Dr. H. Raghav Rao

Department of Management Science and Systems, Jacobs Management Center, SUNY Buffalo

Draft : Please do not quote without permission

A number of factors are driving change in the industrial organizations in an increasingly competitive and global marketplace. Due to economic globalization companies are facing new competitors and expanding to new geographical markets. Organizations have responded to this changing scenario by suitably adapting their strategic and technological strategies.  There is much more focus on customers and their individual needs. This is not just in terms of timely delivery of high quality product, but also in terms of what gets delivered. One reflection of this is the move toward "mass customization" - making or configuring to order exactly what the customer needs, and adaptive network organizations [Champy and Nohria, 1996].

Needless to say, organizations have to be dynamic and be able to quickly adapt to rapid and radical change in their business environment.  A key consequence of the forces driving change in the industrial sector is that business process change is continuous. The changes that a company is going through today will be different from what is required three or five or ten years from now.  This means that the organizational agility is essential. As the market changes and the customers' needs change the organization must be agile enough to adapt. The key is to make the business and all of its processes reconfigurable. We identify two key ingredients of organizational agility, namely, business process design, and information systems design. The organizations’ objective should be to make the two components reconfigurable as often as necessary. Agile enterprises are defined to be those enterprises that have developed and established the ability to flourish despite an environment characterized by constant change. Agile enterprises are able to do this because they are learning organizations that can respond quickly to changing market conditions, while maintaining high quality standards and cost-efficient operations. Other identifying characteristics of agile enterprises are a high investment in information technology and human resource development, the use of reconfigurable teams and equipment, a strategy of partnering with suppliers and customers at each stage of its processes, and high levels of participatory management.

Many companies are therefore beginning to take a fresh look at their business and the processes that have evolved over time in their organizations. This trend which started in the late 80's is now popularly known in corporate circles as Business Process Reengineering (BPR). Hammer and Champy [1993], in their book "Reengineering the Corporation : A manifesto for business revolution", formally define reengineering as

"The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance".

Simply stated, a process can be considered as consisting of a collection of tasks to achieve a specific business objective. Example of a process can be the design of a new product, marketing of a particular product, processing of travel documents of executives, processing of accounts payable or accounts receivable. A business process may consist of several functions or activities. For example in the processing of travel documents of executives, the authorization of travel plan, verification of travel documents, reimbursement of travel expenses, recording of reimbursements constitute the activities.

The improvements in processes can be measured in a number of different ways. Some examples are given below.

Design of New product - Design to Manufacture Time, # redesigns.

Processing Travel Documents - Number of Personnel, Time required to Process.

Processing of Accounts Payable - Number of Personnel, Avg. Days for a Payment.

A process can be considered to be dramatically improved if there is a considerable improvement in the performance measure that is sought to be improved. Usually, a performance improvement of greater than 50% is considered as a substantial improvement. For example, the accounts payable process at Ford before reengineering needed 500 personnel. After reengineering the process, the accounts payable process required only 125 personnel. The IBM Credit Corporation required 6 days to 2 weeks of time for approving credit requests. After reengineering the credit approval process, the time required for credit approval was down to 4 hours! [Hammer and Champy, 1993]. However, because of the stakes involved, few companies would like to radically change their business processes on a large scale[Davenport and Stoddard, 1994]. More often than not, BPR exercises have been confined to redefining a small sub-system of a larger system or as a pilot study or experimenting on a small segment of the market.

Though Hammer and Champy(1993) advocate the use of a "clean slate" in rethinking about business processes, in practice, firms would prefer to approach the redefinition process by studying the existing processes and identifying the drawbacks and opportunities for improvements. The cost of design and implementation of processes with a "clean slate" could be unaffordable for most of the firms. A practical and realistic approach to BPR would start with the identification of the drawbacks and inefficiencies in the existing processes and then discovering the opportunities for improvements in the processes. Significant improvements could be achieved by doing away with an existing process or changing the sequence of processes, identifying processes that can be carried out concurrently, reorganizing the functional units, etc.

