Chapter 2

Business Processes

Prepared by
Kent Wilson
University of South Australia
 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:
 Internal
 Competitive
 Business portfolio
 Strategy Options
 According to Michael Porter, businesses have two
options when deciding on a strategy:

 Cost Leadership: Organisations need to carry out their

activities cheaper than their competitors through
economies of scale, technology, low overheads etc
 Differentiation: Involves creating a business adding that
little bit extra for customers, offering unique products
targeted to the customer’s needs
 Porter’s Five Forces Model

1. Rivalry among existing competitors: refers to the

current status within the market that a business
operates within

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
 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
 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
The functional perspective of
the organisation
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
What is a Business Process [BP]?

 A business process is a series of interlocking

activities that work together, across the
organisation, to achieve some predetermined
organisational goal (typically defined around
satisfying customer needs)
A Process Based Organisation
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 – Generalists –

highly defined tasks across the
tasks process
Business process within the
organisation
 Sales

Aim: To sell goods and collect cash from sales

Participants: Sales staff, customer, billing staff, warehouse

Inputs: sales order

Outputs: Invoice, receipt, shipping document

Business process within the
organisation (Cont)
 Purchasing

Aim: To acquire goods from suppliers and appropriately

manage stock

Participants: Sales staff, customer, billing staff, warehouse

Inputs: Purchase requisition, back order

Outputs: Purchase order

 Why Business Processes?
 Resource benefits that flow from having a process
emphasis
o More coordinated and integrated approach
 Improved customer service and relations
 A value-adding emphasis
 A competitive advantage through outsourcing
 End-user perspective
 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
 Why ERP Systems?

 Competitive advantage is the main objective in

any organisation

 ERP may facilitate the removal of non-value-

adding activities
 ERP Systems
 Advantages:  Disadvantages:
o Integrated modules o Costly system to change
o Reflects the reality of a o May not suit the current
process-driven system processes in an organisation
o Performance of customer
service-based processes
could improve
Issues in moving to a BP 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
Changing Business Processes

 Business processes are not static

 Factors impacting on business processes
o Technology
o Competition
o Business environment
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
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
 Quality

 Poor quality is costly

 Costs are associated with rework and product
returns
 People

 TQM refers to how people within an organisation

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

 The organisational aspect of TQM emphasises:

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
 Management

 TQM asserts that change and improvement can

only occur if they have the support and
endorsement of top management

 Management must focus on processes rather

than individual functions
 Business Process
Re-Engineering (BPR)
 BPR is defined as:

the fundamental rethinking and radical redesign of

business processes to achieve dramatic
improvements in critical contemporary measures of
performance, such as cost, quality, service and
speed
 Key Components of BPR
1. Fundamental aspect forces an organisation to
question what activities it performs as part of its
current process
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.
Principles and Approaches

1. Establish a sense of urgency

2. Form a leadership team

3. Create and communicate a vision

4. Empower others to meet the vision

Principles and Approaches
(Cont)

5. Plan for and create short term wins

6. Consolidate improvements and encourage

further change

7. Institutionalise the new approaches

 BPR Principles in Practice
 Combine jobs and let workers make decisions

 Create a single reference point for customers

 Perform steps in a natural order and at their logical

location

 Allow processes to vary

 Reduce the impediment of controls and

reconciliations
Technology driven process
improvements
 Organisations that achieve the most significant
benefits from information and communication
technology [ICT] exploit the new capabilities to
reform business processes and create new
business opportunities
 Areas in which an organisation can benefit:
o Information
o Strategy
o Transaction
o Change
Examples of IT Driven Process
Improvements
1. Vendor managed inventory

2. Evaluated receipts settlement

3. Electronic bill payment [EBP]

4. Electronic bill presentment and payment [EBPP]

5. RFID or bar coding

 BPR Evaluated

 Work units change – functional to process

 Jobs change and people are empowered

 Huge efforts required to make BPR work

 Often changes are dictated from the top

 BPR Evaluated (Cont)

 Reality of re-engineering is that it involves people

 IT is not always the answer

 Need to be wary of the ‘clean slate’ approach

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

 Review of Chapter 2
 Components of organisational strategy

 Looked at benefits and limitations of the

functionally based organisation

 Described business processes and looked at

examples

 Examined the benefits of organisations adopting a

BP perspective
 Review of Chapter 2 (cont)
 The role of ERP systems

 Addressed issues involved in moving to a business

process-based environment

 Described BPR

 Considered the principles, characteristics, benefits, risks

and criticisms of BPR

 Application of IT by Australian firms

 Key Terms

o Best practice o Functional perspective

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