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Business Process Reengineering: Introduction and Examples
Business Reengineering Definition and Principles Business Reengineering Examples Business Reengineering Framework Business Reengineering Project Life Cycle Business Reengineering Teams and Infrastructures IT Enablers New Thinking for Taking Advantages of IT Enablers IDEF0 Notation and Diagramming Technique IDEF0 Model Analysis IDEF0 Tools: Demonstration of Design/IDEF Total Quality Management vs. Business Reengineering Culture Changes in a Reengineering Workplace Critical Successful Factors of Implementing Business Reengineering
Managing Business Process Reengineering Life Cycle IT Enables for Business Process Reengineering
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Books on BPR
Hammer, Michael and Champy, James, Reengineering the Corporation: A Manifesto for Business Revolution, New York: HarperCollins Publishers, Inc., 2001 Davenport, Thomas H., Process Innovation: Reengineering Work through Information Technology, Harvard Business School Press, 1992. Hammer, Michael, Reengineering Work: Dont Automate, Obliterate, Harvard Business Review, July-August, 1990. Davenport, Thomas H. and Short, James E., The New Industrial Engineering: Information Technology and Business Process Redesign, Sloan Management Review, Summer 1990, pp. 11-27. IBM System Journal, a special issue on Business Transformation through Information Technology, Vol 32, No. 1, 1993. Order Number: G321-011000, (1-800-426-5687) Hall, G., Rosenthal, J., and Wade, J., How to Make Reengineering Really Work, Harvard Business Review, November-December 1993, pp. 119-131. Reprint No. 93604.
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Examples of BPR
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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
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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.
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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."
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Definition of Reengineering
The fundamental rethinking and radical redesign of core business processes to achieve dramatic improvements in critical performance measures such
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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.)
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A Cow Path?
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Reengineering Is ...
Extremist's View
Obliterate what you have now and start from scratch. Transform every aspect of your organization.
Source: Michael Hammer, Reengineering Work: Dont Automate, Obliterate, Harvard Business Review, July-August, 1990, pp. 104-112.
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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.
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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
Minder Chen, 1993-2007
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Types of Processes
Dimensions & Type
Organization Entity Inter-organizational Inter-functional Inter-personal Objects Physical Informational
Examples
Order from a supplier
Develop a new product Approve a bank loan
Activities Operational
Managerial
Minder Chen, 1993-2007
Develop a budget
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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.
CEO
Supplier
Marketing & Sales Purchase Production Distribution Accounting
"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."
Minder Chen, 1993-2007
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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.
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Satisfied 68%
50% to 70% of reengineering efforts fail to achieve the goals set for them.
Source: Thomas A. Stewart, Reengineering: The Hot New Managing Tool, Fortune, August 23, 1993, pp.. 41-48.
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Benefits of Reengineering
Customer Service Process Timeliness Quality
Reduce Cost
Competitiveness New/Improved Technology Sales/Revenues
0 1 2 3 4 5 6 7 Actual Benefits Expected Benefits
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40 67 77 78 88 0 50 100
Downsizing Restructuring Automation Reengineering
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. Minder Chen, 1993-2007
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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
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Goods
Accounts Payable
Receiving document
Invoice
Payment
*Source: Adapted from Hammer and Champy, 1993
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Ford
Purchasing
Procurement Process
Purchase order Vendor
Goods
Data base
Accounts Payable
Payment
Minder Chen, 1993-2007
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After
Reengineer procurement instead of AP process. The new process cuts head count in AP by 75%. Invoices are eliminated. Matching is computerized. Accuracy is improved.
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New Life Insurance Policy Application Process at Mutual Benefits Life Before Reengineering*
Department A Step 1 Department A Step 2
....
Issuance Application
Department E Step 19
Issuance Policy
30 steps, 5 departments, 19 persons Issuance application processing cycle time: 24 hours minimum; average 22 days only 17 minutes in actually processing the application
*Source: Adapted from Rethinking the Corporate Workplace: Case Manager at Mutual Benefit Life, Harvard Business School case 9-492-015, 1991.
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The New Life Insurance Policy Application Process Handled by Case Managers
Mainframe
Underwriter
Physician
Case Manager
PC Workstation
Minder Chen, 1993-2007
LAN Server
application processing cycle time: 4 hours minimum; 2-5 days average Application handling capacity double Cut 100 field office positions
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Subprocesses
Decide on application Inform customer Set up customer
Result
Customer is notified, recorded, and enabled to place orders
Vision
Were losing market share to competitors offering fast or instant credit, and our image is declining. Our paper-based workflow involves many starts and stops, and involves several departments and job functions. We dontt capture the right information on the application, so we need to go back to the Customer repeatedly. We cant answer Customer queries about in-process applications The effort and delay aren'tt justified for small Customers who pose minimal risk as a group. Credit Representatives spend most of their time on small accounts, not on large ones where their expertise is needed. Unless we fix the process, our market share will continue to erode and closure of the operation is likely.
