Business Process Reengineering and Information Technology

Prepared by: Prof Sashi Sekhar Paramanik Date: 28-Jun-2013

(source: MIS the Managers view by Robert Schultheis and Mary Sumner, Tata McGraw-Hill edition)

Impact of IT
Information technology applications can be placed in 3 categories: those designed to improve efficiency, improve effectiveness and facilitate transformation. Efficiency is doing things right. An efficient information system can update thousands of employee records per minute, by automating routine paperwork. Effectiveness is doing right things. A prospect database may enable sales manager identify sales prospects with high potential. Transformation is using IT to change the way you do business a product or service, the way a functional unit works. A salesperson can compare anticipated yield on investment alternatives in front of a prospective customer.

Framework for IT application

Individual
Efficiency

Functional unit

Organization
Boundary extension (Online order entry for supply chain) Service enhancement (On-line diagnostic tool) Product innovation (Videoconference)

Task mechanization Process (Budget using automation (Order spreadsheet) entry) Work improvement Functional (Sales letter using enhancement prospect database) (Computer aided design) Functional redefinition (CDROM for business research)

Effectiveness

Transformation Role expansion (What-if analysis for investment clients)

Reengineering of Work -1
Organizations have become hierarchies of complex functions over time. The division of labor led to workers performing special tasks in marketing, manufacturing, accounting and so on. The pyramid with work broken down by departments each with own budget and control system is common organizational form. In post-World War II market, customers were willing to buy anything that was available (sellers market). In 1990s, customer power comes from information access. By continuously dispatching goods from distribution centers to its stores, a process called cross-docking, Walmart ensured that popular retail items were in stock.

Reengineering of Work -2
Wal-mart uses a private satellite communications system to send point-of-sale data directly to 4000 vendors so that they can timely meet Wal-marts purchasing needs. Store managers can exchange information with each other and management via videoconferences. Whirlpool has a customer service network that routes customer calls to same service representative again, thus creating sense of personal service. When a support call is dispatched to Otis Elevator service technicians, the system automatically provides data on maintenance history of the elevator. Individuals on project teams may work in distant locations and interact using e-mail and videoconference.

Ford Motor
In Ford motor company, Purchasing sent purchase order to vendor and a copy to Accounts payable. When vendor shipped goods, receipt clerk completed receipt and sent it to Accounts payable. When Accounts payable received invoice from vendor, it matched invoice with purchase order and receipt. If these 3 documents did not match, more people got involved. The new process applied business rule: We pay when we receive goods instead of We pay when we receive invoice. When purchase order is generated, amount is entered in database. When goods arrive, the clerk checks if shipment matches with purchase order and check is sent to vendor.

IBM Credit and Xerox

In old IBM Credit system, an IBM sales representative called in a credit request. A credit specialist checked the borrowers credit worthiness on computer. The specialist sent results to business practices department for modifying loan contract. Credit information was transmitted to a pricer who determined interest rate. A clerical group generated a quote letter for salesperson to give to the customer. The process took 6-14 days. The redesigned credit issue process included a new deal structurer who authorized credit based on computer databases. Xeroxs product development process was sequential. In new concurrent engineering, engineers developed design specifications using computer-aided design and manufacturing in half the time.

Reengineering process -1
Organize around outcomes, not around tasks. This means assigning one person or team to accomplishing a task. A Loan manager is responsible for credit check and loan disbursement. Have those who use the output of a process actually perform the process. Department managers can make their own purchases using a shared database of approved vendors. Treat geographically dispersed units as if they were centralized. Central purchase maintains database and uses purchase histories to negotiate contracts for entire corporation.

Reengineering process -2
Link parallel activities during the process, rather than at end of the process. With shared databases, electronic communication and videoconferencing, work groups in dispersed locations can communicate work progress. Capture information once at the source. In traditional information systems same information is created, maintained and used in many places. Reengineering challenges traditional work methods, job designs and department functions. When transformation occurs, drastic changes result such as overhead cut by 70% or error elimination by 80%.

Roles in Reengineering
Role Sponsor Steering committee Activities Sees the big picture and states goals Provides resources people and money Represents affected units Reviews status and provides guidance

Design teams

Champion

Implementation team

Knowledgeable operation managers Represents various functional units Collaborative, creative and analytical Middle manager with leadership role Direct line to sponsor Coordinate multiple design teams Focuses on implementation Able to motivate others to change

Business process redesign -1

Business process redesign is analysis and design of work flows and processes within and between organizations. Information technology plays key role here. A business process consists of a set of logically related tasks performed to achieve a defined business outcome. They have customers and cross functional boundaries. The processes include development of a new product, ordering goods from a supplier, processing an insurance claim and creating a marketing plan. Process analysis may reveal it as long and cumbersome. Possible impacts of IT include routine transactions, bridge geographic boundaries, automate human tasks and facilitate simultaneous completion.

Review questions
What problems occur when data are maintained by different organization units? How can you prevent it? Describe an application of IT that supports work transformation of (a) individual and (b) functional unit. Identify two factors that are forcing organizations to rethink existing work methods and procedures. Why is reengineering critical to transformation process? Why is it difficult to accomplish? Explain how you would improve efficiency through parallel activities in (a) college admission and (b) assembly line. What is the champions role in business reengineering? What are challenges and approach to deal with them? Explain five steps in redesign of business process.

Food for thought

Confusion is a word we have invented for an order which is not yet understood. - Henry Miller, American novelist Entrepreneurs see change as the norm and as healthy. Usually they do not bring about the change themselves. But and this defines entrepreneur and entrepreneurship the entrepreneur always searches for change, responds to it, and exploits it as an opportunity. - Peter Drucker, the management guru