Note : Sometimes even simple automation of a process is erroneously referred to as reengineering. One should clearly note that automation is basically used to speed up a process and results in little or no changes in the processes themselves. Where as, reengineering is a new way of looking at business and business processes in order to bring about radical changes in the performance measures.

The following are a few of the characteristics identified in reengineered processes [Hammer and Champy, 1993].

• Combining of Jobs. Instead of the traditional approach of dividing tasks into several small steps and the division of labor, the reengineered processes combine many tasks into one. Thus several specialist jobs are combined and a generalist will be taking care of the combined tasks.
• Jobs that add value to the processes are retained. While, chores such as hand-offs from one functional unit to another are minimized or completely eliminated. The aim is to take care that only those tasks that add value to the end product are performed. All other activities are eliminated.
• The new processes are more flexible. There are fewer controls.
• The hierarchy in the organization is reduced. The organization structure is more horizontal than vertical. The person doing the job can make his own decision.
• Use of innovative IT solutions enable the functioning of several disjoint units towards a common organizational goal. E.g. Use of a shared database can speeden the process of the accounts payable function when the inventory and the purchase department also use the same database.

In order to identify the opportunities for reengineering, ideally a company should draw a process model of the existing system and thereby identify many of the drawbacks, inefficiencies and hidden costs embedded in the system [Hansen, 1994]. For example, a company may decide that it is spending too much of time in bringing out its new products to the market. In which case, it could start examining the processes involved in the product development cycle. The study of the processes should indicate the real inefficiencies and drawbacks in the existing processes. Identification of such drawbacks can then be used as a stepping stone to the reengineering exercise. A company may choose to reengineer its business processes one by one, instead of deciding to change all its business processes at once. Several tools and methodologies are available for creating process maps. A process model could be in the form of flow charts or simple block diagrams.

As an illustration of process modeling, the steps involved in the approval of credit applications is modeled in Figure 1. The IBM Credit Corporation processes credit requests for the customers buying IBM's systems. The field sales personnel call the credit corporation with requests for financing of their customers. The person taking the call logs the information on a piece of paper. The information is then passed onto the credit department for credit check. After the credit checking is done, the information is handed over to the business practices department. An employee in the business practices department modifies a standard loan contract to meet the customer specification. The loan contract is then passed on to the pricing department, where the interest rate for the financing request is determined. This information is then finally transferred to a clerical group, for the preparation of a quote and for subsequent posting of the quote to the sales personnel.

Figure 1 : Process Model for Credit Processing at IBM Credit Corp.

In the figure, ellipses represent information and personnel in the process. The square boxes indicate the activities. The inputs (information and personnel) required for an activity are indicated by lines joining the inputs to the activity. The output of an activity is represented by a line from the activity to the ellipse.

The reengineering process is normally carried out by a team of highly skilled personnel. The personnel may either be from within the company or consultants specifically hired to do the reengineering job. Sometimes a combination of the two is more desirable. The team members are ideally chosen from a diverse background. They need not necessarily have knowledge of the processes that they are going to reengineer. The role of the team is to suggest changes in the processes and ways of implementing the changes. It is widely acknowledged that without the unequivocal support of the top level management the reengineering exercise invariably fails. On the other hand, the involvement of the persons involved in the execution of the processes is also essential. It is very important to bring these persons in the mainstream of the reengineering

Within a business process perspective, coordination is a mechanism that ties together individual decision makers in decision making. Failures of coordination within and among firms has been cited as among the weaknesses that affect the U.S. industry. This seriously hampers the ability of the firms to adapt to a changing business environment. Many U.S. companies fail to coordinate between processes, for example, product design and the manufacturing process. Closer and more tightly coordinated relations between processes are often inhibited by steep hierarchical ladders and organizational walls. As functional barriers in organizations are dismantled, steep organizational hierarchies are also flattened, resulting in a reduction of the job categories at each level, with a corresponding increase in organizational effectiveness. Among the more successful exercise to sustain the success of the BPR exercise. manufacturing firms, greater integration and promotion of teamwork through better coordination and collaboration is crucial to cutting inventories, speeding up the flow of products and reducing defects and decreasing costs. IT has been one of the great influences that has been instrumental in greater integration. For example, newer technology leading to shorter production cycle means marketing, production and suppliers have to work together, thus leading to more group decisions than individual decisions.

