1_The Theory of Business Process Re-Engineering

Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow ImplementationStrategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow ImplementationStrategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow ImplementationStrategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process Improvement

THE THEORY OF

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Contents

1.0 Introduction 11.1 Structure Domain 31.2 Task (Process) Domain 31.3 Technology Domain 31.4 People Domain 3

2.0 Structure 42.1 The Traditional View 42.2 The Introduction of Process Working 62.3 The Process View of the Enterprise 7

2.3.1 The Network Enterprise 72.3.2 The Process Oriented Enterprise 72.3.3 The Hybrid Enterprise 8

2.4 Problems with Cross Functional Barriers 93.0 Process 10

3.1 Defining Processes 103.2 Earl’s Topology of Processes 113.3 Edwards and Peppard - The Process Triangle 13

4.0 Technology 144.1 The Value Adding Capabilities of Information Technology 17

5.0 People 195.1 Greater Empowerment 195.2 Cross Functional Process Teams 20

6.0 Conclusion 22

Tables

Table 1: Comparing Continuous Process Improvement and BPR 2Table 2: Differences between Functional and Network Enterprises 9Table 3: Typical Processes within Manufacturing Firms 11Table 4: Breaking Business Rules Using Technology 15Table 5: IT Opportunities in Business Process Re-engineering 16

Figures

Figure 1: Leavitt’s View of the Organisation 2Figure 2: The Traditional View of the Enterprise 4Figure 3: Changing Business Goals 6Figure 4: Cross Functional Process Working 6Figure 5: The Network Enterprise 7Figure 6: A Predominately Process Oriented Enterprise 7Figure 7: The Hybrid Enterprise 8Figure 8: Earl’s Topology of Processes 12Figure 9: Classifying Business Processes: The Process Triangle 13Figure 10: The Recursive Relationship Between IT Capabilities and BPR 16Figure 11: The Value Chain 17Figure 12: The Value System 17

Copyright© CASEwise 1999

The Theory of Business Process Re-engineering

The Theory of Business Process Re-engineeringR.F. Pearman

1.0 Introduction

The advent of Business Process Re-engineering (BPR) has been hailed as amanagement revolution. It has been termed a management recipe for the survival of westernbusinesses and is now the subject of best selling books. Other names for these phenomenainclude Process Innovation, Business Process Improvement, Business Process Re-design, andvarious combinations of these key words.

Davenport and Short (1990)1 define BPR as:

The analysis and design of workflows and processes within and between organisations.

Whereas Hammer and Champy (1993)2 define re-engineering as:

The fundamental rethinking and radical re-design of business processes to achieve dramatic improvements in critical, contemporary

measures of performance, such as cost, quality,service and speed.

These definitions imply that BPR can provide immense leaps in business performance in termsof cost, quality, speed and productivity. It also implies that these goals are only attainable ifthe enterprise embarks on re-engineering. One example of this dramatic improvement inperformance is the reduction of the product to market cycle from a two week order-fulfillingprocess to just two days.

First, we aim to prevent the confusion that is commonly associated with radical re-design. Weargue that BPR is about revolutionary rather than evolutionary change, i.e. step rather thanincremental change. In the debate, Earl and Khan (1994)3 offer a spirit of revolution more thanevolution and it is not unusual to contrast BPR with continuous improvement. Davenport (1993)4

provides a useful comparison (Table 1).

1Davenport, T., Short, J., (1990),‘The New Industrial Engineering: Information Technology and Business Process Redesign’, SloanManagement Review.

2Hammer, M., Champy, J.,

(1993), ‘Re-engineering theCorporation: A Manifesto forBusiness Revolution’, NicholasBrealey Publishing.

3Earl, M., Khan, B., (1994), ‘How new is Business Process Redesign?,’ European Management Journal.

4Davenport T. H., (1993),

‘Process Innovation: Re-engineering Work throughInformationTechnology’,Harvard Business School Press.



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Davenport (1993) ‘Process Innovation: Re-engineering Work through Information Technology’

Table 1: Comparing Continuous Process Improvement and BPR

Edwards and Peppard (1994)5 agree, pointing out that the aim of BPR is to seek radicalprocess improvement. They recognise that some enterprises are not able to achieve therequired goals incrementally, but must transform themselves completely. This has been the mostcommon type, at least in the reported instances of BPR. For these companies, BPR will involvemomentous change both in structural and organisational aspects. The extent of change willrelate to where the enterprise is coming from, i.e. its existing structure, its culture, managementstyle, reward systems, as well as the driving forces for change. Some enterprises will need tomake bigger leaps than others.

Having defined BPR and what it represents, we are now in a better position to conduct areview of BPR's main components.

Many frameworks to analyse businesses and define change programmes have been devised,mostly by authors of management theory. One such framework is that proposed by Leavitt(1965)6.

