Business Process Reengineering

Created by Dr. A. K. Dey

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Business Process Reengineering

The history of radical management

Presentation by: Dr. A. K. Dey Jan 31, 2008 2

BPR Basics
BPR is defined as "the analysis and

design of workflows and processes within organizations1 BPR has also been described as the critical analysis and radical redesign of existing business processes to achieve breakthrough improvements in performance measures.2 3

Who invented BPR?

Michael Hammer
Michael Hammer, besides being one of the founders of BPR, he is also the president of Hammer and Co., a management education company. Hammer started out as a engineer and was a professor at MIT in the computer science department. Both TIME (1996) and Business Week (2002) listed Hammer as one of the Top 25 most influential businessmen of all time.

James Champy
James Champy is the co-author of Reengineering the Corporation with Michael Hammer. He started his career as a civil engineer at MIT. He also passed the bar at Boston College Law School and taught at MIT for some time. He was the CEO for CSC Index and is now the Chairman of Perot 6 Systems consulting

The third wheel?

Thomas H. Davenport is sometimes credited as a co-creator of BPR. His articles in the Sloan Management Review were coming out around the same time as Hammers articles. Davenport was not involved in Reengineering the Corporation although many cite his definition of BPR. Davenports thoughts on BPR are similar to Hammerism (BPR as defined by Michael 7 Hammer)

Management for the future

Americas business problem is that it is entering the twenty-first century with companies designed during the nineteenth century Hammer and Champy (1993).
Even though nineteenth century management theory is cited as an influence to BPR, it is still a modern theory hoping to reform twenty-first century business by rewriting the 8

In the beginning
BPR began when Hammer and Champy noticed some corporations dramatically improv[ing] their performance in one or more areas of business using techniques that were radically different then those found in management at the time. This observation heralded Hammer and Champy to reevaluate popular management theories. Both authors noticed that it wasnt gradual changes, 9

Algorithm for programming real life

Hammer created reengineering as a logical extension of his computer science background. In an interview with Wired magazine, Hammer agreed to an interviewers analogy that [a] reengineering plan is an organizational hack an algorithm for programming real life. The bits are people. The routines are business processes. (Wired, 1995) Hammer himself was a one of the famous Cambridge hackers during the 60s and 70s and parlayed his computer expertise into management with the Index Group, a management-consulting firm in Cambridge. There he met with James Champy, co-founder 10 of Index,

Reengineering the Corporation

First published in 1993, Reengineering the Corporation became the handbook for businesses in the 90s. It was subtitled A Manifesto for Business Revolution. The tag line states: Forget what you know about how business should work.

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The Reengineering Revolution

Michael Hammer also coauthored The Reengineering Revolution in 1995. When Hammer noticed companies succeeding when they implemented BPR, he wanted to document what techniques individual companies used to achieve their goal. He also noticed companies doing badly after 12

Affecting the World

In only a year and a half after the publication of Reengineering the Corporation , the book had sold 1.7 million copies worldwide. To date, it is estimated to have sold over 2 million copies world wide. The book has also been translated into nineteen (19) languages including Finnish, Hebrew and Thai (Hammer 1995)

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Butwhy has there been so much interest in

Business Process Reengineering?

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Why organizations are interested in BPR

#1 reason cited by corporations:

Improving efficiency

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Additional attractions for corporations

Competitive pressure Desire to improve poor customer

satisfaction Desire to improve poor quality of products and services

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Because of BPR*
American Express reported reducing its annual costs by over $1 billion through reengineering. AT&Ts Global Business Communications Systems unit turned a nine-figure loss into a nine-figure profit the Semiconductor Group of Texas Progressive Insurance reduced the cycle time of its claims process from weeks to days, and dramatically improved customer satisfaction while reducing costs. The revenue per employee increased by over 70 percent.