Many of the problems occurring in organizations can be characterized as communications problems or problems of coordinating the resources involved. For instance, as a result of information overload and impediments in the flow, there can be information loss. Information may be received but it may not be clear if it is important or not and to whom it should be distributed to. Shared knowledge may be poorly documented and related organizational groups may be de-coupled. For example, if the design and manufacturing personnel do not coordinate early in the design stage of a product it could lead to costly design changes during the manufacturing stage. Even more significantly, there may be clashes between the formal organization and the informal organization.

The coordination mechanism consists of:

Decision structure : The decision structure includes the decision-makers in the team, the decision problem the team is solving and the team process in terms of the decision rules and mechanisms used by each decision maker. The motivation to create decision structures exists because it is not possible to centralize all the relevant information for decision making, expertise and control within one person. The impetus to disaggregate objectives and distribute them among individuals in the organization is primarily due to the problem of bounded computational resources, and the limitations of time. Costs are incurred in trying to handle conflicting interests and objectives of the individuals with respect to the process objectives. The greater the division of labor, the larger the coordination costs and increased likelihood of slippages in effective coordination.

The decision structure in an organization can be categorized along the dichotomy of formal/informal and static/dynamic. A truly flexible organization would be at the informal/dynamic end. In a formal decision structure, the decision structure is clearly defined for example in a formal hierarchical organization structure decisions are made according to well defined rules and deviations from these well defined business rules would entail penalties (e.g., a highly bureaucratic organization). An informal organization is one where decisions are made through informal team processes and the individual employees are empowered to take decisions through informal interactions with other team members. A near static decision structure is one where the organizational rules change slowly through complex and elaborate processes and where there is low creativity and adaptation in the decision structure.

Workflow relationships : Workflow relationships focus on the activities within the business processes. We can describe workflow relationships on a spectrum; as being sequentially interdependent at one extreme and concurrently interdependent at the other. Sequential interdependence occurs when one process/activity is directly dependent upon another for its inputs or resources. An assembly line is a typical example of this type of interdependence. Concurrent interdependence on the other hand is characterized by simultaneity or synchronization of activities. Such interdependence can be seen in activities such as the symphony orchestra, firefighting, or race pit stops. In such activities, members are experts in their own tasks. The final harmony is achieved through matching and meshing of their individual activities. In this type of interdependence all information and resources must be consistent, compatible and current. It should however be recognized that a completely concurrent interdependent relationship may not be possible due to the nature of the process itself. However, the aim of BPR efforts should be towards a highly concurrent workflow relationship.

Incentive and motivational aspects : Often individual members' objectives and interests are not the same as the process objectives. This is the famous Principal-Agent problem. Without additional incentive mechanisms to align the individual's objectives to the process objective, it is doubtful if the gain to the owner by problem disaggregation would offset the potential losses due to principal-agent conflict.

Organization culture can also play an important role towards motivating the members. For instance, Japanese culture facilitates organizational homogeneity such that there is less perceived conflict of interest between workers and owners. Other initiatives like quality circles have enabled employees to participate in the decision making process. An informal atmosphere in the organization can create friendly relationships between group members by building trust among them.

Information Structure : The information structure embodies the information flow (such as source and destination of information) within the team. Information structure is an important element that can directly affect the effectiveness of the business process. It can be described along a spectrum from centralized and closed to decentralized and open. A closed information structure places unnecessary restrictions on team members in the access, storage and retrieval of information and an open information structure facilitates sharing of information among the team members in an easy and accessible manner. IT advances allow change in information structure. The alternate structures can provide for, and sometimes require closer and more tightly coordinated relations among members. Advances in IT help in increasing the scope of the coordination mechanism thus resulting in increased support to coordinated work of managers, professionals and operational staff. This is evidenced in the increased use of e-mail and group communication systems, videotex, local area networks, client-server technology, workflow systems and multimedia systems. According to Nobel prize winner Arno Penzias, the use of information technology allows an alternate solution to the use of hierarchies and bureaucracies as organizational memory.

