BUSINESS PROCESS REENGINEERING

Chapter 1
Teguh I Santoso, MBA

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BUSINESS PROCESS REENGINEERING memulai lagi dari awal

Traditional Business Concepts

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Adam Smith (1776, The Wealth of Nations) Use separating work areas to increase productivity

American Railway (1820) Create modern business bureaucracy (control-command procedures )

Frederick Taylor (1880) Managers could discover the best processes for performing work and reengineer them to optimize productivity In Taylor's time, technology did not allow large companies to design processes in a cross- functional or cross-departmental manner Specialization was the state-of-the-art method to improve efficiency given the technology of the time

Todays Reality
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Organizations in Crisis No company is safe There is no such things as a solid or even substantial, lead over ones competitors Traditional business relationships and operational models are evolving or collapsing New opportunities exist for businesses that can use information technology to create and capitalize on emerging markets Market expectations and pressures are changing Global business opportunity are expanding Information technology is crucial to realizing and managing these opportunities

Business Pressures
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Market Pressures Global economy - strong competition Changing nature of the workforce Powerful customers Technological Pressures Technological innovation and obsolescence Information overload Societal Pressures Social responsibility Government regulations Government deregulation Shrinking budgets and subsidies Ethical issues

The Power of 3C
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Customers (Pelanggan memainkan peran) Demanding Sophistication Changing Needs Competition (Persaingan semakin ketat) Local Global Change (Perubahan menjadi konstan) Technology Customer Preferences

BPR Overview
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Business Process Reengineering (BPR), a fundamental rethinking and a radical redesign of a business process to achieve dramatic improvements
Michael Hammer and James Champy, Reengineering the Corporation: A Manifesto for Business Revolution (New York: Harper Business, 1993)

BPR is a systematic approach or methodology for analyzing business activities or processes with a view to Improving the organization's alignment with strategic goals Its effectiveness, efficiency, competitiveness and so on

BPR Overview (cont.)

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The idea is to start from ground zero Then determine what things the company must do Then seek the best way to do those things It ignores what is and concentrates on what should be

Its intended to overcome the shortcoming of seeking incremental improvements

Solving problems at one part of a process instead of replacing the entire process with something better In reengineering, instead of patching up parts of a faulty process, the entire process itself is radically improved

BPR Four key words

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Business Process Reengineering (BPR),

a fundamental rethinking and a radical redesign of a business process to achieve dramatic improvements

1. Fundamental
means business people have to ask themselves with a fundamental question, such as why, what and how we do the business.

2. Radical
means, if it did not exist today, how would we create it and then destroying the old system to create the new one

3. Dramatic
means improvement in business result, not of 5%, not of 15% nor 20%, but in term of quantum leaps of 100%, 300%, 500% better result

4. Process
means a group of distinct tasks that together create a product or service desired by one or more stakeholders

Why Company need to implement BPR

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BPR has been implemented in various industry 1. Increase skill and knowledge every specialist 2. Reduce time 3. The discovery of new machines makes one job running easily and efficiently

Process: Where and Who?

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PRODUCT/SERVICE

CUSTOMER

NEED

Reasons for BPR

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Competition

Market Share/ Profits

Technology

Stock Price

More Important

Less Important

Why Company do not Reengineer

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Satisfaction Political Resistance New Developments Fear of Unknown and Failure

Effective Reengineering Steps

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1. Develop business vision, process objectives

The BPR method is driven by a business vision which implies specific business objectives such as cost reduction, time reduction, output quality improvement.

2. Identify process to be redesigned

most firms use the 'High-Impact' approach which focuses on the most important processes or those that conflict most with the business vision

3. Understand, measure performance of existing processes

avoiding the repeating of old mistakes and for providing a baseline for future improvements

4. Identify opportunities for applying information technology

awareness of IT capabilities can and should influence BPR

5. Build prototype of new process

the actual design should not be viewed as the end of the BPR process

BPR Expectation
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Identify and quantify process improvement opportunities aligned with the organization's strategic plan

Establish objectives that "stretch" the existing activities

Identify the associated benefits to the organization

Identify the changes necessary, including any changes in associated activities

Formulate projects for their accomplishment

BPR Objectives
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Improve Efficiency e.g reduce time to market, provide quicker response to customers Increase Effectiveness e.g deliver higher quality Achieve Cost Saving in the longer run Provide more Meaningful work for employees Increase Flexibility and Adaptability to change Enable new business Growth

Scope of BPR
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Intra-functional Small scope within department, least impact Inter-functional Horizontal view across departments, more impact Inter-organizational Broad view including entire supply & delivery chain, most impact

BPR Impacts
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Resulting changes may include Organizational structure Roles and responsibilities Supplier relations Customer interfaces, and Other stakeholder relationships Often, it means a cultural change within the organization Change management should be invoked to deal with the people aspects The fear among employees that their jobs are endangered and that years of experience will account for nothing

BPR Performance
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BPR seeks improvements of Cost Quality Service Speed

Obstacle to Reengineering
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Most Important

Organization

Time

Risk

Least Important

Cost

Reengineering Vs Incremental
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Reengineering then continuous improvemen

Performance Improvement

Incremental improvement

Time

Reengineering vs. Other Methods

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Dimension Assumptions Questioned Scope of Change Orientation

Reengineering Fundamental

Rightsizing Staffing

Restructuring Reporting relationship Organization

TQM Cust. wants and needs Bottom-up

Automation Technology applications Top-down

Radical

Staffing, job responsibilities Functional

Process

Functional

Process

Procedure

Improvement Goals

Dramatic

Incremental

Incremental

Incremental

Incremental

Reengineering - NOT
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not
abdicating leadership and management responsibility to your consultant

not
a fancy name for eliminating the redundant positions that should never have created anyway

not
radically redesign functional department or radically redesign people

not
expecting your people to coorporate wholeheartedly while you obviously put their jobs and lifestyles in jeopardy

not
thinking that you will have your new process implemented without problems

Reengineering - NOT (cont.)

