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UNIT 1,2

Business process re-engineering is the analysis and design of workflows andprocesses within an organization. According to Davenport (1990) a business process isa set of logically related tasks performed to achieve a defined business outcome. Re-

engineering is the basis for many recent developments in management. The cross-functional team, for example, has become popular because of the desire to re-engineerseparate functional tasks into complete cross-functional processes. Business processre-engineering is also known as business process redesign, business transformation, orbusiness process change management.

Business process re-engineering (BPR) began as a private sector technique to helporganizations fundamentally rethink how they do their work in order to dramaticallyimprove customer service, cut operational costs, and become world-class competitors.A key stimulus for re-engineering has been the continuing development and deploymentof sophisticated information systems and networks. Leading organizations are

becoming bolder in using this technology to support innovative business processes,rather than refining current ways of doing work.

Business Process Re-engineering (BPR) is basically the fundamental re-thinking andradical re-design, made to an organization's existing resources. It is more than justbusiness improvising.

It is an approach for redesigning the way work is done to better support theorganization's mission and reduce costs. Reengineering starts with a high-levelassessment of the organization's mission, strategic goals, and customer needs

Within the framework of this basic assessment of mission and goals, re-engineeringfocuses on the organization's business processesthe steps and procedures thatgovern how resources are used to create products and services that meet the needs ofparticular customers or markets. As a structured ordering of work steps across time andplace, a business process can be decomposed into specific activities, measured,modeled, and improved. It can also be completely redesigned or eliminated altogether.Re-engineering identifies, analyzes, and re-designs an organization's core businessprocesses with the aim of achieving dramatic improvements in critical performancemeasures, such as cost, quality, service, and speed.

Re-engineering recognizes that an organization's business processes are usually

fragmented into subprocesses and tasks that are carried out by several specializedfunctional areas within the organization. Often, no one is responsible for the overallperformance of the entire process. Re-engineering maintains that optimizing theperformance of subprocesses can result in some benefits, but cannot yield dramaticimprovements if the process itself is fundamentally inefficient and outmoded. For thatreason, re-engineering focuses on re-designing the process as a whole in order toachieve the greatest possible benefits to the organization and their customers. Thisdrive for realizing dramatic improvements by fundamentally re-thinking how theorganization's work should be done distinguishes re-engineering from processimprovement efforts that focus on functional or incremental improvement

History

In 1990, Michael Hammer, a former professor of computer science at theMassachusetts Institute of Technology (MIT), published an article in theHarvardBusiness Review, in which he claimed that the major challenge for managers is toobliterate non-value adding work, rather than using technology for automating it.[2]Thisstatement implicitly accused managers of having focused on the wrong issues, namelythat technology in general, and more specifically information technology, has been usedprimarily for automating existing processes rather than using it as an enabler for makingnon-value adding work obsolete.

Hammer's claim was simple: Most of the work being done does not add any value forcustomers, and this work should be removed, not accelerated through automation.
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Instead, companies should reconsider their processes in order to maximize customervalue, while minimizing the consumption of resources required for delivering theirproduct or service. A similar idea was advocated by Thomas H. Davenport and J. Shortin 1990,[3]at that time a member of the Ernst & Young research center, in a paperpublished in theSloan Management Review

This idea, to unbiasedly review a companysbusiness processes, was rapidly adoptedby a huge number of firms, which were striving for renewed competitiveness, which theyhad lost due to the market entrance of foreign competitors, their inability to satisfycustomer needs, and their insufficient cost structure.Even well established managementthinkers, such as Peter Drucker and Tom Peters, were accepting and advocating BPRas a new tool for (re-)achieving success in a dynamic world.During the following years, afast growing number of publications, books as well as journal articles, were dedicated toBPR, and many consulting firms embarked on this trend and developed BPR methods.However, the critics were fast to claim that BPR was a way to dehumanize the workplace, increase managerial control, and to justify downsizing, i.e. major reductions of the

work force,

[4]

and a rebirth of Taylorism under a different label.

Despite this critique, reengineering was adopted at an accelerating pace and by 1993,as many as 65% of the Fortune 500 companies claimed to either have initiatedreengineering efforts, or to have plans to do so.This trend was fueled by the fastadoption of BPR by the consulting industry, but also by the study Made in America],conducted by MIT, that showed how companies in many US industries had laggedbehind their foreign counterparts in terms of competitiveness, time-to-market andproductivity.

Development after 1995

With the publication of critiques in 1995 and 1996 by some of the early BPR proponents

coupled with abuses and misuses of the concept by others, the reengineering fervor inthe U.S. began to wane. Since then, considering business processes as a starting pointfor business analysis and redesign has become a widely accepted approach and is astandard part of the change methodology portfolio, but is typically performed in a lessradical way as originally proposed.

More recently, the concept of Business Process Management (BPM) has gained majorattention in the corporate world and can be considered as a successor to the BPR waveof the 1990s, as it is evenly driven by a striving for process efficiency supported byinformation technology. Equivalently to the critique brought forward against BPR, BPMis now accused of focusing on technology and disregarding the people aspects ofchange.BPR definition:

"... the fundamental rethinking and radical redesign of business processes toachieve dramatic improvements in critical modern measures of performance,such as cost, quality, service, and speed." "encompasses the envisioning ofnew work strategies, the actual process design activity, and theimplementation of the change in all its complex technological, human, andorganizational dimensions."

Additionally, Davenport (ibid.) points out the major difference between BPR andother approaches to organization development (OD), especially the continuousimprovement or TQM movement, when he states: "Today firms must seek notfractional, but multiplicative levels of improvement 10x rather than 10%." Finally,Johansson[7]provide a description of BPR relative to other process-oriented views,such as Total Quality Management (TQM) and Just-in-time (JIT), and state:

"Business Process Reengineering, although a close relative, seeks radical ratherthan merely continuous improvement. It escalates the efforts of JIT and TQM tomake process orientation a strategic tool and a core competence of theorganization. BPR concentrates on core business processes, and uses thespecific techniques within the JIT and TQM toolboxes as enablers, whilebroadening the process vision."
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In order to achieve the major improvements BPR is seeking for, the change of structuralorganizational variables, and other ways of managing and performing work is oftenconsidered as being insufficient. For being able to reap the achievable benefits fully, theuse of information technology (IT) is conceived as a major contributing factor. While ITtraditionally has been used for supporting the existing business functions, i.e. it was

used for increasing organizational efficiency, it now plays a role as enabler of neworganizational forms, and patterns of collaboration within and between organizations [

BPR derives its existence from different disciplines, and four major areas can beidentified as being subjected to change in BPR - organization, technology, strategy, andpeople - where a process view is used as common framework for considering thesedimensions. The approach can be graphically depicted by a modification of "Leavittsdiamond".