The coordination framework discussed in the previous sections explicitly recognizes the fact that reorganizing or redesigning business processes should be accompanied by a basic understanding of the interactions between the four aspects of the coordination mechanism. In the following table we describe some important pair-wise interactions that one needs to be aware of while designing the coordination mechanisms

Table 1: Pair wise interrelationships in the coordination mechanism framework

The following question would then arise: How does one implement a coordination mechanism in the business processes in terms of both space and time?

This would involve (a) getting the right information to the right place at the right time, for example, in the case of production processes and mechanical coordination; and (b) getting the right information to the right processor at the right time to produce the right processed information, for example, in the processing of designs, planning of budgets, i.e. informational coordination; and (c) and being able to support asynchronous and geographically dispersed decision making among groups..

Also organizations must organize themselves around processes rather than functions. The common process view must be seen by everyone. Most firms reengineer one process at a time. Though this is better than reengineering a functional unit, it is not as effective as reengineering the entire firm's processes. Inter-process coordination, i.e., coordination mechanism between different processes is much more difficult to achieve than intra-process coordination, i.e., coordination within a single business process. Both intra-process and inter-process coordination are absolutely essential for the efficient functioning of the firm.

Thus the key to effective coordination in business processes is to design a controlling mechanism that minimizes the conflict among possibly interacting individuals and aggregates their actions across time in such a way as to maximize the benefits to the owner. In order to align individual goals along with organizational goals, a system has to continually use feedback and learning to reorient itself, with a concomitant decrease in knowledge ambiguity and an increase in common knowledge. Thus the essence of coordination is control, and the essence of the controlling mechanism is the use of feedback.

Information Technology has long been used to speed up work for the past several years. However, to use the state-of-the-art Information Technology for business processes in an effective manner, we need to change the way we look at technology. By automating, we can only get incremental improvements in processes. However, to bring about radical improvements in processes, we need to recognize the role of IT as an enabler in reengineering, i.e., its role as a facilitator of new ways of thinking about processes. Many companies are now examining the possibilities of facilitating the coordination of activities between functional units using innovative information technology solutions to increase the organization's flexibility and efficiency.

Traditional information systems are not equipped to face today’s requirements of agility. The development times involved in building traditional MIS using conventional tools takes too long and as a result there is a large backlog of information systems projects in organizations today.  Traditional information systems face additional complexity when in a heterogenous environment of hardware and software platforms.  Certain seemingly simple modifications to existing information systems require huge efforts in coding and debugging. A popular example is the year 2000 (Y2K) problem that organizations are scrambling to tackle at a huge cost. In addition, empirical studies and anecdotal references have shown mixed impact of information technology on productivity improvements in service as well as manufacturing industries.

The enterprise's information systems must be as dynamic and flexible as the enterprise itself. The information systems should be able to scale up or scale down to accommodate changes in the enterprise size. Information systems must be able to immediately adapt to changes in business processes brought about by redesign by accommodating new functional requirements without long systems development cycles. If the information systems are not agile and flexible enough to accommodate these demands organizational flexibility will be constrained by the organizational MIS. These demands on the enterprise information systems require the deployment of Agile Information Technology in the organization.

The requirements for building Agile Information Systems (AIS) are many. Some of the requirements are listed below.

1. Configurability: The AIS should be configurable and extensible so it can be adapted to meet the needs of the enterprise. Software should be able to adapt to business requirements and not vice versa. Customization should be possible in both hardware and software components.

2. Extensibility: The components of AIS should be extensible. Most importantly, business rules which change often should be externalized from the software and hence reconfigurable by the end-users.

