Business Process Re-Engineering

BUSINESS PROCESS RE-ENGINEERING

Read this section to understand what business process re-engineering is. Also think about how business process re-engineering affects systems development and its influence on organisational performance (see the Case study).

Business process re-engineering involves focusing attention inwards to consider how business processes can be redesigned or reengineered to improve efficiency.

Business process re-engineering involves focusing attention inwards to consider how business processes can be redesigned or re-engineered to improve efficiency. It can lead to fundamental changes in the way an organisation functions. In particular, it has been realised that processes, which were developed in a paper-intensive processing environment, may not be suitable for an environment that is underpinned by IT.

The main writing on the subject is Hammer and Champy’s Reengineering the Corporation (1993), from which the following definition is taken.

Business Process Re-engineering (BPR) 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.

The key words here are ‘fundamental’, ‘radical’, ‘dramatic’ and ‘process’.

  • Fundamental and radical indicate that BPR is somewhat akin to zero based budgeting: it starts by asking basic questions such as ‘why do we do what we do’, without making any assumptions or looking back to what has always been done in the past.
  • Dramatic means that BPR should achieve ‘quantum leaps in performance’, not just marginal, incremental improvements.
  • Process. BPR recognises that there is a need to change functional hierarchies: ‘existing hierarchies have evolved into functional departments that encourage functional excellence but which do not work well together in meeting customers’ requirements’ (Rupert Booth, Management Accounting, 1994).

 

A process is a collection of activities that takes one or more kinds of input and creates an output.

For example, order fulfilment is a process that takes an order as its input and results in the delivery of the ordered goods. Part of this process is the manufacture of the goods, but under BPR the aim of manufacturing is not merely to make the goods. Manufacturing should aim to deliver the goods that were ordered, and any aspect of the manufacturing process that hinders this aim should be re-engineered. The first question to ask might be ‘Do they need to be manufactured at all?’

A re-engineered process has certain characteristics.

  • Often several jobs are combined into one.
  • Workers often make decisions.
  • The steps in the process are performed in a logical order.
  • Work is performed where it makes most sense.
  • Checks and controls may be reduced, and quality ‘built-in’.
  • One manager provides a single point of contact.
  • The advantages of centralised and decentralised operations are combined.

 

Case Study

Based on a problem at a major car manufacturer.

A company employs 25 staff to perform the standard accounting task of matching goods received notes with orders and then with invoices. About 80% of their time is spent trying to find out why 20% of the set of three documents do not agree.

One way of improving the situation would have been to computerise the existing process to facilitate matching. This would have helped, but BPR went further: why accept any incorrect orders at all? What if all the orders are entered onto a computerised database? When goods arrive at the goods inwards department they either agree to goods that have been ordered or they don’t. It is as simple as that. Goods that agree to an order are accepted and paid for. Goods that are not agreed are sent back to the supplier. There are no files of unmatched items and time is not wasted trying to sort out these files.

Exam Focus Point

You may well get a question on BPR requiring you to assess its impact on the organisation.

Hammer’s principles of BPR

  • Processes should be designed to achieve a desired outcome rather than focusing on existing tasks.
  • Personnel who use the output from a process should perform the process. For example, a company could set up a database of approved suppliers; this would allow personnel who actually require supplies to order them themselves, perhaps using online technology, thereby eliminating the need for a separate purchasing function.
  • Information processing should be included in the work, which produces the information. This eliminates the differentiation between information gathering and information processing.
  • Geographically dispersed resources should be treated as if they are This allows the benefits of centralisation to be obtained, for example, economies of scale through central negotiation of supply contracts, without losing the benefits of decentralisation, such as flexibility and responsiveness.
  • Parallel activities should be linked rather than integrated. This would involve, for example, co-ordination between teams working on different aspects of a single process.
  • ‘Doers’ should be allowed to be self-managing. The traditional distinction between workers and managers can be abolished: decision aids such as expert systems can be provided where they are required.
  • Information should be captured once at Electronic distribution of information makes this possible.

Business processes and the technological interdependence between departments

The value chain describes a series of activities from input of raw materials to output of finished goods/services for the customers. These activities may be organised into departments even though the actual process of adding value may cross departmental boundaries.

The links between different departments of a business can vary, however, and hence the need to manage the relationships between them. Interdependence is the extent to which different departments depend on each other to accomplish their tasks. It is possible to identify three types of interdependence.

