Chapter 5 Organizational transformation enabled by information technology and the Internet

IT, Internet and associated technologies are making possible / facilitating / driving at times quite profound changes in important business processes. In order to avail itself of the many advantages of EC, an organization may need to transform existing business activities / processes, both internal and external to the organization. Why transform?

Key points... break from previous ways of acting developing & discovering new opportunities, etc. change in behaviour of majority of organisation new ways of thinking and doing creating new content and/or new context content = systems, procedures, structures that dictate how processes function context = deeply imbedded business models & understanding that drive an organisation

strategic transformation for competitive advantage redefine vision, mission, objectives create / obtain new competencies, capabilities obtain / use resources to take advantage of market opportunities Different types of transformation

dramatic improvements to operations costs time quality of service often achieved through re-engineering processes, roles and responsibilities, redefining performance standards cross-functional teams } efficiency

corporate self-renewal on-going ability to anticipate and cope with change Different types of transformation (cont.)

Process of transformation vision of future values that guide actions aimed at achieving vision what kind of organisation do we want to be? what business are we really in? mission? goals & objectives? alignment of missions personal team, business unit organisation

knowledge of core business process knowledge inventory of core processes identifying candidates for change domain knowledge understanding (changing) business environment & industry trends characterised by relentless focus on rethinking and revitalizing aspects of organizational performance with a view to significant improvement Process of transformation

Framework for transformation

Strategy establish customer-oriented vision that will engender and support long-term success affects and is affected by understanding of external business environment understanding of internal resources, competencies, capabilities, IT infrastructure

People and culture shared values, experiences, and common goals learning derived from ‘surviving’ in external environment learning from problems of internal integration organising, motivating, empowering people to succeed changes to incentive programmes? customer as focal point of cultural change

Processes sequence of activities designed to fulfil needs of customer internal or external way work is done how and when action is implemented way of implementing strategic vision way of harnessing efficiency and effectiveness of resource use

Technology critical role in generation, transfer, management, and use of information & knowledge supports streamlined processes provides tools to support entire workforce enhances key relationships with customers and suppliers enables/supports most corporate transformations

Structure and systems describes individual and collective responsibility and accountability reporting roles and structures communication lines enable / prevent necessary communication, knowledge transfer and customer contact differentiation vs integration

Process innovation and re-engineering Effective business processes essential to deliver benefits of innovation Some existing business processes may have been designed before the capabilities of modern IT were available Need for re-engineering Support with appropriate IT to support achievement of business objectives

‘a set of interrelated work activities characterized by specific inputs and value-added tasks that produce customer-focused outputs. Business processes consist of horizontal work flows that cut across several departments or functions.’ What is a process? (Sethi & King 1998)

Advantages of process-focus focus on customer unique to organization virtually impossible to copy ‘The key to long term organizational success is to identify a set of processes that deliver an output that is needed by a given customer, and then to implement those processes in the most efficient way possible.’ (Cats-Baril & Thompson 1997)

Core process maps Core process: fundamental processes employed to deliver value to customer Process map: illustrates core processes and their interconnections Probably contains 5–8 processes Identifies process vision for organisation

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

Process within an Organization Processes are designed based the environmental requirements and constraints available technical solutions Both conditions has changed dramatically Information Flow Physical Flow

Constrained by Technology(1) Limit information flow Information Flow Physical flow

Constrained by Technology(2) use paper work as information carrying vehicle paper centered processes Information Flow Physical Flow

Reducing Coordination Costs

Division of Functions: Dysfunctional Issues Piece-meal Complexity Local optimization

Conservative “Computerization” Why should customers get involved in your internal division of work, before they qualify as your customers?

Feasible Solutions: Information Technology Single widow services

Basic Thoughts What is the objective of the “process?” Why did I do it this way? Has the environment conditions changed? Requirements Constraints Technology What are the opportunities? Example: Auto-teller Machines What has changed with ATM?