3. Decision Making Information: Refined information must be made available to decision makers at all organizational levels. The right information should be made available to the right people at the right time without any negative impact on the performance of the systems supporting the business operations.

4. Ease of Maintenance: The software components at the application level should be maintainable at the user level. Configurability and extensibility without programming minimize the need to do program maintenance. The complexity in the system should be divided into manageable domains.

5. Platform Neutrality: The architecture must be independent of the platforms on which it is deployed. All operating system, communication, and database services should have a common interface and a service layer should make the platform specific calls to the Application Programming Interfaces (APIs). The objective here is to be able to deploy the AIS components on a multitude of platforms from a single set of source code.

6. Locale Neutrality: The architecture must isolate the application logic from the human interface so the presentation can be translated into locale-specific language and character sets. It must also isolate locale-specific business processing from the core application logic.

7. Effective Data Gateways to External Systems: EDI requires data conversion programs to communicate with external systems as well as internal legacy systems (if any). Therefore, the AIS should provide facility for defining data gateways to interface with external systems.

8. Security: Unauthorized access to programs and files should be blocked effectively by the AIS. The authorization scheme must support a fine level of granularity. Privacy of data transmitted across unsecured communication lines should also be preserved. 9. Performance: The architecture infrastructure must not add excessive overhead or introduce any resource bottlenecks which degrade performance. In addition, it should accommodate the addition of resources to improve performance as volume of interactions increase.

10. Fault Tolerance: The architecture must be compatible with redundancy schemes that guarantee round-the-clock system availability. All system components should ensure that problems are detected immediately and easily traced back to the source of the problem.

11. Rapid Deployment: Meeting the requirements discussed above would allow rapid deployment of AIS across the enterprise. Configurability ensures the adaptability of the system to the business needs. Ease of use will determine how quickly the user community can adapt to the system. External data gateways facilitate database conversion and interfaces to legacy systems.

Several of the following IT solutions have been innovatively applied in many of the BPR exercises.

1.Shared databases :

Usage : To provide access to data across functional boundaries.

2. Expert Systems :

Usage : To capture the knowledge of the specialists and then allowing the less skilled personnel to use the knowledge base in day to day work and hence increasing the productivity of the personnel in the office.

3. Distributed Databases, Telecommunication Networks :

Usage : To facilitate the coordination of activities between Regional and central offices.

4.Portable Computers and Satellite Communication :

Usage : Access to data at any place.

5. Imaging and Multimedia :

Usage : Effective communication with customers and fast storage and retrieval of documents in the office.

The success of a reengineering effort lies in the effective use of information technology. It should however be noted that IT is only one of the enablers of BPR. Other factors such as corporate culture, employee perception to changes, Organization structure, etc., are also factors that can influence the success of a reengineering effort.

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Client Server Systems : A computing environment where end user work stations or clients (eg. PCs) are connected to micro or mini LAN servers and possibly mainframes.

Electronic Mail or E-Mail : The transmission, storage and distribution of text material in electronic form over communication networks.

Groupware : Software packages which support work activities by members of a work group whose work stations (PCs) are connected by a local area network.

Imaging and Image processing : A computer based technology which allows end users to electronically capture, store, process, and retrieve images that may include numeric data, text, hand writing, graphics, documents, and photographs. Image processing makes heavy use of optical scanning and optical disk technologies.

Interorganizational Information Systems : Information systems that interconnect an organization with other organizations, such as a business and its customers and suppliers.

Multimedia systems: Providing information using a variety of media, including text and graphics displays, voice and other audio, photographs, and video segments.

Value Chain: A series of tasks or processes which add value to an information object as it progresses from task to task. A value chain can be represented by organizational groupings as well as process groupings.

Workflow : Workflow emphasizes the importance of the process, which acts as the container for the information. In this way workflow combines rules which govern the tasks performed and coordinates the transfer of the information required to support these tasks. This is a process centered model as opposed to an information centered model.

EDI: Companywide electronic interchange of structured data between business partners.