Figures based from the years 1993 1995, (Hammer2)

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CIGNA: A BPR Success Story

Viewed BPR as a way of life Not radical, all-or-nothing change;

rather, a realignment of strategy and agenda Sustained from the bottom up, with learning transferred across. Took into consideration the differences in management cultures in different countries
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Things went as planned when

Team members demonstrated strong

dedication to the project. The team had strong commitment and support from top management. The team shared a clear vision of the objectives and goals and had a common focus and understanding of project success. The team utilized consultants as part of its reengineering strategy.
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On the flip side

70% of BPR projects fail Only 47% of the companies in Proscis

study met their project objectives to within 10% According to one of the self-proclaimed creators of BPR, around 1993 the modest idea [of BPR] had become a monster.
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Possible Causes of BPR failure

Lack of sustained management

commitment and leadership Unrealistic scope and expectations Resistance to change

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No more excuses
When Hammer wrote The Reengineering Revolution, he said, Failure is not caused by cosmic rays, bad luck, or other factors outside of human control. Failure is caused by people who dont know what theyre doing and who dont pursue reengineering the right way.(Hammer2) BPR has been used as the scapegoat for any and all problems if something did go wrong when implemented. Companies misused the term to sack people or downsize. Anyone could invoke the term BPR and it could mean anything. It was a buzz word that not enough people understood fully, and was therefore utilized improperly. 22 Many criticisms of BPR that arose did so because they

Lessons Learned
People, not the bottom line, are the

most important assets of a company IT alone can not improve a companys financial status; technology is only useful if it helps people do their work more efficiently. Companies should underpromise and over deliver Clarity is key
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BUSINESS PROCESS REENGINEERING

An organizational make-over Reengineering is new, and it has to be done. Peter F. Drucker
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For a moment and continue 25

BUSINESS PROCESS REENGINEERING

What is BPR? What is a process? What is a business process? Why re-engineer? Why organizations dont re-engineering?

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What is BPR?
Reengineering is the fundamental

rethinking and redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed. (Hammer & Champy, 1993)
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BPR is Not?
Automation Downsizing Outsourcing

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BPR Versus Process Simplification

Process Simplification Process Reengineering

Incremental Change Radical Transformation Process-Led Vision-Led Assume Attitudes & Behaviors Change Attitudes & Behaviors Management-Led Director-Led Various Simultaneous Projects Limited Number of Initiatives
(Source Coulson-Thomas, 1992)

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BPR Versus Continuous Improvement

Continuous Improvement Process Reengineering Incremental Change People Focus Low Investment Improve Existing Work Unit Driven

Radical Transformation People & Technology Focus High Investment Rebuild Champion Driven

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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. (Davenport, 1993)

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What is a Business Process?

A group of logically related tasks that use

the firm's resources to provide customeroriented results in support of the organization's objectives

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Why Reengineer?
Customers Demanding Sophistication Changing Needs Competition Local Global
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Why Reengineer?
Change Technology Customer Preferences

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Why Organizations Dont Reengineer?

Complacency Political Resistance New Developments Fear of Unknown and Failure
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Performance
BPR seeks improvements of
Cost Quality Service Speed

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Key Characteristics
Systems Perspective Global Perspective on Business Processes Radical Improvement Integrated Change People Centred Focus on End-Customers Process-Based
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What is BPR?
Hammer and Champy definition
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.

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What is BPR?
Hammer/Champy methodology 6 steps
1. Envisioning 2. Initiate 3. Process Diagnosis 4. Process Redesign 5. Reconstruction 6. Process Monitoring * BPR process loops back to step 3
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Detailed view of 6 steps

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Relationship to IS
Use of information systems is often key

contributing factors to BPR success Information technology is considered a major enabler in providing new ways of working and collaborating

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Relationship to IS
Studies indicate that over 50% of all

reengineering efforts are initiated because of a perceived information technology opportunitythe actual technological solution is far less important than educating employees to use IT as both a strategic initiative and as a tool in the reengineering process. (Weicher 5)
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Alternative approaches to BPR

Davenport Methodology Emphasizes IT as driver Manganelli/Klein Methodology focuses on business processes that directly support the strategic goals of the company and customer requirements Kodak Methodology Stresses change management as key
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Alternative approaches to BPR

