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1_The Theory of Business Process Re-Engineering

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Strategy Planning Activity Based Costing (ABC) Business Contingency Planning SAP Change Management BPR ISO9000 Business

Process Improvement THE THEORY OF Workflow Implementation ERP EFQM Financial Modelling TQM System Integration Activity Based Costing (ABC) Business Contingency Planning ERP Strategy Planning Business Process Improvement ISO9000 Change Management BPR SAP EFQM Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning SAP Change Management BPR ISO9000 Business Process Improvement Workflow Implementation ERP EFQM Financial Modelling TQM System Integration Activity Based Costing (ABC) Business Contingency Planning ERP Strategy Planning Business Process Improvement ISO9000 Change Management BPR SAP EFQM Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning SAP Focused Concentration Change Management BPR ISO9000 Business Process Improvement Workflow Implementation ERP EFQM Financial Modelling TQM System Integration Activity Based Costing (ABC) Business Contingency Planning ERP Strategy Planning Business Process Improvement ISO9000 Change Management BPR SAP EFQM Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning SAP Change Management BPR ISO9000 Business Process Improvement Co-ordination and control Workflow Implementation ERP EFQM Financial Modelling TQM System Integration Activity Based Costing (ABC) Business Contingency Planning ERP Strategy Planning Business Process Improvement ISO9000 Change Management BPR SAP EFQM Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning SAP Change Management BPR ISO9000 Business Process Improvement Workflow Implementation ERP EFQM Financial Modelling TQM System Integration Activity Based Costing (ABC) Business Contingency Planning Apply equipment Planning ERP Strategy correctly Business Process Improvement ISO9000 Change Management BPR SAP EFQM Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning SAP Change Management BPR ISO9000 Business Process Improvement Workflow Implementation ERP EFQM Financial Modelling TQM System Integration Activity Based Costing (ABC) Business Contingency Planning ERP Strategy Planning Business Process Improvement ISO9000 Change Management BPR SAP EFQM Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning SAP Change Management BPR ISO9000 Business Process Improvement

Business Process Re-engineering

The Theory of Business Process Re-engineering

Contents
1.0 Introduction 1.1 Structure Domain 1.2 Task (Process) Domain 1.3 Technology Domain 1.4 People Domain Structure 2.1 The Traditional View 2.2 The Introduction of Process Working 2.3 The Process View of the Enterprise 2.3.1 The Network Enterprise 2.3.2 The Process Oriented Enterprise 2.3.3 The Hybrid Enterprise 2.4 Problems with Cross Functional Barriers Process 3.1 Defining Processes 3.2 Earl’s Topology of Processes 3.3 Edwards and Peppard - The Process Triangle Technology 4.1 The Value Adding Capabilities of Information Technology People 5.1 Greater Empowerment 5.2 Cross Functional Process Teams Conclusion 1 3 3 3 3 4 4 6 7 7 7 8 9 10 10 11 13 14 17 19 19 20 22

2.0

3.0

4.0 5.0

6.0

Tables
Table Table Table Table Table 1: 2: 3: 4: 5: Comparing Continuous Process Improvement and BPR Differences between Functional and Network Enterprises Typical Processes within Manufacturing Firms Breaking Business Rules Using Technology IT Opportunities in Business Process Re-engineering 2 9 11 15 16

Figures
Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12:
Copyright© CASEwise 1999

Leavitt’s View of the Organisation The Traditional View of the Enterprise Changing Business Goals Cross Functional Process Working The Network Enterprise A Predominately Process Oriented Enterprise The Hybrid Enterprise Earl’s Topology of Processes Classifying Business Processes: The Process Triangle The Recursive Relationship Between IT Capabilities and BPR The Value Chain The Value System

2 4 6 6 7 7 8 12 13 16 17 17

The Theory of Business Process Re-engineering

The Theory of Business Process Re-engineering
R.F. Pearman

1.0 Introduction
The advent of Business Process Re-engineering (BPR) has been hailed as a management revolution. It has been termed a management recipe for the survival of western businesses and is now the subject of best selling books. Other names for these phenomena include Process Innovation, Business Process Improvement, Business Process Re-design, and various combinations of these key words.
1

Davenport, T., Short, J., (1990), ‘The New Industrial Engineering: Information Technology and Business Process Redesign’, Sloan Management Review.

Davenport and Short (1990)1 define BPR as:

“ “

The analysis and design of workflows and processes within and between organisations.

Hammer, M., Champy, J., (1993), ‘Re-engineering the Corporation: A Manifesto for Business Revolution’, Nicholas Brealey Publishing.

2

Whereas Hammer and Champy (1993) 2 define re-engineering as:

The fundamental rethinking and radical re-design of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed.