Business strategy is the primary driver of BPR initiatives and the other dimensions aregoverned by strategy's encompassing role. The organization dimension reflects the

structural elements of the company, such as hierarchical levels, the composition oforganizational units, and the distribution of work between them.Technology is concernedwith the use of computer systems and other forms of communication technology in thebusiness. In BPR, information technology is generally considered as playing a role asenabler of new forms of organizing and collaborating, rather than supporting existingbusiness functions. The people /human resources dimension deals with aspects suchas education, training, motivation and reward systems. The concept of businessprocesses - interrelated activities aiming at creating a value added output to a customer- is the basic underlying idea of BPR. These processes are characterized by a numberof attributes: Process ownership, customer focus, value adding, and cross-functionality.

The role of information technology

Information technology (IT) has historically played an important role in the reengineeringconcept. It is considered by some as a major enabler for new forms of working andcollaborating within an organization and across organizational borders

Early BPR literature identified several so called disruptive technologiesthat weresupposed to challenge traditional wisdom about how work should be performed.

Shared databases, making information available at many places Expert systems, allowing generalists to perform specialist tasks

Telecommunication networks, allowing organizations to be centralized anddecentralized at the same time Decision-support tools, allowing decision-making to be a part of everybody's job Wireless data communication and portable computers, allowing field personnel to

work office independent Interactive videodisk, to get in immediate contact with potential buyers Automatic identification and tracking, allowing things to tell where they are,

instead of requiring to be found High performance computing, allowing on-the-fly planning and revisioning

In the mid 1990s, especially workflow management systems were considered as asignificant contributor to improved process efficiency. Also ERP (Enterprise ResourcePlanning) vendors, such as SAP, JD Edwards, Oracle, PeopleSoft, positioned theirsolutions as vehicles for business process redesign and improvement.

Research and methodology

Although the labels and steps differ slightly, the early methodologies that were rooted inIT-centric BPR solutions share many of the same basic principles and elements. Thefollowing outline is one such model, based on the PRLC (Process Reengineering LifeCycle) approach developed by Guha.
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Simplified schematic outline of using a business process approach, examplified forpharmceutical R&D:1. Structural organization with functional units2. Introduction of New Product Development as cross-functional process3. Re-structuring and streamlining activities, removal of non-value adding tasks

Benefiting from lessons learned from the early adopters, some BPR practitionersadvocated a change in emphasis to a customer-centric, as opposed to an IT-centric,methodology. One such methodology, that also incorporated a Risk and ImpactAssessment to account for the impact that BPR can have on jobs and operations, wasdescribed by Lon Roberts (1994). Roberts also stressed the use of changemanagement tools to proactively address resistance to changea factor linked to thedemise of many reengineering initiatives that looked good on the drawing board.

Some items to use on a process analysis checklist are: Reduce handoffs, Centralizedata, Reduce delays, Free resources faster, Combine similar activities. Also within the

management consulting industry, a significant number of methodological approacheshave been developed.

BPR Success & Failure Factors

BPR does not only mean change, but rather dramatic change. What constitute thisdrastic change are the overhaul of organizational structures, management systems,employee responsibilities and performance measurements, incentive systems, skillsdevelopment, and the use of IT. BPR can potentially impact every aspect of howbusiness is conducted today. Change on this scale can cause results ranging fromenviable success to complete failure. In spite of the depth of change involved in

undertaking BPR efforts, a recent survey showed that some 88 percent of CIOs weresatisfied with the end result of BPR efforts (Motwani, et al., 1998). Successful BPR canresult in enormous reductions in cost or cycle time. It can also potentially createsubstantial improvements in quality, customer service, or other business objectives. Thepromise of BPR is not empty; it can actually produce revolutionary improvements forbusiness operations. Reengineering can help an aggressive company to stay on top, ortransform an organization on the verge of bankruptcy into an effective competitor. Thesuccesses have spawned international interest, and major reengineering efforts are nowbeing conducted around the world (Covert, 1997).

On the other hand, BPR projects can fail to meet the inherently high expectations ofreengineering. In 1998, it was reported that only 30 percent of reengineering projectswere regarded as successful (Galliers, 1998). The earlier promise of BPR has not beenfulfilled as some organizations have put forth extensive BPR efforts only to achievemarginal, or even negligible, benefits. Other organizations have succeeded only indestroying the morale and momentum built up over their lifetime. These failures indicatethat reengineering involves a great deal of risk. Even so, many companies are willing totake that risk because the rewards can be astounding (Covert, 1997).

Many unsuccessful BPR attempts may have been due to the confusion surroundingBPR, and how it should be performed. Organizations were well aware that changesneeded to be made, but did not know which areas to change or how to change them. Asa result, process reengineering is a management concept that has been formed by trialand error or, in other words, practical experience. As more and more businessesreengineer their processes, knowledge of what caused the successes or failures isbecoming apparent (Covert, 1997). To reap lasting benefits, companies must be willingto examine how strategy and reengineering complement each other by learning toquantify strategy in terms of cost, milestones, and timetables, by accepting ownership ofthe strategy throughout the organization, by assessing the organizations currentcapabilities and process realistically, and by linking strategy to the budgeting process.Otherwise, BPR is only a short-term efficiency exercise (Berman, 1994).

