Chapter 2:

BUSINESS PROCESSES
(Subject code: 201085)

Prepared by: Accounting department 3

 Objectives of Chapter 2

❑ Describe the components of organisational

strategy and mission

❑ Understand business processes

❑ Explain the role enterprise resource planning

(ERP) systems play in business process design

2
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 Contents

2.1 Organisational Strategy & Mission

2.2 Business Process

2.3 Business Processes in ERP Systems

2.4 Changing Business Processes

3
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 Organisational Strategy & Mission
❑ Mission Statement: typically contains an
expression of the organisation’s vision,
business domain, competencies and values

❑ Strategy: a means of putting a mission

statement into practice. Operates at three
levels:
o Internal
o Competitive
o Business portfolio

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 Strategy Options

❑ According to Michael Porter, businesses have

two options when deciding on a strategy:

o Cost Leadership: Organisations need to carry out

Strategy Options
their activities cheaper than their competitors
through economies of scale, technology, low
overheads etc

o Differentiation: Involves creating a business adding

that little bit extra for customers, offering unique
products targeted to the customer’s needs

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 Porter’s Five Forces Model

1. Rivalry among existing competitors: refers

to the current status within the market that a
business operates within
Porter’s Five Forces Model
2. Threat of substitute products or services:
refers to those products or services that can be
used as an alternative to what the industry
currently produces

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 Porter’s Five Forces Model (Cont)

3. Bargaining power of suppliers: a supplier

can find itself in a strong bargaining position if it
is the only business able to provide a particular
product or service

4. Bargaining power of buyers: an organisation

that has a small number of specialist customers
can ill afford to lose them. Hence the customer
is in a position of relative strength

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 Porter’s Five Forces Model (Cont)

5. Threat of new entrants: new organisations

entering an industry create increased
competition for the existing participants

❑ Using the five forces model an organisation can

analyse its industry to identify opportunities
and threats and then develop tactics for these
situations

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 The Functional Perspective
of the Organisation

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 The Functional Perspective
of the Organisation (Cont)
❑ Benefits
o Control and coordination: provides sound
organisational control
o Specificity: highly defined and specified tasks exist

❑ Problems and limitations

o Not reflective of the reality of today
o Information and communication problems
o Slow to react to the environment
o Focuses on the wrong things

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 What is a Business Process ?

❑ A business process is a series of interlocking

activities that work together, across the
organisation, to achieve some predetermined
organisational
What is a goal (typically
Business defined around
Process ?
satisfying customer needs)

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 A Process Based Organisation

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 Functional vs Process

Functional Process
perspective perspective
Focus What is done How it is done

Orientation Vertical, Horizontal, across

hierarchical the organisation

Objective Task driven Customer driven

Personnel Specialists – highly Generalists –

defined tasks tasks across the
process
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 Business Process Within the
Organisation
Sales

Aim: To sell goods and collect cash from sales

Business Process Within the
Organisation
Participants: Sales staff, customer, billing staff,
warehouse keeper, accountant

Inputs: sales order

Outputs: Invoice, receipt, shipping document

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 Business Process Within the
Organisation (Cont)
Purchasing
Aim: To acquire goods from suppliers and
appropriately
Business manage
Processstock
Within the
Organisation (Cont)
Participants: purchasing staff, supplier,
warehouse keeper, accountant

Inputs: Purchase requisition, back order

Outputs: Purchase order

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 Why Business Processes?
❑ Resource benefits that flow from having a
process emphasis

❑ Improved customer service and relations

Why Business Processes?
❑ A value-adding emphasis

❑ A competitive advantage through outsourcing

❑ End-user perspective
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 ERP Systems, Business
Processes and Best Practice
❑ An ERP system is a set of computer program
modules that attempts to integrate the different
functional areas of the organisation

❑ ERP is designed on the basis of best practice –

the best way of performing a particular process

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 Issues in Moving to a Business
Process - Based Environment
❑ Management Change
o Functionally based structure must be changed
o Support must come from the top

❑ People Change
o Narrowly defined specialist jobs may become
generalist and diverse
o Reduction of middle management – increased
authority to those lower in the organisation

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 Changing Business Processes