The Evolution of Major Business Idea The 1960s and 1970s corporate strategy The 1980s quality management and the role of IT The 1990s reengineering Source: Adapted from Thomas Davenport, Business Process Reengineering: Its Past Present, and Possible Future, Harvard Business School, , 1996

Processes Are Often Cross Functional Areas Supplier Customer/ Markets Needs Value-added Products/ Services to Customers "Manage the white space on the organization chart!"

Definition of Process A process is simply a structured, measured set of activities designed to produce a specific output for a particular customers or market. -- Thomas Davenport

Characteristics: A specific sequencing of work activities across time and place A beginning and an end Clearly defined inputs and outputs Customer-focus How the work is done Process ownership Measurable and meaningful performance

Ford Accounts Payable Process* Accounts Payable Accounts Payable Vendor Goods Receiving Payment Invoice Receiving document Purchasing Purchase order Copy of purchase order PO?Receiving D c. ? PO = Receiving Doc. = Invoice *Source: Adapted from Hammer and Champy, 1993

Ford Procurement Process Accounts Payable Accounts Payable Vendor Goods Receiving Payment Goods received Purchasing Purchase order Purchase order Data base

Did BPR work? proved popular initially high rates of failure (60-85%) but are there clear-cut notions of success? creation of uncertainty in organisation destruction of staff morale loss of valued employees stress on remaining staff to learn more skills, take on additional responsibilities increase expectations of being proactive, flexible, innovative

Rethinking BPR from rhetoric to reality ‘clean slate’ BPR rarely practised revolution evolutionary, incremental implementation political, cultural, organisational, resource constraints

from IT as driver to IT as enabler info / IT rarely sufficient to bring about process change IT alone does not deliver sustainable competitive advantage move from efficiency gains to new ways of working Rethinking BPR Q: Is IT responsible for rigidity & inflexibility in organisations? Can IT contribute to flexibility and innovation?

from analytic to holistic process acknowledgement of ‘soft’ elements in business processes human, social cultural political acknowledgement of resource constraints quick fix organisational change process strategic transformation of interrelated subsystems Rethinking BPR

from internal process to external network perspective recognition that sources of competitive advantage lie partly within an organisation and partly outside Rethinking BPR Our Organisation Our Suppliers Their Suppliers Our Customers

from re-engineering organisations to re-engineering business does / can IT fundamentally impact the nature / content / context of an industry? Rethinking BPR Traditional cut-flower industry chain Internet-based cut-flower industry chain GrowerJobberWholesalerCustomerFlorist GrowerLogisticsCustomer Intermediary

from re-engineering projects to re-engineering capability need to continuously learn and change promote mechanisms for constant renewal planning viewed as learning hence, assumptions underpinning planning should be constantly challenged Rethinking BPR

Enterprise resource planning systems (ERP) Often now called ‘enterprise systems’ ‘Commercial software packages that enable the integration of transaction-oriented data and business processes throughout an organisation’ (and ultimately, along the supply chain) (Markus and Tanis, 2000)

Enterprise resource planning systems (ERP) (cont.) Provide fast, reliable, integrated enterprise- wide information architecture for business Imply substantial changes to portfolio of systems (+business processes), and changes to hardware, software, databases, telecommunications

Implementing ERP Holistic approach to implementation Need to re-engineer existing business processes to fit processes embedded in software Increasing use of web-enablement to support global availability of some applications Supply chain, customer self-help and self- service, e-commerce applications, Internet marketing systems, sales force automation technologies

ERP success factors Success is not guaranteed Many disappointments reported Good planning Defining business needs Understanding what/how ERP systems can do Being clear on objectives and goals Good project management Configuration decisions are auditable Good change management (training) Ongoing evaluation, review

Summary IT and Internet creating new possibilities Need for transformation, change Adopt process focus Re-engineer core business processes to exploit new technologies Transformation includes rethinking strategy, structures, people as well as technology and processes ERP systems are central to organisational transformation Web-enablement increasing supports global availability of range of core business applications supporting core business processes