IT As a Business Process Enabler

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IT As a Business Process Enabler
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Reengineering/RedesignA Clean Sheet of Paper
The fundamental rethinking and radical redesign
of business processes to achieve dramatic
improvements in critical contemporary measures of
performance such as cost, quality, service and
speed.
Reengineering the Corporation, Hammer and Champy,
Harper Business (1993)
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Classic Business Reengineering Principles (BPR)
IT is a critical enabler

• Organize around outcomes, not tasks
• Have output users do the process
• Treat geographically dispersed resources as
  though they were local
• Link parallel activities instead of trying to
  integrate separate outputs
• Put decision points where the work is done and
  build control into the process
• Capture information once, and at the source

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BPR What happened?

• You should have read The Fad that Forgot People
  for this week
• Hyperlink on schedule on course web
• Well talk a little more about BPR
• The good stuff and the bad stuff
• Good lesson about business fads

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The Fad That Forgot People
Reengineering didnt start out as a code word for
mindless bloodshed. It wasnt supposed to be the
last gasp of Industrial Age management. I know
because I was there from the beginning. I was one
of the creators.
The Fad That Forgot People, Davenport, T.H., Fast
Company, November, 1995.
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BPR What happened?

• Started out as real people with real problems
• Ford Motor Co., Mutual Benefit Life, HP
• Synthesis of 3 concepts
• Information Technology
• Business processes
• Clean sheet of paper approach
• While companies did stuff, academics and
  consultants started to make models
• Davenport, Hammer Champy wrote bible articles
  and books

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The Feeding Frenzy

• Top managersbig-time consultantsIT vendors
  
• Early successes trumpted and coopted
• Projects labeled BPR to get support and funding
• People always looking for magic solutions
• Consultants packaged BPR services
• Big contracts
• Executives of buying companies needed to justify
  spent
• Layoffs quickest way to realize savings
• Had IT firms selling hardware, software, AND
  reengineering consulting

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Reality Bytes

• Massive layoffs labeled reengineering
• Alienation of good employees
• Treated as interchangeable cogs in corporate
  machine
• 25 yr old newly minted MBAs making 80K as BPR
  experts
• Major project failures
• Consultants start repositioning for next wave
• And keep selling BPR to rest of the world for a
  while

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The Good Stuff

• Focus on business processes
• IT only useful if it helps people do their work
• A Lesson The bigger the hype, the greater the
  chances of failure
• Techniques and tools of BPR can still be very
  useful
• focus on processes, modeling processes
• identification of value/non-value added
  activities
• clean sheet of paper mindset

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The Next Big Thing

• Remember the lessons of BPR
• Dont drop all your current approaches for the
  handsome newcomer
• Dont listen to the most charismatic advocates,
  listen to the most reasoned advocates
• Talk softly
• Carry a big ruler to measure real results

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Suppliers as Part of the Value ChainThe Pampers
Story

• WalMart and Procter Gamble
• Pampers bulky, low per space needed
• Original process
• WalMart maintained inventory at WalMart
  distribution center
• When stores low, filled from distn center
• When distribution center low, ordered from PG

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Suppliers as Part of the Value ChainThe Pampers
Story

• Inventory management a balancing act
• Costs
• Holding versus stock-out
• WM suggested PG should manage WMs distribution
  center Pampers inventory
• Daily stock movement from WM to PG
• PG told WM when and how much to order
• WM would approve and order would ship
• Over time, WM told PG to skip recommendation and
  just ship

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Suppliers as Part of the Value ChainThe Pampers
Story

• Benefits to WalMart
• Less inventory on hand for PG and fewer
  stock-outs
• Freed up capital for other investments
• PG reduced inventory management costs
• Process so efficient WM sells Pampers before
  theyve paid PG for them

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Suppliers as Part of the Value ChainThe Pampers
Story

• Benefits to PG
• PG becomes preferred supplier
• Improves demand management
• Consistent, predictable shipments to WM
• Simplifies accounts receivable process

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Adjusting the PriceYield Management

• A big deal in airlines, hotel industry
• Sell things at different prices to different
  customers
• Empty plane seats have 0 value after takeoff
• Segment market last minute vs. advance sale,
  business, tourist, etc.
• Dont want to
• Sell too many cheap seats to those who would
  pay more
• Have too few cheap seats and result in empty
  seats

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Improving Product Availability

• Online banking, mutual fund management
• Electronically linked retail stores
• We have that size at our Ann Arbor store.
• Analysis of consumer buying patterns
• Mass customization

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Mass Customization

• Dell, and many other, computer manufacturers
• Hallmark a failure
• Personal web portals

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Providing Better Service

• Using data for
• Capacity planning - Staffing call centers, check
  out lines, clinics
• Customer satisfaction, feedback
• OTIS Elevator
• Centralized repair dispatching
• 24/7, trained operators, repair history database
• Wireless communication
• Remote monitoring, communication with trapped
  passengers, traffic analysis and reporting

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IT Impact - Automational
Eliminating human labor from a process
Example Automatic Call Distributor (ACD) use in
call centers.
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IT Impact - Informational
Capture process information for purpose of
understanding
Example Point of sale systems, manufacturing
data, package tracking systems, material handling
systems, black box on airplanes
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IT Impact - Sequential
Changing process sequence or enabling parallelism
Example Computer Aided Design (CAD) tools and
shared databases allowed design of new Boeing
aircraft to proceed in parallel with real time
conflict checking between different component
designs.
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IT Impact - Tracking
Closely monitoring process status and objects
Example Control system for pneumatic tube
systems and elevators
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IT Impact - Analytical
Improving analysis of information and decision
making

• 1 million telephone calls received/week
• software to automatically ID caller and predict
  reason for call
• picks 1 of 50 call routing options
• pulls and passes along 24 data elements
• predicts possible customer purchase (customer did
  NOT call to buy something)

Example Capital One credit card company
Fast Company - May 1999
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IT Impact - Geographical
Coordinating processes across distances
Example DiabetesWell (Fast Company 11/99)

• Physician created web based community for
  diabetes patients
• Subscribers (19.95/mo) get quarterly
  assessments, nutrition counseling,
  recommendations for medications
• All test results stored in database
• If you get the right data, you can manage
  diabetes.
• Significant decrease in hospitalizations, heart
  attacks

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IT Impact - Integrative
Coordination between tasks and processes
Example The patient Case Manager in a hospital
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IT Impact - Intellectual
Capturing and distributing intellectual assets
Example Ernst Youngs online portal,
knowledge management

• Hot topic
• Value of brainpower
• Free agent economy
• Labor shortage
• The knowledge worker

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IT Impact - Disintermediating
Eliminating intermediaries from a process
Example Online booking of airline tickets,
online stock transactions, ATM, online auctions
Self-scan, pay, bag process at Kroger