 

  • In pooled interdependence, each department/section works independently of the others, subject to achieving the overall goals of the organisation.
  • Sequential interdependence is when there is a sequence (or a linked chain of activities) with a start and end An example is an assembly line: raw materials are taken, moulded to the right sizes and shapes and are assembled into a product. The outputs of each stage sequence must be precisely tailored to the inputs of the next – standardisation of outputs, might be one form of co-ordination used. The first activity must be performed correctly before the second can be tackled. Management effort is required to ensure that the transfer of resources between departments is smooth. They therefore need information about the process as a whole.
  • Reciprocal interdependence exists when a number of departments acquire inputs from and offer outputs to each other. In other words, while resources have to be transferred, there is no pre-set sequence. The output of one department might be sent to another for processing, and then returned to the original department.

 

You should now have some idea as to the complexities of business processes overlapping different departments. Some organisations have redesigned their structures on the lines of business processes, adopting BPR to avoid all the co-ordination problems caused by reciprocal interdependence.

Key characteristics of organisations, which have adopted BPR

Work units change from functional departments to process teams, which replace the old functional structure.

    • For example, within a functional framework, a sales order may be handled by many different people, in different departments or business functions. (One person takes the order in the department, and one person delivers).
    • In process teams, the people are grouped together. A case team might combine to do all the work on a process and this applies not only to one-off projects but to recurring work.

Multi-skilling/Multi-tasking also means that one individual has several skills and does many of the tasks in a process.

  • Jobs change. People do more, as team members are responsible for results. This ties in with job enlargement and job enrichment.
  • People’s roles change. They are empowered to make decisions relevant to the process.
  • Performance measures concentrate on results rather than activities. Process teams create ‘value’ which is measurable.
  • Organisation structures change from hierarchical to flat (i.e. delayered).
    • When a process becomes the work of a whole team, managing the process is the team’s responsibility. Interdepartmental issues become matters the team resolves itself, rather than matters requiring managerial intervention.
    • Companies require less managerial input. Managers have less to do; there are fewer of them and so fewer layers.
    • Organisation structure determines lines of communication, and in many organisations is a weighty issue. This is not the case in process organisations, as lines of communication ‘naturally’ develop around business processes.

Implications of BPR for accounting systems

 

Issue Implication
Performance measurement Performance measures must be built around processes not departments: this may affect the design of responsibility centres.
Reporting There is a need to identify where value is being added.
Activity ABC might be used to model the business processes.
Structure The complexity of the reporting system will depend on the organisational structure. Arguably the reports should be designed round the process teams, if there are independent process teams.
Variances New variances may have to be developed.

 

Case Study

The case of Taco Bell (Taco Bell is a chain of fast food restaurants based in California USA,  but now operates world-wide. They specialise in Mexican foods) is one of the examples quoted in Hammer and Champy’s book. The emphasis is the editor’s.

In the 1980s, the company was entrenched in a command and control hierarchy that claimed to understand what customers wanted, but did not ask directly. But major re-engineering efforts – automating, changing the organisational structure and management system, reducing kitchen space, and increasing customer space – focusing on what customers really wanted, greatly simplified their processes.

These changes have had a huge impact on the company. It went from a failing regional Mexican-American fast food chain with $500 million in sales in 1982, to a $3 billion national company 10 years later, with a goal to expand further to $20 billion.

One BPR initiative was the K-Minus program, or kitchenless restaurant. Based on the belief that they were a service company, not a manufacturer, a large majority of the restaurants’ food preparation is now “outsourced” and  occurs at central commissaries rather than in the restaurant, pushing 15 hours of work a day out of the restaurant, improving quality control and employee morale, reducing employee accidents and injuries, and resulting in substantial savings on utilities. The K-Minus program saves Taco Bell about $7 million a year.

Examples of business process re-engineering

  • A move from a traditional functional plant layout to a JIT cellular product layout is a simple example.
  • Elimination of non-value-added activities. Consider a materials handling process, which incorporates scheduling production, storing materials, processing purchase orders, inspecting materials and paying suppliers.

This process could be re-engineered by sending the production schedule direct to nominated suppliers with whom contracts are set up to ensure that materials are delivered in accordance with the production schedule and that their quality is guaranteed (by supplier inspection before delivery).

Such re-engineering should result in the elimination or permanent reduction of the non-value-added activities of storing, purchasing and inspection.

Exam Focus Point

Be prepared to apply your knowledge of BPR to a particular scenario or to examples that you are aware of from your reading or own experience.  Examiners have stated that good answers often draw on the candidate’s own experience in the context of the question set.

CHAPTER ROUNDUP

  • Business process re-engineering involves focusing attention inwards to consider how business processes can be redesigned or reengineered to improve efficiency.

 

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