IJSIM

5,3 Business Process

Re-engineering: An Example
from the Banking Sector
26
Roger Maull and Stephen Childe
Received May 1993
Revised November1993 University of Plymouth, Plymouth, UK

Introduction
Two recent publications have identified the importance of the effective
management of processes. Stalk et al. (1992) have coined a new term for the
direction of a corporate strategy – capabilities-based competition. In an article
of wide-ranging analysis, they identify as a key corporate success factor the
ability to emphasize behaviour, i.e. “the organisational practices and business
processes in which capabilities are rooted, as the primary object of strategy and
therefore the focus for managerial attention on the infrastructure that supports
capabilities”.
Womack et al. (1990) define lean production as the “transfer of the maximum
number of tasks and responsibilities to those workers actually adding
value…and it has in place a system for detecting faults that quickly traces
every problem, once discovered, to its ultimate cause”. This emphasis can be
employed within the service sector to considerable advantage, particularly
when value-added activities are identified through process modelling.
In addition, many authors at the 1992 BPICS conference presented their ideas
and findings on business processing re-engineering (BPR), including Booth,
Burns, Doyle, Patrick and Jolley, and Radley. The majority of the conference
papers assumed a process view, whether through a focus on 1ogistics,
partnership sourcing and electronic data interchange (the extension of BPR to
the supplier), performance measures or the potential for information
technology (IT).
Despite the current high profile of BPR in the UK business community, the
proliferation of change programmes throughout UK commerce and industry,
and a wide range of BPR consultancy offerings, companies are only now
beginning to explore the central questions of “what is a business process?” and
“how can I identify processes in my business?”

International Journal of Service
Industry Management, Vol. 5 No. 3,
1994, pp. 26-34. © MCB University
Press, 0956-4233
Business Processes
According to Davenport and Short (1990), a business process is “the logical
organisation of people, materials, energy, equipment and procedures into work
activities designed to produce a specified end result”. Davenport and Short also
state that processes have two important characteristics. First, they have
customers and, second, they cross organizational boundaries and are generally Business Process
independent of formal organizational structure. Re-engineering
Similarly, Hickman (1993) defines a business process as “a logical series of
dependent activities which use the resources of the organisation to create, or
result in, an observable or measurable outcome, such as a product or service”.
The authors would add that a business process must be initiated by and
provide results to a customer, who may be internal or external to the company. 27
A useful structure established by the CIM-OSA standards committee
(CIM-OSA 1989) subdivides processes into three main areas:
(1) manage;
(2) operate;
(3) and support.
The CIM-OSA framework regards manage processes as those which are
concerned with strategy and direction-setting as well as with business planning
and control. Operate processes are viewed as those which are directly related to
satisfying the requirements of the external customer, for example the logistics
supply chain from order to delivery. These are sometimes referred to as “core
processes”. Support processes typically act in support of the manage and
operate processes. They include the financial, personnel, facilities management
and information systems (IS) provision activities.
However, these definitions apply at an abstract or high level. Further work
needs to be carried out to define business processes at the more detailed levels.
In the authors’ view, in general terms, a business process operates in a manner
analogous to the operation of an industrial or chemical process, in as much as it
comprises “a series of continuous actions or operations” (Hawkins, 1984) which
are performed upon a commodity. It may also be regarded as a conduit along
which a commodity flows. In this context, a commodity might be conceptual or
material. Such commodities pass along their respective process conduits and
are transformed, at different stages in their progress, as various operations are
performed upon them. A process can therefore be identified by the type of
commodity which flows through it. Typical examples of business processes at
the bank include processing money transmissions, processing a new mortgage
application, preparing budgets, etc.

What Is Business Process Re-engineering?

There is as yet no agreement on terms within the business process community.
Various authors have described approaches known as “business process
re-engineering”, “business process redesign”, “business process management”,
“business process improvement” and “core process re-design”. Their
approaches have different characteristics in terms of the degree of change
(radical or incremental), the scope of the exercise and the focus of attention.
Some useful scales of analysis are shown in Figure 1.
IJSIM
5,3 Hammer Harrington
Radical Incremental

28 Harrington Gant
Quality led IT led

Davenport and
O&M Short, Hickman Stalk
Figure 1.
Individual Whole process
Scales for Comparison
of BPR Approaches

Hammer’s intervention strategy, which he has referred to as the “neutron bomb”

