MGT 563 OPERATIONS STRATEGIES

1. MGT 563OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

2. Recap Lecture 11 • Lean Operations • Elements of Lean Operations • Waste Elimination • Behavior • Synchronization • Customer focus • JIT • Kanban • Benefits and Implementation of Lean System • How do lean operations fit into operations strategy?

4. Todays Lecture • General Introduction • Business Process Reengineering BPR Symbols • Understand and be able to implement a BPR Strategy • Understand the main challenges in implementing a BPR Strategy • Conclusion: Summary

5. Industrial Revolution’s Model of Organization and Production • Complex work is broken down into simple and repetitive tasks that are performed in sequence by specialists. • Specialization of labor: Individual jobs become simple • Sequential processes: Coordinating people becomes more complex (The role of the hierarchy) • Narrow and repetitive jobs: De-skilling the work forces • Managers’ job is to control the quantity, cost, and quality of the work performed. • Control as a dominant style • Financial-oriented scoreboard • Employees are organized by business function. • Hierarchical structure

6. Problems • Functional departments become barriers to change. • Too much time and money are spent in ineffective coordination and communication. • Too little time for doing work that really benefits customers. • Overheads are soaring. • Business processes are evolved over a period of time and are not designed to handle changing business environments or to take advantages of emerging technologies.

7. Process Evolution • "We are structured today by historical accident. As we added products, we added functional stovepipes." • "Processes in organizations have never been designed in the first place."

8. 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

9. 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.)

10. Spectrum of Change • Automation • Rationalization of procedures • Reengineering • Paradigm shift

11. Automation • refers to computerizing processes to speed up the existing tasks. • improves efficiency and effectiveness.

12. Rationalization of Procedures • refers to streamlining of standard operating procedures, eliminating obvious bottlenecks, so that automation makes operating procedures more efficient. • improves efficiency and effectiveness.

13. Business Process Reengineering • refers to radical redesign of business processes. • Aims at • eliminating repetitive, paper-intensive, bureaucratic tasks • reducing costs significantly • improving product/service quality.

14. Paradigm Shift • refers to a more radical form of change where the nature of business and the nature of the organization is questioned. • improves strategic standing of the organization.

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

16. Gordian Knot • In a Greek legend, nobody could untie a knot tied by King Gordius of Phrygia. Many people tried to untie the knot, but nobody succeeded. • ... until Alexander the Great found a smart and direct solution.

17. Definition of Process • A process is simply a structured, measured set of activities designed to produce a specific output for a particular customers or market. -- Thomas Davenport • Characteristics: • A specific sequencing of work activities across time and place • A beginning and an end • Clearly defined inputs and outputs • Customer-focus • How the work is done • Process ownership • Measurable and meaningful performance

18. Types of Processes Dimensions & Type Examples • Organization Entity • Inter-organizational • Inter-functional • Inter-personal • Objects • Physical • Informational • Activities • Operational • Managerial Order from a supplier Develop a new product Approve a bank loan Manufacture a product Prepare a proposal Fill a customer order Develop a budget Adapted from: Davenport, T. H. and Short, J. E., "The New Industrial Engineering: Information Technology and Business Process Redesign," Sloan Management Review, Summer 1990, p. 17.

19. 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."

20. Process-Orientation • Process-orientation is the key to the BPR success • Remove stovepipe functions • Focus on cross-functional core process redesign • “Link activities, functions, and information in new ways to achieve breakthrough improvements in cost, quality, and timeliness.” * * Source: Dichter, Gagnon, and Alexander, “Leading Organizational Transformation,” The McKinsey, Quarterly, 1993, Number 1.

21. BPR Achieves Dramatic Improvement • Ford reduced its account payable department by 75% • Bell Atlantic cut the cycle time for installing carrier services for customer from 15 days to 3 days. • IBM Credit Company reduce loan application turn around time from 6 days to 4 hours while loan applications increased by 100 times. No personnel was added.

22. Benefits of Reengineering Customer Service Process Timeliness Quality Reduce Cost Competitiveness New/Improved Technology Sales/Revenues Source: Delotte & Touche, 1993

23. Reengineering for Achieving Strategic Goals Source: Gateway Information Services, Inc. New York, Figures are based on responses from 121 executives at US firms in the manufacturing, insurance, and utilities industries. * Joanne Cummings, "Reengineering is high on list but little understood," Network World, July 27, 1992, p. 27.

