BUSINESS PROCESS

REENGINEERING

PGDM
IV TRIMESTER
Business Process Reengineering:
A sensitive issue for Indian
organizations

A successful business process

reengineering (BPR) exercise should
understand the 'people aspect' while
meeting business objectives. R N
Moorthy, the senior general manager
for information technology at Jet
Airways (India) Ltd. says that a CIO
should be careful when balancing
these two acts.
What things should a business keep in mind while
conducting a business process reengineering (BPR)
exercise?

 Organizational preparedness.
 Management's acceptance.
 BPR also impacts people, which is a very
critical factor (especially in a country like
India).
 This may bring drastic changes.
 At Jet Airways, we started our ERP journey
in 2000. We re-implemented ERP again in
2005, as we moved from purely domestic
operations to international operations.
Can you share your step-by-step approach
for process reengineering with our readers?

 First of all, a CIO and his team should

understand and document the
organization's current processes.
 It is important that the team has a change
management plan.
 Third, there are objectives for any project
in terms of cost reductions, revenue
earnings, manpower reductions required,
etc. All of these should be considered as
the project's return on investment.
CONTD…
 A CIO should keep in mind that
business is never constant --
requirements keep on changing.
 For example, the airline industry in
India is now moving towards low-cost
models. These might require a totally
different way of doing business,
which you may not have thought of
three years ago.
What is the role of business stakeholders in
process reengineering?

 Business stakeholders have an

equally important role as that of IT,
since they will be affected and will
benefit by the entire exercise. So
there can be two parties: some
people are affected as their roles
change, whereas others benefit as
their roles become simpler.
What are the challenges in process
reengineering? How can a CIO overcome
these challenges?

 The major challenge is in terms of

people.
 In India, if you go to the
management level and tell them that
you can halve manpower
requirements with an IT
implementation, the proposal will not
be acceptable to department heads.
Paradigm Shift
 Industrial Model – That was about
production, factory handling, less
competition.
 In today’s environment more than
ever, mangers of “old economy”
companies need the right tools to
support and improve their
effectiveness.
Contd…
 Because the large “old economy”
companies from consumer products to
industrial manufacturing have begun to see
relatively small pieces of their markets
taken away by new firms.
 As a result they have started to push
toward more efficient digital strategies
based on optimizing customer experience
integrating their value chains and
accelerating information flow.
Business Process Reengineering
 Business reengineering has been described
as “not a voyage of guided discovery but
more like a walk in the fog”.
 Also called business reengineering or
simply reengineering.
 It is a radical(Business reinvention vs.
business improvement, Arising from or
going to a root or source) way to enhancing
the capabilities of a business, improving its
performance and allowing it to achieve
sustainable competitive advantage.
Business Process Reengineering
 Hammer argued that many things were
done in organizations because “that was
the way they always be done”, not because
they added value.
 He said: Computer technology made it
possible to combine simple tasks previous
performed by many different people in to
more complex one-person jobs that
provided higher level of customer services.
Traditional Functional Organizations

Strategic level Senior managers

Management level Middle managers

Knowledge level Knowledge and

data workers
Operational level Operational
managers
Sales Manufac Finance etc. HR
turing
Hammer’s Process-Centered Organization
Hammer, Beyond Reengineering, 1996, p.126
(and Harvard Business Review, Nov-Dec 1999)

Owner C
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Processes Owner S
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Owner O
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Centres of S
Excellence

Coach Coach Coach Coach

Business Process Reengineering
 It focuses on business flows that
bring value to the customer (product
development, order fulfillment,
account management).
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Financin Approval Issuance
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After: checking
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IBM Credit (Source: Sia and Neo, JMIS 1997, p.71)

Business Process Reengineering
 Hammer argued that if employees were
treated as creative, responsible people
(empowered), they would contribute much
more value to the organization.
 Several different kinds of benefits can flow
from reengineering. They include cost
savings; reduction in staff members;
reduction in unit costs; improved
profitability; improved customer
satisfaction.
Business Process Reengineering
 Example – Electronic Commerce can
be defined as “reengineering the
supply chain”.
Examples of applied BPR

Hammer’s Ford Accounts Payable example

Hammer’s Ford Accounts Payable example
 In the late 1980s, Ford had a traditional purchasing
and accounts payable system:

Purchase Requisitions (from manufacturing), Purchase

orders, Receiving reports, Supplier invoices, Statements
 Clerks in Accounts payable checked to ensure
Purchase Requisitions (from manufacturing),
Purchase orders, Receiving reports, Supplier
invoices, Statements that for each invoice, there
was both a purchase order and a receiving report.
If OK, they authorized payment.
 From an internal control point of view, there were
good reasons for this process design.
 There were 500 staff in Ford’s Accounts Payable
dept. Presumably, the dept. was running efficiently.
Hammer’s Ford Accounts Payable example

 In the late 1980’s, Ford bought a 25% stake in Mazda

and compared staffing levels in different departments.
There were only 5 staff in Mazda’s Accounts Payable.
Yet Mazda was not 100 times smaller.
Q: How come?
 A: Mazda had a different process.
 So Ford changed its process and reduced Accounts
Payable staff by about 75%. (370 people; more than
$10M p.a.)

