Business Process Engineering
Minder Chen, Ph.D.
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[email protected]
Process
References
Hammer, Michael and Champy, James, Reengineering the
Corporation: A Manifesto for Business Revolution, New York:
HarperCollins Publishers, Inc., 2001
Davenport, Thomas H., Process Innovation: Reengineering
Work through Information Technology, Harvard Business
School Press, 1992.
Hammer, Michael, Reengineering Work: Dont Automate,
Obliterate, Harvard Business Review, July-August, 1990.
Davenport, Thomas H. and Short, James E., The New
Industrial Engineering: Information Technology and
Business Process Redesign, Sloan Management Review,
Summer 1990, pp. 11-27.
Minder Chen, 1993-2011
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RFID Video
http://rfid.net/applications/retail
Pay attention to
What activities or processes had RDIF been used in
the video?
What benefits had been achieved?
Comparing information contents carried by Bar
Code and RFID
Identify innovative applications mentioned in the
video
Minder Chen, 1993-2011
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Definition of Reengineering
The fundamental rethinking
and radical redesign of
core business processes to
achieve dramatic improvements in
critical performance measures such as
quality, cost, and cycle time.
Source: Adapted from Hammer and Champy, Reengineering the Corporation, 1993
Minder Chen, 1993-2011
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What Business Reengineering Is Not?
Automating: Paving the cow paths.
(Automate poor processes.)
Downsizing: Doing less with less. Cut
costs or reduce payrolls.
BPR involves innovation: Creating new
products and services, as well as positive
thinking are critical to the success of
BPR.
Minder Chen, 1993-2011
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A Cow Path?
Minder Chen, 1993-2011
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Reengineering Is ...
Extremist's
Extremist'sView
View
Obliterate what you have now and
start from scratch.
Transform every aspect of your
organization.
Source: Michael Hammer, Reengineering Work: Dont Automate, Obliterate,
Harvard Business Review, July-August, 1990, pp. 104-112.
Minder Chen, 1993-2011
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Definition of Process
A process is simply a structured, measured set
of activities designed to produce a specific
output for a particular customers or market.
-- Thomas Davenport
Characteristics:
A specific sequencing of work activities across time
and place
A beginning and an end
Clearly defined inputs and outputs
Customer-focus
How the work is done
Process ownership
Measurable and meaningful performance
Minder Chen, 1993-2011
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Processes Are Often Cross Functional Areas
"Manage the white space on the organization chart!"
Customer/
Markets
Needs
CEO
Supplier
M a r k e tin g
& S a le s
P u rc h a s e
P r o d u c t io n
D is t r ib u t io n
A c c o u n tin g
"We cannot improve or measure the performance of a
hierarchical structure. But, we can increase output quality
and customer satisfaction, as well as reduce the cost and
cycle time of a process to improve it."
Minder Chen, 1993-2011
Value-added
Products/
Services to
Customers
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BPR Examples
Ford: Accounts Payable
Mutual Benefit Life: New Life Insurance Policy
Application
Capital Holding Co.: Customer Service Process
Taco Bell: Company-wide BPR
Others
Minder Chen, 1993-2011
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Ford Accounts Payable Process*
Purchasing
Purchasing
Vendor
Vendor
Purchase order
Receiving
Receiving
Goods
Copy of
purchase
order
Accounts
Accounts
Payable
Payable
Receiving
document
Invoice
?
PO = Receiving Doc. = Invoice
Minder Chen, 1993-2011
Payment
*Source: Adapted from Hammer and
Champy, 1993
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Trigger for Fords AP Reengineering
Mazda only uses 1/5 personnel to do the same AP.
(Ford: 500; Mazda: 5)
When goods arrive at the loading dock at Mazda:
Use bar-code reader is used to read delivery data.
Inventory data are updated.
Production schedules may be rescheduled if
necessary.
Send electronic payment to the supplier.
Minder Chen, 1993-2011
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Ford
Purchasing
Purchasing
Procurement
Process
Vendor
Vendor
Purchase order
Receiving
Receiving
Goods
Purchase
order
Goods
received
Data base
Accounts
Accounts
Payable
Payable
Payment
Minder Chen, 1993-2011
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Ford Accounts Payable
Before
Before
More than 500 accounts payable clerks matched
purchase order, receiving documents, and invoices and
then issued payment.
It was slow and cumbersome.
Mismatches were common.
After
After
Reengineer procurement instead of AP process.
The new process cuts head count in AP by 75%.
Invoices are eliminated.
Matching is computerized.
Accuracy is improved.
