Chapter 2

Business Process
Re-engineering (BPR)

Dr. Kurnianingsih

kurnianingsih@polines.ac.id

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Re-engineering
• "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."

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Business Process
• Def: Manner in which work is organized, coordinated,
and focused to produce a valuable product or service.

-- Cross-Functional Business Processes transcend

boundary between sales, marketing, manufacturing,
and research and development (e.g., order fulfillment
process…)

• Ways in which management chooses to coordinate

work
• Unique ways to coordinate work, information, and
knowledge
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Business Process
• How organization accomplishes its
assigned tasks
• EXAMPLE Payroll check writing (salaried)
Confirm that employee still working
Check rate of pay, withholding (taxes, insurance,
retirement)
Check for any bonuses
Report taxable income to IRS
Send proper amount to Insurer
Send proper amount to IRS (Federal, Local, City)
Send proper amount to Retirement Fund
Write check for proper amount 4
Example of Business Process
Functional Area Business Process
Manufacturing and production Assembling the product
Checking for quality
Producing bills of materials
Sales and marketing Identifying customers
Making customers aware of the product
Selling the product
Finance and accounting Paying creditors
Creating financial statements
Managing cash accounts
Human resources Hiring employees
Evaluating employees’ job performance
Enrolling employees in benefits plans

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Payroll Example
• Manual approach an obvious example of a
process meriting automation
—Structured
—Computer faster, more accurate
• Initial automation may involve independent files
—Different files for employment, different retirement
funds, different tax agencies
—BPR can focus on better ways to store data, use
relational database capabilities for efficiency,
accuracy

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Business Process Redesign
• Goal is to rethink and streamline business processes
• Aim is major gains in cost, quality, time-to-market, etc.
• Also called business process reengineering or business
reengineering or just reengineering
Re-engineering
• Essence of reengineering - discontinuous thinking -
break away from outdated rules and assumptions that
underlie operations

• Reengineering requires looking at fundamental

processes of business from a cross-functional
perspective
Outdated Business Processes
• Stop embedding outdated processes in computerized
systems
• Companies tend to use technology to mechanize old
ways of doing business
• Business processes came of age in different competitive
environment before advent of computer
Outdated Business Processes
• Much work organized as sequence of separate tasks
• Use complex mechanisms to track its progress
• Stems from Industrial Revolution when needed
specialization of labor and economies of scale
• Conventional process structures are fragmented and lack
integration necessary to maintain quality and service
• People tend to substitute the narrow goals of their
department for larger goals of process as a whole
IT to the Rescue
• Use IT to radically redesign business processes in order
to achieve dramatic improvements in performance

• examples: Ford and MBL (mutual benefit life ins.)

Principles of Reengineering
1. Organize around outcomes, not tasks
• Have one person perform all the steps in a process
• Design persons job around an objective or outcome
instead of a single task

2. Have those who use the output of the process

perform the process

3. Subsume information-processing work into real

work that produces the information
• Compress linear processes
Principles of Reengineering
4. Treat geographically dispersed resources as
though they were centralized
• Decentralizing a resource - gives better service to those
that use it
• Centralizing - get economies of scale
• Don't have to make these tradeoffs anymore - use
telecommunications to get benefits of scale while
maintaining benefits of flexibility and service
Principles of Reengineering
5. Put the decision point where the work is
performed, and build control into the process
—hierarchical management structure built on the
assumption that people who actually do the work
cannot/will not monitor and control it and that they
lack knowledge and scope to make decisions about it
—new principle - people who do work should make
decisions and that process itself can have built-in
controls

6. Capture information once at the source

BP Re-engineering
• Fundamental rethinking and radical redesign of business
processes
• Goal is to achieve major improvements in performance
• Efficient redesign of value chain
— Primary activities
• Inbound logistics, operations, outbound logistics, marketing and
sales, service
— Secondary activities
• Organizational activities, human resources, technology, purchasing
• Motivations
— Deregulation, consolidation, customer sophistication, increased
competition
Motivation for Re-engineering
BP Re-engineering
• Technology used to mechanize work
• Create new business rules
• Remove outdated rules
• Improve responsiveness
• Reduce costs
BP Re-engineering
• Decentralize decision making
—Become responsive to customer’s needs
—Flatten organization
• Facilitated by information technology
• Redesign of jobs
—New levels of judgment
—New types of leaders
• Adaptable
BP Re-engineering
Change
• Reengineering necessitates huge organizational
change
• No-one likes change
• So need executive leadership and vision
• Very stressful to implement a reengineering plan
Uncertain Results
• Reengineering cannot be planned meticulously
and accomplished in small and cautious steps -
it's an all or nothing proposition with an
uncertain result
Process Change Management