 Q: What did they do?

 1: Hammer’s Ford Accounts Payable example

 A: They placed computer terminals in the Receiving

dept. When goods arrived, Receiving checked the
goods had been ordered. If accepted, funds were
transferred automatically to the supplier.
 Hammer argues that to save the money, Ford had
to shift from functional thinking, i.e., improving the
efficiency of the Accounts Payable dept., to process
thinking.
 The process was procurement: ordering, receiving,
and paying.
 The Accounts Payable function added little of value
to the process (and ultimately to the customer).
 Hammer’s Ford Accounts Payable example

Summary

 “Reengineering is the radical

redesign of business processes for
dramatic improvement.” (Hammer,
1996)
 Radical: 500 staff dropped to 130
 Process: cross-functional
 Computer Technology: enabling
Integrated Business Model
 An integrated business model has
been developed by work systems
associated that describes how an
organization should guide its work
with both customer focus and process
improvement woven through out the
fabric of the business.
Vision
 Vision captures the emotional spirit
by defining a dream that embodies
the soul and spirit of organization.
 Corporate Vision is a short succinct
and inspiring statement of what the
organization intends to become and
to achieve at some point in the
future.
Vision Statement of some
Companies
 Toyota – Harmony with People,
Society and the Environment.
 Nestle – Nestle Norden’s aim is to
meet the various needs of the
consumer everyday by marketing and
selling food of a consistently high
quality.
Vision Statement of some
Companies
 ONGC – To be world-class oil and gas company
integrated in energy business with dominant
Indian leadership and global presence.
 ITC – Sustain ITC’s position as one of India’s
most valuable corporations through world class
performance, creating growing value for the
Indian Economy and the company’s
stakeholders.
Alignment
 Alignment is the process by which the
organization is able to convert its vision,
values and guiding principles in to a
defined high level plan.
 Customer focus is not achieved through
special program, or a periodic survey.
Rather, it is part of the fabric of the vision
goals and all operational processes and
activities, as well as one of the key
measurements of success.
Reengineering
 “Reengineering is new and it has to
be done” – Peter F. Drucker.

 Definition – “Reengineering is the

radical and redesign of business
processes for dramatic
improvement”.
Reengineering
 Reengineering is the fundamental
rethinking and radical redesign of
business processes to achieve
dramatic improvements in critical,
contemporary measures of
performance such as cost, quality,
services and speed”.
Reengineering
 Fundamental:

 Why do we do what we do?

 Ignore what is and concentrate on what
should be.
Reengineering
 Radical

 Business reinvention Versus Business

improvement.
Reengineering
 Dramatic –
Reengineering should be brought in
“when a need exists for heavy
blasting”
 Companies in deep trouble.
 Companies that see trouble coming.
 Companies that are in peak condition.
Reengineering
 Process –
A collection of activities that takes
one or more kinds of inputs and
creates an output that is of value to a
customer.
Reengineering
 Reengineering is essentially a redesign
process, which takes place in a strategic
context.
 It consists of the three key
components:
 Distinctive Capabilities of the business.
 Relevant markets and segments.
 Sustainable competitive advantage.
 Distinctive Capabilities of the business
applied to Relevant Markets yields
Competitive Advantage