Minder Chen, 1993-2011
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New Life Insurance Policy Application Process at
Mutual Benefits Life Before Reengineering*
Department A
Step 1
Issuance
Application
Department A
Step 2
....
Mutual Benefits Life Before Reengineering*
Issuance
Policy
Department E
Step 19
30 steps, 5 departments, 19 persons
Issuance application processing cycle time:
24 hours minimum;
average 22 days
only 17 minutes in actually processing the application
*Source: Adapted from Rethinking the Corporate Workplace: Case Manager at
Mutual Benefit Life, Harvard Business School case 9-492-015, 1991.
Minder Chen, 1993-2011
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The New Life Insurance Policy Application Process
Handled by Case Managers
Mainframe
Physician
Underwriter
LAN
Server
Case Manager
PC
Workstation
Minder Chen, 1993-2011
application processing cycle time:
4 hours
minimum; 2-5 days average
Application handling capacity double
Cut 100 field office positions
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Capital Holding Co. - Direct Response
Group*
A direct marketer of insurance-life, health, property, and
casualty-via television, telephone, and direct mail.
In 1988, DRG president Norm Phelps and other senior
executives decided that for our company, the days of mass
marketing were over.
Need to strengthen DRG's relationships with existing customers
and target our marketing to those potential customers whose
profiles matched specific company strategies.
A new vision for DRG: The company needed to be exactly what
most people didn't expect it to be an insurance company that
cares about its customers and wants to give them the best
possible value for their premium dollar.
*Source: Adapted from Capital Holding Corporation-Reengineering the
Direct Response Group, Harvard Business School case 192-001, 1992.
Minder Chen, 1993-2011
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Capital Holding Co.: Vision
Caring,
Caring, Listening,
Listening, Satisfying...
Satisfying... one
one by
by one
one
Each of us is devoted to satisfying the financial concerns
of every member of our customer family by:
Deeply caring about and understanding each members
unique financial concerns.
Providing value through products and services that
meet each members financial concerns.
Responding with the clear information, personal
attention and respect to which each member is entitled.
Nurturing an enduring relationship that earns each
members loyalty and recommendation.
Minder Chen, 1993-2011
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New Business Model: A Conceptual Breakthrough
Market Management
Target & Segment
of Aggregate Market
Use Group
Information
I Think I Know.
Use Individual
Information
Prospects
&
Customers
Capture Individual
Information
I Know for Sure.
Sell &
Renew
Personalized
Service
Minder Chen, 1993-2011
Customer Management
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A High-Level Service Process Model Today
Increase my A&H coverage
Give me information about my Life Policy beneficiaries
CSR
Customer
Life
Corres.
A&H
MicroPolicy film
Change
Action
Request
Whats your
policy #s?
Data
Entry
System
Customer
receives
two separate
responses
Input
Requested
Change
Day 2
Day 5
Action
Challis 3 Request
Lettershop
Day 8
A&H change
confirmation letter
mailed to customer
Day 6
Day 1
Life 70
Micro-film
Response
Minder Chen, 1993-2011
Micro-film
Request
Day 5
System
Update
Day 6
(Batch)
Life Policy
beneficiaries letter
mailed to customer
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Customer Management Team (CMT):
A Flavor of How DRG Service Process Will Change
Increase my A&H coverage
Give me information about my
Life Policy beneficiaries
CMT:
System:
Teleservice
Representative
Customer
Client-server
architecture
Day 1
Day 1
Answers
Immediate
Response to
Customer
Day 1-2
Day 3-4
Send written
acknowledgment
Minder Chen, 1993-2011
Outbound
Paper
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Taco Bell*
We were going backwards - fast ... If
something was simple, we made it complex. If
it was hard, we figured out a way to make it
impossible. - Taco Bell CEO, John E. Martin
Customer buy for $1 are worth about 25 cents.
75 cents goes into marketing, advertising, and
overhead.
Reengineering from the customers point of
view. Are customer willing to pay for these
value-added activities?
*Source: Adapted from Hammer and Champy, 1993
Minder Chen, 1993-2011
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Taco Bell
Corporate Vision: We want to be number one in
share of stomach.
Slashed kitchen:
Kitchens : Seating capacity
70% : 30%
30% : 70%
Eliminate district managers. Restaurant managers are
given profit-and-loss responsibility.
Moving cooking of meat and bean outside.
Boost peak serving capacity at average restaurant from
$400 an hour to $1,500 a hour.
$500 millions regional company in 1982 to $3 billion
national company in 1992.
Minder Chen, 1993-2011
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Reengineering Example
Cash Lane
No more than
10 items
Which line is
shorter and
faster?