These definitions imply that BPR can provide immense leaps in business performance in terms of cost, quality, speed and productivity. It also implies that these goals are only attainable if the enterprise embarks on re-engineering. One example of this dramatic improvement in performance is the reduction of the product to market cycle from a two week order-fulfilling process to just two days.
Earl, M., Khan, B., (1994), ‘How new is Business Process Redesign?,’ European Management Journal. Davenport T. H., (1993), ‘Process Innovation: Re-engineering Work through InformationTechnology’, Harvard Business School Press.
4 3

First, we aim to prevent the confusion that is commonly associated with radical re-design. We argue that BPR is about revolutionary rather than evolutionary change, i.e. step rather than incremental change. In the debate, Earl and Khan (1994)3 offer a spirit of revolution more than evolution and it is not unusual to contrast BPR with continuous improvement. Davenport (1993)4 provides a useful comparison (Table 1).

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Davenport (1993) ‘Process Innovation: Re-engineering Work through Information Technology’ Table 1: Comparing Continuous Process Improvement and BPR

5

Edwards, C., Peppard, J.W., (1994) , ‘Business Process Redesign: Hype, Hope or Hypocrisy?’, Journal of Information Technology.

Edwards and Peppard (1994) 5 agree, pointing out that the aim of BPR is to seek radical process improvement. They recognise that some enterprises are not able to achieve the required goals incrementally, but must transform themselves completely. This has been the most common type, at least in the reported instances of BPR. For these companies, BPR will involve momentous change both in structural and organisational aspects. The extent of change will relate to where the enterprise is coming from, i.e. its existing structure, its culture, management style, reward systems, as well as the driving forces for change. Some enterprises will need to make bigger leaps than others. Having defined BPR and what it represents, we are now in a better position to conduct a review of BPR's main components. Many frameworks to analyse businesses and define change programmes have been devised, mostly by authors of management theory. One such framework is that proposed by Leavitt (1965)6.

Leavitt, H.J., (1965) ‘Applied Organisational Change in Industry: Structural, Technological and Humanistic Approaches’. In Handbook of Organisations, edited by James G. March, Chicago, Rand Mcnally.

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Leavitt (1995) “Applied Organisational Change in Industry Figure 1: Leavitt’s View of the Organisation

In order for BPR to be successful, attention must be given to all four domains. For example, the introduction of a major information system would require a mutual adjustment of all four key principle domains.
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1.1 Structure Domain
The structure of the enterprise must be aligned with the system that will support the reengineered business. Presently most enterprises operate on a functional hierarchical basis. The objective is to adopt a process view of the enterprise and flatten the organisational structure.

1.2 Task (Process) Domain
The specific tasks, and even the entire jobs, of the people who will work with the system will need to be reviewed. A new way of work will now be the premise. Business re-engineering focuses on process as opposed to tasks.

1.3 Technology Domain
The technology employed in an information system must be consistent with the level of the company’s sophistication in using its information systems. Information Technology has been the most significant factor in the development of the BPR philosophy. These technologies permit us to do things in different ways.

1.4 People Domain
The informed commitment of people, the stakeholders of the system that will be affected by it, must be sought. For example, the new business will support collaboration and empowerment.

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2.0 Structure
Significant changes in corporate structure accompany most change programmes. To satisfy our requirements for this analysis, we must firstly discuss the structure and management of the enterprise. This will complement the discussion on the powerful role that Information Technology commands in adding value in a process oriented enterprise.
4

Davenport T. H., (1993), ‘Process Innovation: Re-engineering Work through Information Technology’, Harvard Business School Press.

Davenport (1993)4 observes that managers have recently become more familiar with organisational structures, rather than technological elements, as change tools, because they have been part of the enterprise for a much longer period of time. In the following section, we discuss the traditional view of the enterprise, i.e. what BPR strives to break away from. This is followed by a discussion on process working and the process view of the enterprise.

2.1 The Traditional View
Most enterprises, at least those that have not yet embarked on re-engineering, break down work into a sequence of separate, narrowly defined tasks. The people who perform these tasks do so through a function, e.g. manufacturing or sales, and are usually under the authority of a manager. The traditional management structure forms a hierarchy, often with many layers separating the top of the hierarchy from the bottom. This view is commonly known as the traditional view of the enterprise, (Figure 2). Notice the elongated boxes, which are commonly known as silos. They are the predefined organisational boundaries, i.e. the functions of the enterprise, and for many years have represented the way work has been conducted.

Figure 2: The Traditional View of the Enterprise

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Butler Cox, (1991), ‘The Role of Information Technology in Transforming the Business’, Research Report 79.