Leavitt (1995) “Applied Organisational Change in Industry

Figure 1: Leavitt’s View of the Organisation

In order for BPR to be successful, attention must be given to all four domains. For example, theintroduction of a major information system would require a mutual adjustment of all four keyprinciple domains.

5Edwards, C., Peppard, J.W.,(1994) , ‘Business Process Redesign: Hype, Hope orHypocrisy?’, Journal of Information Technology.

6Leavitt, H.J., (1965) ‘AppliedOrganisational Change in Industry: Structural,Technological and HumanisticApproaches’. In Handbook ofOrganisations, edited by JamesG. March, Chicago, Rand Mcnally.



1.1 Structure DomainThe structure of the enterprise must be aligned with the system that will support the re-engineered business. Presently most enterprises operate on a functional hierarchical basis.The objective is to adopt a process view of the enterprise and flatten the organisationalstructure.

1.2 Task (Process) DomainThe specific tasks, and even the entire jobs, of the people who will work with the system willneed to be reviewed. A new way of work will now be the premise. Business re-engineeringfocuses on process as opposed to tasks.

1.3 Technology DomainThe technology employed in an information system must be consistent with the level of thecompany’s sophistication in using its information systems. Information Technology has been themost significant factor in the development of the BPR philosophy. These technologies permitus to do things in different ways.

1.4 People DomainThe informed commitment of people, the stakeholders of the system that will be affected by it,must be sought. For example, the new business will support collaboration and empowerment.



2.0 Structure

Significant changes in corporate structure accompany most change programmes. To satisfyour requirements for this analysis, we must firstly discuss the structure and management of theenterprise. This will complement the discussion on the powerful role that InformationTechnology commands in adding value in a process oriented enterprise.

Davenport (1993)4 observes that managers have recently become more familiar withorganisational structures, rather than technological elements, as change tools, because theyhave been part of the enterprise for a much longer period of time.

In the following section, we discuss the traditional view of the enterprise, i.e. what BPR strivesto break away from. This is followed by a discussion on process working and the process viewof the enterprise.

2.1 The Traditional ViewMost enterprises, at least those that have not yet embarked on re-engineering, break downwork into a sequence of separate, narrowly defined tasks. The people who perform thesetasks do so through a function, e.g. manufacturing or sales, and are usually under the authorityof a manager.

The traditional management stru c t u re forms a hierarc h y, often with many layersseparating the top of the hierarchy from the bottom. This view is commonly known as thetraditional view of the enterprise, (Figure 2). Notice the elongated boxes, which are commonlyknown as silos. They are the predefined organisational boundaries, i.e. the functions of theenterprise, and for many years have represented the way work has been conducted.

Figure 2: The Traditional View of the Enterprise

4Davenport T. H., (1993),‘Process Innovation: Re-engineering Work throughInformation Technology’, Harvard Business School Press.



The primary purpose of these functions was to provide the most effective way to support theclassic business goals of cost, efficiency, and control. This view is derived from the concept ofscientific management as described by Butler Cox (1991)7, which advocated the systematicinvestigation of work methods, the separation of routine tasks from planning and control, andthe substitution of machine power for man power.

Scientific management has many goals, two of which are: to improve productivity withoutimpairing quality and to meet customers needs by providing standardised product that isproduced more efficiently through economies of scale. A functional formation is the result.

This traditional functional structure of the enterprise gives top management three coreresponsibilities. To act as the company’s chief strategist, it’s structural architect, and thedeveloper and manager of its information and control systems. However, with the emergenceof the BPR school of thought, it has become clear that the enterprise model based onhierarchical structure supported by highly sophisticated information systems no longer deliverscompetitive results.

These findings can be traced back to two sources. The first is because of the inefficiencyassociated with the traditional view and the second is because business goals are changing.The former exposition was uncovered through work from Rummler and Brache (1991)8. Theydetected some negative aspects with the traditional view:

• Supporting managers perceive other functions as enemies, as opposed to co-operatives,when engaging the battle to fight competition. Observation has revealed that function heads; e.g. marketing and manufacturing are so at odds that cross-functional issues do notget addressed. Things tend to fall between the cracks.

• Building silos around departments prevents interdepartmental issues being resolved by peers at lower and middle levels. The silo culture forces management to resolve lower level issues, taking their time away from higher priority customer and competitor concerns.Lower level employees, who could be resolving these issues take less responsibility for theresults and perceive themselves as mere implementers and information providers.

This type of enterprise has its roots in the early Twentieth Century. The challenge in today’sbusiness environment places a premium on responsiveness and flexibility. Business goals havechanged. There has been a shift of emphasis from a seller's market to enterprises competingin a buyers market. We need a different way to look at, think about, and manage enterprises.For instance, Hammer and Champy (1993)2 commented that most, if not all, managementwould like to have an enterprise that is flexible enough to adjust quickly to changing marketconditions, lean enough to beat any competitors' price, innovative enough to keep productsand services technologically fresh, and dedicated enough to deliver maximum quality andcustomer service. They further explain that the 'three Cs' - Customers, Competition, andChange - have created a New World of business.