Minder Chen, 1993-2011
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Reengineered Process
Key Concept:
Minder Chen, 1993-2011
One queue for multiple
service points
Multiple services
workstation
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BPR Principles
Organize around outcomes, not tasks.
Have those who use the output of the process
perform the process.
Subsume information-processing work into the
real work that produces the information.
Treat geographically dispersed resources as
though they were centralized.
Link parallel activities instead of integrating their
results.
Put decision points where the work is performed
and build controls into the process.
Capture information once and at the source.
Source: Michael Hammer, Reengineering Work: Dont Automate, Obliterate,
Harvard Business Review, July-August, 1990, pp. 104-112.
Minder Chen, 1993-2011
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Minder Chen, 1993-2011
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A BPR Framework
Technology
Organization
Job skills
Structures
Reward
Values
Enabling technologies
IS architectures
Methods and tools
IS organizations
Process
Minder Chen, 1993-2011
Core business processes
Value-added
Customer-focus
Innovation
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Business Process Reengineering Life Cycle
Define corporate visions
and business goals
Identify business
processes to be
reengineered
BPR-LC
Visioning
Enterprise-wide engineering
Identifying
Analyze and measure
an existing process
Analyzing
Identify enabling IT &
generate alternative
process redesigns
Redesigning
Evaluate and select
a process redesign
Process-specific
engineering
Evaluating
Implement the
reengineered
process
Implementing
Continuous
improvement of the
process
Improving
Manage change and stakeholder interests
Minder Chen, 1993-2011
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TI Semiconductor Business Process Map
Customer
CustomerCommunication
Communication
Market
Customers
Concept
Development
Manufacturing
Strategy
Development
Product
Development
Customer
Design &
Support
Order
Fulfillment
Manufacturing Capability Development
Source: Adapted from Hammer and Champy, 1993, p. 119.
Minder Chen, 1993-2011
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Using Value Chain to Identify High-Level Processes
Corporate Infrastructure
Human Resource Management
Supporting
Activity
Technology Deployment
Procurement
Primary
Activity
Inbound
Outbound
Operation
Logistic
Logistic
Minder Chen, 1993-2011
Sales
and
Marketing
Added
Value
Service
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Criteria for Selecting Processes
Broken
Bottleneck
Cross-functional or cross-organizational units
Core processes that have high impacts
Front-line and customer serving - the moment of the
truth
Value-adding
New processes and services
Feasible
Minder Chen, 1993-2011
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Process Data
Basic Overall process data:
Customers and customer requirements
Suppliers and suppliers qualifications
Breakthrough goals
Performance characteristics: Cost, cycle time, reliability,
and defect rate.
Systems constraints: Budgetary, business, legal, social,
environmental, and safety issues and constraints.
Measure critical process metrics
Cycle time
Cost
Input quality
Output quality
Frequency and distribution of inputs
Minder Chen, 1993-2011
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Phase 4: Redesigning
Identify
Identify enabling
enabling IT
IT &
& generate
generate
alternative
alternative process
process redesigns
redesigns
How can business
processes be
transformed using IT?
Business
Business
Reengineering
Reengineering
Business-pulled
Technology-driven
Information
Information
Technology
Technology
How can IT support
business processes?
Source: Thomas H. Davenport and James E. Short, The New Industrial Engineering: Information technology and
Business Process Redesign, Sloan Management Review, Summer 1990, pp. 11-26.
Minder Chen, 1993-2011
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Evaluation Criteria
Costs
Design and implementing the business process
Hire and train employee
Develop supporting IS
Purchase of other equipment and facilities
Benefits
Customer requirements
Breakthrough goals
Performance criteria
Constraints
Risk
Technology availability and maturity
Time required for design and implementation
Learning curve
Cost and schedule overrun
Minder Chen, 1993-2011
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Enabling IT to Consider
Client/server technology
Groupware and collaboration technologies
Mobile computing (wireless LAN, pen-based computing, GPS, iPhone)
Data capturing technology (scanner/barcode reader/RFID)
Telephony: Integration of computer and telephone systems; VoIP; Unified
communications
Web services and Service-Oriented Architecture (SOA)
Imaging technology, work flow management systems, Business Process
Management (BPM)
Decision support systems, Data warehouse, Business intelligence, Data
mining, Digital dashboard
ERP, CRM, SCM
Electronic Data Interchange (EDI), Electronic Commerce, WWW, and Internet
Web 2.0 .