Actors Mechanisms
We will offer instant, secured credit to small Customers. Applications from large Customers will be handled in two days or less. Reps All staff will perform higher-value work, and have more authority-Credit will focus on large clients, and Credit Admin Clerks will handle
small applications completely.
Customer Independent surveys will show that Customers perceive us as the Service leader in our industry. and Once the new process is implemented, our market share decline will slow, within one year we will again be growing at 12% per year.
Metrics
Applicant Sales Representative Credit Representative Credit Administration Clerk Credit Bureau Word Processing Clerk Marketing Administration Clerk Customer Data Maintenance Clerk
Minder Chen, 1993-2007
1 to 4 work hours and up to 7 elapsed days per application 6 Credit Representatives 150 applications per month, growing 10% per year 75% approved, 25% declined 85% of applications come from small Customers 90% of our sales volume comes from 10% of Customers from 10% of applications come from previously denied Applicants, and 10% former Customers they Small Customer bad debt write-offs are less than 2% of sales, and overall are approximately 1% of sales - 29 -
Need to strengthen DRG's relationships with existing customers and target our marketing to those potential customers whose profiles matched specific company strategies.
A new vision for DRG: The company needed to be exactly what most people didn't expect it to be an insurance company that cares about its customers and wants to give them the best possible value for their premium dollar. *Source: Adapted from Capital Holding Corporation-Reengineering the
Direct Response Group, Harvard Business School case 192-001, 1992.
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The Underwritten Rules of the Game The most noble organization initiatives are doomed to failure if they require employees to behave in ways that conflict with water-cooler wisdom on how to get on in the company.
Source: Adapted from Peter Scott-Morgan, The Underwritten Rules of the Game: mater Them, Shatter Them, and Break Through the Barriers to Organizational Change, McGrawHill Inc., 1994.
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I Think I Know.
Prospects & Customers
Customer Management
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CSR Customer
Life Corres.
Data Entry
Lettershop
System
Day 8
Micro-film Request
(Batch)
Day 5
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Customer Management Team (CMT): A Flavor of How DRG Service Process Will Change
CMT:
Teleservice Representative
System:
Client-server architecture Day 1
Customer
Day 1 Answers
Day 1-2
Day 3-4
Outbound Paper
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Taco Bell*
We were going backwards - fast ... If something was simple, we made it complex. If it was hard, we figured out a way to make it impossible. - Taco Bell CEO, John E. Martin Customer buy for $1 are worth about 25 cents. 75 cents goes into marketing, advertising, and overhead. Reengineering from the customers point of view. Are customer willing to pay for these value-added activities?
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Taco Bell
Corporate Vision: We want to be number one in
share of stomach.
30% : 70%
Eliminate district managers. Restaurant managers are given profit-and-loss responsibility. Moving cooking of meat and bean outside. Boost peak serving capacity at average restaurant from $400 an hour to $1,500 a hour. $500 millions regional company in 1982 to $3 billion national company in 1992.
Minder Chen, 1993-2007
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Reengineering Example
Cash Lane No more than 10 items
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Reengineered Process
Key Concept:
One queue for multiple service points Multiple services workstation
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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: Dont Automate, Obliterate, Harvard Business Review, July-August, 1990, pp. 104-112. Minder Chen, 1993-2007
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An individual without information cannot take responsibility; an individual who is given information cannot help but take responsibility.
Jan Calzon CEO, Scandinavian Airlines
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A BPR Framework
Organization
Job skills Structures Reward Values
Technology
Enabling technologies IS architectures Methods and tools IS organizations
Process
Core business processes Value-added Customer-focus Innovation
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Approaches to BPR
Focus on core business processes. Use information technology to enable new business processes, not just to automate existing ones. Start with a clean sheet of paper and think out-ofthe-box. Consider all aspects of the process. Adopt a BPR methodology. Use proven methods and tools in analyzing and redesigning the process. Manage the implementation and change process from the beginning.