7Butler Cox, (1991), ‘The Roleof Information Technology inTransforming the Business’,Research Report 79.

8Rummler, G.A., Brache, A.P.,(1991), ‘Improving Performance: How to Managethe White Space on the Organisation Chart’, Jossey-Bass Management Series.

2Hammer, M., Champy, J.,(1993), ‘Re-engineering theCorporation: A Manifesto forBusiness Revolution’, NicholasBrealey Publishing.



Traditional functional management appears no longer adequate for a post-industrial age inwhich quality, innovation, and service are assuming more and more importance. This isillustrated in Figure 3, which shows that business goals are changing.

Butler Cox, (1991), ‘The Role of Information Technology in Transforming the Business’

Figure 3: Changing Business Goals

2.2 The Introduction of Process Working

Instead of envisaging functions, where work is carried out in narrowly defined tasks;enterprises should perceive their activities as a set of processes that cut across theconventional, functional organisation structure. The aim is to re-design the business so that itis process orientated and not function orientated. For example, in a conventional hierarchicalorganisation, taking and fulfilling a customer order typically, involves multiple functions – sales,production, accounts, distribution, marketing etc... The order proceeds step by step as itpasses between functions. Queries and exceptions are handled at higher levels in thehierarchy and for a significant amount of the time the order waits in a queue. Viewed as abusiness process, taking and fulfilling a customer order involves the same set of work activities,but all these activities are managed as a single, co-ordinated operation either by an individualor by a team.

A further example of this type of work lies with the product development cycle. This majorprocess includes activities that draw on multiple functional skills. New product designs aregenerated by research and development, tested for market acceptance by marketing andevaluated for production by manufacturing. This is illustrated in Figure 4.

Figure 4: Cross Functional Process Working



KEYPERFORMANCEMEASURES

1. Profit growth2. Revenue growth3. Return on capital investment4. Asset/turnover ratio5. Profit as a proportion of revenue6. Profit per employee7. Earning per share

CRITICAL FORFUTURECOMPETITIVENESS

1. Level of customer service2. Time required to get a product to market3. Customer response rate4. Mean time between failures5. Fault-reporting frequency6. Customer retention

2.3 The Process View of the EnterpriseIt has been suggested that three types of structure may emerge as a result of the re-engineeringeffort. They are:

• The Network Enterprise• The Process Oriented Enterprise• The Hybrid Enterprise

2.3.1 The Network EnterpriseThe network enterprise adopts the view that the traditional, functional hierarchical organisationstructure will give way to small entrepreneurial teams of specialist workers tied together in aso called network (or organic) enterprise7. This is illustrated in Figure 5 below.

Figure 5: The Network Enterprise

This peer network structure may emerge in some enterprises, but for the most it is a long wayoff. Indeed it may never be realised.

2.3.2 The Process Oriented EnterpriseA more probable result is an arrangement of teams co-ordinated by a simplified hierarchy. Thisis illustrated in Figure 6.

Figure 6: A Predominately Process Oriented Enterprise

7Butler Cox, (1991), ‘The Roleof Information Technology inTransforming the Business’,Research Report 79.



PROCESSWORKFLOW

TEAM

PROCESSWORKFLOW

TEAM

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2.3.3 The Hybrid EnterpriseThe Butler Cox foundation articles believe that rather than any of the aforementioned structures,a hybrid structure will prevail. They conclude that the process oriented structure is unlikely tobe realised in more than a few large businesses, although it may become a feature of agrowing number of small ones.

The hybrid structure, a combination of functional and network elements will be the aim of mostenterprises, enabling them to get the best of both worlds. This is shown below.

Figure 7: The Hybrid Enterprise

In this scenario, cross-functional, process oriented teams provide the responsiveness andfeeling of smallness that large companies have frequently aimed to achieve. The functionalhierarchy then complements these teams by providing the mechanism through which teamgoals are set and team performance measured, as well as the means of co-ordinating teamactivities and setting the strategic direction of the business as a whole. The hierarchy definesauthority and responsibilities, instils discipline, sets objectives, and conveys cultural values.

Companies who adopt this structure retain their existing functional management structure, butonly in a modified form. Process teams, report to process owners, who in turn are equivalentto the functional heads affected by the process. Reporting links need to exist between theprocess owner and equivalent functional heads.



•

•

•

PROCESSWORKFLOW

TEAM•

The table below details the main differences between the functional and network enterprise,as described above.

