Transformation: Reengineered Business Processes

1. Mark P. Van Oyen Based in part upon: M. Hammer and J. Champy, Reengineering the Corporation: A Manifesto for Business Revolution, Harper Business, New York, 1993. John Buzacott, York University of Ontario Canada Commonalities in Reengineered Business Processes: Models and Issues. Management Science 42:5, 1996, 768-782. Transformation: Reengineered Business Processes www.iems.nwu.edu/~vanoyen/WorkSmart Filename: transformation-lec.ppt

2. BUSINESS PROCESSES (BP’s) • Major steps: The basic concept of a business process is a listing of the major activities in this operations process with sequence and flow information. The big picture of a B.P. includes the following: • Processes providing inputs: External processes outside the work system that produce inputs of information, physical things, or services needed in order for this operations process to operate • Processes receiving the product: The customer’s processes that receive and use the product of this work system • Rationale: The overriding idea or approach that determined the process would be performed using the current approach rather than another

3. Amazon.com Book Order B.P. • Purchaser logs on to www.amazon.com (= from user) • Amazon provides suggested selections & search engines  (= response to user) • Purchaser identifies desired book or gives search criteria  • Amazon provides book-related information (price, a guess at availability, on-line reviews, related books)  • Purchaser enters order (and may repeat steps 2-5 multiple times)  • Amazon.com picks order from inventory at warehouse (or may order book from wholesaler, but we ignore that case)  • Shipping department packages order and sends it to the purchaser 

4. Viewing a firm as a systemis part of a BP perspective

5. Reengineering Hammer and Champy, p. 32: Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of service such as cost, quality, service, and speed.

6. Coherent Business Processes Hammer and Champy, p. 2: For two hundred years people have founded and built companies around Adam Smith’s brilliant discovery that industrial work should be broken down into its simplest and most basic tasks. In the postindustrial business age we are now entering, corporations will be founded and built around the idea of re-unifying these tasks into coherent business processes. Division of labor (Adam Smith, 1776) “The Wealth of Nations” Scientific Management: analysis and simplification of operations. (Frederick Taylor, 1911).

7. Commonalities in Reengineered Business Processes • Several tasks are combined into one • Purpose is to reduce or eliminate the subdivision of the overall processing requirements into individual tasks, each performed by a different facility, person, or machine. • To sustain a required throughput becomes difficult as we aggregate more tasks, thereby increasing the process time. Solution: have multiple workstations in parallel. Fundamental tradeoff: more serial steps or aggregated steps in parallel. Aggregated tasks 4 workers, div. labor 3 workers

8. 2. Workers make decisions • Purpose is to harness the brainpower and experience of the entire organization. Maximize execution speed by pushing decision making to lowest effective level. • Details: • Frequently occurring problems are best solved by the worker, but infrequent, hard-to-solve problems are best handled by a manager. • Workers should only be the primary authority for routine, well-understood decisions/problems. • An issue: what does the learning curve look like? (slow-learning curve suggests centralization of problem-solving work).

9. 3. Steps in the process are performed in a natural order • Rather than enforcing a strict sequence that requires task n be completed before the next task, n+1, can begin; instead allow tasks to overlap where feasible. • Details: • Mechanism: begin with “core information/document”, then duplicate and transmit to multiple functions (assuming they are not interdependent!), then recombine the outputs of the parallel processes in the Finished Product. • This has less performance advantage than we tend to think! Why? Because of the time the finished product must wait until all the parallel steps have been completed. 4 steps Assemble

10. 4. Processes have multiple versions • Suppose the operations produces multiple similar models: A, B, C • OLD: Build multiple, “generalist” processes that can produce any type. Have enough workstations in parallel to get throughput desired. • NEW: Specialize the processes for one type/line of product (or maybe a limited number as in a focused factory). Station 1 does Jobs 1,4,7,… 1 A’s 2 B 3 Round Robin allocation C

11. 4. Processes have multiple versions (Continued from last page) • PROs for New approach: • When the various models are from different lines or families that require distinct types of infrastructure (e.g. machine tools, labor skills) then focus the plants or production cells on one line or family. • The greater the difference in “mean process time” across the models (A, B, C, D), the more this helps. • CONs for New approach: • The “specialized” alternative sacrifices flexibility, so this may be a bad idea if flexibility is important • Use I.T. to intelligently route the models to the various stations to allow for each workstation to see a majority of work of one type without sacrificing flexibility.