approach to business improvement – “We’ll leave the walls standing and we’ll
nuke everything on the inside” (Hammer, 1993) – clearly exists at one extreme
of a wide spectrum of opinion regarding the most appropriate BPR strategies
for firms to adopt. Indeed, an element of tension clearly exists between those
who favour an incrementalist approach and those who prefer “root-and-branch”
radicalism where business process improvement is concerned.
Others focus much more on an IT-driven intervention. For example, Gant
(1992) sees BPR as simply “the redesign of processes to take advantage of the
enormous potential of information technology”. This approach tends to identify
BPR with traditional systems analysis and design and software engineering
(BCS, 1993). These approaches concentrate attention on developing a
requirements definition, entity relationship models, normalized database
designs and eventually software solutions, applying all this within existing
(usually functionally-oriented) organizations. The process-focused approach
concentrates first on identifying the business processes, then on analysing and
re-engineering each process. From this perspective, IT ceases to be the focus of
the analysis and design exercise and firms should delay consideration of
integrated software solutions until business process re-engineering is complete.
On the other hand, Harrington’s ideas on the subject (Harrington, 1992)
may be said to inhabit the more incrementalist, quality-oriented and less
IT- dominated end of the BPR opinion spectrum. He defines the concept of
business process improvement as a “systematic methodology developed to help
an organisation make significant advances in the way in which its business
processes operate”.
The scope of the intervention can vary from a single individual to the whole
process. In the type of change where an individual within a function seeks to
improve his or her part of the process, improvements are essentially small in Business Process
scale, internal in scope, low in risk and operational in outlook. Re-engineering
Some interventions may be group based. Such change tends to be wider in
scope than individual improvement, but it is still essentially operational in
nature, entails minimal risk to the organization and can be regarded as
incremental change.
The work undertaken by Quality Improvement Teams (QITs) extends 29
beyond 1ocalized small-group improvement activity and into other functional
areas of the business. QITs typically have the freedom to consider customer-
supplier relationships as well as their own process. QITs are often able to bring
about some radical changes; however, they tend to be constrained by existing
organizational boundaries and to be centred on a particular business function.
Process Simplification (PS) may be regarded as the first real type of process-
based change. PS focuses on the whole process. Often, a Process Improvement
Team (PIT) will have been established whose job is to analyse the whole process
for such non value-added activities as filing and retrieval and checking, and
who will be seeking to remove these activities. In most organizations, the
establishment of PITs is expensive and time consuming and often requires
external consultancy help.
Process improvement (in the style of Harrington) and business process re-
engineering (in the style of Hammer) again focus on the whole process but have
a wider scope than the removal of waste. Harrington takes an incremental view
whilst Hammer’s approach is more radical, and questions whether the status
quo is relevant to the future system. A reduced number of activities,
organizational and job re-design and new developments in IT – such as
document image processing (DIP), workflow management or expert systems –
may be used. This type of change seeks to reduce the number of activities by up
to 90 per cent and addresses real strategic benefits.
Business re-engineering (as distinct from business process re-engineering)
looks at the improvement of the (already process-focused) organization to
exploit its capabilities in a way which leads to the growth of business in new
and different areas. Stalk et al. (1992) define capabilities-based competition as
the ability to capitalize on “the organisational practices and business processes
in which capabilities are rooted”. Such a capabilities-focus identifies a set of
strengths in core processes which enables companies to compete in entirely
different competitive environments.
It is important at this point, after establishing different types of BP
intervention, (the various BPR interventions are treated in more detail in Childe
et al. (1994)) to differentiate between process-focused approaches and traditional
organization and method (O&M) analyses. There are clearly fundamental
similarities between O&M and the lower levels of process improvement, e.g.
personal, group based, etc. However, these approaches do not focus on the
whole process: they may be systematic, i.e.“methodical arranged according to a
plan”, but not systemic i.e. “of or affecting a whole system” (Hitchins, 1992).
IJSIM They do not focus on the whole process and the integration of work between
5,3 functions. This focus on the whole process is the key to achieving the
substantial benefits many have claimed for BPR.
In the example given below, the mortgage process ran across over ten
different departments. Traditional methods had previously focused on internal
departmental improvement, using O&M and TQM analyses, with only limited
30 success. The case study shows how a whole process-based analysis was used,
initially looking for process improvement and later for re-engineering.

Case Study
Methodology
The bank has established a five-stage approach to BPR:
(1) develop strategy – developing a vision, critical success factors and
stretch goals;
(2) identify key processes – related to critical processes, guided by the
strategic phase; also define performance factors;
(3) analyse existing processes – including modelling the existing process;
(4) develop an improvement plan – involving re-design and strategic
re-engineering;
(5) implementation – develop/build prototypes, gaining commitment;
develop IT support systems.
The bank has adopted this comprehensive approach to BPR as a means of
radically re-focusing the organization on its customers. The underlying focus is
first to establish “quick wins” and to attempt to remove “price of non-
conformance” through process simplification, and then to specify the radically
re-engineered processes for implementation over a 12-month cycle. The bank
has now completed work on two major processes using this five-stage
approach. However, for reasons of confidentiality, this article will concentrate
only on the application of stages three and four – analysis and improvement.
The approach to modelling has been based on a combination of IDEF0 and
flow charting. IDEF0 is fast becoming the standard process modelling technique
and is used within a variety of service industry companies, including ICL, IBM,
Natwest, TSB, Portman and Scottish Power, and is the modelling base
for the BPR offerings of most of the main consultancy firms. A complete
description of the methods and of IDEF0, and an analysis of its contribution to
modelling complex systems, is provided in Maull (1986).

