MB 10-01 : BUSINESS PROCESS RE-ENGINEERING 1.3

3. Explain the five step systematic approach to reengineering.

Stage 1 : Prepration

Company executives must recognize the need to re-engineer and develop a consensus. Goal need to be established by using "breakthrough thinking" related to revenue enhancement,profit or margins, market share or costs. Breakthrough thinking requires looking beyond established goals and procedures to achieve those goals using quantitative measurements.

Executatives also need to identify existing barriers that could thwart re-engineering efforts. Some can relate to cost, but that usually is not concern among executatives since many expect a return on the investment in the future. Other obstacles can relate to time,but installing deadlines does not necessarily guarantee success. Any risks to customers,employees and vendors and potential organizational barriers must identified during the first stage.

Executive then must develop a five to six-page change plan document that will serve as acontract to make sure that the re-engineering team knows what executives want to achieve. The team, in turn,should be trained on re-engineering methodlogy to achieve those goals.

Stage 2 : Identification

This is when team members identify important processes for the organization that,in turn will lead to identify processes that are strategic and of value to its customers.

In any re-engineering project, management should start with the shareholders needs. Generally, the organization's return on investment or dividends per share is established (in some situations,financial results are less important than their company's image and reputation). Management should look for trends ratther than absolute figures,because the latter could point out that a company is the best in its field yet failto indicate that its performance is on rapid downtrend. Trends must be compared with industry averages and with the results of the company's main competitors.

The financial diagnosis should then be complemented with a study of customer satisfaction. The following model is very useful in assessing customer satisfaction. It contains seven main characteristics that influences customer's decision.

Quality (Q)

Volume (V)

Administrative Procedures (A)

Location (L)

Image and Interrelations (I)

Time Factor (T)

Yield (Y)

The preceding factors spell "QVALITY". The totalquality diagnosis is a survey of present and potential customers that systematically examines these seven factors to find out what satisfies or dissatisfies customers and to what degree they value each factor.

When this two-part diagnosis of financial results and customer satisfaction is performed, the satisfaction of employees, managers and non managers is evaluated. The business process.which includes the mainstream process and many supporting processes,is also mapped out. The mainstream process includes:

1. All operations that are undertaken,from perceiving customers needs fullfilling these needs,receiving the final payment,servicing the product until the guarantee expires and replacing the product when the current one wears out,which starts the process again.
2. Management activities that ensure operations are carried out effectively,on time and minimum cost,including planning,organizing,directing and controlling.
3. Information systems that ensure operations and management activities are carried out completed effectively.

The support processes are those that allow the mainstream process to function effectively by supplying it with necessary information,personnel or training or capital and expenditures.

By mapping the mainstream and support processes, those that need correction,improvement or re-engineering can be more easily identified. Examination of seven "Qvality" factors identifies

1. The most frequent and/or most critical problems.
2. Late deliveries,which are classified by type of product,customer,area and period of the year.
3. Administrative problems, such as errors in billing,order entry and customer credit evalution or delays.

Next ,identified problems must be prioritized. The most critical and recurrent problem should be traced backed to specific activities or operations in the mainstream business process. At this point, this part of the process is thoroughly analyzed using problem-solving techniques.

Before scrapping the existing process entirely, management should study the possibility of improving it by eliminating unnecessary operations, combining or modifying other operations, having someone else perform an operation or having the operation performed elsewhere, at a different time or in a different sequences. If this preliminary investigation cost,it should be re-engineered. The re-engineering effort and its eventual direct impact are always closely linked with the end problem solved. This direct impact must translate into increased profitability for the organization and enhancement of whatever "QVALITY" factors.

Stage 3 : Vision

This involves understanding the process structure and how it flows within sthe organization. After identifying value-added activites, one needs to beanch mark performance,determine performance drivers and estimate the opportunity to achieve and integrate both the ideal internal and external vision.

Stage 4 : Solution

This stage is divided into two areas process design and social design. During the technical phaase, process linkage are re-examined, interfaces and information are consolidated,alternatives are redefined and controls are relocated and retimed prior to applying technology.

To facilitate process redesign, a set of process design rules keyed to cycle-time reduction should be developed. Activites that lengthen cycle time-rework,nonvalue-adding activites,poor or untimely performance feedback,handoffs of responsibility and overall complexity-are bad processes. It is estimated that cutting cycle times by 50% results in productivity increases of 20% to 70%.

Since fast-cycle companies have an easier time reaching to changes in the marketplace, they also greatly reduce their risks by relying on fast reactions rather than shaky,long term forecasts.

Process Design

Process design rules fall into one of two categories-golden rules and principles.

The Golden Rules are

1. Organize by product. Specialize in products rather than functions. Organizing processes by product allows a structure in which groups can work on product or service from start to finish,thereby reducing fragmentation and inflexibility.

2. Minimize the number of groups and individuals required to complete a product or service. This reduces the number of responsibility handoffs in the process and considerably the performance feedback loops.

3. Redesign the process flow,work-group structure and individual suties at the same time. All three factors must work together. Redesigning one or two is not desirable.

The Basic Principle are

1. Design around core activites.

2. Design for continuous flow of work.

3. Avoid required or formalized activites.

4. Combine steps.Integrate low-value steps into direct value steps.

5. Avoid intra-organizational dependencies and shared responsibilities.

6. Design activites to run in parallel paths.

7. Don't mix process types.

8. Locate individuals within a unit in close physical proximity.

9. Design work groups to be temporary.

10. Create more multi-skilled workers. Increase the scope of each job.

11. Give employees access to all the information they need to complete a product.

12. Enpower workers.

Social Design

Social design,the second aspect,is where human resources play a critical role in re- engineering . This involves the following tasks that focus on the human aspects of re- engineering ,that is, the employees who will affect corporate change :

1. Empower customer contact personnel.

2. Define jobs,teams and specify job changes.

3. Define skills and staffing needs.

4. Redraw organizational boundaries.

5. Design career paths.

6. Design and define incentives.

7. Plan,design implementation and change management program.

Stage 5 : Transformation

After completing the business system design,performing the process design and developing test and rollout plans,personnel must be evaluated before the new system is constructed. Training follows the new processes and piloted as part of the transition process. Continuous improvement follows but Manganelli cautions against thinking of re-engineering in term of continous improvements.