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The primary purpose of these functions was to provide the most effective way to support the classic business goals of cost, efficiency, and control. This view is derived from the concept of scientific management as described by Butler Cox (1991)7, which advocated the systematic investigation of work methods, the separation of routine tasks from planning and control, and the substitution of machine power for man power. Scientific management has many goals, two of which are: to improve productivity without impairing quality and to meet customers needs by providing standardised product that is produced more efficiently through economies of scale. A functional formation is the result. This traditional functional structure of the enterprise gives top management three core responsibilities. To act as the company’s chief strategist, it’s structural architect, and the developer and manager of its information and control systems. However, with the emergence of the BPR school of thought, it has become clear that the enterprise model based on hierarchical structure supported by highly sophisticated information systems no longer delivers competitive results. These findings can be traced back to two sources. The first is because of the inefficiency associated with the traditional view and the second is because business goals are changing. The former exposition was uncovered through work from Rummler and Brache (1991) 8. They detected some negative aspects with the traditional view: • Supporting managers perceive other functions as enemies, as opposed to co-operatives, when engaging the battle to fight competition. Observation has revealed that function heads; e.g. marketing and manufacturing are so at odds that cross-functional issues do not get addressed. Things tend to fall between the cracks. Building silos around departments prevents interdepartmental issues being resolved by peers at lower and middle levels. The silo culture forces management to resolve lower level issues, taking their time away from higher priority customer and competitor concerns. Lower level employees, who could be resolving these issues take less responsibility for the results and perceive themselves as mere implementers and information providers.

Rummler, G.A., Brache, A.P., (1991), ‘Improving Performance: How to Manage the White Space on the Organisation Chart’, JosseyBass Management Series.

8

Hammer, M., Champy, J., (1993), ‘Re-engineering the Corporation: A Manifesto for Business Revolution’, Nicholas Brealey Publishing.

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This type of enterprise has its roots in the early Twentieth Century. The challenge in today’s business environment places a premium on responsiveness and flexibility. Business goals have changed. There has been a shift of emphasis from a seller's market to enterprises competing in a buyers market. We need a different way to look at, think about, and manage enterprises. For instance, Hammer and Champy (1993)2 commented that most, if not all, management would like to have an enterprise that is flexible enough to adjust quickly to changing market conditions, lean enough to beat any competitors' price, innovative enough to keep products and services technologically fresh, and dedicated enough to deliver maximum quality and customer service. They further explain that the 'three Cs' - Customers, Competition, and Change - have created a New World of business.

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Traditional functional management appears no longer adequate for a post-industrial age in which quality, innovation, and service are assuming more and more importance. This is illustrated in Figure 3, which shows that business goals are changing.

1. 2. 3. 4. 5. 6. 7.

KEYPERFORMANCE MEASURES Profit growth Revenue growth Return on capital investment Asset/turnover ratio Profit as a proportion of revenue Profit per employee Earning per share

1. 2. 3. 4. 5. 6.

CRITICAL FORFUTURE COMPETITIVENESS Level of customer service Time required to get a product to market Customer response rate Mean time between failures Fault-reporting frequency Customer retention

Butler Cox, (1991), ‘The Role of Information Technology in Transforming the Business’ Figure 3: Changing Business Goals

2.2 The Introduction of Process Working
Instead of envisaging functions, where work is carried out in narrowly defined tasks; enterprises should perceive their activities as a set of processes that cut across the conventional, functional organisation structure. The aim is to re-design the business so that it is process orientated and not function orientated. For example, in a conventional hierarchical organisation, taking and fulfilling a customer order typically, involves multiple functions – sales, production, accounts, distribution, marketing etc... The order proceeds step by step as it passes between functions. Queries and exceptions are handled at higher levels in the hierarchy and for a significant amount of the time the order waits in a queue. Viewed as a business process, taking and fulfilling a customer order involves the same set of work activities, but all these activities are managed as a single, co-ordinated operation either by an individual or by a team. A further example of this type of work lies with the product development cycle. This major process includes activities that draw on multiple functional skills. New product designs are generated by research and development, tested for market acceptance by marketing and evaluated for production by manufacturing. This is illustrated in Figure 4.

Figure 4: Cross Functional Process Working

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2.3 The Process View of the Enterprise
It has been suggested that three types of structure may emerge as a result of the re-engineering effort. They are: • • • The Network Enterprise The Process Oriented Enterprise The Hybrid Enterprise

2.3.1 The Network Enterprise
Butler Cox, (1991), ‘The Role of Information Technology in Transforming the Business’, Research Report 79.
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The network enterprise adopts the view that the traditional, functional hierarchical organisation structure will give way to small entrepreneurial teams of specialist workers tied together in a so called network (or organic) enterprise7. This is illustrated in Figure 5 below.

• • • •
PROCESSWORKFLOW

• • •

TEAM

Figure 5: The Network Enterprise

This peer network structure may emerge in some enterprises, but for the most it is a long way off. Indeed it may never be realised.

2.3.2 The Process Oriented Enterprise
A more probable result is an arrangement of teams co-ordinated by a simplified hierarchy. This is illustrated in Figure 6.