Some BPR researchers have focused on key factors in the BPR process that enabled asuccessful outcome. Over the past years, BPR projects and efforts have revealed someinteresting findings for both academics and practitioners. Many lessons were learned


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and many elements were identified as essential to the success of a BPR activity. Someimportant BPR success factors, which will be discussed in further details later, include,but are not limited to the following:

1. Organization wide commitment.

2. BPR team composition.3. Business needs analysis.4. Adequate IT infrastructure.5. Effective change management.6. Ongoing continuous improvement

Organization Wide Commitment There is no doubt that major changes to businessprocesses have a direct impact on processes, technology, job roles, and workplaceculture. Significant changes to even one of those areas require resources, money, andleadership. Changing them simultaneously is an extraordinary task (Covert, 1997). Likeany large and complex undertaking, implementing reengineering requires the talents

and energies of a broad spectrum of experts. Since BPR can involve multiple areaswithin the organization, it is extremely important to get support from all affecteddepartments. Through the involvement of selected department members, theorganization can gain valuable input before a process is implemented; a step whichpromotes both the cooperation and the vital acceptance of the reengineered process byall segments of the organization.

Getting enterprise wide commitment involves the following: top managementsponsorship, bottom-up buy-in from process users, dedicated BPR team, and budgetallocation for the total solution with measures to demonstrate value. Before any BPRproject can be implemented successfully, there must be a commitment to the project by

the management of the organization, and strong leadership must be provided (Campbell& Kleiner, 1997). Reengineering efforts can by no means be exercised without acompany-wide commitment to the goals to be achieved. However, top managementsponsorship is imperative for success (Dooley & Johnson, 2001). Commitment andleadership in the upper echelons of management are often cited as the most importantfactors of a successful BPR project (Jackson, 1997). Top management must recognizethe need for change, develop a complete understanding of what is BPR, and plan howto achieve it (Motwani , et al., 1998). Leadership has to be effective, strong, visible, andcreative in thinking and understanding in order to provide a clear vision to the future (Al-Mashari & Zairi, 1999). Convincing every affected group within the organization of theneed for BPR is a key step in successfully implementing a process. By informing allaffected groups at every stage, and emphasizing the positive end results of thereengineering process, it is possible to minimize resistance to change and increase theodds for success. The ultimate success of BPR depends on the strong, consistent, andcontinuous involvement of all departmental levels within the organization. It alsodepends on the people who do it and how well they can be motivated to be creative andto apply their detailed knowledge to the redesign of business processes (King, 1994).

BPR Team Composition Once organization wide commitment has been secured fromall departments involved in the reengineering effort and at different levels, the criticalstep of selecting a BPR team must be taken. This team will form the nucleus of the BPReffort, make key decisions and recommendations, and help communicate the detailsand benefits of the BPR program to the entire organization. The determinants of aneffective BPR team may be summarized as follows: competency of the members of theteam, their motivation (Rastogi, 1994), their credibility within the organization and theircreativity (Barrett, 1994), team empowerment, training of members in process mappingand brainstorming techniques (Carr, 1993), effective team leadership (Berrington &Oblich, 1995), proper organization of the team (Guha , et al., 1993), complementaryskills among team members, adequate size, interchangeable accountability, clarity ofwork approach, and specificity of goals (Katzenbach & Smith, 1993).

The most effective BPR teams include active representatives from the following workgroups: top management, business area responsible for the process being addressed,technology groups, finance, and members of all ultimate process users groups. Teammembers who are selected from each work group within the organization will have an


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impact on the outcome of the reengineered process according to their desiredrequirements. The BPR team should be mixed in depth and knowledge. For example, itmay include members with the following characteristics:

Members who do not know the process at all.

Members who know the process inside-out. Customers, if possible. Members representing impacted departments. One or two members of the best, brightest, passionate, and committed

technology experts. Members from outside of the organization (Dooley & Johnson, 2001).

Moreover, Covert (1997) recommends that in order to have an effective BPR team, itmust be kept under ten players. If the organization fails to keep the team at amanageable size, the entire process will be much more difficult to execute efficientlyand effectively. The efforts of the team must be focused on identifying breakthrough

opportunities and designing new work steps or processes that will create quantum gainsand competitive advantage (Motwani, et al., 1998).

Business Needs Analysis Another important factor in the success of any BPR effort isperforming a thorough business needs analysis. Too often, BPR teams jump directlyinto the technology without first assessing the current processes of the organization anddetermining what exactly needs reengineering. In this analysis phase, a series ofsessions should be held with process owners and stakeholders, regarding the need andstrategy for BPR. These sessions build a consensus as to the vision of the idealbusiness process. They help identify essential goals for BPR within each departmentand then collectively define objectives for how the project will impact each work group or

department on individual basis and the business organization as a whole. The idea ofthese sessions is to conceptualize the ideal business process for the organization andbuild a business process model. Those items that seem unnecessary or unrealistic maybe eliminated or modified later on in the diagnosing stage of the BPR project. It isimportant to acknowledge and evaluate all ideas in order to make all participants feelthat they are a part of this important and crucial process. Results of these meetings willhelp formulate the basic plan for the project. This plan includes the following: identifyingspecific problem areas, solidifying particular goals, and defining business objectives.The business needs analysis contributes tremendously to the reengineering effort byhelping the BPR team to prioritize and determine where it should focus itsimprovements efforts (Dooley & Johnson, 2001).

The business needs analysis also helps in relating the BPR project goals back to keybusiness objectives and the overall strategic direction for the organization. This linkageshould show the thread from the top to the bottom of the organization, so each personcan easily connect the overall business direction with the reengineering effort. Thisalignment must be demonstrated from the perspective of financial performance,customer service, associate value, and the vision for the organization (Covert, 1997).Developing a business vision and process objectives relies, on the one hand, on a clearunderstanding of organizational strengths, weaknesses, and market structure, and onthe other, on awareness and knowledge about innovative activities undertaken bycompetitors and other organizations (Vakola & Rezgui, 2000).

BPR projects that are not in alignment with the organizations strategic direction can becounterproductive. There is always a possibility that an organization may makesignificant investments in an area that is not a core competency for the company andlater outsource this capability. Such reengineering initiatives are wasteful and stealresources from other strategic projects. Moreover, without strategic alignment, theorganizations key stakeholders and sponsors may find themselves unable to providethe level of support the organization needs in terms of resources, especially if there areother more critical projects to the future of the business, and are more aligned with thestrategic direction (Covert, 1997).

