Business Process Reengineering: Principles, Methods, Tools and Implementation Minder Chen, Ph.D. MS-5F4 School of Management George Mason University Fairfax, VA 22030 Phone: 703-993-1788 Internet: MCHEN@GMU.EDU Organization Technology Process

Processes Are Often Cross Functional Areas "Manage the white space on the organization chart!" Customer/ Markets Needs Supplier Value-added Products/ Services to Customers "We cannot improve or measure the performance of a hierarchical structure. But, we can increase output quality and customer satisfaction, as well as reduce the cost and cycle time of a process to improve it."

Definition of Reengineering The fundamental rethinking and radical redesign of core business processes to achieve dramatic improvements in critical performance measures such as quality, cost, and cycle time. Source: Adapted from Hammer and Champy, Reengineering the Corporation, 1993

What Business Reengineering Is Not? Automating: Paving the cow paths. (Automate poor processes.) Downsizing: Doing less with less. Cut costs or reduce payrolls. (Creating new products and services, as well as positive thinking are critical to the success of BPR.)

Obliterate what you have now and start from scratch. Reengineering Is ... Extremist's View Obliterate what you have now and start from scratch. Transform every aspect of your organization. Source: Michael Hammer, “Reengineering Work: Don’t Automate, Obliterate,” Harvard Business Review, July-August, 1990, pp. 104-112.

New Life Insurance Policy Application Process at Mutual Benefits Life Before Reengineering* . . . . Department A Step 1 Department A Step 2 Issuance Application Department E Step 19 Issuance Policy 19 steps, 5 departments, 19 persons Issuance application processing cycle time: 24 hours minimum; average 22 days only 17 minutes in actually processing the application *Source: Adapted from Rethinking the Corporate Workplace: Case Manager at Mutual Benefit Life, Harvard Business School case 9-492-015, 1991.

The New Life Insurance Policy Application Process Handled by Case Managers Mainframe Physician Underwriter LAN Server Case Manager PC Workstation application processing cycle time: 4 hours minimum; 3.5 days average Application handling capacity double Cut 100 field office positions

BPR Principles Organize around outcomes, not tasks. Have those who use the output of the process perform the process. Subsume information-processing work into the real work that produces the information. Treat geographically dispersed resources as though they were centralized. Link parallel activities instead of integrating their results. Put decision points where the work is performed and build controls into the process. Capture information once and at the source. Source: Michael Hammer, “Reengineering Work: Don’t Automate, Obliterate,” Harvard Business Review, July-August, 1990, pp. 104-112.

Business Process Reengineering Life Cycle Define corporate visions and business goals Visioning BPR-LC Identify business processes to be reengineered Identifying Analyze and measure an existing process Analyzing Identify enabling IT & generate alternative process redesigns Redesigning Evaluate and select a process redesign Evaluating Implement the reengineered process Implementing Continuous improvement of the process Improving Manage change and stakeholder interests

Phase 1: Visioning Define corporate vision and business goals Apply to enterprise-wide reengineering effort. Develop overview of current and future business strategies, organizational structure, and business processes. Develop organizational commitment to reengineering. Develop and communicate a business case for action. Create a new corporate vision. Set stretched goals. Prioritize objectives. Assess implementation capabilities and barriers.

Construct high-level process map Develop a process hierarchy Phase 2: Identifying Identify business processes to be reengineered Construct high-level process map Develop a process hierarchy Build enterprise-wide data models (optional) Evaluate the processes Select processes to be reengineered Prioritize and schedule processes to be reengineered

TI Semiconductor Business Process Map Customer Communication Market Customers Concept Development Manufacturing Customer Design & Support Strategy Development Product Development Order Fulfillment Manufacturing Capability Development Source: Adapted from Hammer and Champy, 1993, p. 119.

Criteria for Selecting Processes Broken Bottleneck Cross-functional or cross-organizational units Core processes that have high impacts Front-line and customer serving - the moment of the truth Value-adding New processes and services Feasible

Phase 3: Analyzing Analyze and Measure an Existing Process Conduct preliminary scoping. Develop a high-level AS-IS baseline process model (work flow model). Avoid analysis paralysis by conducting preliminary analysis at fairly high level. Surface purpose and assumptions of the process (Ask WHY?). Perform activity-based costing: costs can be assigned based on actual activities and productivity. Reveal hidden time and nonvalue-added activities. Measure cycle-time and quality. Measure profitability in terms of task, product, and customer type.

Business Vision & Strategy Phase 4: Redesigning Identify enabling IT & generate alternative process redesigns Business Vision & Strategy Business-pulled How can IT support business strategies and business processes? How can business strategies be changed business processes be transformed using IT? Business Reengineering Technology-driven Information Technology

Three Steps in Redesigning Processes Simplification: Task: Change business rules or procedures of a specific task Workflow: A process chain is simplified by elimination of nonvalue-adding activities Integration: Redesign tasks into a logical and effective process. A reengineered process often crosses functional boundaries. It offers opportunity for eradicating interdepartmental redundancies and restructuring the organization. Automation: Usually accompanies nontechnical redesign of organization structures and procedures. All reengineering costs and benefits can be projected into a model. Reengineering often pays for itself - sources of funding for technology investments are frequently cost savings generated by organizational change.