• • •

PROCESSWORKFLOW

TEAM

Figure 6: A Predominately Process Oriented Enterprise

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2.3.3 The Hybrid Enterprise
The Butler Cox foundation articles believe that rather than any of the aforementioned structures, a hybrid structure will prevail. They conclude that the process oriented structure is unlikely to be realised in more than a few large businesses, although it may become a feature of a growing number of small ones. The hybrid structure, a combination of functional and network elements will be the aim of most enterprises, enabling them to get the best of both worlds. This is shown below.

• • •

PROCESSWORKFLOW

TEAM

Figure 7: The Hybrid Enterprise

In this scenario, cross-functional, process oriented teams provide the responsiveness and feeling of smallness that large companies have frequently aimed to achieve. The functional hierarchy then complements these teams by providing the mechanism through which team goals are set and team performance measured, as well as the means of co-ordinating team activities and setting the strategic direction of the business as a whole. The hierarchy defines authority and responsibilities, instils discipline, sets objectives, and conveys cultural values. Companies who adopt this structure retain their existing functional management structure, but only in a modified form. Process teams, report to process owners, who in turn are equivalent to the functional heads affected by the process. Reporting links need to exist between the process owner and equivalent functional heads.

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The table below details the main differences between the functional and network enterprise, as described above.

Slevin, D.P., Colvin, J.G., ‘Juggling entrepreneurial style and organisational structure: How to get your act together’, Sloan Management Review, Vol.31, no.2, Winter 1990.

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Slevin and Colvin, (1990), ‘Juggling entrepreneurial style and organisational structure’ Table 2: Differences between Functional and Network Enterprises
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2.4 Problems with Crossing Functional Barriers
Most of the significant gains in performance tend to occur through the use of IT to support processes that cross functional boundaries; it also increases structural risk. Structural risk represents risks associated with altering existing organisational structures. Studies conducted by Fiedler et al (1994)10, discovered the following: • Structural change increases the risks associated with distributing the institutionalised corporate structures. Cross-functional boundaries may destroy a desired feature of the enterprise. Structural complexity increases as you involve more than one functional area in the project; this in turn increases the risk of project failure. Higher levels of complexity require increased organisational commitment and co-ordination and make change more difficult. Parochial ownership of parts of the system increases with the risk associated with political and functional power struggles. This is because crossing functional boundaries leads to changes in the organisational power structure.

Fiedler, K.D., Grover, V., Teng, T.C., (1994) ‘Information Technology-Enabled change: The Risks and Rewards of Business Process Redesign and Automation’ Journal of Information Technology.

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3.0 Process
Identifying and improving processes is pervasive through all companies that embark on reengineering. We described earlier that business processes must be redefined and streamlined in order to implement strategic vision. However, the scope and maturity of the businesses process architecture and the nature of changes within processes varies within enterprises. Therefore, to understand the concepts of BPR, it is essential that we understand what processes are and how to identify them. To accomplish the enterprise's strategic vision and redefine these processes, we must understand what they represent.

3.1 Defining Processes
The process oriented, cross-functional view of the enterprise is what BPR sets out to achieve. The emphasis, therefore, is on processes rather than just tasks.
Davenport, T., Short, J., (1990), ‘The New Industrial Engineering: Information Technology and Business Process Redesign’, Sloan Management Review.
1

Davenport and Short (1990)1 define business processes as:

“ “

A set of logically related tasks performed to achieve a defined business outcome.

Pall. G.A., (1991) ‘Quality Process Management’, Englewood Cliffs, New Jersey, Prentice Hall, 187.

11

Whilst Pall (1991) 11 defines them as:

” ”

The logical organisation of people, materials, energy, equipment and procedures into work activities designed to produce a specified end result.

Processes are generally recognised to have two important characteristics. Firstly, processes have customers. This means that they have defined business outcomes with identifiable recipients of these outcomes. Secondly, processes cross organisational boundaries, which means they normally occur across or between organisational sub units and are independent of formal organisation structure. Examples of sub-processes in the Ford Motor Company's Accounts Payable department, originally described by Hammer (1990)12, are ‘Order Material’ and ‘Match Documents’, with the payment to suppliers being the objective of the process. Ordering goods from a supplier typically involves multiple departments and functions. For example, the end user, purchasing, receiving, accounts payable, and the supplier’s organisation are all participants. Here, the end user is viewed as the customer and the process outcome could either be the creation of the order or perhaps the actual receipt of the goods by the end user.

Hammer, M., (1990), ‘Re-engineering: Obliterate Donít Automate’, Harvard Business Review.

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The Theory of Business Process Re-engineering

Davenport T. H., (1993), ‘Process Innovation: Re-engineering Work through Information Technology’, Harvard Business School Press.

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Davenport (1993) 4 provides a list of typical processes within a manufacturing firm (Table 3). Enterprises may consist of more or even fewer processes. It is an elementary view characterising only management and operational dimensions. In order to be effective, process definition needs more explanation.