Slevin and Colvin, (1990), ‘Juggling entrepreneurial style and organisational structure’

Table 2: Differences between Functional and Network Enterprises9

2.4 Problems with Crossing Functional BarriersMost of the significant gains in performance tend to occur through the use of IT to supportprocesses that cross functional boundaries; it also increases structural risk. Structural riskrepresents risks associated with altering existing organisational structures. Studies conductedby Fiedler et al (1994)10, discovered the following:

• Structural change increases the risks associated with distributing the institutionalised corporate structures. Cross-functional boundaries may destroy a desired feature of the enterprise.

• Structural complexity increases as you involve more than one functional area in the project;this in turn increases the risk of project failure. Higher levels of complexity requireincreased organisational commitment and co-ordination and make change more difficult.

• Parochial ownership of parts of the system increases with the risk associated with politicaland functional power struggles. This is because crossing functional boundaries leads to changes in the organisational power structure.

9 Slevin, D.P., Colvin, J.G.,‘Juggling entrepreneurial styleand organisational structure:How to get your act together’,Sloan Management Review,Vol.31, no.2, Winter 1990.

10Fiedler, K.D., Grover, V., Teng,T.C., (1994) ‘InformationTechnology-Enabled change:The Risks and Rewards ofBusiness Process Redesign andAutomation’ Journal of Information Technology.



3.0 Process

Identifying and improving processes is pervasive through all companies that embark on re-engineering. We described earlier that business processes must be redefined and streamlinedin order to implement strategic vision. However, the scope and maturity of the businessesprocess architecture and the nature of changes within processes varies within enterprises.Therefore, to understand the concepts of BPR, it is essential that we understand what processesare and how to identify them. To accomplish the enterprise's strategic vision and redefine theseprocesses, we must understand what they represent.

3.1 Defining ProcessesThe process oriented, cross-functional view of the enterprise is what BPR sets out to achieve.The emphasis, therefore, is on processes rather than just tasks.

Davenport and Short (1990)1 define business processes as:

A set of logically related tasks performed to achieve a defined business outcome.

Whilst Pall (1991)11 defines them as:

The logical organisation of people, materials, energy,equipment and procedures into work activities

designed to produce a specified end result.

Processes are generally recognised to have two important characteristics. Firstly, processeshave customers. This means that they have defined business outcomes with identifiablerecipients of these outcomes. Secondly, processes cross organisational boundaries, whichmeans they normally occur across or between organisational sub units and are independentof formal organisation structure.

Examples of sub-processes in the Ford Motor Company's Accounts Payabledepartment, originally described by Hammer (1990)12, are ‘Order Material’ and ‘MatchDocuments’, with the payment to suppliers being the objective of the process. Ordering goodsfrom a supplier typically involves multiple departments and functions. For example, the enduser, purchasing, receiving, accounts payable, and the supplier’s organisation are allparticipants. Here, the end user is viewed as the customer and the process outcome couldeither be the creation of the order or perhaps the actual receipt of the goods by the end user.

1Davenport, T., Short, J., (1990),‘The New Industrial Engineering: InformationTechnology and Business Process Redesign’, SloanManagement Review.

11Pall. G.A., (1991) ‘Quality Process Management’, Englewood Cliffs, New Jersey,Prentice Hall, 187.

12Hammer, M., (1990), ‘Re-engineering: ObliterateDonít Automate’, HarvardBusiness Review.



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Davenport (1993)4 provides a list of typical processes within a manufacturing firm (Table 3).Enterprises may consist of more or even fewer processes. It is an elementary viewcharacterising only management and operational dimensions. In order to be effective, processdefinition needs more explanation.

Davenport (1993) ‘Process Innovation: Re-engineering Work through Information Technology’

Table 3: Typical Processes within Manufacturing Firms

3.2 Earl’s Topology of ProcessesEarl (1993)13 describes four types of business processes that are now emerging.

Core ProcessesAre those central to how the business functions and relate directly to external customers.They are commonly the primary activities of the value chain.

Support ProcessesAre those that have internal customers and backup core processes. They are commonlythe administrative secondary activities of the value chain.

Business Network ProcessesAre those that exist beyond the boundaries of the enterprise and include suppliers,customers, and business partners.

Management ProcessesAre those by which firms plan, organise, and control resources.

Figure 8 shows Earl's (1993) analysis framework. The belief here is that one can more easilyanalyse and model processes and their re-design if they are relatively structured.

4Davenport T. H., (1993),‘Process Innovation: Re-engineering Work throughInformation Technology’,Harvard Business School Press.

13Earl. M.J., (1993), ‘The Oldand the New of BPR: Some implications of IT’, Centre forResearch in IM, London Business School.



Earl (1993), ‘The Old and the New of BPR: Some implications of IT’.

Figure 8: Earl’s Topology of Processes

On the horizontal axis, we distinguish between primary value chain activities andsecondary value chain activities.

Primary value chain activities relate to how we do business and have external customers to theenterprise. Their impact is likely to be strategic in the sense of competitiveness and marketpositioning. They are means by which we can turn around the business.

