1. MGT 563 OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

2. Recap Lecture 11 Lean Operations Elements of Lean Operations Waste Elimination Behavior Synchronization Customer focus JIT Kanban Benefits and Implementation of Lean System How do lean operations fit into operations strategy?

4. Todays Lecture General Introduction Business Process Reengineering BPR Symbols Understand and be able to implement a BPR Strategy Understand the main challenges in implementing a BPR Strategy Conclusion: Summary

5. Industrial Revolution’s Model of Organization and Production Complex work is broken down into simple and repetitive tasks that are performed in sequence by specialists. Specialization of labor: Individual jobs become simple Sequential processes: Coordinating people becomes more complex (The role of the hierarchy) Narrow and repetitive jobs: De-skilling the work forces Managers’ job is to control the quantity, cost, and quality of the work performed. Control as a dominant style Financial-oriented scoreboard Employees are organized by business function. Hierarchical structure

6. Problems Functional departments become barriers to change. Too much time and money are spent in ineffective coordination and communication. Too little time for doing work that really benefits customers. Overheads are soaring. Business processes are evolved over a period of time and are not designed to handle changing business environments or to take advantages of emerging technologies.

7. Process Evolution "We are structured today by historical accident. As we added products, we added functional stovepipes." "Processes in organizations have never been designed in the first place."

8. 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

9. 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.)

10. Spectrum of Change Automation Rationalization of procedures Reengineering Paradigm shift

11. Automation refers to computerizing processes to speed up the existing tasks. improves efficiency and effectiveness.

12. Rationalization of Procedures refers to streamlining of standard operating procedures, eliminating obvious bottlenecks, so that automation makes operating procedures more efficient. improves efficiency and effectiveness.

13. Business Process Reengineering refers to radical redesign of business processes. Aims at eliminating repetitive, paper-intensive, bureaucratic tasks reducing costs significantly improving product/service quality.

14. Paradigm Shift refers to a more radical form of change where the nature of business and the nature of the organization is questioned. improves strategic standing of the organization.

15. Reengineering Is... 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. Extremist's View

16. Gordian Knot In a Greek legend, nobody could untie a knot tied by King Gordius of Phrygia. Many people tried to untie the knot, but nobody succeeded.... until Alexander the Great found a smart and direct solution.

17. 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

18. Types of Processes Adapted from: Davenport, T. H. and Short, J. E., "The New Industrial Engineering: Information Technology and Business Process Redesign," Sloan Management Review, Summer 1990, p. 17. Dimensions & Type Examples Order from a supplier Develop a new product Approve a bank loan Manufacture a product Prepare a proposal Fill a customer order Develop a budget Organization Entity Inter-organizational Inter-functional Inter-personal Objects Physical Informational Activities Operational Managerial

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

20. Process-Orientation Process-orientation is the key to the BPR success Remove stovepipe functions Focus on cross-functional core process redesign “Link activities, functions, and information in new ways to achieve breakthrough improvements in cost, quality, and timeliness.” * * Source: Dichter, Gagnon, and Alexander, “Leading Organizational Transformation,” The McKinsey, Quarterly, 1993, Number 1.

21. BPR Achieves Dramatic Improvement Ford reduced its account payable department by 75% Bell Atlantic cut the cycle time for installing carrier services for customer from 15 days to 3 days. IBM Credit Company reduce loan application turn around time from 6 days to 4 hours while loan applications increased by 100 times. No personnel was added.

22. Benefits of Reengineering Customer Service Process Timeliness Quality Reduce Cost Competitiveness New/Improved Technology Sales/Revenues Source: Delotte & Touche, 1993

23. Reengineering for Achieving Strategic Goals Source: Gateway Information Services, Inc. New York, Figures are based on responses from 121 executives at US firms in the manufacturing, insurance, and utilities industries. * Joanne Cummings, "Reengineering is high on list but little understood," Network World, July 27, 1992, p. 27.

24. BPR Examples Ford: Accounts Payable Mutual Benefit Life: New Life Insurance Policy Application Capital Holding Co.: Customer Service Process Taco Bell: Company-wide BPR Others

25. Reengineering Example Which line is shorter and faster? Cash Lane No more than 10 items

26. Reengineered Process Key Concept: One queue for multiple service points Multiple services workstation

27. 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.

28. BPR Principles - Derived Redesign process steps such that they are perform in a correct order. Combine several process steps into one. Design for parallel subprocesses whenever possible to reduce waiting time between tasks. Integrate subprocesses. Processes may have multiple versions. Remove complex, exceptions, and special cases. Empower human potentials. Give front-line workers the responsibility to make decisions. Provide mechanism in the process to encourage individual, team, and organizational learning Source: Derived from Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution, HarperCollins Publishers, Inc., 1993

29. Informating, Not Automation An individual without information cannot take responsibility; an individual who is given information cannot help but take responsibility. Jan Calzon CEO, Scandinavian Airlines

30. 3 Business Process 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, service, and speed.”