Davenport (1993) ‘Process Innovation: Re-engineering Work through Information Technology’ Table 3: Typical Processes within Manufacturing Firms

Earl. M.J., (1993), ‘The Old and the New of BPR: Some implications of IT’, Centre for Research in IM, London Business School.

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Earl (1993) 13 describes four types of business processes that are now emerging.

3.2 Earl’s Topology of Processes Core Processes

Are those central to how the business functions and relate directly to external customers. They are commonly the primary activities of the value chain.

Support Processes
Are those that have internal customers and backup core processes. They are commonly the administrative secondary activities of the value chain.

Business Network Processes
Are those that exist beyond the boundaries of the enterprise and include suppliers, customers, and business partners.

Management Processes
Are those by which firms plan, organise, and control resources.

Figure 8 shows Earl's (1993) analysis framework. The belief here is that one can more easily analyse and model processes and their re-design if they are relatively structured.

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Earl (1993), ‘The Old and the New of BPR: Some implications of IT’. Figure 8: Earl’s Topology of Processes

On the horizontal axis, we distinguish between primary value chain activities and secondary value chain activities. Primary value chain activities relate to how we do business and have external customers to the enterprise. Their impact is likely to be strategic in the sense of competitiveness and market positioning. They are means by which we can turn around the business. Secondary value chain activities describe how we administer and manage the enterprise. They are internally focused and have an affect on the enterprise’s internal efficiency. As a consequence, they impact on business performance indirectly. They are mor e concerned with the capability than competitive advantage. Earl’s classification of processes neatly fit the model. Core processes are easily described and re-design of these processes will have a meaningful impact through competitiveness and the enterprise's competitive positioning. This is the main reason why some BPR practitioners refer to cross-process re-design as a synonym for business process re-engineering. An example of a core process is order fulfilment, and it is a classic area of attack for re-design. Support processes, which back up core processes, are easily described but have an effect on internal efficiency. Just as systems have subsystems, core processes have subsystems, which in this case are known as support processes. An example of a support process may be human resource management. Business network processes are harder to describe and highly complex. However, re-design will have a strategic impact in terms of competitiveness. An example of this was identified by Short and Venkatraman (1992)14 at Baxter Healthcare: When re-designing external processes, the company had the potential to redefine the business scope and reposition the firm in its industry value chain.

Short, J.E., Venkatraman, N., (1992), ‘Beyond Business Process Redesign: Redifining Baxterís Business Network’, Sloan Management Journal.

14

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Finally, the re-design of management processes will effect internal efficiency, but are complex in structure. An example lies with Texas Instruments where they used expert systems to enable speeding up of the capital budgeting process.

3.3 Edwards and Peppard - The Process Triangle
Edwards, C., Peppard, J.W., (1994) , ‘Forging a Link Between Business Strategy and Business Re-engineering’, European Management Journal.
15

Edwards and Peppard (1994) 15 identify four critical types of process in enterprises, which derive from the product and market focused element and the competency element of the business strategy. These types of process are: competitive processes, infrastructure processes, core processes, and underpinning processes. Figure 9 below illustrates the differences.

Edwards and Peppard (1994). “Forging a Link Between Business Strategy and Business Re-engineering”. Figure 9: Classifying Business Processes: The Process Triangle

Competitive Processes
Relate directly to the enterprise's current basis for competition. For example, if the enterprise was focusing on how quickly new products could be brought to the market, the competitive processes would relate to this focus. In economic terms, these processes enable the firm to enjoy good profits.

Infrastructure Processes
Create the capability to operate effectively in the chosen industry in the future. These processes develop the capability (people, process and technology) that will define tomorrow’s competitive strategy.

Core Processes
Are those processes that are valued by the stakeholder. They must operate satisfactorily but are not currently the chosen basis of competition. They are necessary in the enterprise to avoid disadvantage in the marketplace. They may also be the minimum entry requirements into the market or be required by government legislation. They should not be confused with Earl’s core processes, as described earlier. Edwards and Peppard used the word stakeholder, rather than customer, to include customers, suppliers, employees, shareholders, i.e. all those who have a 'stake' in the company.
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Underpinning Processes
Are processes that are undertaken, but are neither recognised nor valued, by stakeholders in the short term. These processes are found in all enterprises and are collections of closely related activities that are grouped together for efficiency and recognised as a process. In reality, they are not real processes in the sense that they directly support customers, but rather, they contribute to other categories of process. The reason why management consider these as processes lies in the benefits of functionalism, namely efficiency and specialisation. For example, in the performance of competitive, infrastructure, and core processes, some administrative support is necessary. An example of which is the recruitment of staff, this may be an element in a number of processes. However for efficiency reasons, management may decide to combine these elements and manage them as a single process.