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TQM ISO9000 Automation Downsizing Restructuring Change Management

Some Success Factors

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Senior Management, Commitment and Sponsorship Realistic Expectations Empowered and Collaborative Workers Strategic Context of Growth and Expansion

Shared Vision
Sound Management Practices Appropriate People Participating Full-Time Sufficient Budget

Some Failure Factors

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The wrong sponsor Cost-cutting focus Narrow technical focus Lack of sustained management commitment and leadership

Unrealistic scope and expectations

Resistance to change The negative preconditions relating to the organization, include: Unsound Financial Condition Too Many Projects Under Way Fear and Lack of Optimism Animosity Toward and By IS and HR Specialists

Example Case: IBM Credit

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Core Business

: Financing the computers, software and service that the IBM Corporation sells Length to Process : 5 steps

Customer Service Credit Department Business Practices Department

2 3
4 5

Appraisal
Administration

Example Case: IBM Credit

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Request for financing from IBM Corp sales representative, IBM Credit staff log on a piece of paper (14 Staff) Someone carted that paper to the credit department, where the specialist entered the information into a computer system and checked the potential borrowers creditworthiness The specialist write the result of the credit check on the piece of paper and dispatch it to the business practices department

The business practices department modify the standard loan agreement in response to customer request
When done, a person in that department would attach the special terms to the request form

4 5

Appraiser write the rate on a piece of paper, enter the data into a PC spreadsheet and give the paper to a clerical group
An administrator turn all this information into a quote letter that could be delivered to the IBM sales representative by Federal Express

Example Case: IBM Credit

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Result: 1. The entire process consumed six days on average 2. From the sales reps point of view, this turnaround too long Customer could find another source of financing Customer simply to call the whole deal off 3. Difficult to control

Example Case: IBM Credit

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False Assumption: Every bid request was unique and difficult to process, thereby requiring the intervention of four highly trained specialist Fact: Most requests were simple and straightforward

Solution: BPR - IBM Credit senior manager found that most of their job was little more than clerical - IBM Credit develop a new computer system to support the deal structurer - In really tough situations, he/she can get help from a specialist expert in credit checking, pricing and so on

Example Case: IBM Credit

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Result: - The performance improvement achieved dramatically - IBM Credit slashed its six days turnaround to four hours - The number of deals has increased a hundredfold - 90 percent reduction in cycle time and hundredfold improvement productivity - The company achieved a dramatic performance by making a radical change to the process as a whole

Example Case: IBM Credit

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A five-step approval process Duration from six days to two weeks Actual processing time 90 minutes Why so many steps? Engineered for the most difficult cases Five experts replaced with one deal structurer Support of I/T essential Results - Six days to four hours - Slight work force reduction - 100% work load increase

Example Case: Kodak

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In 1987 Kodaks arch-rival, Fuji came up with a new 35mm single-use camera Kodak has no competitive offering Kodaks Traditional Product Development Process Slow: would take 70 weeks to produce a rival to Fujis camera! Product development process was partly sequential and partly parallel

Example Case: Kodak

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Reaction to competition from Fuji Kodak reengineered its product development process through the innovative use of CAD/CAM-Computer Aided Design/Computer Aided Manufacturing The technology that has enabled Kodak to reengineer its process is an integrated product design database Result: the new process, Concurrent Engineering Reduce turnaround time to 38 weeks Priority to release product on time

Example Case: Kodak

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Key Redesign Strategy Apply innovative use of CAD/CAM + integrated product design database Allow engineer to design at computer workstations Database collect each engineers work and combines into overall design Each morning, problems are resolved immediately Manufacturing can begin tooling design just 10 weeks into product design instead of 28 weeks in the past

Example Case: Ford Motor

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FORD MOTOR COMPANYS ACCOUNTS PAYABLE DEPARTMENT 500 employees 20% saving anticipated a reduction of 100 people But Mazdas Payables Department has five people!

Old process: matching purchase orders, invoices, and receiving documents to issue payment authorizations New Process: purchase orders go to suppliers and on-line database. Upon receipt, receiving clerk verifies shipment. If okay, payment is made; if not, it is returned Results - No invoices - No receiving reports - 75% staff reduction 375 people reassigned

BPR Characteristic
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Beberapa pekerjaan digabungkan menjadi satu Para Pekerja membuat keputusan Tahap-tahap di dalam proses dilakukan menurut kebiasaan Proses-proses mempunyai banyak versi Pekerjaan dilakukan pada tempat yang paling berarti Pemeriksaan dan kontrol berkurang Rujukan minimum Manajer kasus membuat satu titik kontak Operasi-operasi gabungan sentralisasi/desentralisasi merata

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