Adequate IT Infrastructure Researchers consider adequate IT infrastructurereassessment and composition as a vital factor in successful BPR implementation (Al-


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Mashari & Zairi, 1999). Hammer (1990) prescribes the use of IT to challenge theassumptions inherent in the work process that have existed since long before theadvent of modern computer and communications technology (Malhotra, 1998). Factorsrelated to IT infrastructure have been increasingly considered by many researchers andpractitioners as a vital component of successful BPR efforts (Ross, 1998). Effective

alignment of IT infrastructure and BPR strategy, building an effective IT infrastructure,adequate IT infrastructure investment decision, adequate measurement of ITinfrastructure effectiveness, proper information systems (IS) integration, effectivereengineering of legacy IS, increasing IT function competency, and effective use ofsoftware tools are the most important factors that contribute to the success of BPRprojects. These are vital factors that contribute to building an effective IT infrastructurefor business processes (Al-Mashari & Zairi, 1999). BPR must be accompanied bystrategic planning which addresses leveraging IT as a competitive tool (Weicher, et al.,1995).

An IT infrastructure is made up of physical assets, intellectual assets, shared services

(Broadbent & Weill, 1997), and their linkages (Kayworth, et al., 1997). The way in whichthe IT infrastructure components are composed and their linkages determines theextent to which information resources can be delivered. An effective IT infrastructurecomposition process follows a top-down approach, beginning with business strategyand IS strategy and passing through designs of data, systems, and computerarchitecture (Malhotra, 1996). Linkages between the IT infrastructure components, aswell as descriptions of their contexts of interaction, are important for ensuring integrityand consistency among the IT infrastructure components (Ross, 1998). Furthermore, ITstandards have a major role in reconciling various infrastructure components to provideshared IT services that are of a certain degree of effectiveness to support businessprocess applications, as well as to guide the process of acquiring, managing, and

utilizing IT assets (Kayworth, et al., 1997). The IT infrastructure shared services and thehuman IT infrastructure components, in terms of their responsibilities and their neededexpertise, are both vital to the process of the IT infrastructure composition. IT strategicalignment is approached through the process of integration between business and ITstrategies, as well as between IT and organizational infrastructures (Al-Mashari & Zairi,1999).

Most analysts view BPR and IT as irrevocably linked. Walmart, for example, would nothave been able to reengineer the processes used to procure and distribute mass-market retail goods without IT. Ford was able to decrease its headcount in theprocurement department by 75 percent by using IT in conjunction with BPR, in anotherwell-known example (Weicher, et al., 1995). The IT infrastructure and BPR areinterdependent in the sense that deciding the information requirements for the newbusiness processes determines the IT infrastructure constituents, and a recognition ofIT capabilities provides alternatives for BPR (Ross, 1998). Building a responsive ITinfrastructure is highly dependent on an appropriate determination of business processinformation needs. This, in turn, is determined by the types of activities embedded in abusiness process, and their sequencing and reliance on other organizational processes(Sabherwal & King, 1991).

Effective Change Management Al-Mashari and Zairi (2000) suggest that BPR involveschanges in people behavior and culture, processes, and technology. As a result, thereare many factors that prevent the effective implementation of BPR and hence restrictinnovation and continuous improvement. Change management, which involves allhuman and social related changes and cultural adjustment techniques needed bymanagement to facilitate the insertion of newly-designed processes and structures intoworking practice and to deal effectively with resistance (Carr, 1993), is considered bymany researchers to be a crucial component of any BPR effort (Towers, 1996). One ofthe most overlooked obstacles to successful BPR project implementation is resistancefrom those whom implementers believe will benefit the most. Most projectsunderestimate the cultural impact of major process and structural change and as aresult, do not achieve the full potential of their change effort. Many people fail tounderstand that change is not an event, but rather a management technique. Changemanagement is the discipline of managing change as a process, with due considerationthat employees are people, not programmable machines (Covert, 1997). Change is


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implicitly driven by motivation which is fueled by the recognition of the need for change.An important step towards any successful reengineering effort is to convey anunderstanding of the necessity for change (Dooley & Johnson, 2001). It is a well-knownfact that organizations do not change unless people change; the better change ismanaged, the less painful the transition is.

Organizational culture is a determining factor in successful BPR implementation (Zairi &Sinclair, 1995). Organizational culture influences the organizations ability to adapt tochange. Culture in an organization is a self-reinforcing set of beliefs, attitudes, andbehavior. Culture is one of the most resistant elements of organizational behavior and isextremely difficult to change. BPR must consider current culture in order to changethese beliefs, attitudes, and behaviors effectively. Messages conveyed frommanagement in an organization continually enforce current culture. Change is implicitlydriven by motivation which is fueled by the recognition of the need for change. The firststep towards any successful transformation effort is to convey an understanding of thenecessity for change (Dooley & Johnson, 2001). Management rewards system, stories

of company origin and early successes of founders, physical symbols, and companyicons constantly enforce the message of the current culture. Implementing BPRsuccessfully is dependent on how thoroughly management conveys the new culturalmessages to the organization (Campbell & Kleiner, 1997). These messages providepeople in the organization with a guideline to predict the outcome of acceptablebehavior patterns. People should be the focus for any successful business change.BPR is not a recipe for successful business transformation if it focuses on onlycomputer technology and process redesign. In fact, many BPR projects have failedbecause they did not recognize the importance of the human element in implementingBPR. Understanding the people in organizations, the current company culture,motivation, leadership, and past performance is essential to recognize, understand, and

integrate into the vision and implementation of BPR. If the human element is givenequal or greater emphasis in BPR, the odds of successful business transformationincrease substantially (Campbell & Kleiner, 1997).

Ongoing Continuous Improvement Many organizational change theorists hold acommon view of organizations adjusting gradually and incrementally and respondinglocally to individual crises as they arise (Dooley & Johnson, 2001). BPR is a successiveand ongoing process and should be regarded as an improvement strategy that enablesan organization to make the move from traditional functional orientation to one thataligns with strategic business processes (Vakola & Rezgui, 2000). Continuousimprovement is defined as the propensity of the organization to pursue incremental andinnovative improvements in its processes, products, and services (Dooley & Johnson,2001). The incremental change is governed by the knowledge gained from eachprevious change cycle. It is essential that the automation infrastructure of the BPRactivity provides for performance measurements in order to support continuousimprovements. It will need to efficiently capture appropriate data and allow access toappropriate individuals. To ensure that the process generates the desired benefits, itmust be tested before it is deployed to the end users. If it does not performsatisfactorily, more time should be taken to modify the process until it does.

