Business Process Reengineering: Principles, Methods, Tools and Implementation

1. Organization Technology Process Business Process Reengineering: Principles, Methods, Tools and Implementation Minder Chen, Ph.D. MS-5F4 School of Management George Mason University Fairfax, VA 22030 Phone: 703-993-1788 Internet: MCHEN@GMU.EDU

2. Processes Are Often Cross Functional Areas "Manage the white space on the organization chart!" Customer/ Markets Needs Supplier Value-added Products/ Services to Customers "We cannot improve or measure the performance of a hierarchical structure. But, we can increase output quality and customer satisfaction, as well as reduce the cost and cycle time of a process to improve it."

3. Definition of Reengineering The fundamental rethinking and radical redesign of core business processes to achieve dramatic improvements in critical performance measures such as quality, cost, and cycle time. Source: Adapted from Hammer and Champy, Reengineering the Corporation, 1993

4. What Business Reengineering Is Not? • Automating: Paving the cow paths. (Automate poor processes.) • Downsizing: Doing less with less. Cut costs or reduce payrolls. (Creating new products and services, as well as positive thinking are critical to the success of BPR.)

5. Reengineering Is ... • Obliterate what you have now and start from scratch. • Transform every aspect of your organization. Extremist's View Source: Michael Hammer, “Reengineering Work: Don’t Automate, Obliterate,” Harvard Business Review, July-August, 1990, pp. 104-112.

6. New Life Insurance Policy Application Process at Mutual Benefits Life Before Reengineering* . . . . • 19 steps, 5 departments, 19 persons • Issuance application processing cycle time: 24 hours minimum; average 22 days • only 17 minutes in actually processing the application Department A Step 1 Department A Step 2 Issuance Application Department E Step 19 Issuance Policy *Source: Adapted from Rethinking the Corporate Workplace: Case Manager at Mutual Benefit Life, Harvard Business School case 9-492-015, 1991.

7. The New Life Insurance Policy Application Process Handled by Case Managers • application processing cycle time: 4 hours minimum; 3.5 days average • Application handling capacity double • Cut 100 field office positions Mainframe Physician Underwriter LAN Server Case Manager PC Workstation

8. BPR Principles • Organize around outcomes, not tasks. • Have those who use the output of the process perform the process. • Subsume information-processing work into the real work that produces the information. • Treat geographically dispersed resources as though they were centralized. • Link parallel activities instead of integrating their results. • Put decision points where the work is performed and build controls into the process. • Capture information once and at the source. Source: Michael Hammer, “Reengineering Work: Don’t Automate, Obliterate,” Harvard Business Review, July-August, 1990, pp. 104-112.

9. Business Process Reengineering Life Cycle Define corporate visions and business goals Visioning BPR-LC Identify business processes to be reengineered Identifying Analyze and measure an existing process Analyzing Identify enabling IT & generate alternative process redesigns Redesigning Evaluate and select a process redesign Evaluating Implement the reengineered process Implementing Continuous improvement of the process Improving Manage change and stakeholder interests

10. Phase 1: Visioning • Apply to enterprise-wide reengineering effort. • Develop overview of current and future business strategies, organizational structure, and business processes. • Develop organizational commitment to reengineering. • Develop and communicate a business case for action. • Create a new corporate vision. • Set stretched goals. • Prioritize objectives. • Assess implementation capabilities and barriers. Define corporate vision and business goals

11. Phase 2: Identifying • Construct high-level process map • Develop a process hierarchy • Build enterprise-wide data models (optional) • Evaluate the processes • Select processes to be reengineered • Prioritize and schedule processes to be reengineered Identify business processes to be reengineered

12. TI Semiconductor Business Process Map Customer Communication Market Customers Concept Development Manufacturing Customer Design & Support Strategy Development Product Development Order Fulfillment Manufacturing Capability Development Source: Adapted from Hammer and Champy, 1993, p. 119.

13. Criteria for Selecting Processes • Broken • Bottleneck • Cross-functional or cross-organizational units • Core processes that have high impacts • Front-line and customer serving - the moment of the truth • Value-adding • New processes and services • Feasible

14. Phase 3: Analyzing • Conduct preliminary scoping. • Develop a high-level AS-IS baseline process model (work flow model). Avoid analysis paralysis by conducting preliminary analysis at fairly high level. • Surface purpose and assumptions of the process (Ask WHY?). • Perform activity-based costing: costs can be assigned based on actual activities and productivity. • Reveal hidden time and nonvalue-added activities. • Measure cycle-time and quality. • Measure profitability in terms of task, product, and customer type. Analyze and Measure an Existing Process

15. Phase 4: Redesigning Identify enabling IT & generate alternative process redesigns Business Vision & Strategy Business-pulled How can IT support business strategies and business processes? How can business strategies be changed business processes be transformed using IT? Business Reengineering Technology-driven Information Technology

16. Three Steps in Redesigning Processes • Simplification: • Task: Change business rules or procedures of a specific task • Workflow: A process chain is simplified by elimination of nonvalue-adding activities • Integration: • Redesign tasks into a logical and effective process. • A reengineered process often crosses functional boundaries. • It offers opportunity for eradicating interdepartmental redundancies and restructuring the organization. • Automation: • Usually accompanies nontechnical redesign of organization structures and procedures. • All reengineering costs and benefits can be projected into a model. • Reengineering often pays for itself - sources of funding for technology investments are frequently cost savings generated by organizational change.