S e c o n d a ry value chain activities describe how we administer and manage theenterprise. They are internally focused and have an affect on the enterprise’s internalefficiency. As a consequence, they impact on business performance indirectly. They are moreconcerned with the capability than competitive advantage.

Earl’s classification of processes neatly fit the model. Core processes are easily described andre-design of these processes will have a meaningful impact through competitiveness and theenterprise's competitive positioning. This is the main reason why some BPR practitioners referto cross-process re-design as a synonym for business process re-engineering. An example of acore process is order fulfilment, and it is a classic area of attack for re-design.

Support processes, which back up core processes, are easily described but have an effect oninternal efficiency. Just as systems have subsystems, core processes have subsystems, which inthis case are known as support processes. An example of a support process may be humanresource management.

Business network processes are harder to describe and highly complex. However, re-designwill have a strategic impact in terms of competitiveness. An example of this was identified byShort and Venkatraman (1992)14 at Baxter Healthcare: When re-designing external processes,the company had the potential to redefine the business scope and reposition the firm in itsindustry value chain.

14Short, J.E., Venkatraman, N.,(1992), ‘Beyond Business Process Redesign: RedifiningBaxterís Business Network’,Sloan Management Journal.



Finally, the re-design of management processes will effect internal efficiency, but are complexin structure. An example lies with Texas Instruments where they used expert systems to enablespeeding up of the capital budgeting process.

3.3 Edwards and Peppard - The Process TriangleEdwards and Peppard (1994)15 identify four critical types of process in enterprises, whichderive from the product and market focused element and the competency element of thebusiness strategy. These types of process are: competitive processes, infrastructure processes,core processes, and underpinning processes. Figure 9 below illustrates the differences.

Edwards and Peppard (1994). “Forging a Link Between Business Strategy and Business Re-engineering”.

Figure 9: Classifying Business Processes: The Process Triangle

Competitive ProcessesRelate directly to the enterprise's current basis for competition. For example, if theenterprise was focusing on how quickly new products could be brought to the market, thecompetitive processes would relate to this focus. In economic terms, these processesenable the firm to enjoy good profits.

Infrastructure ProcessesCreate the capability to operate effectively in the chosen industry in the future. Theseprocesses develop the capability (people, process and technology) that will definetomorrow’s competitive strategy.

Core ProcessesAre those processes that are valued by the stakeholder. They must operate satisfactorily butare not currently the chosen basis of competition. They are necessary in the enterprise toavoid disadvantage in the marketplace. They may also be the minimum entry requirementsinto the market or be required by government legislation. They should not be confused withEarl’s core processes, as described earlier. Edwards and Peppard used the words t a k e h o l d e r, rather than customer, to include customers, suppliers, employees,shareholders, i.e. all those who have a 'stake' in the company.

15Edwards, C., Peppard, J.W.,(1994) , ‘Forging a Link Between Business Strategy andBusiness Re-engineering’, European Management Journal.



Underpinning ProcessesAre processes that are undertaken, but are neither recognised nor valued, by stakeholdersin the short term. These processes are found in all enterprises and are collections of closelyrelated activities that are grouped together for efficiency and recognised as a process. Inreality, they are not real processes in the sense that they directly support customers, butrather, they contribute to other categories of process. The reason why managementconsider these as processes lies in the benefits of functionalism, namely efficiency andspecialisation. For example, in the performance of competitive, infrastructure, and coreprocesses, some administrative support is necessary.

An example of which is the recruitment of staff, this may be an element in a number ofprocesses. However for efficiency reasons, management may decide to combine theseelements and manage them as a single process.

The classification schemes described above, namely from Earl (1993)13 and Edwards andPeppard (1994)15, represent only two schemes from a list of many. Other schemes have beenproposed, such as:

Operation versus Management (Davenport, 1993).

Rockhart and Short (1990) suggest that processes relate to developing new products,delivering products to customers, and managing customer relationships.

A further classification scheme focuses on four macro activities, derived from a variant ofvalue chain analysis: product development and launch, supply chain and operations,customer order fulfilment, management planning and resource allocation.

4.0 Technology

Generally, the perceived benefits from IT have failed to live up to expectations, many seniorexecutives feel cheated, not only by IT vendors but also by their IT staff. This is usually a resultof highly placed expectations, which force companies to learn the hard way that technologyitself does not generate sustainable competitive advantage. Rather, the advantage comes fromthe combination of IT, appropriate business processes, effective human behaviour, and astrategy to implement change.

Hammer (1990)12, observes that the usual methods for boosting performance such as‘process rationalisation and automation’ have not yielded the dramatic improvements thatcompanies sought. In particular, heavy investment in IT often delivered disappointing results,largely because companies tend to use technology to mechanise old ways of doing business.

13Earl. M.J., (1993), ‘The Oldand the New of BPR: Some implications of IT’, Centre forResearch in IM, London Business School.