A fundamental concept for quality practitioners is the use of feedback loops at everystep of the process and an environment that encourages constant evaluation of resultsand individual efforts to improve (Gore, 1999). At the end users level, there must be aproactive feedback mechanism that provides for and facilitates resolutions of problemsand issues. This will also contribute to a continuous risk assessment and evaluationwhich are needed throughout the implementation process to deal with any risks at theirinitial state and to ensure the success of the reengineering efforts. Anticipating andplanning for risk handling is important for dealing effectively with any risk when it firstoccurs and as early as possible in the BPR process (Clemons, 1995). It is interestingthat many of the successful applications of reengineering described by its proponentsare in organizations practicing continuous improvement programs. Hammer andChampy (1993) use the IBM Credit Corporation as well as Ford and Kodak, asexamples of companies that carried out BPR successfully due to the fact that they hadlong-running continuous improvement programs (Gore, 1999).


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In conclusion, successful BPR can potentially create substantial improvements in theway organizations do business and can actually produce fundamental improvements forbusiness operations. However, in order to achieve that, there are some key successfactors that must be taken into consideration when performing BPR. BPR successfactors are a collection of lessons learned from reengineering projects and from these

lessons common themes have emerged. In addition, the ultimate success of BPRdepends on the people who do it and on how well they can be committed and motivatedto be creative and to apply their detailed knowledge to the reengineering initiative.Organizations planning to undertake BPR must take into consideration the successfactors of BPR in order to ensure that their reengineering related change efforts arecomprehensive, well-implemented, and have minimum chance of failure.

The value chain approach was developed by Michael Porter in the 1980s in his book

Competitive Advantage: Creating and Sustaining Superior Performance (Porter,

1985). The concept of value added, in the form of the value chain, can be utilised to

develop an organisations sustainable competitive advantage in the business arena of

the 21st C. All organisations consist of activities that link together to develop the value

of the business, and together these activities form the organisations value chain. Such

activities may include purchasing activities, manufacturing the products, distribution and

marketing of the companys products and activities (Lynch, 2003). The value chain

framework has been used as a powerful analysis tool for the strategic planning of an

organisation for nearly two decades. The aim of the value chain framework is to

maximise value creation while minimising costs (www.wikipedia.org).

Main aspects of Value Chain Analysis

Value chain analysis is a powerful tool for managers to identify the key activities within

the firm which form the value chain for that organisation, and have the potential of a

sustainable competitive advantage for a company. Therein, competitive advantage of an

organisation lies in its ability to perform crucial activities along the value chain betterthan its competitors.

The value chain framework of Porter (1990) is an interdependent system or network of

activities, connected by linkages (p. 41). When the system is managed carefully, the

linkages can be a vital source of competitive advantage (Pathania-Jain, 2001). The

value chain analysis essentially entails the linkage of two areas. Firstly, the value chain

links the value of the organisations activities with its main functional parts. Then the

assessment of the contribution of each part in the overall added value of the business ismade (Lynch, 2003). In order to conduct the value chain analysis, the company is split

into primary and support activities (Figure 1). Primary activities are those that are

related with production, while support activities are those that provide the background

necessary for the effectiveness and efficiency of the firm, such as human resource

management. The primary and secondary activities of the firm are discussed in detail

below.
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Primary activities

The primary activities (Porter, 1985) of the company include the following:

Inbound logistics

These are the activities concerned with receiving the materials from suppliers, storingthese externally sourced materials, and handling them within the firm.

Operations

These are the activities related to the production of products and services. This area

can be split into more departments in certain companies. For example, the operations in

case of a hotel would include reception, room service etc.

Outboundlogistics

These are all the activities concerned with distributing the final product and/or service to

the customers. For example, in case of a hotel this activity would entail the ways of

bringing customers to the hotel.

Marketing and sales

This functional area essentially analyses the needs and wants of customers and is

responsible for creating awareness among the target audience of the company about

the firms products and services. Companies make use ofmarketing communications

tools like advertising, sales promotions etc. to attract customers to their products.

Service

There is often a need to provide services like pre-installation or after-sales service

before or after the sale of the product or service.

Support activities

The support activities of a company include the following:

Procurement

This function is responsible for purchasing the materials that are necessary for thecompanys operations. An efficient procurement department should be able to obtain

the highest quality goods at the lowest prices.

Human Resource Management

This is a function concerned with recruiting, training, motivating and rewarding the

workforce of the company. Human resources are increasingly becoming an important

way of attaining sustainable competitive advantage.

Technology Development

This is an area that is concerned with technological innovation, training and knowledge

that is crucial for most companies today in order to survive.

Firm Infrastructure

This includes planning and control systems, such as finance, accounting, and corporate

strategy etc. (Lynch, 2003).
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Porter used the word margin for the difference between the total value and the cost of

performing the value activities Here, value is referred to as the price that the customer is

willing to pay for a certain offering (Macmillan et al, 2000). Other scholars have used the

word added value instead of margin in order to describe the same (Lynch, 2003). The

analysis entails a thorough examination of how each part might contribute towards

added value in the company and how this may differ from the competition.

How to write a Good Value Chain Analysis

The ability of a company to understand its own capabilities and the needs of the

customers is crucial for a competitive strategy to be successful. The profitability of a firm

depends to a large extent on how effectively it manages the various activities in the

value chain, such that the price that the customer is w illing to pay for the companys

products and services exceeds the relative costs of the value chain activities. It is

important to bear in mind that while the value chain analysis may appear as simple in

theory, it is quite time-consuming in practice. The logic and validity of the proven

technique of value chain analysis has been rigorously tested, therefore, it does not

require the user to have the same in-depth knowledge as the originator of the model(Macmillan et al, 2000). The first step in conducting the value chain analysis is to break

down the key activities of the company according to the activities entailed in the

framework. The next step is to assess the potential for adding value through the means

of cost advantage or differentiation. Finally, it is imperative for the analyst to determine

strategies that focus on those activities that would enable the company to attain

sustainable competitive advantage.