Minder Chen, 1993-2007
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Business Process Reengineering Life Cycle The BPR life cycle approach decomposes business reengineering projects into interrelated phases in which a set of integrated
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Hammer
Mobilization (Get serious)
Understand and measure existing processes Redesign the process Redesign (Get crazy)
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Methodology Components
Work Breakdowns Phase Task Step Deliverable
Participant
Minder Chen, 1993-2007
Method
Tool
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Visioning Identifying
BPR-LC
Enterprise-wide engineering
Analyzing Redesigning
Evaluating
Identify enabling IT & generate alternative process redesigns Evaluate and select a process redesign
Process-specific engineering
Implementing
Improving
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Phase 1: Visioning
Define corporate vision and business goals Apply to enterprise-wide reengineering effort. Develop overview of current and future business strategies, organizational structure, and business processes. Develop organizational commitment to reengineering. Develop and communicate a business case for action. Create a new corporate vision. Set stretched goals. Prioritize objectives. Assess implementation capabilities and barriers.
Minder Chen, 1993-2007
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Enterprise-Wide Vision
Business Strategy
Process Visualization
source: John L. Barrett, Process Visualization: Getting the Vision Right Is Key, Information Systems Management, Spring 1994, pp. 14-23. Minder Chen, 1993-2007
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Phase 2: Identifying
Identify business processes to be reengineered
Construct high-level process map Develop a process hierarchy Build enterprise-wide data models (optional) Evaluate the processes Select processes to be reengineered Prioritize and schedule processes to be reengineered
Minder Chen, 1993-2007
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Concept
Development Manufacturing
Strategy Development
Product Development
Order Fulfillment
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Customer
Develop strategy
Organization Learning
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Primary Activity
Service
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pilot product
Develop Product
Procure Materials
Pay Accounts
Market Product
pricing product pricing
Plan Production
production plan
marketing forecast
Sell Product
Manufacture Product
production materials finished product, repaired / refurbished parts maintenance
Receive Accounts
defective parts
customer payment
Customer
Supplier
Customer
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High-impact & intuitive approach: Use facilitated workshops or extensive interviews involving senior management.
Guidelines:
2~5 business processes at a time Identify owners of business processes. Expand the scope of a process been analyzed
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Process Impacts
Medium
High
Risky business
Woof!
Low
Fruitless Effort
Medium
Implementation Difficulty
Minder Chen, 1993-2007
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Phase 3: Analyzing
Analyze and Measure an Existing Process
Conduct preliminary scoping. Develop a high-level AS-IS baseline process model (work flow model). Avoid analysis paralysis by conducting preliminary analysis at fairly high level. Surface purpose and assumptions of the process (Ask WHY?). Perform activity-based costing: costs can be assigned based on actual activities and productivity. Reveal hidden time and nonvalue-added activities. Measure cycle-time and quality. Measure profitability in terms of task, product, and customer type.
Minder Chen, 1993-2007
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Interview Questions
What makes it go? Is anyone else involved?
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O: Open interview
C: Collect data
E: End interview
S: Summarize interview S: Synthesize interview
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EXECUTING TIME
PeopleScrap Departments Handoffs Job classifications Labor unions Locations Languages Countries/ cultures Whatever else is relevant
Cost per
execution
Rework Defect by type Errors Iterations Customer contacts Complaints Compliments Cost of defects Fixed versus variable costs
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Process Model
Process decomposition Process dependency or work flow ICOM of a process as defined in IDEF
Inputs: information and materials Outputs: Products and services Controls: Policy, specification, and timing Mechanism: Resources including people, tools, and facility.
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Process Data
Basic Overall process data:
Customers and customer requirements Suppliers and suppliers qualifications Breakthrough goals Performance characteristics: Cost, cycle time, reliability, and defect rate. Systems constraints: Budgetary, business, legal, social, environmental, and safety issues and constraints.
Just In Case
Over-inspection
Rework
Symptom: Frequent rework and iteration Disease: Inadequate feedback along process chain
Symptom: Too many exceptions and special cases Disease: Graduate accretion onto a simple process
Source: Adapted from Hammer and Champy, 1993.
Special Cases
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Analyzing a Process
Why? What are the underlying assumptions?
How do the assumptions affect process structure? Are the assumptions still valid? Can you make them invalid? How would changing the assumptions affect the work and its value?
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Phase 4: Redesigning
Identify enabling IT & generate alternative process redesigns
How can business processes be transformed using IT?
Business-pulled
Information Technology
Source: Thomas H. Davenport and James E. Short, The New Industrial Engineering: Information technology and Business Process Redesign, Sloan Management Review, Summer 1990, pp. 11-26.
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Phase 4: Redesigning
Business Vision & Strategy
Business-pulled
How can business strategies be changed business processes be transformed using IT?