Evaluate and select a process redesign Phase 5: Evaluating Evaluate and select a process redesign Develop criteria of evaluating alternatives of redesigned processes: Cost, Benefit, and Risk. Evaluate design alternatives Select and recommend a reengineered process

Implement the reengineered process Phase 6: Implementing Implement the reengineered process Plan IT implementation Plan organization implementation Conduct a pilot project Develop a prototype system Technical Design Social Design Evaluate results from the pilot project and the prototype Prepare large-scale roll out

Phase 7: Improving Improve the process continuously Develop performance measurement and reward systems in the reengineered process Monitor process performance constantly Improve the process on a continuous basis

The Quest of Competitiveness Downsizing Headcount & Restructuring the Portfolio Smaller Total Quality Management & Continuous Process Improvement Better (Kaizen) Enterprise-Wide Reengineering & Business Process Reengineering Much Better Reinventing Industries & Regenerating Strategies Different Adapted from: Gary Hammel and C. K. Prahalad, Competing for the Future, Harvard Business School Press, 1994.

Criteria for BPR Projects Improvement Goals Status Quo Radical Cross Function/ Organization Fundamental Business Reengineering Scope Functional Process Improvement Role of IT Function Business as Usual Incidental Task Symbolic Intense Senior Management Involvement

Dual Roles of Information Technology in BPR Existing Business Process Conduct Reengineering Project Reengineered Business Process Supporting Tools IT Enablers Process modeling tools Process simulation tools Group requirement elicitation tools Activity-based costing tools Data base systems Expert systems Client/server technology Groupware Work flow management systems EDI Enterprise-wide networking Mobile computing

Breakthrough Thinking Old Assumption Enabling Technology Breakthrough Thinking Field operations are on their own High bandwidth networks, remote access, wireless network Simultaneous centralization and decentralization Only specialists can perform complex work Knowledge base systems, expert systems Case managers handle a case with no hands-off Managerial hierarchy is required for control & supervision Accessible data & analytic tools, exception monitoring Self-managed teams Product development is a sequential activity Common CAD/CAM systems Concurrent engineering IS developed should be driven by IS personnel I-CASE and JAD Rapid application development

A Framework of Integrating Methods & Tools for BPR cost and performance data compared to the baseline Analyze the activity costs of the process activity cost data information of a process ABC Tools (IDEFCost, Easy ABC) Elicit semi-formal process and data models Construct/ revise static business process models performance data Analyze the dynamics of the process semi-formal process model Process Modeling Tools (Design/IDEF, IDEFine, BDF) Simulation Tools (SIMPROCESS) GDSS (GroupSystems V) Target information system generated finalized process model Construct/ revise business data models Construct formal IS models & generate information systems semi-formal data model Data Modeling Tools (ERwin, BDF) CASE, C/S Tools, DBMS, Work Flow Software, & other Enabling Technologies

An IDEF box and its ICOM can be described as: "Inputs are transformed ICOM in IDEF0 The ICOM of a function represents certain system principles: Inputs are transformed into outputs, controls constrain or dictate under what conditions transformations occur, and mechanisms describe how the function is accomplished. An IDEF box and its ICOM can be described as: C "Inputs are transformed by the function into outputs according to controls, using mechanisms." O I M

An Example of an IDEF0 Diagram

IDEF0 Model Structure C1 I1 O1 I2 A-0 GENERAL C1 I1 1 I2 2 3 Abstraction O1 4 A0 1 The diagram A0 is the "parent" of the diagram A4. 2 3 A4 Refinement 1 2 DETAILED 3 A42

Attributes of Processes Basic Name Description Author Audit trails Performance data Importance: Core, Critical Value Added: Business, Customer, None Cycle time: Mean, Variance, and Distribution Cost/Unit

Standard Flowchart Symbols Annotation Activity Delay Direction of process flow Storage Movement/ Transportation Connector Transmission Decision Point Begin/End Paper document

Functional Flowchart (Process Mapping) ACTIVITY CYCLE Customer Service Credit Checking Customer Inventory Shipping · · 1 2 Enter Order Check Credit 1 1 1 2 0.1 4 3 0.2 1 4 ... ... ... Begin No Yes Order Processing Update Inventory Wait for shipping Ship order End

TeamFlow from CMF at www.teamflow.com

The Reengineering Diamond Customers & Suppliers Values and Beliefs Competitors Enlighten Foster Customers & Info. Tech. Business Processes & Functions Management & Measurement Systems Entail Demand Jobs , Skills, & Organizational Structures Culture Markets

Positive Preconditions for Reengineering Senior management commitment and sponsorship Realistic expectations Empowered and collaborative workers Strategic context of growth and expansion Shared vision Sound management process Appropriate people participating full-time Sufficient budget Source: Bashein, B. J., Markus, M. L., Riley, P., "Preconditions for BPR Success," Information Systems Management, Spring 1994, Vol. 11, No. 2, pp. 7-13.