Rethinking Business Processes Intro l l l A

Rethinking Business Processes

Intro l l l A reengineered business process looks vastly different from a traditional process. But what, exactly, does a reengineered process look like? No single answer, because reengineered processes take many different forms. There are striking similarities among their various reengineered processes, similarities that transcend industry type and even the identity of the particular process. Much of what holds true for an auto company that has reengineered its processes is also true for an insurance company or a retailer. 2

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 3

Several Jobs are Combined into One l The most basic and common feature of reengineered processes is the absence of an assembly line; many formerly distinct jobs or tasks are integrated and compressed into one. l l l E. g. five steps of order fulfilment process…. . can be compressed responsibility and assigned to one person, the "customer service representative. " That person now performs the whole process and also serves as the single point of contact for the customer. The term for such an individual responsible for an end-toend process is Case Worker. Case Team - a group of people who have among them 4 all the skills that are needed to handle a process.

Several Jobs are Combined into One. . l It is not always possible to compress all steps in a lengthy process into one integrated job performed by a single person. In some situations (product delivery, for example), the various steps must be performed in different locations. In those instances, a company needs several people, each managing parts of the process. In other cases, it may not prove practical to teach one person all the skills needed to perform the entire process. 5

Several Jobs are Combined into One. . l The payoffs of integrated processes, case workers, and case teams can be enormous. Eliminating handoffs means doing away with the errors, delays, and rework that they create. Typically, a case worker -based process operates ten times faster than the assembly line version that it replaces. 6

Several Jobs are Combined into One. . l Integrated processes also have reduced process administration overheads. Because employees involved in the process assume responsibility for making sure that customers' requirements are met on time and with no defects, they need less supervision. Instead, the company encourages these empowered employees to find innovative and creative ways to reduce cycle time and cost continually while producing a defect-free product or service. 7

Several Jobs are Combined into One. . l Improved control is another benefit of integrated processes; because they involve fewer people, assigning responsibility for them and monitoring performance is easier. 8

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 9

Workers make Decisions l l Companies that undertake reengineering, not only compress processes horizontally by having case workers or case teams perform multiple, sequential tasks but vertically as well. Vertical compression means that at the points in a process where workers used to have to go up the managerial hierarchy for an answer, they now make their own decisions. Instead of separating decisionmaking from real work, decision-making becomes part of the work. Workers themselves now do that portion of a job that, formerly, managers performed. 10

Workers make Decisions. . l Under the mass-production paradigm, the tacit assumption is that the people actually performing work have neither the time nor the inclination to monitor and control it and that they lack the depth and breadth of knowledge required to make decisions about it. The industrial practice of building hierarchical management structures follows from this assumption. Accountants, auditors, and supervisors check, record, and monitor work. Managers supervise workers and handle the exceptions. This assumption, and its consequences, need to be discarded. 11

Workers make Decisions. . l The benefits of compressing work vertically as well as horizontally include fewer delays, lower overhead costs, better customer response, and greater empowerment for workers. 12

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 13

Steps in the Process are Performed in a Natural Order l l Reengineering processes are freed from the tyranny of straight-line sequence; natural precedence in the work, rather than the artificial one introduced by linearity, can be exploited. Typically, in a conventional process, person 1 must complete task 1 before passing the results to person 2 to do task 2. But what if task 2 could be performed simultaneously with task 1? Linear sequencing of tasks of imposes an artificial precedence that slows work down. In reengineered processes, work is sequenced in terms of what needs to follow what. 14

Steps in the Process are Performed in a Natural Order. . l l In one manufacturing company, for example it may take five steps to go from the receipt of a customer order to the installation of the equipment. l Step 1 - determine the customer's requirements l Step 2 - translate into internal product codes l Step 3 - convey coded info to various plants and warehouses l Step 4 - receive and assemble components l Step 5 - deliver and install equipment A different organization performed each step! 15

Steps in the Process are Performed in a Natural Order. . l Pitfalls. . l group 1 completed step 1 before group 2 began step 2, but this was not actually necessary. The employee responsible for step 1 spent most of her time gathering info that would not be required until step 5. Because of the arbitrary linear sequencing imposed on the process, however, no one could begin working on step 2 until step 1 was completed. In the reengineered version of this process, step 2 begins as soon as step 1 has collected enough information to get it started. Then while steps 2, 3, and 4 operate, step 1 continues to collect the information needed for step 5. As a result, the company reduced the time it takes to fill a customer order! 16

Steps in the Process are Performed in a Natural Order. . l l l "Delinearizing" processes speeds them up in two ways. many jobs get done simultaneously. reducing the amount of time that elapses between the early and late steps of a process narrows the window for major change that might make the earlier work obsolete or make the later work inconsistent with the earlier. 17

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 18

Processes have Multiple Versions l l l Traditional processes were intended to provide mass production for a mass market. All inputs were handled identically, so companies could produce uniform and consistent outputs. In a world of diverse and changing markets that logic is obsolete. To meet the demands of today's environment, we need multiple versions of the same process, each one tuned to the requirements of different markets, situations, or inputs. What's more, these new processes must have the same economies of scale that result from mass production. end of standardization ! 19