Strategic Planning

Change Management Continuous Process

Management

Project Management Technology Management

•Fragmented Process change •Integrated

•Functional-based through ERP •Process-oriented
•Inefficient •Standardized
•Costly •Customer-focused
•Slow •Competency-centered
Korea Telecom 2007 Olson: ERP3
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Process Change Management

• Change Management
— Commitment, people, communication, interactions
• Project Management
— Team formation, progress measurement
• Strategic Management
— Process redesign, measurement, continuous improvement
• Continuous Process Management
— Performance gap analysis, change justification
• Technology Management
— Software selection, technical analysis & design, installation

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Process Modeling

• Business process
—Business activities
• Data store
—Data needed by business process
• Data flow
—Data transferred between processes or from a
process to data store
• Organizational unit
—Units where processes take place
• Event
—Includes triggers and outcomes

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Neighborhood Food Cooperative

• Weekly cycle
• Members submit list
• Lists merged
• Orders placed for
product by phone
• Suppliers confirm in
writing with invoice
• Shipments made to
cooperative
• Members collect
product
• Cooperative pays net
10 days
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Basis for Best Practices
Supported by ERP Modules

• Re-engineered process models

—Improved process change depictions
• Data integration
—Among multiple processes
• Structural changes
—Streamline business functions
—Maximized productivity

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Reliable Finance Company

• Expansion required redesign of existing

system
• Needs enhanced information system
• Increase number of branches exponentially
• Achieve a competitive advantage
• Analysis of loan application system
—Reduce approval from 10-13 days to 2-3 days
—Improve access to databases for approval
decisions

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Failure in Re-engineering

Rosenthal:
—Apply “clean slate” approach
• Continuous training for new roles
• Measure performance
• Jobs must be redesigned
• Use rewards as incentives to change
—Move away from status quo
—Too narrowly focused
—Project too general

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Information Technology
Facilitates ERP

• Client-server computing allows for increase

power and control
• Integrated databases
—Reduces redundancy
• Increases data consistency
—Supports multiple functional units
—Data maintained separately from application
modules
—Database management systems
• Central data administration
• Improved data integrity
• Improved control
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Process Enterprises

Changed management structures

—Process responsibility given to “process
owners”
• Has process design authority
—Stresses teamwork
—Leans toward standardization of processes
—Focuses on achieving goals

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Information Flow

• Internal information
from functional units
• External information
from Internet, news
media, government
—Environmental
scanning

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Capabilities of Enterprise
Information System

• Drill-down paths
—Supported by star or snowflake schemas
• Critical success factors
—Strategic, managerial, or operational
—Sources: organizational, industrial, environmental
—Types of information monitored:
• Key problem narratives
• Highlight charts
• Top level financials
• Key factors
• Detailed key performance indicator responsibility reports

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Capabilities of Enterprise
Information System
• Status Access
— Relevance of latest data of key indicators
• Analysis
— Built-in analytical functions
— Integration with DSS products
— Analysis by intelligent agents
• Exception reporting
— Management by exception to standards
• Navigation of information
— Large amounts of data can be analyzed
• Audio and Visual
— Use of colors and sounds
• Communications
— E-mail, GSS, news groups, interface with voice mail

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Building Enterprise System

• planning for enterprise systems

• modeling the enterprise
• realizing enterprise systems
• people in enterprise systems

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Function of Enterprise System

Engineering
Design
Shop Floor
Sales execution

Inventory Production
Planning

Finance Controlling

Procurement Maintenance
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Extending Enterprise Systems

decision support &

analytic processing

global
systems customer
extended
supply systems &
chain e-commerce

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EIS Data Access and Use
• Data usually comes from single warehouse
—Advanced data visualization
—Combines multidimensional analysis with OLAP
• Spreadsheets and graphics
• Slice and dice
• Web ready

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Enterprise Portal
• Corporate portals
• Integrate internal and external applications
• Web-based interface
• Effective distribution of information
• Encourage collaboration
• Data visualization tools
• Customized
• Search engines

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Soft Information
• Information for questionable sources that is
used informally
—Vague
—Unofficial
—News reports and external data sources
—Predictions and speculations
—Explanations and justifications
—Opinions and gut feelings
—Rumors and hearsay