15Edwards, C., Peppard, J.W.,(1994) , ‘Forging a Link Between Business Strategy andBusiness Re-engineering’, European Management Journal.

12Hammer, M., (1990),

‘Re-engineering: ObliterateDonít Automate’, HarvardBusiness Review.



Hammer and Champy (1993)2 wrote:

A company that cannot change the way it thinks about Information Technology cannot re-engineer, a company that equates technology with automation cannot re-engineer and a company that

looks for problems first and then seeks technology solutions for them cannot re-engineer’.

Modern Information Technology should be viewed in any re-engineering effort as an essentialenabler, one that permits the enterprise to re-engineer business processes. Hammer andChampy say that Information Technology can be used to break long held rules that werelegitimate at some point but now inhibit the enterprise. They refer to technology that is used tobreak rules as ‘disruptive’ technology. For example, a long held business constraint is thatgeographically disparate people can’t meet regularly or inexpensively. New technologies suchas Video-Conferencing and Net-Meeting now make this business constraint obsolete.

The principles of re-engineering contain many references to the enabling power of InformationTechnology. For example the power of databases and expert systems can allow non-specialised workers to make decisions for their specific departments, and hence there is noneed to sacrifice the time of specialised workers. Table 4 below summarises the old businessrules that can be broken by use of disruptive technology as defined by Hammer and Champy.

Hammer and Champy (1993), ‘Re-engineering the Corporation: A Manifesto for Business Revolution’,

Table 4: Breaking Business Rules Using Technology

Hammer and Champy (1993) call on enterprises to think inductively rather thandeductively. That is, instead of using deductive reasoning to look for solutions to apparentproblems, they urge managers to learn the power of new Information Technologies and to thinkof innovative ways they can be used to radically alter the way work is done.

3Hammer, M., Champy, J.,(1993), ‘Re-engineering theCorporation: A Manifesto forBusiness Revolution’, NicholasBrealey Publishing.



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Davenport and Short (1990)1 believe that the importance of Information Technology andBusiness Process Re-engineering is well known to Industrial Engineers, albeit as largelyseparate tools for use in specific environments. They argue that IT is used in industrialengineering as an analysis and modelling tool and have often taken the lead in applyingI n f o rmation Technology to manufacturing environments. They also stress theimportance of analysis and re-engineering in the service sector of western companies.M o re o v e r, they re i n f o rce Hammer’s (1990) arguments by stating that Inform a t i o nTechnology should be viewed as more than an automating or mechanising force: it canfundamentally reshape the way business is done. They identify a recursive relationshipbetween Information Technology and BPR. This relationship is illustrated in Figure 10.

Davenport and Short (1990), “The New Industrial Engineering”

Figure 10: The Recursive Relationship Between IT Capabilities and BPR

Each is the key to thinking about the other. Thinking about Information Technology should bein terms of how it supports new or re-designed business processes, rather than businessfunctions or other organisational entities. Business processes and process improvements shouldbe considered in terms of the capabilities Information Technology can provide. So essentiallythe claim that has been made is that by understanding and harnessing IT we can re-designbusiness processes in hitherto non-feasible ways.

Earl and Khan (1994)3 (summarising Davenport (1993)4 ) provide a list of opportunities underthree economic contributions that IT generically offers. This is illustrated in Table 5 below.

Earl and Khan (1994), ‘How new is Business Process Re-design?.’

Table 5: IT Opportunities in Business Process Re-engineering

1Davenport, T., Short, J., (1990),

‘The New IndustrialEngineering: InformationTechnology and BusinessProcess Redesign’, SloanManagement Review.

3Earl, M., Khan, B., (1994),

‘How new is Business Process Redesign?,’ European Management Journal.

4Davenport T. H., (1993),‘Process Innovation: Re-engineering Work throughInformation Technology’, Harvard Business School Press.



However, the powerful role of Information Technology in enabling the re-design of processesis not flawless. Earl and Khan (1994)3 highlight the fact that Information Technology can alsobe a constraint on BPR, principally because of the legacy of systems built to serve the past.Where data and systems architecture have been built to serve local functional needs, theremay be limits on process integration. Incompatible data and non-communicating systems aretypical inhibitors.

4.1 The Value Adding Capabilities of Information TechnologyAnother important view relates to the theories of the highly regarded strategist, Michael Porter.The Butler Cox research articles put forward the view that Michael Porter’s value chain conceptplays an important part in understanding the role of information, and naturally InformationTechnology, in creating the product and delivering it to the market. The value chain is illustratedin Figure 11.

Figure 11: The Value Chain

In order to achieve competitive advantage the enterprise must perform its business activities ata lower price or in such a way that the ability to command premium price is reached, i.e.differentiation. Furthermore, the activities illustrated above are interdependent and connectedby linkages; information facilitates these activities and their linkages, and so is an importantsource of value.