It is important for analysts to remember to use the value chain as a simple checklist to

analyse each activity in the business with some depth (Pearson, 1999). The value chain

should be analysed with the core competence of the company at its very heart

(Macmillan et al, 2003). The value chain framework is a handy tool for analysing the

activities in which the firm can pursue its distinctive core competencies, in the form of a

low cost strategy or a differentiation strategy. It is to be noted that the value chain

analysis, when used appropriately, makes the implementation of competitive strategies

more systematic overall. Analysts should use the value chain analysis to identify how

each business activity contributes to a particular competitive strategy. A company may

benefit from cost advantages if it either reduces the cost of individual activities in the

value chain or the value chain is essentially reconfigured, through structural changes in

the activities. One of the problematic areas of the value chain model, however, is that

the costs of the different activities of the value chain need to be attributed to an activity.

There are few costing systems that contain detailed activity level costing, unless an

Activity Based Costing (ABC) system is in place in the company (Macmillan et al, 2003).

Another relevant area of concern that analysts must pay particular attention to is the
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customers view point of value. The customers of the firm may view value in a generic

way, thereby making the process of evaluating the activities in the value chain in

relation with the total price increasingly difficult. It is imperative for analysts to note that

the overall differentiation advantage may result from any activity in the value chain. A

differentiation advantage may be achieved either by changing individual value chain

activities to increase uniqueness in the final product or service of the company, or by

reconfiguring the companys value chain.

The difference between a low cost strategy and differentiation in practice is unlike the

rigidity that is provided regarding the same in theory. Analysts must note that the

difference between these two strategies is one of the shades of grey in real life

compared to the black and white that is offered in theory. For example, EmersonElectric, which is a cost leader, has quality as a strategic concern in achieving its best

costs strategy (Pearson, 1999). Ivory Soap, a leading product of P&G, is a broad

differentiator that turned into a cost leader. Quality is a strategic concern for managers

of Ivory Soap, along with delivering a high value product consistently.

Note that in a company with more than one product area, it is appropriate to conduct the

value chain analysis at the product group level, and not at the corporate strategy level. It

is crucial for companies to have the ability to control and make most of their capabilities.

In the advent of outsourcing, progressive companies are increasingly making their value

chains more elastic and their organisations inherently more flexible (Gottfredson et al,

2005). The important question is to see how the companies are sourcing every activity

in the value chain. A systematic analysis of the value chain can facilitate effective

outsourcing decisions. Therefore, it is important to have an in-depth understanding of

the companys strengths and weaknesses in each activity in terms of cost and

differentiation factors.

The strategy of Wal-Mart worked when the company improved its business through

innovative practices in activities such as purchasing, logistics, and information

management, which resulted in the value offering of everyday low prices (Magretta,

2002). It is important to note that refining business models on a constant basis is as

critical to the success of the company as its business strategy. Notably, both the

strategy and business model of an organisation are crucial for the robustness of the

overall value chain.

For example, 7-Eleven had been vertically integrated, controlling most activities in the

value chain by itself. The company has now outsourced many parts of its business

including functions like HR, IT management, finance, logistics, distribution, product

development, and packaging. According to Gottfredson et a,l the value chain decisions

of companies will increasingly shape their overall organisational structure. Moreover,

the value chain decisions will play a role in determining the type of management skills
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that companies may need to develop or acquire to survive in fiercely competitive

business markets.

The Apple podcasting value chain is comprised of nine steps that essentially move from

raw content to the listener. All the steps of the value chain include content, advertising,

production, publishing, hosting/bandwidth, promotion, searching, catching, and listening.

It is important to note that each step in the value chain adds value to the podcast in

distinctive ways, has its own sets of challenges and opportunities.

It is important to note that the nature of value chain activities differs greatly in

accordance with the types of companies and industries. For companies with complex

systems like IBM,Accenture and Cisco etc., it is not possible for one member of the

value chain to provide all the products and services from start to finish. The marketing

function in such companies focuses on aligning with key partners and allies that must

collaborate with each other. For example, installing SAP's ERP system requires direct

involvement from companies like HP, Oracle, and Accenture, along with indirect

involvement of companies like EMC, Cisco, and Microsoft, and collaboration between

many departments within the company. The market assets contrast starkly between the

companies with complex systems and those that are driven by volume operations. For

example, in case of Apples leading products like Macintosh and the iPod, the entire

offer is inside a package, and the entire value chain is preassembled. The change of

supplier for the Macintosh from IBM, to Intel, improved the system performance while

retaining the value in terms of price to the consumer. The only variable to manage in

Apples case is the consumers preferences. The role of creating differentiation through

unique quality features, along with promotion in order to create brand awareness, image

and eventually brand equity becomes imperative for volume operations driven

companies like Apple (Moore, 2005).

It is imperative to note that the value chains of companies have undergone many

changes over the last two decades, due to the rapidly changing business environment.

Information technology and the Internet have played a fundamental role in transforming

certain parts and the interlinkages between parts of the value chains of companies

today. Moreover HRM is increasingly becoming a vital asset in the value chain that

contributes to competitive advantage. Strategic alliances are also becoming an integral

part of the value chains. For example, IBM once enjoyed backward vertical integration

into the disk drive industry and forward vertical integration into the consulting services

and computer software industries (Hill et al, 2007). According to the changing business

environment, IBM had more than 400 strategic alliances as of 2003 (Thompson et al,

2003). Herein, the value chain analysis is useful in providing a framework to examine

the advantages that partners can give to each other (Pathania-Jain, 2001). It is

important to note the source of competitive advantage of a company for the value chain

analysis. The competitive advantage for IBM, for example, lies in depth, breadth and the
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geographic spread of its global operations (Rai, 2006) and the loyalty that the big blue

enjoys from its clientele.

Lastly, analysts should look for the managerial implications that the new era of

capability outsourcing may bring. The value chain decisions of companies will

increasingly shape their organisational structure. Furthermore these decisions will

determine the types of managerial skills that companies may need to develop to survive

in an increasingly competitive business environment.

Where to find information for Value Chain Analysis

Analysts can explore various sources to find information necessary for conducting the

value chain analysis. Up to three years of annual reports of the company can be

analysed to see how the costing of the activities are changing over the period and

whether they are in unison with the competitive strategy of the firm. These annual

reports of the company can be compared to the annual reports of the key competitors in

order to see how competitive strategies differ between the companies, along with

finding the difference in the contribution of activities to the companys profitability.