31. 4 Key Words Fundamental Why do we do what we do? Ignore what is and concentrate on what should be. Radical Business reinvention vs. business improvement

32. 5 Key Words Dramatic Reengineering should be brought in “when a need exits for heavy blasting.” Companies in deep trouble. Companies that see trouble coming. Companies that are in peak condition. Business Process a collection of activities that takes one or more kinds of inputs and creates an output that is of value to a customer.

33. BPR & The Organization

34. BPR is Not? BPR may sometimes be mistaken for the following five tools: 1. Automation is an automatic, as opposed to human, operation or control of a process, equipment or a system; or the techniques and equipment used to achieve this. Automation is most often applied to computer (or at least electronic) control of a manufacturing process. 2. Downsizing is the reduction of expenditures in order to become financial stable. Those expenditures could include but are not limited to: the total number of employees at a company, retirements, or spin-off companies.

35. BPR is Not? 3. Outsourcing involves paying another company to provide the services a company might otherwise have employed its own staff to perform. Outsourcing is readily seen in the software development sector. 4. Continuous improvement emphasizes small and measurable refinements to an organization's current processes and systems. Continuous improvements’ origins were derived from total quality management (TQM) and Six Sigma.

36. 16 Reengineering & Continuous Improvement--Similarities ReengineeringContinuous Improvement Similarities Basis of analysisProcess Performance measurementRigorous Organizational changeSignificant Behavioral changeSignificant Time investmentSubstantial

37. 17 Reengineering & Continuous Improvement--Differences ReengineeringContinuous Improvement Differences Level of changeRadicalIncremental Starting pointClean slateExisting process ParticipationTop-downBottom-up Typical scopeBroad, cross-functionalNarrow, within functions RiskHighModerate Primary enablerInformation technologyStatistical control Type of changeCultural and structuralCultural

38. What is a Process? A specific ordering of work activities across time and space, with a beginning, an end, and clearly identified inputs and outputs: a structure for action.

39. What is a Business Process? A group of logically related tasks that use the firm's resources to provide customer-oriented results in support of the organization's objectives

40. Why Reengineer? Customers Demanding Sophistication Changing Needs Competition Local Global

41. Customer Demands expect us to know everything to make the right decisions to do it right now to do it with less resources to make no mistakes expect to be fully informed

42. Why Reengineer? Competition Local Global Change Technology Customer Preferences

43. Business Process Reengineering WHY ? Integrate people, technology, & organizational culture To Respond to rapidly changing technical & business environment and customer’s needs to achieve Big performance gains

44. Why Organizations Don’t Reengineer? Complacency Political Resistance New Developments Fear of Unknown and Failure

45. Performance BPR seeks improvements of Cost Quality Service Speed

46. BPR Symbols

47. Business Process Flowchart Symbols An Activity A Document A Decision Data (input as outputs)

48. Business Process Flowchart Symbols A Predefined Process The Start of a Process The End of a Process Representing a Relation Start End

49. Business Process Flowchart Symbols Continuation of the process at the same page at an equal symbol with the same number. Used when a relation arrow crosses another relation arrow Off-Page Connector - Process will continue on the next page Integration Relation - A relation to another module is identified and described

50. Data Flowchart Symbols An Activity A Document A Decision Flat Data File (input as outputs)

51. Data Flowchart Symbols Manual Data Item A Database File Representing a Relation Continuation Off-Page Connector

52. Rules For Data Symbols

53. Start End Generate Purchase Order OK? Yes No Symbol used to identify the start of a business process Activities must be described as a verb Decisions have only two possibilities (Yes & No) Crossing lines are not allowed If one side of the decision has no further processes defined this symbol has to be used

54. Rules For Data Symbols Purchase Order Posting of Bonus I A Continuation symbol within the same number must be present twice on the same page Name the document Off- Page Connector is used to continue a process at the next page or to let the process to flow over at the previous to the next page. If more than one is needed use A, B, C, D … Name the data

55. Rules For Data Symbols Sub-Process Delivery BC 4.04 Predefined Processes always have a relation to level and stream by a number in the line below a sub-process description A predefined process must be described in a different flowchart. To make the relation clear between the predefined process and the belonging flowchart a unique alpha numeric number should be assigned to this predefined process.

