Business Process Reengineering (BPR) Rev: Feb, 2012 Euiho (David) Suh, Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: Dept. of Industrial & Management Engineering POSTECH

Contents ※ Discussion Questions 1Business Process Reengineering 1)Background 2)Interpretations of BPR 3)Principles and Procedures of BPR 4)BPR vs. Other Programs 5)Reengineering Order Management 2Case Study

3 Discussion Questions (1/2) ■Why BPR ? Explain why Hammer’s ground-breaking paper in 1990 :”Do not automate, but, obliterate it” woke up the biz circle suddenly. ■Define Process vs. Function. ■How BPR differs in comparison with other MITs or business improvement programs ? ■What is the productivity and how much productivity improvement can be a target of BPR ? ■Among the words (Fundamental, Radical, Process, Dramatic) in defining BPR, which word is, in your opinion, most significant and why ? ■Among seven principles of BPR, explain one as you pick with an appropriate example. ■What strategic role can information play in BPR ? What is the role of IT/IS in BPR ?

4 Discussion Questions (2/2) ■Case 2 in textbook (pp. 57~58, Chapter 2) –In which ways do smartphones help these companies be more profitable? To what extent are improvements in performance coming from revenue increases or cost reductions? Provide several examples from the case –CPS Energy and Lloyd’s Construction used smartphones to make existing processes more efficient. How could they have used the technology to create new products and services for their customers? Include at least one recommendation for each organization ■Discussion Question in textbook (pp. 67, Chapter 2) –What strategic role can information play in business process reengineering?

5 Strategic Uses of IT ■Companies that emphasize strategic business use of IT to gain competitive differentiation ProductsServicesCapabilities 1. Business Process Reengineering 1) Background

6 The Role of Information Technology ■IT Plays a major role in reengineering most business processes –Increases process efficiency –Improves communication –Facilitates collaboration 1. Business Process Reengineering 1) Background

7 Why BPR? Innovation Customer Driven Customer Driven Core Competence Core Competence Globalization ! Customer Change Competition 1. Business Process Reengineering 1) Background

8 Reengineering Business Processes ■Called BRP or Reengineering –Fundamental rethinking and radical redesign of business processes –Dramatic improvements in critical contemporary measure of performance, such as cost, quality, speed, and service ■Potential payback is high, but so is risk of disruption and failure ■Organizational redesign approaches are an important enabler of reengineering –Includes use of IT, process teams, case managers Fundamental Concept of BRP Process Fundamental Radical Dramatic Shift from function based thinking to process based thinking Fundamental rethinking of the way of conducting business Disregarding all existing structures and inventing complete new ways – not improvement or modification Making quantum leaps in performance rather than incremental improvement 1. Business Process Reengineering 2) Interpretations of BPR

9 Definition of Process ■A process is a cross-functional interrelated series of activities that convert business inputs into business outputs SupplierCustomer InputOutput Activity Process 1. Business Process Reengineering 2) Interpretations of BPR

10 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (1/5) Organize around outcomes, not task 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 the decision point where the work is performed, and build control into the process Capture all information at the source BPR Principles

11 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (2/5) ■Organize around outcomes, not task –One person perform all the steps in a process –Design that person’s job around an objective or outcome instead of a single task Example) Electronics company »Customer service representative of the five steps between sell and install the equipment ■Have those who use the output of the process perform the process –Establish specialized department to handle specialized process Each department does only one type of work BUT it’s slow and bureaucratic –Now that computer-based data are more readily available, departments, units, individuals can do more for themselves Individuals who need the result of a process can do it themselves Greatly reduced the problem of capacity planning Example) Electronics equipment manufacturer’s service reengineering »Customer make simple repairs themselves and only for complex problem is a service technician dispatched

12 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (3/5) ■Subsume information-processing work into the real work that produces the information –To maintain consistency and to reduce repetitive information process –In the past, why didn’t an organization that produces information also process it? Not enough time to process the information Low trust to do both produce and process the information Belief that people at lower organizational levels are incapable Example) Ford’s redesigned accounts payable process »Receiving department, receiving and processing the received information from vendor instead of sending it to accounts payable