Alternatives are very similar
Step 1: Project Preparation Hammer/Champy 1. Introduction 2. Identification 3. Selection 1. Visioning and Goalsetting 2. Identification 1. Preparation 2. Identification 1. Project Initiation 5. Change Management 4. Understanding 5. Redesign 3. Understand and measure 4. Information Technology 3. Process Vision 4a. Technical Design 4b. Social Design 2. Understanding 3. New Process Design 5. Change Management Step 2: Redesign of Processes Step 3: Implementation 6. Implementation

Davenport

5. Prototyping 6. Implementation

Manganelli/Klein

5. Transformation

Kodak

4. Business Transition 5. Change Management

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Key Factors to Success

Most business analysts tend to agree that

successful implementation of BPR requires the ability to effectively lead change. John P. Kotter has written several books for the Harvard Business Review on how to lead effective change in an organization. In his book, Leading Change, Kotter has outlined 8 steps that must be followed in order to successfully bring about45 change.

Key Factors to Success

Step 1 Establish a Sense of Urgency Set a Burning Platform Atmosphere
1. 2. 3. 4. 5. 6. 7. 8. 9.

Expose Weaknesses compared to competitors Eliminate signs of excess Set high unachievable targets Stop measure subunit performance Send more data about customer satisfaction compared to competitors. Insist people talk to unsatisfied customers, unhappy suppliers, and disgruntled shareholders. Use consultants to force relevant data and honest discussion into management meetings. Eliminate senior management happy talk Bombard people with information on future opportunities and the organizations current inability to pursue those opportunities.

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Key Factors to Success

Step 2 Create a Guiding Coalition Team must be comprised of the right individuals. These individuals must posses 4 key qualities. Position Power Expertise Credibility Leadership
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Key Factors to Success

Step 3 Develop a Vision & Strategy Vision refers to a picture of the future with some implicit or explicit commentary on why people should strive to create that future Six Key Characteristics with a good vision.
Imaginable Desirable Feasible Focused Flexible Easy to Communicate

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Key Factors to Success

Step 4 Communicate the Vision Vision must be communicated effectively in order for individuals to act. Several key elements in effective communication.
Simplicity Use of Metaphors / Analogies Use of Multiple Forums Constant Repetition Leadership by example Explanation of Inconsistencies Two-way communication

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Key Factors to Success

Step 5 Empower Employees

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Key Factors to Success

Step 6 Generate Short-Term Wins Set up project milestones Celebrate wins frequently Acknowledge failures Make adjustments to BP

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Key Factors to Success

Step 7 Consolidate Gains & Produce More Change Never declare final victory Keep change alive! This eliminates complacent attitudes DAveni Hypercompetition Model
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Key Factors to Success

Step 8 Anchor New Approaches in Culture Transform BP to align with vision Promote Individuals in Upper Management that live and breathe the vision
Hire Individuals that believe

in the new culture Remove the bad apples

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Management Responsibilities
Start with a vision Course of action Current condition analysis Readiness for change Build credibility with the rest of the

organization

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The Changes of BPR

Work flow process Creation of a new process The objective

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Management Responsibilities Cont

Identify metrics Choosing metrics Measure the effectiveness of any new

processes

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Managements Final steps to BPR

Transition Plan Implementation Plan

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Company Background Started in 1595 in Amsterdam, Netherlands Major product Heineken beer Second largest brewer in the world Operates in 170 countries worldwide Started in the United States in 1931 1 of over 300 imported beer in the US
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Business Environment
Heinekens market share was 2% Over 300 imported beers in the US Local breweries gaining popularity Lead-time for Heineken beer was 12wks Order processing labor intensive Customs clearance
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BPR Strategy
A new business model Market the business model to employees Overhaul of business operations New technology should be easy to use and

require minimal support Distributors should not have to pay to use the technology
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The Technology
Heineken Operational Planning System Web based system built around supply-chain software Form of collaborative planning ,forecasting and replenishment software Provides customized forecasting data Does not require proprietary software, equipment or support Uses Oracle database,SSL2,runs on Windows or 61 Unix and supports all Windows applications

