often solved through purchasing computer hardware and software. The problems of efficiency are most often solved through purchasing computer hardware and software. Organizations usually tried to automate existing processes but automation is not necessarily renovation. To bring productivity improvements to the bottom line, the implementation process must transform the way work is done, not just automate what's done today (Regan, 1998). Moreover, if the managers feel the corporation they work for is successful at the present time, they usually reject the idea of renovating the business. When a company faces trouble, there never seems to be enough financial or human resources to start such a project.

The way to understand the situation in the field of business renovation in Slovenia is to analyse the situation on strategic IS planning and BPR projects. According to the recognized BR factors and trends, the research about strategic IS planning, BPR projects and other IT related questions in Slovenian companies was conducted in 2000. The methodology of the research is explained in the Chapter 3. The results of the strategic IS planning part of the research are analysed in the Chapter 4. Chapter 5 point out the BPR results and Conclusions outline the main findings of this research.

3. THE METHODOLOGY OF THE RESEARCH

The survey was performed in March 2000 by the IS researchers of the Faculty of Economics in Ljubljana. The survey was based on a questionnaire. Our target population included 350 Slovene large organizations taken from a wide range of industries, randomly chosen from the Register of Organizations, a register of all organizations in Slovenia. In order to ensure that the responses reflect the organizations’ perspective, the questionnaire was sent to CEOs and IS executives which were asked to provide information by answering the questions on the following subjects: organization of the MIS departments, the state of IS, the concepts and technologies of the data warehousing as well as the strategic IS planning and BPR practices. The survey will be repeated annually in order to compare the results and observe current trends in Slovene organizations over a longer timeframe.

A total of 92 useful returns to the BPR as well as the strategic IS planning part were obtained, representing the database on the BPR and strategic IS planning practices in Slovenia. Table 1

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shows the structure of the organizations according to the number of employees and their activities. The activities in the category Miscellaneous are of a different kind such us consulting, transport, IT, catering, tourism, health service, government, telecommunications. The respondents were reasonably well distributed according to the types of business and number of employees, which can be compared to the distribution of all Slovenian large organizations (Slovenia in figures, 2000), (Slovene Corporate Law, 1993). Therefore we can generalize the results of the survey to the population of large organizations in Slovenia.

      BPR part of the survey SISP part of the survey

Slovenian large organizations

  Number Percentage Number Percentage

Structure by type of business

         

Manufacturing 38 41,3% 36 39,1% 36.5%Retail and Wholesale 15 16,3% 14 15,2% 12.0%Finance and Insurance 6 6,5% 6 6,5% 3.2%Miscellaneous 33 35,9% 36 39,1% 48.3%Total     92 100% 92 100%     Structure by total number of employees

         

< 100 20 21,7% 19 20,7% 14.9%101 - 500 37 40,2% 38 41,3% 43.5%501 - 1000 18 19,6% 20 21,7% 24.8%> 1000 17 18,5% 15 16,3% 16.8%Total     92 100% 92 100%    

Table 1: Structure of organizations based on the business type and number of employees

4. STRATEGIC IS PLANNING PART OF THE SURVEY

A total of 92 valid answers to the strategic IS planning part were obtained. The rate of the return was 26% and is comparable to the similar studies conducted in the past (Karimi, Gupta and Somers, 1996), (Lederer and Sethi, 1996), (Pavri and Ang, 1995), (Teo et al., 1997) and (Torkzadeh and Xia, 1992) where the rate of the return reached 21%, 24%, 22%, 20% and 23% respectively.

4.1. SISP research findings

The analysis of the returned questionnaires shows that almost 45% of the responding organizations performed some form of the strategic IS planning process. We find the percentage of the organizations involved into strategic IS planning quite modest, especially if we compare it with the results of a similar studies (Pavri an Ang, 1995), (Lederer and Sethi, 1996), (Teo et al., 1997), where the rate was 48%, 56%, 63% respectively. This is especially worrying due to the significant time gap between the surveys.