Minder Chen, 1993-2011
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IT Enabling Effects
Dimensions & Type
Examples
IT Enabling Effects
Organization Entity
Interorganizational
Order from a supplier
Lower transaction costs
Eliminate intermediaries
Interfunctional
Develop a new product
Work across geography
Greater concurrency
Interpersonal
Approve a bank loan
Integrate role and task
Manufacture a product
Increase outcome flexibility
Control process
Prepare a proposal
Routinize complex decision
Activities
Operational
Fill a customer order
Reduce time and costs
Increase output quality
Develop a budget
Improve analysis
Increase participation
Objects
Physical
Informational
Managerial
Adapted from: Davenport, T. H. and Short, J. E., "The New Industrial Engineering: Information Technology and Business Process
Redesign," Sloan Management Review, Summer 1990, p. 17.
Minder Chen, 1993-2011
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End-to-End Processes
Customer
Account
Receivable
Marketing/
Sales
Shipping
Manufacturing
Minder Chen, 1993-2011
Inventory Mgmt.
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Order Management Cycle
1.
2.
3.
4.
5.
6.
7.
Order Planning
Order Generation
Cost estimation and pricing
Order receipt and entry
Order selection and prioritization
Scheduling
Fulfillment
Procurement
Manufacturing
Assembling
Testing
Shipping
Installation
8. Billing
9. Returns and Claims
10. Postsales Services
Minder Chen, 1993-2011
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Empowered Customer-Focus Processes
Manager as Coach
Teamwork
Empowered
Font-line
worker
Minder Chen, 1993-2011
Customer-facing Process
Values and Quality
delivered to
Customers timely
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Think from the Customer Back
The
TheCustomer
Customer
Define
Outcomes
Redesign
Outputs
Activities/Tasks
Functions/Processes
Organization
Determine
Activities
Define
Job Responsibilities
Management
* Adapted from The Price
Waterhouse Change
Integration Team, Better
Change, Irwin, 1995, p. 163.
Minder Chen, 1993-2011
Develop
Organization Structure
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The Business Context of Business Networking
Share:
Costs
Skills
Market access
Technology
Virtual
VirtualEnterprising
Enterprising
Suppliers/
Partner
N
Company
C
Customer
C
Customer's
Customer
Competitor
N: Needs and Perceived Needs
C: Capabilities
Source: Adapted from Charles M. Savage, "The Dawn of the Knowledge Era," OR/MS Today, pp. 18-23.
Minder Chen, 1993-2011
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Standard Flowchart Symbols
Activity
Delay
Annotation
Direction of
process flow
Movement/
Transportation
Storage
Connector
Transmission
Decision Point
Begin/End
Paper
document
Minder Chen, 1993-2011
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Functional Flowchart (Process Mapping)
Customer
Begin
Credit
Checking
Customer
Service
1
Enter
Order
Inventory Shipping
1
2
3
4
...
Check
Credit
No
Yes
Order
Processing
A
C
T
I
V
I
T
Y
P
R
O
C
E
S
S
C
Y
C
L
E
1
0.1
0.2
...
1
4
1
...
Update
Inventory
Wait for
shipping
End
Minder Chen, 1993-2011
Ship
order
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Workflows, Data Flows, and Physical Flows
OLTP
Database
Process
order
Allocate
inventory
Customer
Warehouse
Legend:
Account Receivable
Ship
order
Billing
Actual flow of information (i.e., data flow)
Logical flow of operational data (i.e., workflow)
Flow of physical objects
Receive
payment
Money flow
Minder Chen, 1993-2011
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Islands of Automation & Fragmented Processes
Order
processing
IBM/MVS
DB2
Inventory
management
UNIX
Informix
Shipping &
distribution
Accounts
Receivable
Minder Chen, 1993-2011
Windows/NT
SQL Server
Netware
Oracle
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Flow of Problem Tracing vs. Data Flow
Order processing
Shipping &
distribution
Flow of Problem Tracing
Data Flow
Inventory
management
Accounts
Receivable
Minder Chen, 1993-2011
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Front-End Integration
Front-end integration:
A single-system view of
the process and the
customer
Order processing
Inventory
management
Shipping &
distribution
Process Owner
Front-line Worker
Minder Chen, 1993-2011
Accounts
Receivable
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The Reengineering Diamond
Customers &
Suppliers
Foster
Enlighten
Business
Business
Processes
Processes
&&Functions
Functions
Customers
&
Info. Tech.
Entail
Culture
Minder Chen, 1993-2011
Competitors
Values
Valuesand
and
Beliefs
Beliefs
Management
Management&&
Measurement
Measurement
Systems
Systems
Demand
Jobs
Jobs, ,Skills,
Skills,&&
Organizational
Organizational
Structures
Structures
Markets
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