In order to gain knowledge about the core competence of the company, analysts can

look at the company and competitor websites. SWOT analysis of the companies done

by companies like Datamonitor etc. can help the analyst to understand the key

strengths and weaknesses of the company and how the firm differs from its competitors.

Furthermore, journal articles, trade publications and magazines are useful sources of

information to identify how value is created in the particular industry in which the

company operates and which activities play a key role in the generation of that value.

Limitations of Value Chain Analysis

One of the limitations of the value chain model is that it describes an industrial

organization which essentially buys raw materials and transforms these into physical

products. Notably, at the time when the model was introduced (Porter, 1985), service

industries in the western countries employed lesser workforce compared to todays

statistics of the same (www.wikipedia.org). Academics and practitioners alike have

critiqued the model and its applicability in the context of service organisations.

Partnerships, alliances and collaboration along with differentiation and low costs are

common drivers of value today.

The limitations of the model include the fact that value for the final customer is the

value only in its theoretical context (Svensson, 2003), and not practical terms. The real

value of the product is assessed when the product reaches the final customer, and any
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assessment of that value before that moment is only something that is true in theory.

Despite this limitation, analysts can effectively use the value chain model to determine

the value to the final customers in a theoretical way. Use of other planning tools and

techniques like Porters generic strategies, analysis of critical success factors etc. is

recommended in conjunction with the value chain framework for a more comprehensive

analysis of a companys strategy and planning.

The Product-Process Matrix was first introduced by Robert Hayes and StevenWheelwright in the Harvard Business Review in 1979.

It helps organizations identify the type of production approach they should use for aproduct, based on the volumes of the product being produced, and the amount ofcustomization it needs.

The matches between products and processes are shown in Figure 1 below. (Thisdiagram shows an example that we'll refer to later in this article.)

A Product-Process Matrix Example

Here's a quick example to illustrate how the matrix could help make production moreefficient.

Sarah has just opened her first small bicycle shop. All of her bikes are custom designedand built for clients, which is a very lengthy and expensive process. Sarah's business isin the 1a square on the matrix: she makes and sells one bike at a time, operating a lowvolume job shop.

Sarah's products are very well made, and business starts to improve as morecustomers place orders for her custom bikes. But Sarah doesn't change her process.She continues to build and sell one bike at a time, and her reputation suffers becausethere's such a long waiting list.
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This means that she's moved to the 3a square. She still builds bikes as if there's a low-volume demand although, in reality, she now has a high-volume business.

If Sarah doesn't change her process, she might ultimately go out of business, or at leastlose customers who don't want to wait for a bike. However, if she looks at the Product-

Process Matrix, she'll realize that she needs to hire staff and set up an assembly line tohandle the higher volume of orders. Based on her increasing demand, she really needsto be in the 3c square.

The Product-Process Matrix in Detail

Although the Product-Process Matrix was originally created with manufacturing in mind,we can use this tool to help make our own tasks and projects run more efficiently. Let'slook at the key squares in greater detail, and then discuss how you can apply theProduct-Process Matrix in your own life.

1a Job Shop/Low Volume, Low Standardization

Job shops carry out small, unique production. Each item or task is done by hand, one ata time. There's very little, or no, standardization.

Example: Sarah creates custom-made products from start to finish.

Benefits flexibility, uniqueness, quality.

Disadvantages not cost-effective, not efficient.

2b Batch/Multiple Products, Low Volume

Batch production occurs when parts of a project or product are processed together toincrease efficiency. This is still a lower-volume process, but it can handle more than the

job shop.

Example: In Sarah's bike shop, she could attach the wheels onto 10 bikes that will all bebuilt to the same specification. Then she can attach the pedals, brakes, and so on.

Benefits increased efficiency for each step due to repetition.

Disadvantages potential for confusing flow as half-completed projects orproducts begin to pile up.

3c Connected Line Flow/Few Major Products, High Volume

When volume continues to increase, an assembly line is set up. Each worker has aspecific role, or task, to complete.

Example: Sarah sets up a production line to assemble bikes. One person attacheswheels to each frame as it passes, then it goes to someone else to add pedals, and soon. The production line is stopped and adjusted periodically so that a different modelcan be made.

Benefits very efficient, easy-to-maintain standards.

Disadvantages little flexibility, less ability to customize products.

Note:Since this matrix was developed in 1979, some companies Dell is a famous example

have worked out how to customize products on a high volume basis. However thismatrix is still relevant in many industries.

4d Continuous Flow/High Volume, High Standardization


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When volume is extremely high and the range of products is extremely small,continuous flow is set up. Continuous flow means that production never stops. Thisapproach is used primarily in factories.

Example: operates 24 hours per day

Benefits low cost to operate, ability to handle very large volumes.

Disadvantages no flexibility, very limited product/project range, expensive toset up.

Note:Once a production system has got to 2b, it can EITHER move to 3c OR 4d. 3c is usedwhere discrete units such as bikes, bottles of soda, or garments are beingproduced. 4d is only suitable for processing "bulk" raw materials such as liquids,gasses, or granular solids such as sand or coal. The output from 4d production is often

an input into a 3c system (for example, soda feeds into a soda bottling process).

The progression which has a sugar refinery as the process for 4d in Figure 1, could startat stage 1a with a farmer slicing up sugar beet, boiling it in a single pan, and thenpressing out the sugar, and so on. By Stage 2b, the farmer would have invested inenough equipment and people so that each activity was handled by a different person.Someone would slice sugar beet all day, passing his "output" to someone else whoboiled pan after pan, and so on.

Key Points

We often work on projects or tasks without looking at the big picture. If we do somethingon a regular basis, it might be more efficient to standardize the process and delegate itto a team. This leaves us open to work on higher-value tasks. Use the Product-ProcessMatrix to help identify your tasks and determine if they're matched with the correctprocesses.

activity analysis

Definition

Identification and description of activities in an organization, and evaluation of their

impact on its operations. Activity analysis determines (1) what activities are executed,

(2) how many people perform the activities, (3) how much time they spend on them, (4)

how much and which resources are consumed, (5) what operational data best reflects

the performance of activities, and (6) of what value the activities are to the organization.

This analysis is accomplished through direct observation, interviews, questionnaires,

and review of the work records. See also job analysis, performance analysis and task

analysis.