24. BPR Examples • Ford: Accounts Payable • Mutual Benefit Life: New Life Insurance Policy Application • Capital Holding Co.: Customer Service Process • Taco Bell: Company-wide BPR • Others

25. Reengineering Example Cash Lane No more than 10 items Which line is shorter and faster?

26. Reengineered Process • Key Concept: • One queue for multiple service points • Multiple services workstation

27. 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.

28. BPR Principles - Derived • Redesign process steps such that they are perform in a correct order. Combine several process steps into one. • Design for parallel subprocesses whenever possible to reduce waiting time between tasks. Integrate subprocesses. • Processes may have multiple versions. Remove complex, exceptions, and special cases. • Empower human potentials. Give front-line workers the responsibility to make decisions. • Provide mechanism in the process to encourage individual, team, and organizational learning Source: Derived from Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution, HarperCollins Publishers, Inc., 1993

29. Informating, Not Automation An individual without information cannot take responsibility; an individual who is given information cannot help but take responsibility. Jan Calzon CEO, Scandinavian Airlines

30. Business Process Reengineering • “Reengineering is the fundamentalrethinking and radicalredesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service, and speed.” 3

31. Key Words • Fundamental • Why do we do what we do? • Ignore what is and concentrate on what should be. • Radical • Business reinvention vs. business improvement 4

32. Key Words • Dramatic • Reengineering should be brought in “when a need exits for heavy blasting.” • Companies in deep trouble. • Companies that see trouble coming. • Companies that are in peak condition. • Business Process • a collection of activities that takes one or more kinds of inputs and creates an output that is of value to a customer. 5

33. BPR & The Organization

34. BPR is Not? • BPR may sometimes be mistaken for the following five tools: • 1.Automationis an automatic, as opposed to human, operation or control of a process, equipment or a system; or the techniques and equipment used to achieve this. Automation is most often applied to computer (or at least electronic) control of a manufacturing process. • 2. Downsizing is the reduction of expenditures in order to become financial stable. Those expenditures could include but are not limited to: the total number of employees at a company, retirements, or spin-off companies.

35. BPR is Not? • 3. Outsourcing involves paying another company to provide the services a company might otherwise have employed its own staff to perform. Outsourcing is readily seen in the software development sector. • 4. Continuous improvement emphasizes small and measurable refinements to an organization's current processes and systems. Continuous improvements’ origins were derived from total quality management (TQM) and Six Sigma.

36. Reengineering & Continuous Improvement--Similarities Reengineering Continuous Improvement Similarities Basis of analysis Process Process Performance measurement Rigorous Rigorous Organizational change Significant Significant Behavioral change Significant Significant Time investment Substantial Substantial 16

37. Reengineering & Continuous Improvement--Differences Reengineering Continuous Improvement Differences Level of change Radical Incremental Starting point Clean slate Existing process Participation Top-down Bottom-up Typical scope Broad, cross-functional Narrow, within functions Risk High Moderate Primary enabler Information technology Statistical control Type of change Cultural and structural Cultural 17

38. What is a Process? • A specific ordering of work activities across time and space, with a beginning, an end, and clearly identified inputs and outputs: a structure for action.

39. What is a Business Process? • A group of logically related tasks that use the firm's resources to provide customer-oriented results in support of the organization's objectives

40. Why Reengineer? • Customers • Demanding • Sophistication • Changing Needs • Competition • Local • Global

41. Customer Demands • expect us to know everything • to make the right decisions • to do it right now • to do it with less resources • to make no mistakes • expect to be fully informed

42. Why Reengineer? • Competition • Local • Global • Change • Technology • Customer Preferences

43. Business Process Reengineering WHY ? • Integrate people, technology, & organizational culture • To Respond to rapidly changing technical & business environment and customer’s needs to achieve Big performance gains

44. Why Organizations Don’t Reengineer? • Complacency • Political Resistance • New Developments • Fear of Unknown and Failure

45. Performance • BPR seeks improvements of • Cost • Quality • Service • Speed

46. BPR Symbols

47. Business Process Flowchart Symbols An Activity A Document A Decision Data (input as outputs)

48. Business Process Flowchart Symbols A Predefined Process The Start of a Process The End of a Process Representing a Relation Start End

49. Business Process Flowchart Symbols Continuation of the process at the same page at an equal symbol with the same number. Used when a relation arrow crosses another relation arrow Off-Page Connector - Process will continue on the next page Integration Relation - A relation to another module is identified and described

50. Data Flowchart Symbols An Activity A Document A Decision Flat Data File (input as outputs)