❑ Business processes are not static

❑ Factors impacting on business

processes
o Technology
o Competition
o Business environment

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 Changing Business Processes

❑ The means of changing processes is referred

to as business process design

❑ Approaches:
o TQM
o BP Re-engineering (BPR)
o Eclectic

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 Total Quality Management (TQM)

❑ TQM is a progressive approach to

organisational change that works on the
principle that a series of small progressive
steps is the best way to improve operations

❑ The philosophy of TQM is geared around four

main concepts:
1. Quality
2. People
3. Organisations
4. Management

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 Quality

❑ Poor quality is costly

Quality
❑ Costs are associated with rework and product
returns

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 People

❑ TQM refers to how people within an

People
organisation are valued for their contributions
towards the process and their idea on how the
process can be improved

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 Organisations

❑ The organisational aspect of TQM

emphasises:

Organisations
o That the organisation does not operate as a
series of independent departments

o That functions interact to provide a good

product or deliver a quality service

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 Management

❑ TQM asserts that change and improvement can

only occur if they have the support and
endorsement of top management
Management
❑ Management must focus on processes rather
than individual functions

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 Business Process
Re-Engineering (BPR)

❑ BPR is defined as:

the fundamental rethinking

Business and radical
Process
redesign ofRe-Engineering
business processes to achieve
(BPR)
dramatic improvements in critical contemporary
measures of performance, such as cost, quality,
service and speed

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 Key Components of BPR

1. Fundamental aspect forces an organisation

to question what activities it performs as part of
its current process
Key Components of BPR
2. Radical component compel organisations to
start again
3. Dramatic refers to the expected return on the
improvements
4. Process aspect is central to BPR

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 Principles and Approaches

1. Establish a sense of urgency

2. Form a leadership team

Principles and Approaches
3. Create and communicate a vision

4. Empower others to meet the vision

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 Principles and Approaches (Cont)

5. Plan for and create short term wins

6. Consolidate improvements and encourage

further change

7. Institutionalise the new approaches

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 BPR Principles in Practice

❑ Combine jobs and let workers make decisions

❑ Create a single reference point for customers

BPR Principles in Practice
❑ Perform steps in a natural order and at their
logical location

❑ Allow processes to vary

❑ Reduce the impediment of controls and

reconciliations

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 BPR Principles in Practice

❑ Organisations that achieve the most significant

benefits from information technology exploit
new capabilities to reform business processes
Technology
and create Driven
new business Process
opportunities
Improvements
❑ Areas in which an organisation can benefit:
o Information
o Strategy
o Transaction
o Change

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 Technology Driven Process
Improvements
1. Vendor managed inventory

2. Evaluated receipts settlement

Examples of IT Driven Process
Improvements
3. Electronic bill payment (EBP)

4. Electronic bill presentment and payment

(EBPP)

5. RFID or bar coding

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 Examples of IT Driven Process
Improvements

❑ Work units change – functional to process

BPR Evaluated
❑ Jobs change and people are empowered

❑ Huge efforts required to make BPR work

❑ Often changes are dictated from the top

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 BPR Evaluated

❑ Reality of re-engineering is that it involves

people

BPR the
❑ IT is not always Evaluated
answer (Cont)

❑ Need to be wary of the “clean slate” approach

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 What are Australian Organisations
Doing with IT & Processes

❑ Use of the internet

❑ IT has widespread impact (refer table 2.6)

❑ Order processing – email

❑ Use of information to add value

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 Review of Chapter 2

❑ Components of organisational strategy

❑ Looked at Review
benefits and limitations2of the
of Chapter
functionally based organisation

❑ Described business processes and looked at

examples

❑ Examined the benefits of organisations

adopting a Business Process perspective
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 Review of Chapter 2

❑ The role of ERP systems

❑ Addressed issues involved in moving to a business

process-based environment
Review of Chapter 2 (cont)
❑ Described BPR

❑ Considered the principles, characteristics, benefits,

risks and criticisms of BPR

❑ Application of IT by Australian firms

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 Key Terms

o Best practice o Functional

o Business function perspective
o Business process o Information
o Business process technology
design o Organisational design
o Business process re- o Scientific
engineering (BPR) management
o ERP systems o Total Quality
Management (TQM)
o Vendor managed
inventory
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