The BPR Implementation

One company developed the entire system Required no work by distributors Distributors need only internet access Full implementation completed in 12

months and all distributors had access in another 12 months. Reduced lead-time by 50% Increased sales by 10% 62

Success factors
Senior management commitment Employee Involvement Distributors involvement Choice of technology mix Cost of technology to distributors

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Some more BPR success stories

CSC Index, an information systems

consulting group found

Cost reduced by 48% Response time reduced by 80% Defects decreased by 60%

Citibank re-engineered credit analysis

system result

Employees could spend more time (43%) in soliciting new business Profits increased by 750% over two years 64

Some more BPR success stories

Datacard Corporation re-engineered its

customer service operations sales increased by seven fold Bell Atlantic reduced both time (15 days to a few hours) and the costs ($68 million a year to $6 million) required to connect customers to long distance carriers
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Principles of Re-engineering
Michael Hammer set forth seven principles

of BPR to

Minimize the costs of BPR Maximize the benefits

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Seven Principles of Reengineering

Organize around processes and outcomes.

Not tasks and departments Have output users perform the processes Have those who produce information, process it Centralize and disperse data Integrate parallel activities Empower workers and use built-in controls Capture data once at the source67

IBM Credit Corp. before BPR

Used to have five distinct steps in credit approval

process Check customers credit, determine interest rate, etc. Used to take six days to several weeks Sales executives never able to get an answer about the approval Result: dissatisfied sales staff and customers lost sales
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IBM Credit Corp. after BPR

Re-engineered the process of credit approval Now one individual called Deal Structurer

process an application from beginning to end Uses common data base that contains all information needed to process a normal application In case of complexities calls on a small group of specialists Result less people, quick response, better tracking, higher customer satisfaction69

IBM Credit Corp.

IBM Credit Corp. Re-engineering was organized around processes (credit approval) and outcomes (quick response & tracking status) Not tasks and departments

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Phoenix Designs Inc before BPR

Used to sell customized furniture Customer ideas were captured by sales persons

sent by independent dealers Ideas were submitted to design teams Sales would take draft to customer for approval Customer would ask for some changes and the process would go on Cost and customer dissatisfaction both would rise
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Phoenix Designs Inc after BPR

Process of capturing idea, designing and

obtaining approval were re-engineered Sales person with the help of PC and special design software would design the furniture in customers office Revised system increased dealer sales by 1000% and boosted after income by 27%
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Phoenix Designs Inc

Phoenix Designs Inc In the re-engineered process
Made output users perform the processes

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FORD Motors before BPR

Accounts Dept. prepared three-part purchase

order one each for themselves, vendor & accounts payable Goods were received, multi copy GRN were raised one copy for the accounts payable Vendor prepared multi copy invoice and sent a copy to accounts payable More than 500 people worked in accounts payable matching 14 different data items in the three documents and trying to reconcile all the mismatches 74

FORD Motors after BPR

At MAZDA, of course for a much less volume, the

entire accounts were having only five people! Re-engineered system

Purchasing agents entered orders in an online system and electronic copy was forwarded to the vendor Vendors sent the goods but no invoice Upon receipt of the goods, the clerk would enter only three items part number, unit oa measure and the supplier code Computer matched the information with outstanding orders If they do not match goods were returned otherwise goods are accepted and payments sent electronically 75 to the vendor

FORD Motors
At FORD Motors Re-engineered process
Have those who produce the information, process it

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Hewlett-Packard Centralize & Disperse data

Decentralized purchase for fifty different manufacturing units Could not take advantage of extensive buying power to

negotiate quantity discounts Re-engineered and created corporate purchasing department it tracked all purchases & maintained list of approved vendors Each plant continued to met its unique needs by making its own purchases from approved vendors Corporate office tracked all purchases and used the data of fifty plants to negotiate quantity discounts and resolve problems Result: Significantly lower cost, 50% reduction in lead time, 75% reduction in failure rates & 150% improvement in on-time delivery