Results
The models developed at the bank cover a variety of processes; the example
given in Figure 2 is one of a whole suite of models that cover the mortgage
process.
Figure 2 summarizes the main information flows within the process that
supports the provision of the mortgage product. (It is important to note that a
 Business Process
Used at: Author: Stuart Parkes Date: 11 / 27 / 92 Working
Draft
Reader Date Context:
Re-engineering
Project: Rev:
Recommended
Notes: 1 2 3 4 5 6 7 8 9 10
Publication
Mortgage Reject Checklist Request more
target application C2 information Formal offer
C1 O2 O5 of acceptance
O3
( )
Initialize
Enquiry 31
contact Mortgage
A11 ( ) application
forms
11 Collect
Customer data
search D/B A12 Property
insurance
12
Distribute
Customer mortgage Fate proposal letter
information pack A13
House
Mortgage insurance
pack data
Assess
13 proposal Reject life
Insurance insurance
Funds A14 proposal
O4
Notify Insure
to collect life O6
premium Billing
A15
M4 Insure
Branch property
staff A16

M1 M5 M3 M2 M6
Customer Systems Figure 2.
Node: A1 Title: Process mortgage application Number: Example of One of the
Models Covering the
Mortgage Process

whole suite of models, decomposed to seven levels, summarizes this process;

this diagram is shown as an example.) The process begins with some initial
contact with the client (A11), who is then asked to attend an interview. At the
interview a variety of data is collected (A12) on to a variety of forms, e.g.
mortgage application form, financial advice form, MIRAS, life and general
insurance, etc. All these data are then collated and checked off against a
checklist (A13), before being sent off to the central mortgage processing unit.
This group then assesses the mortgage application against the existing funds
availability and sets up billing procedures (A14). If the mortgage application is
standard, i.e. if it falls within set parameters (e.g. height/weight ratios), then life
insurance is set up at the same time. If the application falls outside these
parameters, then the proposal is sent on to the central mortgage processors for
the life insurance to be established (A15). The same process applies to general
building and contents insurance, the separate property insurance activity (A16)
occurring if the proposal falls outside pre-determined parameters. Feedback
from life (M2) and property (M6) enable the central mortgage processors to
issue a formal offer of acceptance (A14).
The IDEF0 models were helpful in identifying areas for improvement in three
main ways. First, they acted as a means of understanding the process, which
had never previously been modelled in so detailed a manner. Second, because of
the hierarchical nature of IDEF0, the models are useful in communicating this
IJSIM understanding of the process to senior executives. In essence, because IDEF0
5,3 insists on consistency among levels, yet allows for abstraction of terms, the
models can be shown to strategic meetings where radical re-engineering
decisions are made. Third, the models allow an analysis of the process to take
place. Two types of change were identified: incremental, which had a six-month
implementation cycle, and radical, which had an 18-month cycle. The
32 incremental analysis was based on the streamlining activity proposed
by Harrington (1992), and focused on the detailed diagrams, four and five
levels down in the hierarchy. In this case, the team analysed the models and
looked for opportunities to:
● reduce bureaucracy – where unnecessary administration, paperwork
and checking were taking place;
● reduce duplication;
● reduce process cycle times;
● use simple language and to simplify forms;
● undertake value-added assessment – using the criterion “would the
customer pay for this activity?”;
● reduce the number of exception routines.
The radical team used the models at the higher levels of the hierarchy and
sought to identify where IT could be used to eliminate whole activities. It was
then necessary to analyse the whole activity for all its inputs and outputs, e.g.
to ensure that the next stage in the process still had all the necessary inputs to
carry out its task. This is a much more strategic-level decision, and was well
supported by the high-level diagrams.
After modelling the process, the bank was able to identify clear areas where
“quick wins” were possible. These included:
● focus on block policies which represent a quarter of the cost of stand-
alone policies;
● improve documentation from branches;
● issue guidelines on the need for clarity in handwriting on application
forms;
● re-keying of data in central mortgage processor, insurance and branch;
● quality centres established to ensure the requisite accuracy of forms;
● too much movement of paper;
● faxing and posting forms;
● speed of computing support for underwriting.
However, these improvements are process simplifications, incremental rather
than radical improvements. The radical improvements to the process are to be
implemented in the second phase. These are expected to reduce the number of
activities involved in the mortgage process by a factor of 10, and instead to rely Business Process
extensively on the enhanced use of fourth generation languages and expert Re-engineering
systems.

Conclusions
This article has attempted to summarize the major influences affecting the
approach to business process management developed by the authors. The key 33
drivers are strategic: to develop lean processes which are then used as a basis
for developing strategic capabilities. The key mechanism is process modelling.
The approach adopted at the bank was based first around modelling the
existing process, and then seeking to improve through either re-engineering or
process simplification based around quality improvement teams. The authors
have adopted an approach which facilitates both these elements of change
through the use of a systematic method which incorporates a number of
techniques based around the use of IDEF0.
The business process movement is heterogeneous, with no single driving
force. It takes account of measuring work; it uses TQ concepts such as
empowerment and modelling processes; and it is closely associated with the
application of new IT concepts. It combines all these into a radical rather than
incrementalist approach to change, focused on the process. The focus is not on
the improvement of the efficiency of individual departments, as in O&M, but on
how whole processes can be made both more efficient and more effective.

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