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Organizational Decision
Support System
• Focused on organizational task or activity
—affects several units
• Cuts across hierarchy layers
• Cuts across functional groups
• Computer based
• Communication technology
• Can be integrated into a DSS or EIS

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Supply Chains
• Old
— Supply chain
• Material flow from sources to finished product and disbursement
within the organization
— Demand chain
• Order generation, taking, and fulfillment
• New
— Flow of material, information, services from suppliers through
manufacturer to end user
• Supply chain management
— Planning, organization, and coordination of supply chain
activities
• Increase effectiveness
• Reduce risk
• Decrease cycle time
• Improve customer service
Supply Chains
• Upstream = suppliers
• Internal supply chain = changing inputs to outputs
• Downstream = distribution

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Value Chains
• Porter’s value chain model
—Primary activities
• Inbound logistics
• Operations
• Outbound logistics
• Marketing and sales
• Customer service
—Support activities
• Organization’s infrastructure
• Human resource management
• Technology development
• Procurement

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Value System
• Value chain is part of larger stream called value
system
—Includes tiers of suppliers
—Value chains of distributors
—Buyers
—Extended supply chain
—Maximize and optimize total value of chain

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Supply Chain Problems
• Uncertainties
—Demand forecasts
—Delivery time
—Quality issues
• Need to coordinate activities
• Other issues
—Poor customer service
—Obtaining real time data on chain status
—Cultural problems

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Supply Chain Problems
• Solutions
—Inventory management
—Shipping management
—Efficient purchasing
—JIT
—CRM
—Collaboration along chain
—Strategic partnerships
—Reduce number of intermediaries
—Outsourcing

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Material Resource Planning
• MRP system
—Production plan for 100% capacity
• Inventory models
• Master production schedule
• Component lists
• CRP system
—Added factory and machine capacities
• MRPII system
—Added financial and resource planning

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Enterprise Resource Planning
• ERP
—Computer system that integrates all of an
organization’s departments and functions
• Shortens production times
• Based on value chain view
• Decreases costs in chain
• Expensive
• Increases customer service
• Single interface
• Facilitates business process changes
• Automates key business processes
—SCM provides intelligent decision support
• Overlay ERP
• Advanced planning and scheduling modules

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Enterprise Resource Planning
• Options
—Build your own
—Off-the-shelf packages
—Outsource
• Application Service Providers
• Problems
—High failure rate
—ERP is a formal business process
—Organization’s processes don’t match the ERP’s
—Software capability and needs vary

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Customer Resource
Management System (CRM)
• Enterprise approach
• Communication based
• Focused on:
—Customer acquisition
—Customer retention
—Customer loyalty
—Customer profitability
• Empowers employees
• Enables one-to-one marketing
• Allows for proper allocation of resources to each
customer class

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Customer Resource
Management System (CRM)
• Relationship technologies
—Data warehouses
—Foundation for CRM
—Business intelligence/business analytics
• Data mining
• Predictive analytics determine relationships
• OLAP
• Integrated with:
– GIS = geographical preferences
– Revenue management optimization software = optimized
pricing
– Data mining workbench = targets promotions

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Benefit CRM
• Benefits: • Issues:
— Decrease expense of — Failure to use software
recruiting customer — Integration
— Reduce sales costs — Organizational culture
— Greater profitability — Expensive
through targeting and — Adapting business
segmentation processes
— Increase customer — Retention of employees
retention
— Training
— Increase customer
loyalty — Allocation of time for
deployment
— Improve customer
service — Commitment from top
management
— Customer-focused

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CRM
• Success
— Often intangible
• Improved customer satisfaction
— Tangible
• Reduced reporting cycle
• Reduced expense of doing business
• Reduced sales cycle
• Increased productivity
• Increased sale
• Indications
— Systems used to meet key customer needs
— Make in-depth analysis of customer costs and potential profits
— Information linked from disparate business units
— Employees empowered to handle customers’ problems

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Product Lifecycle Management
(PLM)
• Integrated, information driven
• Includes all aspects of product’s life
• Goals
—Streamline development
—Increase innovation
• Requires integration of independent databases
• Shares information about product among
different groups, both inside and outside
organization

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Product Lifecycle Management
(PLM)
• Tracks electronic information about life of
product
• Links together all required processes
• Integrates nodules and tools into single
application suite
—Enhances communication and collaboration
—Product data is central component
—Repository
• Specifications, requirements, design documents,
manufacturing plans, and support
• Available to all stakeholders at all times