Processes have Multiple Versions. . l l Processes with multiple versions or paths usually begin with a "triage" step to determine which version works best in a given situation. Example: three versions of credit issuance process l l l straightforward cases (which are performed entirely by computer) medium hard cases (performed by the deal structurer) difficult cases (performed by the deal structurer with help from specialist advisers). 20

Processes have Multiple Versions. . l City Council…. l A property owner had to wait six months for a public hearing, in order to make some minor improvement to a house. When the city board finally considered the application, it took only twenty seconds to approve it! The application, illustrated by a hand-drawn sketch, had to pass through the same process as those of multi-million office tower development with volumes of blueprints, plans, and materials specification sheets. If the city had reengineered its building permit system, it might have replaced the single process with two or maybe three processes: one for small projects, one for big projects, and one for those in the middle. 21

Processes have Multiple Versions. . l Traditional one-size-fits-all processes are usually very complex, since they must incorporate special procedures and exceptions to handle a wide range of situations. A multi-version process, by contrast, is clean and simple, because each version needs to handle only the cases for which it is appropriate. There are no special cases and exceptions 22

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 23

Work is Performed where it makes Most Sense l l A fifth recurring theme in reengineered processes is the shifting of work across organizational boundaries. In traditional organizations, work is organized around specialists—and not just on the factory floor. Accountants know how to count, and purchasing clerks know how to order things. So when the accounting department needs new pencils, the purchasing department buys them. Purchasing finds vendors, negotiates price, places the order, inspects the goods, and pays the invoice—and eventually the accountants get their pencils, unless the approved supplier is short on pencils and purchasing decides to substitute pens. 24

Work is Performed where it makes Most Sense. . l l This kind of process is expensive, since it involves a variety of departments plus the overhead that's associated with tracking all the paper and fitting all the pieces of the process together. A company ran a controlled experiment and learned that it expended $100 in internal costs to buy $3 worth of batteries. It also discovered that 35 percent of its purchase orders were for amounts less than $500. 25

Work is Performed where it makes Most Sense. . l l l The notion of spending $100 internally to expend $500 or less did not sit well, so the company decided to off-load the responsibility for purchasing goods onto the process customers; the accountants—as well as everyone else—now buy their own pencils. They know from whom to buy and what to pay, because purchasing has negotiated these prices and given the accountants a list of approved vendors. As a result, the requesters receive their products more quickly and with less hassle, and the company spends far less than $100 on the processing costs. This example illustrates what we mean by …. a customer of a process can perform some Rethinking Business Processes or all of the process in order to eliminate handoffs and overhead and cut costs. 26

Work is Performed where it makes Most Sense. . l In the aftermath of reengineering, the correspondence between processes and organizations may look very different from how it looked beforehand. Work is shifted across organizational boundaries to improve overall process performance. Much of the work done in organizations consists of integrating related pieces of work that independent organizational units perform. 27

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 28

Checks and Controls Reduced l l Another kind of non-value-adding work that gets minimized in reengineered processes is checking and control; more precisely, reengineered processes use controls only to the extent that they make economic sense. Conventional processes are replete with checking and control steps, which add no value but are included to ensure that people do not abuse the process. 29

Checks and Controls Reduced. . l l In a typical purchasing process, for example, the purchasing department checks the signature of the person requesting an item to make sure that person is authorized to acquire the requisitioned goods in the amount specified and verify that the department's budget is good for the bill. All this checking is to make sure that people in the organization are not buying items that they should not. While that objective may be laudable, many organizations fail to recognize the costs associated with strict control. It takes time and labour to do all this checking; it may take more time and effort to do the checking than to do the actual purchasing. Worse, the cost of the checking may even exceed the cost of the 30 goods being purchased.

Checks and Controls Reduced. . l Reengineered processes exhibit a more balanced approach. Instead of tightly checking work as it is performed, reengineered processed often have aggregate or deferred controls. These control systems will, by design, tolerate modest and limited abuse, by delaying the point at which abuse is detected or by examining aggregate patterns rather than individual instances. The reengineered control systems, however, more than compensate for any possible increase in abuse by dramatically lowering the costs and other encumbrances associated with the control itself. 31

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 32

Reconciliation is Minimized l Another form of non-value-adding work that reengineered processes minimize is reconciliation. They do it by cutting back the number of external contact points that a process has, thereby reducing the chances that inconsistent data requiring reconciliation will be received. 33

Reconciliation is Minimized. . l Accounts payable process may contain three points of contact with vendors: l l Three points of contact means enormous opportunities for inconsistency: l l at the purchasing department through the purchase order at the receiving dock through the receiving paperwork at accounts payable through the invoice. the purchase order could disagree with either the receiving document or the invoice, and either of them could disagree with the other. By eliminating the invoice, there can be reduced points of external contact from three to two and the opportunity for inconsistency by two-thirds. As a result, the checking and reconciliation work that accounts payable performed can become unnecessary, which means that the accounts payable organization shrinks dramatically 34

