BPRL1

www.simsr.somaiya.edu

Business Process Reengineering

&

Bench Marking


• Organization Flexible enough to adjust to changing Market Conditions

• Lean enough to beat any competitor’s price

• Innovative enough to keep its products & services technological fresh

• Dedicated enough to deliver max. quality & customer service

CEOs’ Statements


• Want organizations to be

Lean

Nimble Flexible Responsive Competitive Innovative Efficient Customer Focused Profitable

Cont.


So many businesses are• Bloated

• Clumsy• Rigid• Sluggish• Non competitive • Uncreative• Inefficient• Disdainful of customer’s needs

• Losing Money

Then Why


How do these companies do their work ?

&

Why do they do it that way ?

Answer


• Goal :Filling Customer Orders Quickly• To achieve this formed a multi-tiered Distribution

System Factory > CDC > RDC > Customer(regional and central

distribution centre)In one case RDC located in same building as CDCFrom CDC to RDC takes 11days:RDC to notify CDC 1 dayCDC to check pick & dispatch 5 daysRDC to officially receive , shelve, pick & pack 5 days

Examples


• RDC rated by time to respond customer order while

• CDC is not.• CDC judged on #Inventory Cost #Inventory Turns # Labour Costs

Reason


• RDC does not order on CDC

• Overnight airlift from other RDC

• Airway bills run into millions of dollars

Result


• Each RDC has a unit to track the inventory of other RDCs

• Some goods moved & handled more times than good sense dictates

• CDC & RDC doing their job but overall system does not work

• Efficiency of a company’s part is at the expense of the efficiency of the whole

Additionally


• An aircraft of US Air grounded one afternoon for repair at Airport Airy

• Mechanic capable of repairing located at Pittsburg airport which is nearest to Airy

• Airport manager of Pittsburgh refused to send mechanic that afternoon because he would stay at hotel overnight & hotel bill be debited in Pittsburg account

• Mechanic dispatched next day morning to fix problem & return the same day

• Multimillion dollar worth aircraft remained idle , airline lost thousands of $ in revenue but Pittsburg airport manager’s budget not hit by $100 hotel bill

Another Example


• Pittsburg manager was neither foolish nor careless

• He was doing what he was supposed to do i.e. controlling & minimizing expenses

• Whenever co-operation /coordination of several different departments is required ; it is a source of trouble

Is this an example of inefficiency ?


• Return of unsold goods involves 13 different departments

Receiving Warehousing Inventory updates Promotions check price at which it was sold Sales accounting adjusts commissions And so on No single department /individual is responsibleFor each dept. it is a low priority distractionMistakes happen Returned good ends up lost

Another Example


• Company pays sales commission on unsold goods

• Retailer does not get credit & gets angry• Nullifies efforts of sales & marketing• Unhappy retailers less likely to promote new

products of the manufacturer• They delay paying bills & pay what they think

they owe after deducting value of returns • This throws mfg. accounts deptt. into turmoil

because retailer cheque does not match invoice

• Eventually manufacturer simply gives up unable to trace what really happened

Cont.


Lost revenue runs into nine figurers

As a result Management attempts to

tighten the disjointed return process

& New problems crop up

Result


• A Pharma. Company• New drug tried on 30 patients who took for 1 week .

Info. Collection took 2 years• Company scientist took 4 months developing study &

specifying kind of data to be collected Designing study 2 weeks Getting reviewed 14 weeks • Physicians scheduling /conducting interviews to recruit

other doctors who would identify appropriate patients & administer the trial drug 2 Months

• Securing permissions from all hospitals involved took 1 Month

• Physician was paid in advance & hence had no interest• Collecting forms from doctors took 2 Months

Another Example of Impact on Bottom line


• Data entry detected errors in 90% Forms

• Back to Protocol designer to study Administrator to Physician who tried to correct the mistakes

• Company lost 2 years of profit worth millions of $

• None responsible for getting field study done

Even when there is a major impact on the bottom line no one is in charge

Cont.


• Are the above examples exceptions ?

• Are the workers lazy ?

• Are the managements inept ? NoThe Problem lies somewhere else

What is the problem ?