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Product Lifecycle Management
(PLM)
• Benefits: • Issues:
— Flexibility — Support from senior
— Reduced change orders management
— Improved design — User involvement
— Reduced production times — Training
— Reduced time to market — Integration
— Improved quality control
— Collaboration
— Centralized repository

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Business Process Management
System (BPM)
• Integrates data, applications, and people through business process
• Streamlined
• Automates processes
• Less administration
• Graphical map of processes
• Enterprise information portal into business processes
— Integrates systems
— Provides view of organization’s health and progress
— Unifies rules, processes, methods, and workflows
• Benefits
— Links legacy systems to newer workflows
• Issues
— Forces review of processes

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Business Process Management
System (BPM)
• Real time systems monitoring specific facility
• Detects opportunities, problems, and threats
— Modeling function for solutions
— Collaboration
— Fast response
• Benefits
— Recognizing and responding to events
— Allows for quick resolution
• Issues
— Senior management support
— Change in business processes
— Requires identification of CSFs and proper analytical techniques

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Frontline Decision Support Systems
• Frontline decision-making
—Automate decision processes and push them down
the organization or out to partners
• Empowers employees
—Incorporates decision-making into daily work
• Provides right questions to ask
• Locates needed data
• Provides metrics for use with data

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System Integration
• Over time, Information Systems create a hodgepodge of
independent nonintegrated systems ultimately creating bottlenecks
and interfering with productivity.

• Organizations need to be agile and flexible and will require their

information systems to have integrated data, applications, and
resources from across the organization.

• To compete effectively, organizations have to be customer focused.

— This requires cross-functional integration among the accounting,
marketing and other departments of the organization.

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Benefits of System Integration
• Tangible benefits: • Intangible benefits:
— Inventory reduction — Visibility of information
— Personnel reduction — Improved processes
— Improved productivity — Better customer service
— Cost reductions — Standardization
— Increased revenues — Flexibility
— Delivery improvement — Globalization
— Order management — Improved employee
— Reduction in maintenance satisfaction
— Increased business
performance

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Future Development
• Hardware and software advances
• Virtual reality
• Three-dimensional image displays
• Increased utilization of multimedia
• Increased collaboration
• Improved communication
• Automated support
• Intelligent agents

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EIS

Enterprise wide information system integrates various

functionalities within an enterprise

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Typical Problem faced by an
Enterprise

• Focus on ‘Functions’ rather than ‘Processes’

• Applications developed over time.
• Inconsistent, redundant Data
• Time lag in information delivery
• Managerial Control Difficult
• Process Productivity Monitoring Difficult

• Reaction to change slow

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EIS Objectives and Challenges
• Integration: Different systems serve variety of
functions, connecting organizational levels --
difficult, costly
• Enlarging scope of management thinking: Huge
system investments, long development time must
be guided by common objectives
• Maximize customer perception of value added
through the use of best business practices and real
time control.
• Increasing customer demand inelasticity and
simultaneously minimizing costs.

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Benefits of EIS
• Firm structure and organization: One organization

• Management: Firm-wide knowledge-based

management processes

• Technology: Unified platform

• Business: More efficient operations and customer-

driven business processes

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Challenges of EIS
• Difficult to build: Require fundamental changes in the way the
business operates

• Technology: Require complex pieces of software and large

investments of time, money, and expertise

• Centralized organizational coordination and decision making:

Not the best way for the firms to operate

• High cost with low payoff is the norm when vanilla version not
implemented

• Difficult to change all aspects simultaneously

• Difficult to design a new process that's an improvement

(particularly when the organization's structure is an issue)

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Case: Re-engineering the Payment
Process System at RFC

Current payment processing system

—Customers:
• Make payments at branch
– Cash, check, money order
• Mail payments to branch
– Manually processed
– Batched for deposit in afternoon
– Home Office mailed an Advice of Payment Received
• Payment made to Home Office
– Manually processed
– Batched for deposit in afternoon
– Branch mailed an Advice of Payment Received
—Each night, batch payment processing runs to
update accounts

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Case: Re-engineering the Payment
Process System at RFC

• Weekly delinquency analysis run

• Payment reminders sent out at 15, 30, 45,
and 60 days
—Computer generated
• Settlement figures processed upon request
—Urgent requests take overnight
• Major expansion planned

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Summary

• BPR allows the organization to rethink and

radically redesign their business processes
• Process modeling of business activities
change organizational management
structures
• ERP systems are facilitated by IT
• Processes are standardized and teamwork
enhanced

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