17. Phase 5: Evaluating • Develop criteria of evaluating alternatives of redesigned processes: Cost, Benefit, and Risk. • Evaluate design alternatives • Select and recommend a reengineered process Evaluate and select a process redesign

18. Phase 6: Implementing • Plan IT implementation • Plan organization implementation • Conduct a pilot project • Develop a prototype system • Technical Design • Social Design • Evaluate results from the pilot project and the prototype • Prepare large-scale roll out Implement the reengineered process

19. Phase 7: Improving • Develop performance measurement and reward systems in the reengineered process • Monitor process performance constantly • Improve the process on a continuous basis Improve the process continuously

20. The Quest of Competitiveness Downsizing Headcount & Restructuring the Portfolio Smaller Total Quality Management & Continuous Process Improvement Better (Kaizen) Enterprise-Wide Reengineering & Business Process Reengineering Much Better Reinventing Industries & Regenerating Strategies Different Adapted from: Gary Hammel and C. K. Prahalad, Competing for the Future, Harvard Business School Press, 1994.

21. Criteria for BPR Projects Improvement Goals Status Quo Radical Cross Function/ Organization Fundamental Business Reengineering Scope Functional Process Improvement Role of IT Function Business as Usual Incidental Task Symbolic Intense Senior Management Involvement

22. Dual Roles of Information Technology in BPR Conduct Reengineering Project Existing Business Process Reengineered Business Process Supporting Tools IT Enablers • Process modeling tools • Process simulation tools • Group requirement elicitation tools • Activity-based costing tools • Data base systems • Expert systems • Client/server technology • Groupware • Work flow management systems • EDI • Enterprise-wide networking • Mobile computing

23. Breakthrough Thinking Breakthrough Thinking Enabling Technology Old Assumption Field operations are on their own High bandwidth networks, remote access, wireless network Simultaneous centralization and decentralization Only specialists can perform complex work Knowledge base systems, expert systems Case managers handle a case with no hands-off Managerial hierarchy is required for control & supervision Accessible data & analytic tools, exception monitoring Self-managed teams Product development is a sequential activity Common CAD/CAM systems Concurrent engineering IS developed should be driven by IS personnel I-CASE and JAD Rapid application development

24. A Framework of Integrating Methods & Tools for BPR cost and performance data compared to the baseline Analyze the activity costs of the process activity cost data ABC Tools (IDEFCost, Easy ABC) information of a process Elicit semi-formal process and data models Construct/ revise static business process models performance data Analyze the dynamics of the process semi-formal process model Process Modeling Tools (Design/IDEF, IDEFine, BDF) Simulation Tools (SIMPROCESS) Target information system generated GDSS (GroupSystems V) finalized process model Construct formal IS models & generate information systems Construct/ revise business data models semi-formal data model CASE, C/S Tools, DBMS, Work Flow Software, & other Enabling Technologies Data Modeling Tools (ERwin, BDF)

25. ICOM in IDEF0 The ICOM of a function represents certain system principles: Inputs are transformed into outputs, controls constrain or dictate under what conditions transformations occur, and mechanisms describe how the function is accomplished. An IDEF box and its ICOM can be described as: C "Inputs are transformed by the function into outputs according to controls, using mechanisms." O I M

26. An Example of an IDEF0 Diagram

27. IDEF0 Model Structure C1 I1 O1 I2 A-0 GENERAL C1 I1 1 I2 2 Abstraction 3 O1 4 A0 1 The diagram A0 is the "parent" of the diagram A4. 2 3 Refinement A4 1 2 DETAILED 3 A42

28. Attributes of Processes • Basic • Name • Description • Author • Audit trails • Performance data • Importance: Core, Critical • Value Added: Business, Customer, None • Cycle time: Mean, Variance, and Distribution • Cost/Unit

29. Standard Flowchart Symbols Annotation Activity Delay Direction of process flow Storage Movement/ Transportation Transmission Connector Decision Point Begin/End Paper document

30. Functional Flowchart (Process Mapping) PROCESS ACTIVITY CYCLE Credit Checking Customer Service Customer Shipping Inventory · · 2 1 1 1 1 2 0.1 4 3 0.2 1 4 ... ... ... Enter Order Check Credit Begin No Yes Order Processing Update Inventory Wait for shipping Ship order End

31. TeamFlow from CMF at www.teamflow.com

32. The Reengineering Diamond Customers & Suppliers Competitors Values and Beliefs Foster Enlighten Customers & Info. Tech. Management & Measurement Systems Business Processes & Functions Entail Demand Jobs , Skills, & Organizational Structures Culture Markets

33. Positive Preconditions for Reengineering • Senior management commitment and sponsorship • Realistic expectations • Empowered and collaborative workers • Strategic context of growth and expansion • Shared vision • Sound management process • Appropriate people participating full-time • Sufficient budget Source: Bashein, B. J., Markus, M. L., Riley, P., "Preconditions for BPR Success," Information Systems Management, Spring 1994, Vol. 11, No. 2, pp. 7-13.