• American entrepreneurs led the world in creating business organizations that set the pace for

• Product Development ; Production ; Distribution thereby creating Highest Standards of living in the world

But Some companies & their descendents no longer

perform well Because World has changed beyond their capacity to adjust or

evolve

Principles on which they were organized were superbly suited to conditions of an earlier era but they can stretch only that far

20th Century


• Advanced technologies • Boundaries disappearance among

national markets• Altered expectations of customers

who have more goals & methods Basic Principle of Classical

Organization is OBSOLETE

What has changed ?


Renewing Competitive Capabilities

is Not a Question of Working Hard But Of Learning to Work Differently

What Then?


Companies & Employees must Unlearn

Many of Principles & Techniques That Brought Success for so Long

An Unpleasant Reality


Most companies today can trace back

to Pin Factory Described by Adam Smith in Wealth of Nations

Trace back to 1776


• Workers each performing single step can make far more as compared to one making whole

• Steps involve Draw wire Straighten Cut Point Grind at top Head - 2 operations Put it on Whiten Packing

Principle of Division of Labour


• 10 workmen make > 48000 pcs ./day• If each trying to make whole ; can not

make more than 20 pcs. Or perhaps none

• Division of labour increased productivity by a factor of hundreds due

Increase of Dexterity of Workmen

Saving of time lost in passing from one operation to another

Invention of machines

Output


• All organizations built around Smith’s Central Idea i.e.

Division/Specialization of Labour

Consequently Fragmentation of Work

• Workers never complete a job but perform piece meal tasks

Today


• Were best in the world• Manufacturing Facilities sprouted

around the country• Growth occurred due to innovative

changes in shipping goods• Built railroad which extended &

accelerated economic development• It is the railroad companies who

invented the modern business bureaucracy

U.S. Companies


• Formalized operating procedures• Organizational Structure• Mechanisms• Role of Contingency• Lines of authority• Reporting

Railroad companies


• Programmed workers to act according to rules & make one track system predictable

• Command & Control Systems even today embody same principles railroads introduced 150 years ago

Management Principles


ForDeveloping today’s Business Organization Came In Early Twentieth Century From Two Automobile Pioneers ^ Henry Ford ^ Alfred Sloan

Next Large Evolutionary Step


• Ford improved on Smith’s concept Instead of having skilled assemblers

build entire car Ford reduced to installing a part in a prescribed manner

• Initially workers walked from one assembly stand to the next taking themselves to work

Innovation for which Ford is best remembered; brought work to the worker

Remembering Henry Ford


• Assembly broken into simple uncomplicated tasks

But

• Made process of coordinating people & combining the results of their tasks into a whole car far more complex

Simplicity led to Complexity


• Alfred Sloan created prototype of Management System which Ford’s factory System demanded

• Neither Henry Ford nor William Durant ever learnt as to how to manage sprawling organizations

• Sloan took over from Durant & made system of Ford complete and this system is today called Mass Production

Management System


• Sloan applied Smith’s principle of division of labour to Management as Ford had applied to Production

• Sloan created smaller decentralized divisions that managers could oversee from corporate head quarters simply by monitoring

Production & Financial Numbers

Decentralization


• Corporate executives did not need specific expertise in manufacturing/engineering but needed financial expertise

• Also this solved the problem that prevented other companies from expanding

• Financial/Marketing complemented Engineering Professionals

• Sloan firmly established division of Professional labour in parallel with division of manual labour


• Final Evolutionary step came by end of WW II & 1960which was the period of Enormous Economic Expansion

• Elaborate Planning Exercises led Business wanting to have

Capital to be allocated Returns expected from operating managers Large staff of corporate controllers , planners ,

auditors ,acted as eyes & ears of management

• This organization model spread to Europe & Japan

End of World War II


• Heavy Demand /Accelerating growth suited post world war times perfectly

• Market accepted whatever was offered• Pyramidal structure suited high growth

environment because it was scalable • In 1960 white collar jobs were further

broken down due new office technology became available

• These could be mechanized or automated

Post World War II


• As tasks grew, overall process became increasingly complicated

• No. of people in the middle of organization was one price paid for benefit of fragmenting

• Another disadvantage was increasing distance between senior management & consumers