13

Earl. M.J., (1993), ‘The Old and the New of BPR: Some implications of IT’, Centre for Research in IM, London Business School. Edwards, C., Peppard, J.W., (1994) , ‘Forging a Link Between Business Strategy and Business Re-engineering’, European Management Journal.
15

The classification schemes described above, namely from Earl (1993)13 and Edwards and Peppard (1994)15, represent only two schemes from a list of many. Other schemes have been proposed, such as: Operation versus Management (Davenport, 1993). Rockhart and Short (1990) suggest that processes relate to developing new products, delivering products to customers, and managing customer relationships. A further classification scheme focuses on four macro activities, derived from a variant of value chain analysis: product development and launch, supply chain and operations, customer order fulfilment, management planning and resource allocation.

4.0 Technology
Generally, the perceived benefits from IT have failed to live up to expectations, many senior executives feel cheated, not only by IT vendors but also by their IT staff. This is usually a result of highly placed expectations, which force companies to learn the hard way that technology itself does not generate sustainable competitive advantage. Rather, the advantage comes from the combination of IT, appropriate business processes, effective human behaviour, and a strategy to implement change.
12

Hammer, M., (1990), ‘Re-engineering: Obliterate Donít Automate’, Harvard Business Review.

Hammer (1990)12, observes that the usual methods for boosting performance such as ‘process rationalisation and automation’ have not yielded the dramatic improvements that companies sought. In particular, heavy investment in IT often delivered disappointing results, largely because companies tend to use technology to mechanise old ways of doing business.

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The Theory of Business Process Re-engineering

M., Champy, J., (1993), ‘Re-engineering the Corporation: A Manifesto for Business Revolution’, Nicholas Brealey Publishing.

3Hammer,

Hammer and Champy (1993) 2 wrote:

A company that cannot change the way it thinks about Information Technology cannot re-engineer, a company that equates technology with automation cannot re-engineer and a company that looks for problems first and then seeks technology solutions for them cannot re-engineer’.

Modern Information Technology should be viewed in any re-engineering effort as an essential enabler, one that permits the enterprise to re-engineer business processes. Hammer and Champy say that Information Technology can be used to break long held rules that were legitimate at some point but now inhibit the enterprise. They refer to technology that is used to break rules as ‘disruptive’ technology. For example, a long held business constraint is that geographically disparate people can’t meet regularly or inexpensively. New technologies such as Video-Conferencing and Net-Meeting now make this business constraint obsolete. The principles of re-engineering contain many references to the enabling power of Information Technology. For example the power of databases and expert systems can allow nonspecialised workers to make decisions for their specific departments, and hence there is no need to sacrifice the time of specialised workers. Table 4 below summarises the old business rules that can be broken by use of disruptive technology as defined by Hammer and Champy.

Hammer and Champy (1993), ‘Re-engineering the Corporation: A Manifesto for Business Revolution’, Table 4: Breaking Business Rules Using Technology

Hammer and Champy (1993) call on enterprises to think inductively rather than deductively. That is, instead of using deductive reasoning to look for solutions to apparent problems, they urge managers to learn the power of new Information Technologies and to think of innovative ways they can be used to radically alter the way work is done.
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Davenport, T., Short, J., (1990), ‘The New Industrial Engineering: Information Technology and Business Process Redesign’, Sloan Management Review.

1

Davenport and Short (1990)1 believe that the importance of Information Technology and Business Process Re-engineering is well known to Industrial Engineers, albeit as largely separate tools for use in specific environments. They argue that IT is used in industrial engineering as an analysis and modelling tool and have often taken the lead in applying Information Technology to manufacturing environments. They also stress the importance of analysis and re-engineering in the service sector of western companies. Moreover, they reinforce Hammer’s (1990) arguments by stating that Information Technology should be viewed as more than an automating or mechanising force: it can fundamentally reshape the way business is done. They identify a recursive relationship between Information Technology and BPR. This relationship is illustrated in Figure 10.

Davenport and Short (1990), “The New Industrial Engineering” Figure 10: The Recursive Relationship Between IT Capabilities and BPR

Earl, M., Khan, B., (1994), ‘How new is Business Process Redesign?,’ European Management Journal. T. H., (1993), ‘Process Innovation: Re-engineering Work through Information Technology’, Harvard Business School Press.
4Davenport

3

Each is the key to thinking about the other. Thinking about Information Technology should be in terms of how it supports new or re-designed business processes, rather than business functions or other organisational entities. Business processes and process improvements should be considered in terms of the capabilities Information Technology can provide. So essentially the claim that has been made is that by understanding and harnessing IT we can re-design business processes in hitherto non-feasible ways. Earl and Khan (1994)3 (summarising Davenport (1993)4 ) provide a list of opportunities under three economic contributions that IT generically offers. This is illustrated in Table 5 below.

Earl and Khan (1994), ‘How new is Business Process Re-design?.’ Table 5: IT Opportunities in Business Process Re-engineering

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Earl, M., Khan, B., (1994), ‘How new is Business Process Redesign?,’ European Management Journal.