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Remaining principles
Integrate parallel activities New product

development Empower workers those who do the work should be empowered to take decisions results in faster response and increased quality of the task performed Capture data once at its source IT enables achieving this
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Conclusion

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References

http://www.siemon.com/us/company/case_studies/heineken.asp www.wikipedia.com Smith, M., & Wintermyer, P. (2000). Distribution supply chain management. Connector specifier, May 24, available form http://www.csmag.com. Stalk, G. (1988, July/August). Time The next source of competitive advantage. Harvard Business Review, 4151. Venkatraman, N. (1994, Winter). IT-enabled business transformation: From automation to business scope redefinition. Sloan Management Review, 7387. Weston, R. (1997). Heineken taps online ordering. Computerworld, 31(9), 69 Kotter, John P., Leading Change, Harvard Business School Press 1st edition, 1996. Schumacher, Wolf D. (2004, February). Managing Barriers to Business Reengineering Success. March 17, 2007. 80 http://www.prosci.com/w_2.htm.

Implementation of Business Process Re-engineering

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Introduction
Market dynamics are forcing firms to adopt management

concepts such as BPR, TQM, QFD, ISO, ERP For successful implementation Clear understanding of concepts among employees Success depends to a great extent on the degree of congruence between organizational goals and reengineered processes Create an environment of awareness Top management should openly support the BPR moves Each group may be assigned few departments Group members should use facts and figures to highlight unsatisfactory performance Through brainstorming or otherwise prepare a list of possible queries likely to be raised by employees and their answers

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Introduction

Many managers have risen to senior positions by using existing processes efficiently many may find is difficult to accept changes Resistance may not be visible BPR leader should persuade them to cooperate if it does nor work BPR leader should not hesitate to take stern measures It is difficult ot suggest a structured and systematic standard procedure for implementation of BPR that will work for every organization

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Implementation of BPR
Davenport & Short have suggested five step procedure for Implementation Step 1: Development of business vision and Process objectives Step 2: Identification of processes to be reengineered Step 3: Understanding and measurement of existing processes Step 4: Utilization of information technology as an enabler Step 5: Design and evaluation of process 84 prototype

Step 1: Development of business vision and Process objectives

Business Process: a set of logically related tasks performed to achieve a defined business objective Before BPR tasks were rationalized or simplified by industrial engineer Simply rationalizing tasks does not ensure efficient process Even when tasks are performed satisfactorily, the process comprising these tasks may remain unsatisfactory 85

Step 1: Development of business vision and Process objectives

Business vision should emphasize Current/future competition Product/service quality Customer requirement Customer oriented organization Make every body aware of the vision statement and strategies of the firm Vision statement must contain process objective: cost reduction, time reduction, Quality improvement, work life, learning, empowerment, responsiveness

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Step2: Identification of processes to be reengineered

Top management to identify two

approaches Exhaustive approach all possible processes are identified and prioritized High Impact approach identify only those processes which are in conflict with business vision and process objectives All employees must develop clear understanding of the activities and tasks involved in such processes Each employee must understand that their tasks are linked to whole process and how the process gets affected by what they do Process owner is responsible for the implementation

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Step2: Identification of processes to be reengineered Desired performance level of identified

processes must be quantified
Without process orientation no one is

responsible for the whole process customers concern may remain unattended Processes require flexibility for:

Different markets Different situations Resource variations Special customer requests

Reengineered process contains:

Simple, standard path (80% - 90%) Exception handling path (8% - 18%) Large complex path (2%)

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Step 3: Understanding and Measurement of existing processes

Assess the current state of performance In task oriented organization as long as tasks conform to the set norm of quality no one finds fault such a fragmented view results into inefficient process and cant withstand competitive pressure

Time taken or cost incurred to be quantified before and after the reengineering to highlight the improvements Quantified outcomes also help in silencing the skeptics

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Step 4: Utilization of IT as an enabler