• How customers responded was measured only in nos. & not in faces

Complications


• These are roots of today’s corporation • Principles forged by necessity on which

today’s companies have been structured

• Old ways of doing business simply do not work any more

• Here & now onwards crisis of competitiveness is not a temporary phenomenon

Reality


• In today’s world nothing is constant or predictable

Market Growth Customer Demand Product Life Cycle Rate of technological change Nature of competitionAdam Smith’s world & its way of doing

business are yesterday’s paradigm

Unpredictability


• Separately or in combination are driving companies deeper & deeper into territory that most of their executives & managers find frighteningly unfamiliar

• Three Cs Customer Competition Change Names familiar but characteristics are

different

Three Forces


• From early 1980 dominant force in seller – customer relationship has changed

• Sellers no longer have an upper hand • What , When , How they will pay• This is unsettling for companies who have

operated in mass markets• In reality Mass Markets never existed . The

truth is there was no choice• In US relatively few competitors & most of

them offered similar products

Customers Take Charge


• Demand is tailor made• No “the customer” ; “this

customer”• Mass markets broken into pieces

some as small as a single customer

• Individually & in combination a number of factors contributed to shifting the balance of market power from producer to customer

Customers Have Choice


• Soured in US due Japanese competitors who supplied market with lower prices & higher quality

• Fast introduction of new products & unmatchable service

• Mass production +Quality , Price , Selection & Service

Customer Expectation


• Consumer demanded more • Data base allow service providers

& retailers to track consumers with their preferences & hence a new foundation for competitiveness was laid

Consumers Expectations Raised

Service Sector


• Some mega dealers replacing many

Mall – sized discounters emptied Main Street Store Fronts

Changed equation between Buyer & Seller

Consolidation


• This threat shifted power from seller to buyer

Do it my way or I will do it myself• Easy to learn Desk top Publishing

gave the chice

Backward Integration


• Companies who grew with above mentality had to realize

“Each one counts”• Movie “Field of dreams” if you build they will

buy• Goods shortage no longer exists• More Producers• Developed countries have low population

growth• Many Product Markets Matured• Industry in “Replacement Mode”• Consumers wield Power & hence can be

choosy

Mass Market Mentality


• Consumers – What they want , What to pay , How to get on terms

• Do not want to deal with

companies who do not appreciate & understand this startling in customer buyer relationship

Long & Short of the Story


• Earlier companies could go to market with an acceptable product /service at best price & would get a sale

• Now not only more competition but many different kinds

• Niche competitors change the market• Similar goods sell in different market on different basis• Trade barriers falling & no national turf is protected• One superior performer raises competitive threshold

for the market around the world• Good performer chases out inferior• Adequate is no longer good enough

The second C - Competition


• Carry no organizational baggage & not constrained by history

• Enter market faster with new products• Big is no longer impregnable• Sun Micro System is still a start up & so is Wal

– Mart• Work station Innovation• Wal – Mart reinvented retailing• Start – up do not play by rules , they write

new rules• Unburdened they create new ways of working

that produce better results

Start – up Companies


• Technology changes nature of competition• In retailing Wal-Mart & P & G could merge their

inventory /distribution which is mutually beneficial • In after sales service Otis handles task of managing

93000 elevators / escalator in North America round the clock

• Limits of possible changed thereby raising customer expectations for all the companies in market

• Change becomes constant• Change has become pervasive & persistent• It is the norm• Life Insurance companies offered two products Term &

Life • Today they supply constantly changing new products

Third C - Change


• Pace of change accelerated• Rapidity of technological change promotes innovation• Product life cycle reduced from years to months• Ford produced the model T for entire human generation• Life cycle of computers reduced to 6 months• Pension products life reduced to 3 months • Product / Service life cycles diminished• Time available to develop / introduce new products

have diminished substantially Move fast or won’t move

Cont.