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However, the powerful role of Information Technology in enabling the re-design of processes is not flawless. Earl and Khan (1994)3 highlight the fact that Information Technology can also be a constraint on BPR, principally because of the legacy of systems built to serve the past. Where data and systems architecture have been built to serve local functional needs, there may be limits on process integration. Incompatible data and non-communicating systems are typical inhibitors.

4.1 The Value Adding Capabilities of Information Technology
Another important view relates to the theories of the highly regarded strategist, Michael Porter. The Butler Cox research articles put forward the view that Michael Porter’s value chain concept plays an important part in understanding the role of information, and naturally Information Technology, in creating the product and delivering it to the market. The value chain is illustrated in Figure 11.

Figure 11: The Value Chain

In order to achieve competitive advantage the enterprise must perform its business activities at a lower price or in such a way that the ability to command premium price is reached, i.e. differentiation. Furthermore, the activities illustrated above are interdependent and connected by linkages; information facilitates these activities and their linkages, and so is an important source of value. The value chain, which identifies nine discrete activities that an enterprise performs in doing its business, is embedded in a larger stream of activities known as the value system. This is illustrated in Figure 12. The value system connects primary suppliers and intermediate suppliers to the final customer. Linkages connect the value activities of an enterprise in the value system to those of its upstream suppliers and downstream customers.

Upstream

Company

Downstream

Supplier Value Chains

Company Value Chains

Channel Value Chains

End-User Value Chains

Figure 12: The Value System

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Ascari, A., Rock, M., Dutta, S., (1995) ‘Re-engineering and Organisational Change: Lessons from a Comparative Analysis of Company Experiences’, European Management Journal.

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Competitive advantage arises as a result of these linkages being optimised, with Information Technology acting as a source of added value. Even though Information Technology can provide a source of added value in a functional organisation it is constrained by the limitation inherent in the structure. Hence, one definition of BPR that is often quoted is: ‘Analysis and redesign of business and manufacturing processes to eliminate that which adds no value,’ See Ascari et al (1995) 16. Value is normally added by automating functional activities. Hammer (1990), Davenport and Short (1990) reveal two ways in which Information Technology aids the functional organisation. Firstly, by stripping out excess layers of middle management (de-layering), the organisation has been flattened, which widens managers' span of control. This has been facilitated by the introduction of management information and decision support systems. Secondly, Information Technology can also add value in a functional organisation by improving inter-functional workflow. However, the point remains that Information Technology helps to improve the flow of information through specific functions but does little to improve linkages between them. Functional divisions usually fail to align themselves with the value activities in the value chain because they focus on internal efficiency and control rather than the areas of design, quality, and customer service where added value is most needed. Information Technology, coupled with the re-design of business processes, gives the enterprise the potential to increase radically the added value of information. This, in turn, increases the ability for enterprise’s to take advantage of Information Technology in those areas such as cost cutting and differentiation.

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5.0 People
Human resource management, like information, has only recently been seen as a strategic resource. To emphasise this shift, its name has been altered from personnel management. This highlights the human dimension and its critical importance to the enterprise rather than the personnel management focus on people as merely a factor in production. The new processes proposed from the re-engineering effort usually involves some new skills. Re-engineering often involves greater worker empowerment and a broader set of work tasks; the requisite new skills may involve both increased depth of job knowledge and greater breadth of task expertise.

5.1 Greater Empowerment
The most recent shifts in enterprise culture have been in the direction of greater worker empowerment, increased participation in decision making and more open, less hierarchical communications. Basically, the decision point is put where the work is performed. The result is an enterprise that has a structurally flatter organisational hierarchy with a broader span of control. It has been widely documented that this leads to greater productivity, increased quality, and greater employee satisfaction. The cultural changes that result from a flatter, less hierarchical organisation are intended to empower process participants to make decisions about process operations. A culture of participation may even lead to the self-design of smaller, restricted processes by employee teams. Customer oriented processes, which emphasise this worker empowerment, can yield radical improvements. For example, British Airways has eliminated the office functions required to process customer claims for Dry Cleaning, which result from in-flight accidents, by empowering cabin crew to issue cleaning vouchers. The procedure has not only saved money; it has also had a positive impact on customer satisfaction. According to Davenport (1993)4, worker empowerment can also provide the impetus for general innovation. Although re-engineering is not normally a bottom-up activity, a culture that is receptive to innovation at all levels is likely to both identify and implement business re-engineering at relatively high levels. Furthermore, even after broad process designs have been implemented, an innovative culture can inspire minor improvements that benefit day to day process performance. Information Technology also plays a role by supporting culture, control or even empowerment. It does this by supplying employees with information enabling them to make their own process decisions or with instructions that dictate precisely how to perform each task.

Davenport T. H., (1993), ‘Process Innovation: Re-engineering Work through Information Technology’, Harvard Business School Press.