The value chain, which identifies nine discrete activities that an enterprise performs in doingits business, is embedded in a larger stream of activities known as the value system. This isillustrated in Figure 12. The value system connects primary suppliers and intermediate suppliersto the final customer. Linkages connect the value activities of an enterprise in the value systemto those of its upstream suppliers and downstream customers.

Figure 12: The Value System

3Earl, M., Khan, B., (1994),

‘How new is Business Process Redesign?,’ European Management Journal.



CompanyValueChains

End-UserValueChains

ChannelValueChains

SupplierValueChains

CompanyValueChains

DownstreamCompanyUpstream

Competitive advantage arises as a result of these linkages being optimised, with InformationTechnology acting as a source of added value. Even though Information Technology canprovide a source of added value in a functional organisation it is constrained by the limitationinherent in the structure. Hence, one definition of BPR that is often quoted is: ‘Analysis and re-design of business and manufacturing processes to eliminate that which adds no value,’ SeeAscari et al (1995)16.

Value is normally added by automating functional activities. Hammer (1990), Davenport andShort (1990) reveal two ways in which Information Technology aids the functionalorganisation. Firstly, by stripping out excess layers of middle management (de-layering), theorganisation has been flattened, which widens managers' span of control. This has beenfacilitated by the introduction of management information and decision support systems.Secondly, Information Technology can also add value in a functional organisation byimproving inter-functional workflow.

However, the point remains that Information Technology helps to improve the flow ofinformation through specific functions but does little to improve linkages between them.

Functional divisions usually fail to align themselves with the value activities in the value chainbecause they focus on internal efficiency and control rather than the areas of design, quality,and customer service where added value is most needed.

Information Technology, coupled with the re-design of business processes, gives the enterprisethe potential to increase radically the added value of information. This, in turn, increases theability for enterprise’s to take advantage of Information Technology in those areas such as costcutting and differentiation.

16Ascari, A., Rock, M., Dutta, S.,(1995) ‘Re-engineering andOrganisational Change:Lessons from a ComparativeAnalysis of Company Experiences’, European Management Journal.



5.0 People

Human resource management, like information, has only recently been seen as a strategicresource. To emphasise this shift, its name has been altered from personnel management. Thishighlights the human dimension and its critical importance to the enterprise rather than thepersonnel management focus on people as merely a factor in production.

The new processes proposed from the re-engineering effort usually involves some new skills.Re-engineering often involves greater worker empowerment and a broader set of work tasks;the requisite new skills may involve both increased depth of job knowledge and greaterbreadth of task expertise.

5.1 Greater EmpowermentThe most recent shifts in enterprise culture have been in the direction of greater workere m p o w e rment, increased participation in decision making and more open, lesshierarchical communications. Basically, the decision point is put where the work is performed.The result is an enterprise that has a structurally flatter organisational hierarchy with a broaderspan of control. It has been widely documented that this leads to greater productivity,increased quality, and greater employee satisfaction.

The cultural changes that result from a flatter, less hierarchical organisation are intended toempower process participants to make decisions about process operations. A culture ofparticipation may even lead to the self-design of smaller, restricted processes by employeeteams. Customer oriented processes, which emphasise this worker empowerment, can yieldradical improvements. For example, British Airways has eliminated the office functionsrequired to process customer claims for Dry Cleaning, which result from in-flight accidents, byempowering cabin crew to issue cleaning vouchers. The procedure has not only savedmoney; it has also had a positive impact on customer satisfaction. According to Davenport(1993)4, worker empowerment can also provide the impetus for general innovation.

Although re-engineering is not normally a bottom-up activity, a culture that is receptive toinnovation at all levels is likely to both identify and implement business re-engineering atrelatively high levels. Furthermore, even after broad process designs have been implemented,an innovative culture can inspire minor improvements that benefit day to day processperformance.

I n f o rmation Technology also plays a role by supporting culture, control or evenempowerment. It does this by supplying employees with information enabling them to maketheir own process decisions or with instructions that dictate precisely how to perform each task.

4Davenport T. H., (1993),

‘Process Innovation: Re-engineering Work throughInformation Technology’, Harvard Business School Press.



5.2 Cross Functional Process TeamsDavenport (1993)4 points out that in order to facilitate a new process oriented structure thatdevelops as a result of re-engineering, the use of teams is commonly made. Experimentalobservations have revealed that individual based work designs combined with newtechnologies were less productive than work teams with no technology. The rationale for thisfinding was partly process oriented. The teams tended to work better because they combinedmultiple functions into one unit.

The team approach has been favoured by many, and has many benefits:

• Cross-functional skills facilitate interfaces and parallel design activities. Furthermore the fact that the team possesses a broad number of skills and perspectives increases the chances that the output will meet multi-functional requirements.

