07. Business Process Reengineering (BPR)

1. 07. Business Process Reengineering (BPR) Rev: Mar, 2014 Euiho (David) Suh, Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: http://posmit.postech.ac.kr) Dept. of Industrial & Management EngineeringPOSTECH

2. Contents

3. 1. Business Process Reengineering 1) Background Strategic Uses of IT Products Services Capabilities Companies that emphasize strategic business use of IT to gain competitive differentiation

4. 1. Business Process Reengineering 1) Background The Role of Information Technology • IT Plays a major role in reengineering most business processes • Increases process efficiency • Improves communication • Facilitates collaboration

5. Globalization ! Innovation Customer Driven Core Competence Customer Competition Change 1. Business Process Reengineering 1) Background Why BPR?

6. 1. Business Process Reengineering 2) Interpretations of BPR Reengineering Business Processes Fundamental Concept of BRP Process Shift from function based thinking to process based thinking Fundamental Fundamental rethinking of the way of conducting business Radical Disregarding all existing structures and inventing complete new ways– not improvement or modification Dramatic Making quantum leaps in performance rather than incremental improvement • Called BRP or Reengineering • Fundamental rethinking and radical redesign of business processes • Dramaticimprovements in critical contemporary measure of performance, such as cost, quality, speed, and service • Potential payback is high, but so is risk of disruption and failure • Organizational redesign approaches are an important enabler of reengineering • Includes use of IT, process teams, case managers

7. 1. Business Process Reengineering 2) Interpretations of BPR Definition of Process Supplier Customer Input Output Activity Activity Activity Process • A process is a cross-functional interrelated series of activities that convert business inputs into business outputs

8. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (1/8) Organize around outcomes, not task Have those who use the output of the process perform the process BPRPrinciples Subsume Information processing workinto the real work that produces the Information Treat geographically dispersed resources as though they were centralized Link parallel activitiesinstead of integrating their results Put the decision point where the work is performed, and build control into the process Capture all information at the source

9. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (2/8) Product / Service Product / Service Reengineer Task 5 Task 2 Task 4 Task 3 Task 1 Task 2 Task 3 Task 4 Task 5 Task 1 • 1. Organize around outcomes, not task • One person perform all the steps in a process • Design that person’s job around an objective or outcome instead of a single task • Example) Electronics company • Customer service representative of the five steps between sell and install the equipment

10. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (3/8) Reengineer End performer End performer Database • 2. Have those who use the output of the process perform the process • Establish specialized department to handle specialized process • Each department does only one type of work • BUT it’s slow and bureaucratic • Now that computer-based data are more readily available, departments, units, individuals can do more for themselves • Individuals who need the result of a process can do it themselves • Greatly reduced the problem of capacity planning • Example) Electronics equipment manufacturer’s service reengineering • Customer make simple repairs themselves and only for complex problem is a service technician dispatched

11. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (4/8) • 3. Subsume information-processing work into the real work that produces the information • To maintain consistency and to reduce repetitive information process • In the past, why didn’t an organization that produces information also process it? • Not enough time to process the information • Low trust to do both produce and process the information • Belief that people at lower organizational levels are incapable • Example) Ford’s redesigned accounts payable process • Receiving department, receiving and processing the received information from vendor instead of sending it to accounts payable

12. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (5/8) Manufacturing units #1 Purchasing department #1 Centralized Purchasing department #2 Reengineer Manufacturing units #2 Database Purchasing department #3 Manufacturing units #3 • 4. Treat geographically dispersed resources as though they were centralized • Centralization vs. Decentralization • Decentralizing a resource gives better service to those who use it • BUT at the cost redundancy, bureaucracy, and missed economies of scale • Using database, telecommunications networks, and standardized processing systems to get the benefit of scale and coordination while maintaining the benefits of flexibility and service • Example) Hewlett-Packard- 50 manufacturing unit’s separated purchasing department • Provided excellent responsiveness and service but prevented realizing the benefits of its scale • So each unit has access to a shared database on vendor and own purchase orders • Separated department centralized by using database • 150% improvement on-time delivery, 50% reduction in lead time, 75% reduction in failure rates Purchasing department #4 Manufacturing units #4

13. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (6/8) Success! R&D department for optics Integrated result Reengineer R&D department for paper handling Failure! Links, communication networks R&D department for power Database • 5. Link parallel activities instead of integrating their results • Forge links coordinate parallel functions during the process-not after it’s completed • Communication networks, shared database can bring independent group together • Usually, used in the product development • Having people do development work simultaneously save time • Example) Development of photo copier • develop each subsystem(optics, paper handling, power and etc.) in a separated unit • Easy to fail to work together

14. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (7/8) Reengi-neer Case Manager • 6. Put the decision point where the work is performed, and build control into the process • Suggests that the people who do the work should make the decisions and can have built-in controls • Self-managing, self-controlling, disappearing hierarchy through IT or Expert system • Example) MBL (Mutual benefit Life) • Case manager provides end-to-end management of the process, reducing the need for traditional manager

15. 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (8/8) • 7. Capture information once and at the source • In the past, information was difficult to transmit • It made sense to collect information repeatedly • Today, company store it in on-line database for all who need it • Bar coding(POS: Point Of Sale), relational database, electronic data interchange(EDI) • Example) Insurance company • ‘Stovepipe’ computer system support and integrate, connect the different function. • As a result, company was able to eliminate redundant data entry

16. 1. Selection of project 2. Analysis of initial capability 1. Business Process Reengineering 3) Principles and procedures of BPR Common procedures when performing BPR 3. Selection of process and project scope 4. Work analysis 5. Redesign of alternative process 6. Cost/benefit analysis for each alternative process 7. Selection of alternative process 8. Implementation of process 9. Change of process information

17. 1. Business Process Reengineering 4) BPR vs. Other Programs BPR vs. Other Programs (1/3) Taylorism vs. BPR

18. 1. Business Process Reengineering 4) BPR vs. Other Programs BPR vs. Other Programs (2/3) BPR vs. Business Improvement

19. 1. Business Process Reengineering 4) BPR vs. Other Programs BPR vs. Other Programs (3/3)

20. 1. Business Process Reengineering 5) Reengineering Order Management Reengineering Order Management IT that supports the reengineering process… CRM systems using corporate intranets and the Internet Supplier-managed inventory systems using the Internet and extranets Cross-functional ERP software to integrate manufacturing, distribution, finance, HR processes Customer-accessible e-commerce websites for order entry, status checking, payment, and service Customer, product, and order status databases accessed via intranets and extranets

21. Reference EuihoSuh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”, McGraw – Hill, Chapter 2