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5.2 Cross Functional Process Teams
Davenport T. H., (1993), ‘Process Innovation: Re-engineering Work through Information Technology’, Harvard Business School Press.
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Davenport (1993) 4 points out that in order to facilitate a new process oriented structure that develops as a result of re-engineering, the use of teams is commonly made. Experimental observations have revealed that individual based work designs combined with new technologies were less productive than work teams with no technology. The rationale for this finding was partly process oriented. The teams tended to work better because they combined multiple functions into one unit. The team approach has been favoured by many, and has many benefits: • Cross-functional skills facilitate interfaces and parallel design activities. Furthermore the fact that the team possesses a broad number of skills and perspectives increases the chances that the output will meet multi-functional requirements. Team structures improve the quality of work life, since people tend to prefer jobs that include social interaction. Additionally, it is true that alienated, unhappy individual workers are no more productive than overly socialised teams. This socialisation benefit is particularly important when the primary content of the work is informational. Hence, an important point to heed when considering a team to shoulder a cross-functional process is to pay careful attention to cultural compatibility measures.

The types of team that exist in today’s organisations are multiple; however, not all are organised to execute work in the style of a process. Assuming that the hybrid structure is in place, as it is in most organisations that have been studied, one of the most difficult issues facing these cross-functional teams is the relationship between team members and the functional structure of the organisation. How, and by whom, will team members be evaluated? In one instance, sources of conflict occurred because teams were established whose members had both process team and functional responsibilities, but were evaluated by their functional superiors. Davenport (1993)4 recommends a solution to this problem. He says that a process based organisation should be created, whether stand-alone or one that works in conjunction with the functional organisation, and give process representatives a role equal to that of functional managers in evaluating and compensating team managers. In order to function effectively as a cross-functional team, a senior management group must be willing and able to look beyond functional allegiances, and even beyond what may benefit their careers. Davenport (1993) 4 provides his view of criteria for process team success: • A clear relationship to the functional structure is essential. Consideration in terms not only of reporting relationship and performance reward evaluation, but the relative emphasis on process versus functional activities is important. Logically, issues, such as those incorporating the location of team members, also affect team success. Frequent meetings permit the efficient performance of these teams. Self-managing teams i.e. those that direct their own work and have no formal leader, have recently become a popular theme. This encourages motivation but there is a possibility of ambiguity as to who really manages the set of activities. This facilitates the need for

Davenport T. H., (1993), ‘Process Innovation: Re-engineering Work through Information Technology’, Harvard Business School Press.

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boundary management. A focus on intragroup effectiveness and dynamics must be combined with attention to a team’s relationship with the larger organisation. At the same time, the larger organisation must support the team with adequate resources, including management attention when needed. Basically a need for clarity - in mission, process boundaries, decision-making authority and internal and external roles - is essential. Clarity is facilitated when team-work is viewed in process terms; the process orientation supplies a clear purpose and the process performance objectives become the performance objectives of the team. The process team must be carefully designed, and alternatives to teams considered. Creating a team oriented approach to process execution should not be undertaken without assistance from experts and usually calls for personnel training. Furthermore teams are a means of building social interaction and crossfunctional perspectives into a work process. If these objectives can be accomplished through some other means, or are for some reason unnecessary, team structures are not required.

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6.0 Conclusion
Business Process Re-engineering is way of organising the business so that it can break free from the traditional functional approach that has developed over many decades. By cutting across functional divisions, re-engineering promises to make businesses more responsive, improve service and increase quality. This white paper has focused on four organisational components, which can be seen as domains of change. The components are Structure, Process, Technology and People, and are essential elements in a re-engineered process or enterprise and must be aligned in order to support re-engineering. Firstly, as the principles of re-engineering suggest, there is a significant structural change in the enterprise. The enterprise progresses from the traditional hierarchical view of the organisation towards a process view of the organisation. Work is now carried out as a set of processes rather than tasks limited to the functional boundaries in which they exist. Reasons for this shift have been attributed to changing business goals. However, a degree of risk also accompanies these changes. For instance, a process oriented view involves crossing functional barriers, which can increase structural risk. This white paper has also endeavoured to define processes. Classification schemes that clearly represent the differences between types of business processes were explored. In addition to structure and process, the power of Information Technology also plays an essential role in re-engineering, primarily as an enabler of re-design. IT can actually create new process re-design opportunities, rather than merely support the processes that already exist. Business processes should be considered in terms of the capabilities that IT can provide, rather than seeing IT as solving existing problems. IT, along with the re-design of business processes, has the potential to increase the added value of information radically. Moreover, this is not confined to the enterprise but also the value system beyond it. Finally, BPR redefines jobs. Employees are required to work as part of a team and some are empowered to make decisions. Process working requires the use of teams, since it is unlikely that one employee will be able to meet all of the multi-functional requirements. Moreover, the team approach improves team members' work satisfaction through social interaction, which in turn increases productivity and employee loyalty.

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