Sustainable
Competitive
Advantage
Reinforces

Yields

Distinctive
Relevant Markets
Capabilities of
& Segments
The business
Applied to
Distinctive Capabilities
 How can business strategies add
value?
 Companies with distinctive
capabilities have attributes which
other cannot replicate, and which
others cannot even after they realize
the benefit they offer to the company
which originally possesses them.
Distinctive Capabilities
 John Kay says there are three
distinctive capabilities –
 Architecture - a structure of relational contacts
within or around the organization with employees
and with customers and suppliers.
 Reputation - built up through customer's own
experience, quality signals, demonstrations and free
trails, warranty, guarantee, word of mouth
spreading, association with other brands, staking the
reputation once it is established.
 Innovation - provided the innovation is translated
to competitive advantage successfully.
Distinctive Capabilities
 Through continued use, capabilities
become stronger and more difficult
for competitors to understand and
imitate.
 As a source of competitive
advantage, a capability “ should be
neither so simple that it is highly
imitable, nor so complex that it defies
internal steering and control”.
Competitive Advantage
 The competitive advantage model
learns that competitive strategy is
about taking offensive or defensive
position in the industry in order to
cope successfully with competitive
forces and generate a superior return
on investment.
Competitive Advantage
 Price is rarely, if ever, a sustainable
advantage because typically your
competitors can match it if they want
to and they can do it quickly.
 The longer it takes your competitors
to match your offer, the more
sustainable your advantage is.
Competitive Advantage
 It answers “Why should I buy from
you?” or “How are you better than
my current supplier?”
 Exercise: Make a list of. Why should I
buy from you?
100 of companies had this
common list.
 Good Customer Service
 Quality
 Reputation
 Good Results
 Our Employees
 Knowledge Staff
 Consistent Management
 Responsiveness
 Innovativeness
 Trust
Competitive Advantage
 List is generic and common across
industries.
 And if you sound the same as your
competitors:
 Why not buy based on price?
 And you clearly don’t have a competitive
advantage or if you do, you are dooing a
good job of hiding it.
Competitive Advantage
 Having a competitive advantage,
even a sustainable one, does not
necessarily mean that you and your
customers are aware of it.
 So there is a need to create an offer
or positioning in the market that
clearly states your competitive
advantage.
Competitive Advantage
 We call this a unrefusable market
offer or a “Mafia Offer.
 As you probably know, a Mafia offer
is an offer so good that:
 Your customers cant refuse it.
 Your competitors cant or wont match.
Reengineering
 Reengineering takes place at several
levels in the value stream mentioned
below:
 Individual
 Group
 Infrastructure
 Organization
 Business and Management Processes
 Methods and Tools
 Capabilities Outputs Customer
Value Stream
 A Value Stream is an end-to-end
business process which delivers a
product or service to a customer or
consumer.
 It can also be called as Value Chain.
Characteristics of BPR
 It requires a critical rethinking of the
business.
 It views the business as a set of
processes rather than as functional
departments.
 Customer focus is critical to the success
of reengineering.
 Its planning, design and implementation
involves the entire organization.
Rethinking the business
 How will organizations deliver revenue growth
in an increasingly competitive and fast
changing business environment?
 How will they optimize their cost structure
while offering more values to their customer?
 How must they position themselves in the
global value chain to differentiate their
organization and create a sustainable
quantitative advantage?
Rethinking the business
 The changes are driven primarily by three
factors:
 The need to respond to new opportunities in
emerging markets (where the old ways of doing
business may not work).
 The impact of new technology.
 Changing customer requirement.
Rethinking the business
 It involves complete rethinking about the
processes that deliver what is most important
to your customers. See values through the
customers eyes.
 Business reengineering is successful only when
it is applied to the critical few processes.
The business is viewed as a set
of processes.
 Process is an organized group of
related activities, that together
create a result to customers.
The business is viewed as a set
of processes.
 A process is a group of activities, not
just one value is created not by single
activity, but the entire process in
which all these tasks merge in a
systematic way for a clear purpose.
 Activities are related and organized.
They present a stream of relevant,
interconnected activities that must
perform in sequence.
The business is viewed as a set
of processes.
 All the activities in the process work
together toward a common goal. People
performing different steps of a process
must all be aligned around a single
purpose instead of focusing on their
individual tasks in isolation.
 Processes are not ends in themselves.
They have a purpose they create and
deliver results that customer care about.
The business is viewed as a set
of processes.
…. a group of logically related tasks using the firm's resources to
provide customer-oriented results to support organisation's
objectives.
…..an operational or admin. system that transforms inputs into
valued outputs - typically a task sequence arranged as a
procedure perhaps involving machines, depts. & people.

• making sandwiches to order

• seeing a sales order through from beginning to end
• stock replenishment procedures
• aircraft maintenance e.g. in hanger or on tarmac between
flights
…. includes service support processes e.g. engineering change or
payroll process, manufacturing process design.
Kinds of Processes.
 Operational (production) – directly achieves operational
objectives
 Control – goal to maintain a state relating to another
process
 Generic – applicable to any group member (an abstraction
or class, essentials of a process that may be shared)
 Customised – adaptation of a generic process to suit
specific objectives and using identified resources
 Enactable – defined + executed using process technologies
 Meta-process – concerned with another process(es)
Customer Focus is critical to the
success of reengineering
 Customer focus is paramount.
 The aim, the raisons d’etre, of
business reengineering is to make the
business products and services more
appealing in our market place than
your competitors.
Business Reengineering
involves the entire organization
 It must be led from the top.
 The “Process Design” work is done by
people drawn from all staff levels.
 Consequently, everyone will need to
communicate more effectively and
thoroughly than in necessary in the
normal course of business.