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Figure 2. SISP implementation

The respondents were also asked to rate the degree of benefits derived from the SISP process on a five-point scale. According to the results shown in Table 2, the organizations highly appreciate the benefits from the strategic IS planning process (on a scale from 1 to 5, all benefits were rated with a mean of 3.32 or higher). The most important benefits were efficient and effective management of IS resources, improved internal co-ordination and improved productivity. It is also interesting to observe that the respondents value internal benefits more than the external ones. The possible reason might be that internal benefits are easily recognized whereas the external ones are not clearly defined.

Benefits from SISP Number Mean S.D.Efficient and effective management of IS resources 38 4,50 0,56Improved internal coordination 37 4,35 0,79Improved productivity 38 4,26 0,72Sound technology path and policies 37 3,86 1,06Improved quality in products/services 37 3,68 1,15Greater ability to meet changes in the industry 37 3,54 1,28Improved competitive position 37 3,43 1,04Larger market share 37 3,32 1,03

(1=low, 5=high)

Table 2: Benefits from SISP process

Additionally we tried to find the most important initiators of SISP. The results presented in Table 3 show that the initiators of the SISP process vary significantly between Slovenia and other countries. Whereas other studies (Pavri and Ang, 1995), (Teo et al., 1997), (Lederer and Salmela, 1996), (Lederer and Sethi, 1996) show increasingly important role of IS management and joint management involvement, our study reveals that in Slovenia the most important initiator of the strategic IS planning process is the top management (31.7%), followed by the top and IS management (29.3%).

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Initiated by Number PercentageTop management 13 31,7%Top and IS management 12 29,3%IS management 10 24,4%Top, IS and line management 2 4,9%Line (or functional) management 1 2,4%IS and line management 0 0,0%Missing data 3 7,3%

Table 3: Initiators of SISP process

The responses regarding the initiation of the strategic IS planning process confirmed that in Slovenia the strategic IS planning is still a traditionally oriented process in which the top management plays a very important role which is surprising because we would expect IS management to significantly add value to the strategic IS planning due to its expertise. It also has to be pointed out that the top, IS and line management does not take the joint initiation in Slovenian organizations (4,9%).

5. BPR PART OF THE SURVEY

After eliminating the missing and illogical answers, in BPR part of research the number of valid questionnaires was 92, out of which 61 were familiar with the BPR. Table 4 shows the structure of the organizations according to the industry type (Based on the European Classification of Economic Activities - NACE Rev. 1).

Industry type Number of organizations

A Agriculture, hunting and forestry 0B Fishing 0C Mining and quarrying 2D Manufacturing 35E Electricity, gas and water supply 5F Construction 8G Wholesale and retail trade 15H Hotels and restaurants 1I Transport, storage and communication 2J Financial intermediation 11K Real estate, renting and business activities 0O Other community, social and personal service activities 13Total 92

Table 4: Structure of organizations based on the industry type

5.1. BPR research findings

The survey revealed that about 82% (50) of selected organizations performed BPR projects (implemented or in progress) or planned the project in the future. Only 18% of analysed organizations have not introduced the BPR. Table 5 shows the structure and status of projects based on the BPR activities.

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BPR Projects Number PercentageBPR project in progress 21 34%Implemented 2 3%Planning 27 44%Not introduced 11 18%

Table 5: Structure and status of projects based on the BPR activities

The analysis indicated that improving business effectiveness or tangible benefits and process improvement are the prime motives and the reasons for undertaking BPR projects in Slovene organizations (Table 6). Improvement of operational efficiency is the next most important motive.

Motives for BPR Mean S.D.Business effectiveness or tangible benefits 4,36 0,84Process improvement 4,19 0,81Improving operational efficiency 3,91 1,15Improving customer satisfaction and services 3,81 1,00Cost reduction 3,76 1,04

(1=low, 5=high)

Table 6: Motives for BPR projects among Slovene organizations

The survey attempts to answer the question: What role and impact might IT play in changing the quality of corporate business results? Even 80% of the respondents state that information technology represents the key role in business process renovation.

Additionally we tried to find the most important initiators and facilitators or players introducing BPR efforts. A number of articles are focused on the roles of top management, functional executives, IS managers and consultants in BPR efforts (Dhaliwal, 1999). Table 7 presents our results. Our respondents feel that in most cases both top management and IS management must initiate and support BPR projects. Comparing other studies where the role of top management is prevailing, this is not a common situation. The results pointed out both business and technological impact and approaches to BPR projects in Slovenia. Similar situation is on the use of external consultants, which normally have played a significant role in promoting the technological side of BPR. In our case, like in the case of Singapore, the use of consultants for BPR seems to be low.