An activity analysis is an assessment of a company or workplace which is designed togather information about the activities engaged in there and ways in which they canpotentially be made more efficient or valuable. The term activity analysis is also usedin occupational therapy to describe an evaluation of a patient who is getting ready tostart therapy, in which case the purpose is to identify activities performed by anindividual for the purpose of directing therapy more effectively. In this type of analysis,

the occupational therapist looks at activities the patient engages in or wants to resume
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after an injury, breaks them into their component parts, and determines the best way tohelp the patient on the basis of activity-based needs.

In the business world, an activity analysis starts with identifying activities which takeplace in a given company, office, or environment. For example, if a company sells

widgets, a number of activities related to widget sales are going to be identified,including marketing widgets, taking orders, packaging orders for shipment, working withsuppliers of raw materials, and managing human resources to ensure that personnelare available to perform all of these tasks. The analysis may also include a specificdetailed breakdown of each identified activity.

With activities laid out, the activity analysis moves on to who engages in whichactivities, how the activities are performed, and why they are performed in a particularway. The analysis looks specifically at how resources are utilized to complete activitiessuccessfully, looking at people, time, money, and supplies involved in each activity. Theactivities are also evaluated in terms of the value they add to the business.

An analysis of activities can usually reveal weak points and areas in which improvementis needed. These can include activities which are not being completed as well asactivities which are being performed in an inefficient manner. The preparation of theanalysis includes a discussion of areas in which improvement is possible and how toapproach that improvement. For example, the activity analysis might point out thatwidgets could be better packaged by robotic equipment than human workers.

Businesses use the results of an activity analysis to improve their operations with thegoal of streamlining and making sure that they accomplish specific goals. Such analysiscan also be useful when businesses are preparing to restructure, sell, or make majorchanges in their operations. For employees, there are advantages to cooperating withthe analysis, including opportunities to offer input about areas for potentialimprovement.

'Cost of Quality', refers to the costs associated with providing poor quality

product or service.

Cost Of Quality

When it comes to making decisions, most managers speak money. The Cost OfQuality theory provides the vocabulary to communicate between the qualityprofessionals and their managers.

The Meaning of "Quality Costs "

The term quality costs has different meanings to different people. Some equate

quality costs with the costs of poor quality due to finding and correcting defective

work. Others equate the term with the costs to attain good quality. Others use the term

to mean the costs of running the quality department. In my site, the term "quality costs"

means the cost of poor quality.

Quality processes cannot be justified simply because "everyone else is doing them" -

but return on quality (ROQ) has dramatic impacts as companies mature. Research

shows that the costs of poor quality can range from 15%-40% of business costs (e.g.,

rework, returns or complaints, reduced service levels, lost revenue). Most businesses


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do not know what their quality costs are because they do not keep reliable statistics.

Finding and correcting mistakes consumes an inordinately large portion resources.

Typically, the cost to eliminate a failure in the customer phase is five times greater than

it is at the development or manufacturing phase. Effective quality management

decreases production costs because the sooner an error is found and corrected, the

less costly it will be.

When to use it?

Cost of quality comprises of four elements:

1 External Failure Cost

cost associated with defects found after the customer receives the product or

service ex: processing customer complaints, customer returns, warranty claims,

product recalls.

2 Internal Failure Cost

cost associated with defects found before the customer receives the product or

service ex: scrap, rework, re-inspection, re-testing, material review, material

downgrades.

3 Inspection (appraisal) Cost

cost incurred to determine the degree of conformance to quality requirements

(measuring, evaluating or auditing) ex: inspection, testing, process or service

audits, calibration of measuring and test equipment.

4 Prevention Cost

cost incurred to prevent (keep failure and appraisal cost to a minimum) poor

quality ex: new product review, quality planning, supplier surveys, process

reviews, quality improvement teams, education and training.

Cost of QualityEffective quality management strategy requires metrics which are aligned with organizational overallstrategic objectives. Keeping score for all quality management activities, investments, and operatingexpenses is critical. A mix of operational and financial metrics is required for tracking and reporting ofquality management results. The cost of quality analysis helps organizations to focus productivityimprovement efforts effectively and to evaluate the cost and benefit tradeoffs of quality improvementalternatives.

Joseph Juran divided the costs of quality into 4 categories: prevention, appraisal, internal failure, andexternal failure. By using this cost of quality approach we can analyze and identify all costs related toquality activities and at the same time this approach gives us a clear picture on how the costs are

allocated among different quality activities and categories. We can learn how reactive versus proactivour quality management system is and identify areas for improvement in quality, productivity, and coststructure.

Prevention - costs associated with preventing quality nonconformance such as product defects,service errors, etc. Example: quality inspections, process analysis, data collection, reporting.

Appraisal - costs associated with determining compliance within specified quality requirements.Example: testing and associated activities.

Internal Failure - costs associated with identifying quality nonconformance in house (before product

delivery to customers). Example: Defect management, rework, retesting.


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External Failure - costs associated with dealing with quality nonconformance detected by thecustomer (after product delivery to customers). Example: customer service, technical support, returns,warranties.

Example of Cost of Quality Analysis:

Steps in performing Cost of Quality Analysis:

1. Identify all activities related to managing quality

2. Assign cost associated to each activity

3. Group all quality activities into the four categories

Management accounting is a system of measuring and providing operational and

financial information that guides managerial financial information that guides managerial

action, motivates behaviors, and supports ,creates the cultural values necessary to

organizations strategic objectives

The involvement of management accountants is seen as another important success factorfor.ERP implementations.The more active the role played by the management accountants, higher the level ofperceived success for the ERP implementation.

Reduction in stock levels due to improved planning Monthly accounts closing in fewer days

Improved financial accuracy and financial Meaningful reports

Improved visibility and access

Improved financial control

Reduction in staff due to automation of tasks Cost saving through shared services

Reduction in cost of maintaining multiple systems More time for managing the business

Change in the Role of the Management Accountant

Reduction in time spent on data collection

Increase in time spent on data analysis

Increased involvement in decision making Improved focus on internal reporting

Improved focus on external environment Shift in focus from historical to forward looking analysis


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Shift from domain specific to cross--functional analysis

Documents

ERP Bangalore Univercity