• Team structures improve the quality of work life, since people tend to prefer jobs that include social interaction. Additionally, it is true that alienated, unhappy individual workers are no more productive than overly socialised teams. This socialisation benefit isparticularly important when the primary content of the work is informational. Hence, an important point to heed when considering a team to shoulder a cross-functional process isto pay careful attention to cultural compatibility measures.

The types of team that exist in today’s organisations are multiple; however, not all areorganised to execute work in the style of a process. Assuming that the hybrid structure is inplace, as it is in most organisations that have been studied, one of the most difficult issuesfacing these cross-functional teams is the relationship between team members and thefunctional structure of the organisation. How, and by whom, will team members be evaluated?In one instance, sources of conflict occurred because teams were established whose membershad both process team and functional responsibilities, but were evaluated by their functionalsuperiors.

Davenport (1993)4 recommends a solution to this problem. He says that a process basedorganisation should be created, whether stand-alone or one that works in conjunction with thefunctional organisation, and give process representatives a role equal to that of functionalmanagers in evaluating and compensating team managers. In order to function effectively asa cross-functional team, a senior management group must be willing and able to look beyondfunctional allegiances, and even beyond what may benefit their careers.

Davenport (1993)4 provides his view of criteria for process team success:

• A clear relationship to the functional structure is essential. Consideration in terms not onlyof reporting relationship and performance reward evaluation, but the relative emphasis onprocess versus functional activities is important.

• Logically, issues, such as those incorporating the location of team members, also affect team success. Frequent meetings permit the efficient performance of these teams.

• Self-managing teams i.e. those that direct their own work and have no formal leader, haverecently become a popular theme. This encourages motivation but there is a possibility ofambiguity as to who really manages the set of activities. This facilitates the need for





boundary management. A focus on intragroup effectiveness and dynamics must be combined with attention to a team’s relationship with the larger organisation. At the sametime, the larger organisation must support the team with adequate resources, including management attention when needed.

Basically a need for clarity - in mission, process boundaries, decision-making authority andinternal and external roles - is essential. Clarity is facilitated when team-work is viewed inprocess terms; the process orientation supplies a clear purpose and the process performanceobjectives become the performance objectives of the team. The process team must be carefullydesigned, and alternatives to teams considered. Creating a team oriented approach toprocess execution should not be undertaken without assistance from experts and usually callsfor personnel training. Furthermore teams are a means of building social interaction and cross-functional perspectives into a work process. If these objectives can be accomplished throughsome other means, or are for some reason unnecessary, team structures are not required.



6.0 Conclusion

Business Process Re-engineering is way of organising the business so that it can break free fromthe traditional functional approach that has developed over many decades. By cutting acrossfunctional divisions, re-engineering promises to make businesses more responsive, improveservice and increase quality.

This white paper has focused on four organisational components, which can be seen asdomains of change. The components are Structure, Process, Technology and People, and areessential elements in a re-engineered process or enterprise and must be aligned in order tosupport re-engineering.

Firstly, as the principles of re-engineering suggest, there is a significant structural change in theenterprise. The enterprise progresses from the traditional hierarchical view of the organisationtowards a process view of the organisation. Work is now carried out as a set of processesrather than tasks limited to the functional boundaries in which they exist. Reasons for this shifthave been attributed to changing business goals. However, a degree of risk also accompaniesthese changes. For instance, a process oriented view involves crossing functional barriers,which can increase structural risk.

This white paper has also endeavoured to define processes. Classification schemes that clearlyrepresent the differences between types of business processes were explored.

In addition to structure and process, the power of Information Technology also plays anessential role in re-engineering, primarily as an enabler of re-design. IT can actually create newprocess re-design opportunities, rather than merely support the processes that already exist.Business processes should be considered in terms of the capabilities that IT can provide, ratherthan seeing IT as solving existing problems. IT, along with the re-design of business processes,has the potential to increase the added value of information radically. Moreover, this is notconfined to the enterprise but also the value system beyond it.

Finally, BPR redefines jobs. Employees are required to work as part of a team and some areempowered to make decisions. Process working requires the use of teams, since it is unlikelythat one employee will be able to meet all of the multi-functional requirements. Moreover, theteam approach improves team members' work satisfaction through social interaction, which inturn increases productivity and employee loyalty.



NOTE: INSIDE BACKCOVER IS BLANK

Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow ImplementationStrategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow ImplementationStrategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow Implementation Strategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process ImprovementWorkflow Implementation ERP EFQM Financial Modelling TQM System IntegrationActivity Based Costing (ABC) Business Contingency Planning ERP Strategy PlanningBusiness Process Improvement ISO9000 Change Management BPRSAP E F Q M Financial Modelling TQM System Integration Workflow ImplementationStrategy Planning Activity Based Costing (ABC) Business Contingency Planning S A PChange Management BPR ISO9000 Business Process Improvement

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