12. 5. Work is performed where it makes most sense NEW: insert an activity “traditionally done in another part of organization” Duhhhh! , but politically difficult. Purpose is to eliminate the ownership of certain functions by organizational units/departments. E.g.: Insert a purchasing activity (traditionally done via centralized department) because it is most effectively done as part of this process. Effective business processes seamlessly span functional areas. Caution: it is not easy to know whether this would really help or hurt the organization. OLD: only activities within functional domain are performed

13. 6. Checks and controls are reduced NEW: test at the end, or get new processes that eliminate unnecessary testing Don’t spend too much time testing PRO: When testing is time-consuming and defective products cannot easily be fixed, then it is best to do quality control at the end of the process. CON: When the testing/quality check is quick and easy or bad parts can be fixed immediately and on the spot, then the local check at each station is best. process ! ?? ?? OLD: Check/test after EVERY operation (quality at the source!) test

14. 7. Reconciliation is minimized • Whenever possible, avoid redundant information flow mechanisms, particularly when they need to be reconciled at a later point. Simplicity can minimize workload and avoids the potential for multiple, conflicting information sources that must later be made to agree. • Historical Example: • Ford Purchasing Dept. places purchase order to vendor (e.g. Ford orders ball bearings from parts supplier) • Duplicate sent to Ford’s Accounts Payable Dept. • Ford receiving dock accepts goods shipped accompanied by dispatch note (usually no pricing info). Dock Clerk completes a Ford “receiving document” form and sends it to Ford Accts. Payable. • Simultaneously, vendor sends invoice to Ford Accts. Payable (billing info. essential)

15. 7. Reconciliation is minimized • Ford Accts. Payable must now reconcile the three documents: (1) Purchase Order (PO), (2) receiving document, (3) invoice. • Reconciliation of the above • Easy 80% of the time, but majority of clerk time spent resolving the other 20% of the cases, which often took weeks. • Ford N.A. Accts. Payable reengineering effort eliminated the use of invoices in paying Ford’s suppliers, so this eliminates the need to reconcile the PO with the receiving document and invoice. When creating a PO, this information is entered into a database, so any receiving clerk can simply match the shipment to the PO and trigger automatic payment of the vendor.Results: Shorter cycle times, Accts payable staff reduced from 500 to 125 employees.

16. 7. Reconciliation is minimized Probability of successful transaction = = P( Dispatch note correctly handled AND Invoice correct) = P(Dispatch note OK) * P(Invoice OK | (given) Dispatch OK) … if we assume dispatch note errors are independent of invoice errors … we get = P(Dispatch OK) * P(Invoice OK). Example: If P(Dispatch OK) = 95% and P(Invoice OK) = 92%, under independent errors, P(successful trans.) = (.95) * (.92) = 87.4% Principle, if 100 things must all happen correctly and each (independently) has a 99% chance of success, the overall P(success) = (.99)^100 = 37%. You can see why it’s hard to get the space shuttle launched successfully!

17. 8. Case Manager provides single point of contact for customer OLD: customer may not know who to go to for answer to problem. May take multiple people to answer question. NEW: case manager provides accountable representative that solves customer’s problems. This is somewhat similar to a traditional expeditor (except that expeditors usually have authority to modify work schedules and job priorities to get the job done) NEW is good if the case manager is merely a manager and an information source (else, problem solving may require too much info. for anyone other than worker to handle) . Allows very focused customer service. OLD way is good if the case manager is the same person that does the work. May be very efficient when the workers are very experienced and use it to solve tough problems, but it also may result in workers with limited “people-skills” representing the company.