• Think companies equipped with effective change sensing radars

• Problem is they hear what they expect• Survey gives good news & market share goes

down• Company’s sloppy order fulfillment process

annoying & hence retailers reduce shelf space • Neither Brand manager nor anyone else has

broad enough perspective to deal with the problem

The changes that put companies out of business are those that happen outside the light of its current expectation

Executive Perception


• Companies designed to operate in one environment cannot be fixed to work well in another

• Companies created to thrive on Mass Production , Stability & Growth cannot be fixed to succeed in a world of 3 Cs

Demand is Flexibility & Quick

Response

New World of Business


Some executives blame :

Closed foreign markets Low cost of capital Predatory pricing policy by foreign companies

subsidized by their govts. Federal government Mishandling of economy by govt. Regulations Poor husbandry of natural & human resources Unions poorly educated Unmotivated workers

Blame Game


If so then all should decline But

• Sears going down & Wal-Mart moving up

• GM declining & Honda is shining• Insurance Industry looking south &

Progressive Insurance is moving north

Is This True ?


• Products have a limited life

• Not products but processes that create products bring long term success

Good products do not make winners ; Winners make good products

Right Products /Service Solution?


• Sell one division • Buy another • Change markets • Get into different business • Do only distribution All this prevents them from

making changes in basic work they actually do

Different Strategy a Solution ?



• Some feel if managed differently & better they would thrive ; let us look at Fads of 3 decades

MBO One Minute Managing Zero Based Budgeting Value Chain Analysis Decentralization Quality Circles Excellence Restructuring Portfolio Management

Have not enabled companies to sustain Competitive Performance

Management Deficiencies


Jobs get done faster but fundamentally the same job is being done

No Fundamental Improvement Performance

Automation – Answer ?


• For daily operations of business• It is not asset portfolio but People

working to Invent , Make , Sell & provide Service lead to success

• If company not succeeding ,it means their people not doing above as well as they should

God is in “Details” Architect Mies van der Rohe

Profound Contempt


• Goes to very heart of problem• A company better at Meat &

Potato of its business i.e. inventing , manufacturing , selling , servicing will beat competition in market place

• Winning companies know how to do their work better

• It is as simple & formidable as that

Real Diagnosis


• Customer places order & goods are delivered : a dozen steps

• There are some advantages like ^ No need to hire employees with

higher degrees ^ Every one is assigned a specific

responsibility ^ Accountable through bureaucratic

chain of command

Order Fulfillment Process



Some disadvantages ^ None responsible ^ Process is error prone ^ Each hand off entails queues , batches ,& wait times ^ No service element ^ Complex involving 12 people can not be made

flexible ^ None is empowered to answer a question or solve a

problem ^ Once order enters the process , it might as well be

lost until it emerges at other end

Trying to fix what is wrong by tinkering with each process piece is the guaranteed bad performance

Accept Trade - Off


• Not necessary to organize work around Adam Smith’s division of labour

• Task oriented jobs in world of 3Cs are obsolete

• Instead organize around Process

Today none is In charge of Process

What Is the Solution ?


• Vertical Structures built on narrow pieces of Process

• People look inwards , upwards but not outwards

Contemporary Performance

Problems that companies experience are outcome of Process Fragmentation

Today Cos. Functional Silos


• Example : For 100 units of work /hour• Co. needs 10 workers + 1 supervisors• For 10 times more output it needs 100

workers+10 supervisors +1 manager +3 Asst.Managers + 18 in HR +19 in Long Range planning+22 in Audit +23in Facilitation & Expediting =196

This is quite opposite of what Adam Smith had envisioned .Diseconomies are in O/H.

Diseconomies of Scale


• Leads to Bureaucratic Proliferation & Empire building

• Hire King’s horses & king’s men to paste the fragmented work back together again

• It is the Glue to hold together who really work

• Direct labour cut down & O/H gone up• Paying more for glue than the real work Recipe for Trouble

Humpy Dumpy School of Organizational Management


• No . Inflexibility , Unresponsiveness, Absence of customer focus , Obsession with activity ,Bureaucratic Paralysis Lack of Innovation High O/H are legacies of past business practices

• They were present all along but cos. Did not worry about them

• If cost were high pass them on • Product introduction slow , customers will wait• Customers were unhappy but they could not go

anywhere• Job of Manager was to manage growth rest did not

matter• Now growth has flattened & rest matters a great deal Problem is we are doing business in 21st century with

companies designed in 19th century to work in 20th century .

We need something Entirely Different

Are These Problems New ?

BPRL1

Documents

case rdc

edueach rdc

rdc airway bills

good sense dictatescdc

cdcfrom cdc

inventory turns

inventory cost

hotel overnight hotel