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Ch.5. Information Technology and Changing Business Processes

Managing and Using Information Systems: A Strategic Approach

by Keri PearlsonPowerPoint Slides prepared by Gene Mesher

Copyright © 2001 John Wiley & Sons, Inc.

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Copyright John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. Adopters of the textbook are granted permission to make back-up copies for their own use only, to make copies for distribution to students of the course the textbook is used in, and to modify this material to best suit their instructional needs. Under no circumstances can copies be made for resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

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IntroductionChapter 5 enables a manager to understand

how IT enables business change. The chapter looks at:

Change management. The need for increased speed of change in

order to stay competitive. Business Process Reengineering (BPR)

and Total Quality Management (TQM) as tools to support changes in business processes.

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BUSINESS PROCESS PERSPECTIVE

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Transforming business processesTwo popular concepts for transforming

business are: Reengineering or radical process

improvement And incremental or continuous process

improvement often discussed in the context of Total Quality Management (TQM).

Both view business as a set of processes rather than a functional hierarchy.

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Hierarchical Business Structure

A common view of a firm is as a hierarchy organized around a set of functions (see Fig. 5.1)

Each group has a core competency which it concentrates on.

Functional groups within a firm tend to complete their portion of a process and “throw it over the wall” to the next group in the value chain.

This can lower effectiveness, because of the “inward-looking” focus of each functional group.

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Figure 5.1 Hierarchical Structure

Executive OfficesCEO

President

marketingoperations accounting finance administration

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Limits to functionally organized organizations

Functionally organized firms tend to perform sub-optimally for three reasons: Individual departments duplicate

information maintained elsewhere. Communications gaps often exist

between functional groups. Functional structure tends to become

ingrained, inhibiting reorganization.

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Managing from a business process perspective

Functional organization tends to result in lower performance,

As a consequence managers may take a business process perspective on value creation.

Each business processes includes the following: A beginning and an end Inputs and outputs Subprocesses that turn inputs into outputs A set of metrics for measuring effectiveness

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Typical business processes

Examples of business processes include: customer order fulfillment, manufacturing planning and execution, payroll, financial reporting and procurement

A typical procurement example is shown in Figure 5.2.

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Figure 5.2 Simple business process

Receive requirementfor goods/services

Create and send

purchaseorder

Receivegoods

Verifyinvoice

Pay vendor

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Processes cross functional lines

Processes, such as the procurement example shown in the last slide, cut across functional lines.

For example, requirements for goods might originate in the operations department but be based on guidelines from the finance department.

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Processes help focus on business goalsBy cutting across functions, processes

focus efforts towards business goals.In Figure 5.3, the vertical bars represent

functional departments within a business while the horizontal bars represent processes that flow across departments.

Focusing on process gets departmental workers to think “outside the functional box” and look beyond their boundaries towards working together to optimize business goals.

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Figure 5.3 Cross-functional nature of business processes

OPERATIONS

MARKETING

ACCOUNTING

FINANCE

ADMIN

BusinessProcesses

Functions

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Optimizing valueTaking a process perspective begins to

optimize the value that customers and stakeholders receive.

A process focus creates value by: Identifying the customers of processes Identifying these customers requirements Clarifying the value that each process adds

to the overall goals of the organizationProcess-oriented managers also become

change agents, helping others think about how IS and organizational strategies support overall business strategy (Figure 5.4).

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Fig. 5.4 The Information Systems Strategy Triangle

Business Strategy

OrganizationalStrategy

InformationStrategy

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THE TOOLS FOR CHANGE

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Radical vs. Incremental Change

Two broad categories of process improvement techniques are now in use: Total Quality Management through

which processes are improved through small steps and

Business Process Reengineering which involves the more radical approach of systematically redesigning a business process.

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Total Quality Management (TQM)Process improvement through a series of

small, incremental steps. Typically: Choosing a business process to improve Using a metric to measure the business

process Enabling those involved in the process to find

ways to improve it according to the metricPersonnel often react favorably to TQM

because it lets them “own” improvements.TQM works well for tweaking existing

processes, but less well when more radical change is required.

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Business Process Reengineering (BPR)Goal is to fundamentally rethink and

redesign business processes to achieve radical improvements.

Key aspects of BPR include: The need for radical change A cross-functional process perspective Challenging old assumptions Networked (cross-functional) organizing Empowerment of individuals involved in

the process Use of metrics tied directly to business

goals

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Methods for Implementing BPRMany approaches exist, but all have three

elements in common: They begin with a vision of performance

metrics that best the success of overall business strategy

They make changes to the existing process They measure the results using

predetermined metrics.This is shown in Figure 5.6. Each new process

is envisioned, the change is designed and implemented, and the impact is measured.