Mean S.D.1. Top Management 4,45 0,802. IS Management 4,41 0,733. Functional executives 3,41 0,854. External Consultants 2,91 1,23

(1=low, 5=high)

Table 7: Players introducing BPR in Slovene organizations

Figure 3 presents the main objectives of BPR projects. BPR projects are mostly concerned with the process of selling, process of manufacturing and process of accounting and finance. The improvement of entire business is also the objective of BPR projects. The objectives of BPR projects are also more and more oriented toward electronic commerce.

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Figure 3: The main objectives of BPR projects

5.2. BPR project assessment

Based on BPR project survey the results are assessed. Only about 15% of the respondents who had implemented BPR projects or were still involved in BPR projects perceived the total success of their BPR efforts. About 54% of them were satisfied with the final or current results of BPR projects. About 34% of them ranked their BPR efforts as unsuccessful. The results showed that the top-management support was the essential enabler of the implemented BPR projects' success because even 66% of the respondents answered positively about it.

Between the main reasons for not undertaking BPR the lack of top management support was on the first place (67%), while on the second place was the long period of BPR projects. The main other reasons for the respondents the lack of knowledge about BPR and the lack of educated and specialized persons. The results of the research shown that Slovenian companies did not reach the proportions of BPR projects in the developed countries of Europe and USA. It is obvious that Slovenian companies have recognized the importance of BPR to gain the competitive advantage.

6. CONCLUSION

E-business represents a shift in business doctrine since it changes traditional organizational models, business processes, relationships and operational models. The new doctrine of e-business requires an organization to shift towards new business concepts and introduce modern IT by strategic IS planning and BPR. Slovene organizations react very differently to projects or attempts of introducing modern IT concepts and business renovation, though the purpose is clear: reduction of costs, shortening of the business cycle, and of quality improvement. The difficulties in the public sector are larger than those in the private sector. The increased employment in the public sector during the past few years has further entrenched bureaucracies. As a result the problems of efficiency are most often solved by purchasing computer hardware and software. Moreover, if managers feel their corporations are successful at present, they usually reject the idea of strategic IS planning and BPR. Of course, when an organization faces trouble, there never seems to be enough financial or human resources to start such a project.

In Slovenia, as well in other economies in transition, there is a significant lack of empirical research in the area of strategic IS planning and BPR. Strategic IS planning is conducted in almost 45% of the responding organizations. The study also shows that the strategic IS planning in Slovenia is still a traditionally oriented process in which top management plays an important role since top managers are the key initiators and participants in the strategic IS planning. This is surprising since we would expect the role of IS management to be significant due to their expert

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knowledge and experience. On top of sometimes diminished role of IS management, the study shows that the organizations highly appreciate the benefits from the strategic IS planning (on a scale from 1 to 5, all benefits were rated with a mean of 3.32 or higher). It is also interesting to observe that the respondents value internal benefits more than the external ones since the most important benefits were efficient and effective management of IS resources, improved internal co-ordination, and improved productivity. The possible reason might be that internal benefits are easily recognized whereas the external ones are not clearly defined.

On the other hand, our research shows that Slovenian organizations quite often introduce BPR projects since in 54% of them BPR projects have already been implemented or are in progress. The most important initiators of BPR projects are top management and IS management with business effectiveness or tangible benefits and process improvement as the prime motives. In Slovenia the BPR projects are mostly concerned with the processes of selling, manufacturing, accounting and finance.

On overall strategic IS planning and BPR are still one of the key business activities where Slovene organizations will have to improve in order to be able to effectively participate on the overall global market of the information era. Since we plan to carry out this study periodically it is going to be very interesting to observe how the strategic IS planning and BPR are going to develop in Slovenia.

We have also plans for our future work. We plan to compare our results with the results of other countries in transition and to perform some additional statistical analyses to investigate the connections between the e-business, the strategic IS planning, BPR and the business performance.

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