56. Version Management For different versions of a business process or data flow some mandatory information must be on the flowchart. Name of the business process Unique number of the business process Revision number Date of last change Author Page number with total pages

57. Implementing a BPR Strategy

58. The C’s related to Organization Re-engineering Projects The 3C’s of organization Re- engineering: The 4C’s of effective teams: - Customers - Competition - Change - Commitment - Cooperation - Communication - Contribution

59. Key Steps Select The Process & Appoint Process Team Understand The Current Process Develop & Communicate Vision Of Improved Process Identify Action Plan Execute Plan

60. 1.Select the Process & Appoint Process Team Two Crucial Tasks Select The Process to be Reengineered Appoint the Process Team to Lead the Reengineering Initiative

61. Select the Process Review Business Strategy and Customer Requirements Select Core Processes Understand Customer Needs Don’t Assume Anything

62. Select the Process Select Correct Path for Change Remember Assumptions can Hide Failures Competition and Choice to Go Elsewhere Ask - Questionnaires, Meetings, Focus Groups

63. Appoint the Process Team Appoint BPR Champion Identify Process Owners Establish Executive Improvement Team Provide Training to Executive Team

64. Core Skills Required Capacity to view the organization as a whole Ability to focus on end-customers Ability to challenge fundamental assumptions Courage to deliver and venture into unknown areas

65. Core Skills Required Ability to assume individual and collective responsibility

66. Use of Consultants Used to generate internal capacity Appropriate when a implementation is needed quickly Ensure that adequate consultation is sought from staff so that the initiative is organization-led and not consultant-driven Control should never be handed over to the consultant

67. 2.Understand the Current Process Develop a Process Overview Clearly define the process Mission Scope Boundaries Set business and customer measurements Understand customers expectations from the process (staff including process team)

68. 2.Understand the Current Process Clearly Identify Improvement Opportunities Quality Rework Document the Process Cost Time Value Data

69. 3.Understand the Current Process Carefully resolve any inconsistencies Existing -- New Process Ideal -- Realistic Process

70. 3.Develop & Communicate Vision of Improved Process Communicate with all employees so that they are aware of the vision of the future Always provide information on the progress of the BPR initiative - good and bad. Demonstrate assurance that the BPR initiative is both necessary and properly managed

71. 3.Develop & Communicate Vision of Improved Process Promote individual development by indicating options that are available Indicate actions required and those responsible Tackle any actions that need resolution Direct communication to reinforce new patterns of desired behavior

72. 4.Identify Action Plan Develop an Improvement Plan Appoint Process Owners Simplify the Process to Reduce Process Time Remove any Bureaucracy that may hinder implementation

73. 4.Identify Action Plan Remove no-value-added activities Standardize Process and Automate Where Possible Up-grade Equipment Plan/schedule the changes

74. 4.Identify Action Plan Construct in-house metrics and targets Introduce and firmly establish a feedback system Audit, Audit, Audit

75. 5.Execute Plan Qualify/certify the process Perform periodic qualification reviews Define and eliminate process problems Evaluate the change impact on the business and on customers Benchmark the process Provide advanced team training

76. Information Technology & BPR

77. Benefits From IT Assists the Implementation of Business Processes Enables Product & Service Innovations Improve Operational Efficiency Coordinate Vendors & Customers in the Process Chain

78. BPR Challenges

79. Common Problems with BPR Process Simplification is Common - True BPR is Not Desire to Change Not Strong Enough Start Point the Existing Process Not a Blank Slate Commitment to Existing Processes Too Strong REMEMBER - “If it isn’t broke …”

80. Common Problems with BPR Process under review too big or too small Reliance on existing process too strong The Costs of the Change Seem Too Large BPR Isolated Activity not Aligned to the Business Objectives Allocation of Resources Poor Timing and Planning Keeping the Team and Organization on Target

81. How to Avoid BPR Failure To avoid failure of the BPR process it is recommended that: BPR must be accompanied by strategic planning, which addresses leveraging Information technology as a competitive tool. Place the customer at the centre of the reengineering effort, concentrate on reengineering fragmented processes that lead to delays or other negative impacts on customer service. BPR must be "owned" throughout the organization, not driven by a group of outside consultants. Case teams must be comprised of both managers as well as those who will actually do the work.

82. How to Avoid BPR Failure The Information technology group should be an integral part of the reengineering team from the start. BPR must be sponsored by top executives, who are not about to leave or retire. BPR projects must have a timetable, ideally between three to six months, so that the organization is not in a state of "limbo". BPR must not ignore corporate culture and must emphasize constant communication and feedback.

83. Summary Reengineering is a fundamental rethinking and redesign of business processes to achieve dramatic improvements BPR has emerged from key management traditions such as scientific management and systems thinking Rules and symbols play an integral part of all BPR initiatives

84. Summary Don’t assume anything - remember BPR is fundamental rethinking of business processes