18. 9. Hybrid Centralized/Decentralized Systems are Prevalent Centralized System: Management is centralized source for authorization of transactions. Variability in workload can easily cause manager to become a bottleneck that limits system performance. Model for information flow: Manager, problem -solving Arrows = information flow Boxes = Workers at various tasks

19. 9. Hybrid Centralized/Decentralized Systems are Prevalent Decentralized System: Management is NOT a part of the transaction processing system. Rather, managers monitor performance. Checks, controls, and problem solving are done by local groups to minimize information flow. Model for information flow suggests efficiency when problem-solving is easy: Problem-solving occurs within activity centers by workers Arrows = information flow Boxes = Workers at various tasks

20. 9. Hybrid Centralized/Decentralized Systems are Prevalent Hybrid System: Management is a LIMITED part of the transaction processing system. Managers monitor performance and SOLVE tough problems. Checks, controls, and ROUTINE/EASY problem solving are done by workers. Problem-solving raised to managerial level only when difficult Arrows = information flow Boxes = Workers at various tasks

21. Business Process Reengineering (BPR) • “Starting from scratch” in redesigning business processes, asking why the company does things the way it does, questioning basic rules and assumptions. • “Fundamental rethinking and radical redesign of business systems” Hammer & Champy • Focuses on significantly improving business processes like: • Steps required to fill customer’s request for goods or services. • Steps required to bring new product/service to market. • Technologies that support the above and make possible new ways of doing business • BPR = Business Process Reengineering • BPI = Business Process Improvement

22. Business Processes & Functional Silos

23. BPR is Cross-cutting • BPR does not respect • functional silos (engineering, manufacturing/production, accounting & finance, sales & marketing, purchasing, …) • narrow domains of expertise • traditional practices (“sacred cows” make the best steaks!)

24. ALTER Work Centered Analysis Model • A conceptual model of that: • Encourages a balanced view of the role of technology • Directly links system elements: • technology + processes + labor + information • Links process to product to customer • Holistic • Emphasizes mainline business activities

25. Information technology, information systems, and work systems

26. WCA for Thinking About Any System in Business Entities: & SERVICES Labor Resource Resource

27. Technology’s Impact: New Channels "Lands' End has undergone three major changes over the past couple of decades. The first was the introduction of an 800 number, in 1978; the second was express delivery in 1994; and the third was the introduction of a Web site, in 1995. The first two innovations cut the average transaction time -- the time between the moment of ordering and the moment the goods are received -- from three weeks to four days. The third innovation has cut the transaction time from four days to, well, four days." From a December 6, 1999 article in The New Yorker. So, if the customer is not getting faster service, what is the value to Land’s End. The next slide gives one reason.

28. Customer Contact Channels by Cost • Source: Dr. Row Moriearty, Cubex Corp.; and Oxford Associates, Inc.

29. TECHNOLOGY TRENDS Impact BPR • E*Commerce (Do some of our business using Internet technology) • B2C (what J. Doe thinks of) • B2B (where the real growth and impact is predicted to be) • Applications Software • Enterprise Resources Planning (ERP) – For Efficient Transactions Execution • Advanced Planning & Scheduling (APS) – For efficient PLANNING! • Old & Tired: MRP II

30. TECHNOLOGY TRENDS: Application Software • Installing new application software that a business process depends upon is like trying to replace the tires while the race car is racing! • It is difficult and many fail. Success requires • a multi-disciplinary team, • a common understanding (model), • a detailed blueprint (business process!) • the right technology

31. Where is the soft in Software? • Is Software really soft? • Software is called soft because it resides in memory, customizes hardware, and can be reloaded to upgrade a system. • E.g. Hubble space telescope or Voyager spacecraft software can be modified and updated from earth via satellite communication. It’s soft! • In an organization, PEOPLE are much softer than software! • Organizationally speaking, app. software like ERP should be given another name: Concreteware. • Has built-in set of (?best?) business processes • Supports selected operating techniques • Precludes other operating techniques • Somewhat soft when you introduce it into organization; but then it sets-up and locks org. into rigid structure.