Information Technology
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Integration:
Automation:
Steps in Redesigning
Generate new visions for the process Create ideas for dramatic changes Identify core sub-processes Identify enabling technologies Design alternative new processes Estimate cost/benefit/risk involved in alternative process redesigns
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Phase 5: Evaluating
Evaluate and select a process redesign
Develop criteria of evaluating alternatives of redesigned processes Evaluate design alternatives Select and recommend a reengineered process
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Evaluation Criteria
Costs
Design and implementing the business process Hire and train employee Develop supporting IS Purchase of other equipment and facilities
Customer requirements Breakthrough goals Performance criteria Constraints Technology availability and maturity Time required for design and implementation Learning curve Cost and schedule overrun
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Benefits
Risk
Phase 6: Implementing
Implement the reengineered process
Plan IT implementation Plan organization implementation Conduct a pilot project Develop a prototype system
Technical Design Social Design
Evaluate results from the pilot project and the prototype Prepare large-scale roll out
Minder Chen, 1993-2007
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Phase 7: Improving
Improve the process continuously
Develop performance measurement and reward systems in the reengineered process Monitor process performance constantly Improve the process on a continuous basis
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Process Monitoring
Process Improvement
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External View Best practices BPR principles Technologies Industry & functional Target Environment Design People & culture Processes Systems & IT Organization & structure
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Rapid Re Approach
Solution: Technical Design Preparation Recognize need Develop executive consensus Train team Plan change Vision Understand process structure Understand process flow Identify value-adding activities Benchmark performance Determine benchmark drivers Estimate opportunities Envision and integrate the internal & external ideal Model data & reexamine process linkages Instrument and informate Consolidate interfaces & information Redefine alternatives Relocate & retime controls Modularize & specify deployment Apply technology Plan implementation Solution: Social Design Empower customer contact personnel Define jobs, teams, skills, Specify management structure, org. boundaries, & transitional org. Specify job changes & career paths Deign change mgmt prog. Design incentives Plan implementation
Transformation Build & test the system Train staff Pilot new process Define transition Continuous improvement
Identification Model customer Define & measure performance Define entities Model processes Map organization Map resources Prioritize processes
Source: Adapted form Manganelli & Klein, The Reengineering Handbook, AMACOM, 1994.
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Learning Organization
Source: Adapted from James Martin & Co., Business Re-engineering Quick Reference Guide, 1993.
Minder Chen, 1993-2007
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BPR Czar
Methodologist
Tools Experts
Change Master
BPR Team
BPR Team
BPR Team
Process Owner
The LEADER appoints the PROCESS OWNER, who convenes a REENGINEERING TEAM, with assistance from the BPR CZAR and under the auspices of the BPR STEERING COMMITTEE. (Hammer and Champy, 1993)
Minder Chen, 1993-2007
Team Leader
BPR Experts
Domain Experts
IS Experts
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BPR Team
Size: up to 8 members in the core team augmented by subject-matter experts when needed. Commitment: half- to full-time. Skills: team skills, process engineering, quality, information systems, benchmarking, organizational and job design, and change management. Composition: Employees, customers, suppliers, and external consultants.
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Facilitated by a BPR facilitator to ensure thorough analysis Employ a BPR analysis and design methodology to ensure usable requirements or specifications Focused on a consensus-based decision making process Use multi-media audio-visual equipment or BPR tools to bridge knowledge gap among participants
Minder Chen, 1993-2007
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Lessons Learned
People tend to focus on the shortcoming of existing systems, rather than entirely new way to deliver services to customers. Task-oriented people in BPR teams may not be able to see and change the big picture. You need data about your customers, their needs, and your competitors before you start. Work hard at building a consensus of purpose and an identity for the BPR team. Members should not see themselves as representatives of various functional units brought together to protect their interests. They should work as a team to benefit the business. Insist on direct and active upper management participation such that the team will have the political cloud to actually reengineer and will know the changes in business strategies.
Minder Chen, 1993-2007
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Vision
A statement of the future business environment and how the company will operate in that environment. Vision is the result of dreams in action . It is a positive image of the future that is the strongest motivator for change. Characteristics
Common purpose: worth the effort Positive feeling and diffuse fear Clarity and values Capture the imagination Inspires and empowers Should have "reach" and "range"
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Mission
A statement of the basic purpose or reason for the company to exit. Lines of questioning
What business are we in? What is the geographic scope? What markets do we serve? What products and services do we provide? What are the critical successful factors of the organization? How can we achieve our competitive advantage?
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Mission: Examples
AT&T: Our business is service Gerber: Babies are our business Du Pont: Better things for better living through chemistry
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Stories
Context
Insight
Present
Foresight
Future
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Past
Minder Chen, 1993-2007
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