IT capabilities When It is made available Transactional people try to apply to present Geographical task Automational Task orientation rather than Analytical process orientation dominates Informational Due to its speed and ability to Sequential deal with complex activities IT Knowledge Management has become an inseparable part of BPR Tracking Crucial role of IT is not only to Disintermediation improve present tasks but also perform tasks that are presently not performed

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Step 5: Design & Evaluation of process prototype

In BPR prototype of a process and not a

product objective is same Used to test if it fulfills the desired technical and other requirements Changes, if required, will cost less During implementation resources may not be available in time chances of facing uncertainties is greatly reduced if process viability is tested in a simulated environment
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Step 5: Design & Evaluation of process prototype

Advantages of process prototype

Inexpensive in comparison to the processes that might fail during implementation Develops process oriented mindset among people
Improves process further based on prototype members suggestions

Computers play a major role in

developing process prototype

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Introduction & Definition of BPR Some examples

Dr. A. K. Dey
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Need for BPR for Indian industry

Till 1990 operated in protected environment Little choice for customers sellers dominated Low concern for needs, quality, timely delivery Very few Indian businesses were world class Liberalization & Globalization lowered entry barriers Indian businesses faced competition from global giants Question of survival & growth To become globally competitive incremental improvements may not work Need for radically redesigning business practices

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Definition of BPR
It is the fundamental rethinking and radical redesign of

business processes to bring about dramatic improvements in performance. Performance is measured in terms of cost, quality, accuracy, service, speed etc. --- Hammer & Champy Let us analyze the words used in this definition

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Fundamental
Attempts to examine
Why a particular task or job is needed? Why is it done in a particular way?

Objectives being
To ascertain the relevance of the job To explore the possibility of doing it in different way a better way

Even if a job is relevant close scrutiny may reveal

its redundancy or need for modification If redundant should be obliterated; If essential should be modified 96

A new word: Obliterate

Meanings

Wipe out Destroy Demolish Eliminate Eradicate Annihilate Reduce to nothing Refer to the article: Dont Automate; Obliterate
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Radical
Radical from Latin Radix meaning roots BPR attempts to get to the roots of the business

processes As against Kaizen BPR is not incremental improvement BPR does not operate at surface level where improvements are of minor nature Ishikawa Cause & Effect Diagram is used Management may have to

Dispense with some of the tasks/sub processes/processes Reinvent them for significant improvements in performance

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Re -design
BPR concerned with work design The way a job is done No matter how well a product is designed if the

activities involved in its manufacture are not properly designed Quality likely to suffer Only two factors influence Quality of a job Process by which it is done People who are doing it
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Re design . Contd.
Fundamental & Redesign words are linked Fundamental attempts to look in the way

work is done It is possible need to redesign some jobs may emerge as a result of such enquiry

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Process
Process a group or collection of related

tasks or activities which are performed in a logical sequence to create an output that is of value to the customer Emphasis in Value to the customer leads to Customer satisfaction If customers are dissatisfied with an output (product/service) all processes associated with it needs scrutiny
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Dramatic
Relates to radical improvement In globally competitive world marginal

improvements are totally inadequate Particularly in organizations where decades of indifference to customers needs requires major changes for survival & growth Although Kaizen improvements are not dramatic the fact that it is continuous sustained effort at every level of organization ensures better output and customer satisfaction 102

Examples: Highway construction

After the slow way, the express way:

Reengineered highways construction process Business Standard, March 22, 2003 In past fifty years PWD could built 556 KM of highway average 11 KM per year NHAI plans in nine year to build 14,846 KM average of 1650 KM per year Reduce project completion time: Outsourcing, Pre fabricated modules, Better processes & Higher productivity
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Some more
Voltas
1998 28.5 days to supply & install and AC in Mumbai 2000 Only 3 days during peak season; 24 hours in offpeak season

Leasing & Finance Co. in South India

Reengineered sales closing process and reduced from seven days to just one day

Manufacturing Co. in Western India

Reduced order fulfillment process from eight weeks to eight days

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END

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