Reconciliation is Minimized. . l l Managing inventory is a delicate balancing act. Too little inventory makes for unhappy customers and lost sales. Too much incurs high financing and storage costs. Inventory management is itself a costly activity. With the idea of improving this aspect of its business, a supermarket (Wal-Mart) approached a manufacturer (Proctor &Gamble) as the manufacturer knew more about an item (diaper) movement through warehouses than the supermarket. The manufacturer assumed the responsibility of telling the supermarket when to reorder and in what quantity. 35

Reconciliation is Minimized. . l The new arrangement worked so well that over time Wal-Mart suggested that P&G henceforth skip the purchase recommendations and just ship the diapers it thought Wal-Mart would need. In other words, Wal-Mart off-loaded its inventory replenishment function onto its supplier, illustrating the principle of relocating work across organizational boundaries. In this case, though, the boundaries were inter-company, not infra-company. Both companies reap advantages. 36

Reconciliation is Minimized. . l l l Anyone could provide diapers to Wal-Mart, but P&G adds value to the diapers it supplies by performing the inventory management process. It thereby endears itself as a preferred supplier to the large retail chain. As a preferred supplier, P&G gets additional shelf space in Wal-Mart stores and the much sought after end-aisle displays. The reengineered process also has major internal performance benefits for P&G. The company can run its manufacturing and logistics operations more efficiently now that it has the information it needs to better project product demand. The company reaps from its new arrangement with Wal-Mart relates back to the notion of minimizing the number of external contact points—in this case, in P&G's accounts receivable process. Conventionally, accounts receivable's job is to reconcile payments from customers with customer orders and with the vendor's own invoices. In principle they should match, but reality does not always follow principle. 37

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 38

A Case Manager provides a Single Point of Contact l The use of someone we might call a "case manager" is another recurring characteristic found in reengineered processes. This mechanism proves useful when the steps of a process either are so complex or are dispersed in such a way that integrating them for a single person or even a small team is impossible. Acting as a buffer between the still complex process and the customer, the case manager behaves with the customer as if he or she were responsible for performing the entire process, even though that is really not the case. 39

A Case Manager provides a Single Point of Contact. . l l To perform this role - answer customer's questions and solve customer problems - the case manager needs access to all the information systems that the people actually performing the process use and the ability to contact those people with questions and requests for further assistance when necessary. Case Managers are … empowered customer service representatives; different from traditional CSRs, who are often people with skimpy information and less clout. 40

Characteristics of Reengineered Processes l l l l l Several jobs are combined into one Workers make decisions The steps in the process are performed in a natural order Processes have multiple versions Work is performed where it makes the most sense Checks and controls are reduced Reconciliation is minimized A case manager provides a single point of contact Hybrid centralized/decentralized operations are prevalent 41

Hybrid Centralized/Decentralized Operations are Prevalent l l Companies that have reengineered their processes have the ability to combine the advantages of centralization and decentralization in the same process. For example a standard purchasing system and a shared database allow the company to combine the best of both worlds. 42

Hybrid Centralized/Decentralized Operations are Prevalent. . l ICT increasingly enables companies to operate as though their individual units were fully autonomous. Equipping field sales representatives with notebook computers connected by wireless modems to the central office or to corporate HQ gives salespeople instant access to information. At the same time, controls incorporated into the software prevents salespeople from quoting unreasonable prices or specifying delivery or other conditions that the organization cannot meet. With ICT, companies can reengineer sales process and eliminate bureaucratic machinery of regional field offices, enhance the sales representatives' autonomy and empowerment, and improve the control the company has over selling prices and conditions. 43

Hybrid Centralized/Decentralized Operations are Prevalent. . l Many banks have established separate divisions to sell different products to the same clients – e. g. large corporations !! l l l One division sells traditional lines of credit another, asset-based finance a third, letters of credit a fourth, pension fund management services. The decentralized structure ensures that each division focuses on products and services with which it has most expertise, and, simultaneously, promotes real entrepreneurial autonomy. 44

Hybrid Centralized/Decentralized Operations are Prevalent. . l l Several banks can implement bank-wide customer databases that all operating units share. Every unit puts what they know about the customer and their relationship with that customer into the database, and every unit uses the database as a source of customer information. In this way, units with freedom to act independently can coordinate their activities without the bureaucratic interference of a central control point. The same can apply to universities and many other organizations with common interests 45

Conclusion l The objective of presenting the above characteristics that recur in reengineered business processes is not to suggest that all reengineered processes look the same or that process redesign is a straightforward matter. Not every reengineered business process will display all of the characteristics cited. Indeed, they could not, because some are conflicting. Creating a new design requires insight, creativity and judgment. These ingredients are also needed for designing jobs and organizations that support reengineered processes. 46