13 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (4/5) ■Treat geographically dispersed resources as though they were centralized –Centralization vs. Decentralization –Decentralizing a resource gives better service to those who use it BUT at the cost redundancy, bureaucracy, and missed economies of scale –Using database, telecommunications networks, and standardized processing systems to get the benefit of scale and coordination while maintaining the benefits of flexibility and service Example) Hewlett-Packard- 50 manufacturing unit’s separated purchasing department »Provided excellent responsiveness and service but prevented realizing the benefits of its scale »So each unit has access to a shared database on vendor and own purchase orders »Separated department centralized by use database »150% improvement on-time delivery, 50% reduction in lead time, 75% reduction in failure rates ■Link parallel activities instead of integrating their results –Forge links coordinate parallel functions during the process-not after it’s completed –Communication networks, shared database can bring independent group together –Usually, used in the product development Having people do development work simultaneously save time Example) Development of photo copier »Line production: develop each subsystem(optics, paper handling, power and etc.) in a separated unit → Cell production: develop a complete product in one group

14 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (5/5) ■Put the decision point where the work is performed, and build control into the process –Suggests that the people who do the work should make the decisions and can have built-in controls –Self-managing, self-controlling, disappearing hierarchy through IT or Expert system Example) MBL »Case manager provides end-to-end management and works performed and controlling of process ■Capture information once and at the source –In the past, information was difficult to transmit and to collect repeatedly –Today, company store it in on-line database for all who need it Bar coding(POS: Point Of Sale), relational database, electronic data interchange(EDI) Example) Insurance company »‘Stovepipe’ computer system support and integrate, connect the different function. »As a result, company was able to eliminate redundant data entry Case Manager

15 1. Selection of project 2. Analysis of initial capability 3. Selection of process and project scope 4. Work analysis 5. Redesign of alternative process 6. Cost/benefit analysis for each alternative process 7. Selection of alternative process 8. Implementation of process 9. Change of process information 1. Business Process Reengineering 3) Principles and procedures of BPR Common procedures when performing BPR

16 BPR vs. Other Programs (1/3) ■Taylorism vs. BPR TaylorismBPR(Hammerism) Orientation Task, Function Process ToolStopwatchIT Domain Production ManagementEntire organization Goal Mass productionCustomer satisfaction Age Industrial revolutionInformation revolution 1. Business Process Reengineering 4) BPR vs. Other Programs

17 Business ImprovementBusiness Process Reengineering Level of ChangeIncrementalRadical Process ChangeImproved new version of processBrand-new process Starting PointExisting processesClean slate Frequency of ChangeOne-time or continuousPeriodic one-time change Time RequiredShortLong Typical ScopeNarrow, within functionsBroad, cross functional HorizonPast and presentFuture ParticipationBottom-upTop-down Path to ExecutionCulturalCultural, structural Primary EnablerStatistical controlInformation technology RiskModerateHigh 1. Business Process Reengineering 4) BPR vs. Other Programs BPR vs. Other Programs (2/3) ■BPR vs. Business Improvement

18 BPR vs. Other Programs (3/3) ReengineeringRightsizingRestructuringTQMAutomation Assumptions Questioned FundamentalStaffing Reporting Relationships Customer Wants and Needs Technology Applications Scope of changeRadical Staffing, Job Responsibilities OrganizationsBottom-upSystems OrientationProcessesFunctional ProcessesProcedures Improvement Goals DramaticIncremental 1. Business Process Reengineering 4) BPR vs. Other Programs

19 Reengineering Order Management Supplier-managed inventory systems using the Internet and extranets Cross-functional ERP software to integrate manufacturing, distribution, finance, HR processes CRM systems using corporate intranets and the Internet Customer-accessible e-commerce websites for order entry, status checking, payment, and service Customer, product, and order status databases accessed via intranets and extranets IT that supports the reengineering process… 1. Business Process Reengineering 5) Reengineering Order Management

20 Case Study

21 Reference ■Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) ■Euiho Suh, “e-Business Systems(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory)Euiho Suh, “e-Business Systems(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) ■O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 2, pp. 56~63O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 2, pp. 56~63