07. Business Process Reengineering (BPR) Rev: Mar, 2014 Euiho (David) Suh, Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: http://posmit.postech.ac.kr) Dept. of Industrial & Management Engineering POSTECH

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

Products Services Capabilities 1. Business Process Reengineering 1) Background Strategic Uses of IT Companies that emphasize strategic business use of IT to gain competitive differentiation Products Services Capabilities

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

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

Reengineering Business Processes 1. Business Process Reengineering 2) Interpretations of BPR 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 Definition of Process A process is a cross-functional interrelated series of activities that convert business inputs into business outputs Supplier Customer Input Output Activity Activity Activity Process

Seven Principles of BPR (1/8) 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (1/8) 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

Seven Principles of BPR (2/8) 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (2/8) 1. 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 Task 1 Task 2 Task 3 Task 4 Task 5 Product / Service Task 5 Task 2 Task 1 Task 4 Task 3 Product / Service Reengineer

Seven Principles of BPR (3/8) 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (3/8) 2. 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 End performer End performer Reengineer Database

Seven Principles of BPR (4/8) 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (4/8) 3. 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

Seven Principles of BPR (5/8) 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (5/8) 4. 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 using database 150% improvement on-time delivery, 50% reduction in lead time, 75% reduction in failure rates Manufacturing units #1 Purchasing department #1 Centralized Manufacturing units #2 Purchasing department #2 Reengineer Database Purchasing department #3 Manufacturing units #3 Purchasing department #4 Manufacturing units #4

Links, communication networks 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (6/8) 5. 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 develop each subsystem(optics, paper handling, power and etc.) in a separated unit Easy to fail to work together Success! R&D department for optics Integrated result Reengineer R&D department for paper handling Failure! Links, communication networks R&D department for power Database

Seven Principles of BPR (7/8) 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (7/8) 6. 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 (Mutual benefit Life) Case manager provides end-to-end management of the process, reducing the need for traditional manager Reengi-neer Case Manager

Seven Principles of BPR (8/8) 1. Business Process Reengineering 3) Principles and procedures of BPR Seven Principles of BPR (8/8) 7. Capture information once and at the source In the past, information was difficult to transmit It made sense to collect information 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

Common procedures when performing BPR 1. Business Process Reengineering 3) Principles and procedures of BPR Common procedures when performing BPR 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

BPR vs. Other Programs (1/3) 1. Business Process Reengineering 4) BPR vs. Other Programs BPR vs. Other Programs (1/3) Taylorism vs. BPR Taylorism BPR (Hammerism) Orientation Task, Function Process Tool Stopwatch IT Domain Production Management Entire organization Goal Mass production Customer satisfaction Age Industrial revolution Information revolution

BPR vs. Other Programs (2/3) 1. Business Process Reengineering 4) BPR vs. Other Programs BPR vs. Other Programs (2/3) BPR vs. Business Improvement Business Improvement Business Process Reengineering Level of Change Incremental Radical Process Change Improved new version of process Brand-new process Starting Point Existing processes Clean slate Frequency of Change One-time or continuous Periodic one-time change Time Required Short Long Typical Scope Narrow, within functions Broad, cross functional Horizon Past and present Future Participation Bottom-up Top-down Path to Execution Cultural Cultural, structural Primary Enabler Statistical control Information technology Risk Moderate High

BPR vs. Other Programs (3/3) 1. Business Process Reengineering 4) BPR vs. Other Programs BPR vs. Other Programs (3/3) Reengineering Rightsizing Restructuring TQM Automation Assumptions Questioned Fundamental Staffing Reporting Relationships Customer Wants and Needs Technology Applications Scope of change Radical Staffing, Job Responsibilities Organizations Bottom-up Systems Orientation Processes Functional Procedures Improvement Goals Dramatic Incremental

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

Reference Euiho Suh, “BPR/ERP(PPT Slide)”, POSMIT Lab. (POSTECH Strategic Management of Information and Technology Laboratory) O’Brien & Marakas, “Introduction to Information Systems – Sixteenth Edition”, McGraw – Hill, Chapter 2