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Figure 5.6 Conceptual flow of process redesign

Vision Measure

Change

Current Process New Process

Transition Methodology

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Preparing for Business Process Redesign (Figure 5.7)

These preliminary steps are generally followed at the beginning of process redesign:

1. State the case for action. This means identifying what it is about current conditions that is unfavorable and how to change processes to make improvements.

2. Assess organizational readiness for change.3. Identify those business processes that should

be changed to better support business strategy.4. Build the redesign team.

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Figure 5.7 Method for redesigning a business process

Set the Stage, Develop Vision

of “To Be”

Understand“As Is”

(Current) Process

DevelopTransition

Plan

ImplementPlan

Monitor andMeasure

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Mapping the “as is” process

The best approach to fully understanding the existing process is to map it.

Process engineers begin process mapping by defining the scope, mission and boundaries of the process

Next, the engineer will develop a high-level flowchart of the process.

Next, he/she develops a detailed flow diagram of everything that happens in the process.

Finally the flow chart is rechecked for accuracy.

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Identifying Key MetricsAs part of understanding the “as is”

process, another key task is to identify key metrics of business success.

Examples of such metrics include: Cost of production, Cycle time, Scrap and rework rates, Customer satisfaction, Revenues and Quality

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Developing a transition plan

The transition plan should: Clearly and concretely state the vision

the manager has for the new process. Include an initial design of the new

process that directly addresses the metrics that address business goals.

The transition plan should include the contents of the implementation plan.

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Steps in a new process implementation plan An overview of the existing business process Names of the members of the improvement team Symptoms, problems and opportunities to be

addressed by the change The vision, objectives and case for action for the

new processes An overview of the redesign methodology An analysis detailing the risks of transition The new process design A schedule and a list of deliverables Resources that the transition will require Signatures of personnel who own the transition

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Enterprise Information Systems

An enterprise system is a comprehensive software package that incorporates all modules needed to run the operations of a business.

It should include the following modules: Manufacturing Accounting Human resources Sales

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Popularity of Enterprise Systems

Enterprise systems were designed to help large companies deal with their highly fragmented array of information systems involving numerous desktop, departmental and business unit computers.

Implementing an EIS became, in effect, a form of business process redesign which reorganized a corporations business processes along with reorganizing its computing infrastructure.

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Examples of Enterprise Systems

The most widely used enterprise system is offer by a German company, SAP.

Among many competing products are those produced by PeopleSoft, Baan and Oracle.

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Benefits of Enterprise Systems In an enterprise system, all information system

modules communicate with each other, offering enormous efficiencies over stand-alone systems.

For example, manufacturing and accounting may keep their own vendor records and these accounts are kept in somewhat different form.

Implementing an EIS will also require that business processes be redesigned to achieve optimal performance of the integrated modules.

The EIS has some flexibility as well, since, once developed it is a relatively simple matter to change parameters in a process.

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When an EIS is appropriate

Situations in which it is appropriate for an EIS to drive business process design include: When an organization is just starting out

and processes do not yet exist. When an organization doesn’t rely on its

operational business processes as a source of competitive advantage.

When current systems are in crisis and there is not enough time, resources or knowledge in the firm to fix them.

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When an EIS is inappropriate

Situations in which it is appropriate for an EIS to drive business process design include:

When an organization derives strategic advantage from its operational business processes

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FOOD FOR THOUGHT: REVOLUTIONARY DESIGN BUT EVOLUTIONARY IMPLEMENTATION

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Reengineering failures

Many companies have attempted reengineering, only to fail to realize the benefits they sought.

Radical change is not an easy task. Some of the more common reasons

are summarized in Figure 5.8 In general, many companies find that

too much change too quickly can do more harm than good.

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Figure 5.8 Reasons reengineering fails to meet objectives

Lack of senior management support at the right time and at the right places

Lack of a coherent communications program Introducing unnecessary complexity into the

new process designUnderestimating the amount of effort

needed to redesign and implement the new processes

Combining reengineering with downsizing

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Radical design with evolutionary implementationA common approach is to design a radical new

process but implement it gradually.“Evolutionary implementation”:

Reduces the risk of failure Eases adaptation of new processes and Lets individual workers to participate more

fully.Two problems with this approach are that

workers may lose sight of the goal and the target may be moving so that the process, once implemented, no longer meets the firm’s strategic needs.

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When revolutionary implementation makes sense

Revolutionary implementation works for organizations under certain conditions: The change will occur in a small, self-

contained unit; A real performance crisis exists and The organization can devote extensive

resources to the implementation.If these conditions are lack, there is a

higher risk of failure with a radical implementation plan.

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End of Chapter 5