IS5600 5

1
IS5600 - 5

• IT Based Organisational Transformation
• BPR and Organisational Structures

2
Business Process Re-engineering

• The fundamental rethinking and radical redesign
  of business processes to achieve dramatic
  improvements in critical, contemporary measures
  of performance....
• Hammer and Champy (1993)

3
A Generic Model for BPR
1. Develop Vision
Objectives

8. Ongoing Continuous

1
Improvement

2. Identify Process
8
for Redesign


2

7. Make New
Process
7

3. Understand
Operational

3

Measure
Existing
Process

6

4
6. Develop Support
5

4. Identify IT
Solutions

Levers


5. Pilot/Trial New
Process


4
IT as an Enabler of BPR

• 1. Automation Elimination of human labour
• 2. Informational Capturing/tracking process
  information
• 3. Sequential Changing process sequence, or
  enabling parallel processing
• 4. Analytical Improving analysis of information
  and decision making

5
IT as an Enabler of BPR

• 5. Geographical Coordinating processes across
  time and space
• 6. Integrating Coordination between tasks and
  processes
• 7. Learning Capturing and distributing
  intellectual assets
• 8. Disintermediating Eliminating intermediaries
  from a process

(adapted from Davenport, 1993)
6
Choosing the Processes to Re-engineer

• Symptom - Extensive information exchange, data
  redundancy, rekeying
• Disease - Arbitrary fragmentation of a natural
  process
• Symptom - Inventory, buffers, and other assets
• Disease - System slack to cope with uncertainty
  and mistakes
• Symptom - High ratio of checking and control to
  value-adding
• Disease - Fragmentation, confusion, and mistakes

7
Example AA Sabre 1970s

• Symptom Data redundancy, rekeying of data,
  double bookings, telephone calls to confirm seat
  availability
• Disease the process is fragmented across
  multiple systems, multiple technologies
• Solution - Sabre, a Reservation System for Travel
  Agents
• For all airlines, but AA flights came up first
• 50 of agents select 1st or 2nd choice on the
  screen
• What was the role of IT in coordinating
  integrating?

8
Example Freq Flier Progs 1990s

• Symptom Flights are not always full passengers
  fly based on cost, convenience.
• Disease (our) passengers are fragmented across
  multiple airlines
• Solution A Frequent Flier System
• For airlines in our team, with bonus points,
  check-in and luggage privileges, occasional
  upgrades
• If your airline is not part of a major team (e.g.
  Star Alliance, Sky Team, OneWorld, Asia Miles),
  then what?
• What was the role of IT here?

9
Example Outsourcing 2000s

• Symptom We lose money on packaging, logistics,
  even RD.
• Disease we are doing many things that are not
  our core competence
• Solution Stick to what we are best at and
  outsource everything else
• UPS/FedEx are no longer just transport companies.
• They do warehousing, logistics, customer delivery.

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Common IT Problems in BPR Projects

• 1. Team members unfamiliar with IT possibilities.
• 2. IT professionals not part of BPR teams.
• 3. IT people dont understand the business.
• 4. IT professionals not knowledgeable about how
  IT can support BPR.
• 5. IT consultants brought in too late to have any
  major impact on process redesign.
• 6. BPR team members too preoccupied with process
  analysis and redesign to explore IT applications.

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IT Lessons Learned

• IT is not a solution
• It must be applied sensitively
• IT-enabled BPR should be part of the corporate
  agenda
• IT people must be involved from the beginning
• But BPR is about business processes, so
• Business people should lead the effort
• Processes should be redesigned with IT in mind
• Targets should be realistic
• BPR is not trivial. It requires creative
  thinking.

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Getting Serious about BPR

• 1. What is likely to be the hardest part of
  reengineering for our company?
• 2. How can we develop our people so that they can
  do the jobs that re-engineering will create, and
  use the IT appropriately?
• 3. Are we prepared to adapt our HR policies to
  the needs of a reengineered environment?
• 4. How may we have to adapt our organizational
  structure for the aftermath of re-engineering?

13
Changes to the Organisational Structure

• The extension of organisational boundaries
• Including customers, suppliers partners
• Not just process redesign, but structural
  redesign
• X-engineering (BPR-II)(Champy, 2002)
• Realisation that success involves managing
  dependencies (with IT), and perhaps changing our
  culture

14
WalMart

• US4B investment in IT to develop the Retail
  Link private exchange
• All manufacturers/suppliers wishing to do
  business with WalMart must buy and use it
• Top 100 suppliers must use RFID as well.
• Huge cost advantage over competitors because
  they integrate with IT.

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But IT is not just for the big

• Anyone can leverage IT to their advantage
• IT is for both radical incremental change
• IT can be used to transform an industry
• IT can be used to drive up the competitive
  advantage of the traditionally small and weak.

16
Case TAL Group (talgroup.com)

• Founded in 1947, HQ in Hong Kong
• Turnover of US590M in 02/03
• 11 factories
• 23,000 employees
• 50M garments a year
• 78 of sales in the US market

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TALs IT Investments

• Integrating ERP SCM systems (US10M)
• End-to-end fully integrated system for
• Capacity planning
• Production scheduling
• Inventory management
• Raw material purchases
• Finished garment sales
• Extensive RD gt manufacturing patents

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Vendor Managed Inventory

• Persuade the customers (retailers) to let TAL
  control the Inventory Management.
• TAL is the sole supplier for those goods
• TAL has total control of inventory monitoring
  replenishment no more purchase orders
• TALs systems constantly monitor inventories at
  the store level
• Reduce stock levels (and wastage) On-demand
  production Rapid stock replacement

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From Linear and Sequential to Integrated and
Synchronised

• Traditional information flows are linear and
  sequential.
• Information quality degrades down the value chain
• Coordination problems are frequent
• TAL have an integrated synchronised hub
  arrangement
• This connects all their suppliers, customers and
  partners seamlessly and enforces mutual
  dependence.
• Collaboration information exchange are routine.

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A Sequential/Linear Value Chain for Apparel
Manufacturing and Retailing
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Service
Purchase receive raw materials (natural /
synthetic fibre, yarn, etc.)
Manufacture according to customer specs (cut
fibre, sew, buttonhole, iron)
Package ship to retailers warehouse
Manufacturer's Value Chain (TAL)
Retailers Value Chain (J.C. Penney)
Marketing, merchandizing, and selling to end
consumers
Receive consumer feedback for product
enhancement/ new product
Re-pack distribute to retail outlets
Perform inventory control, sales monitoring
forecast place replenishment orders
Purchase receive garment from manufacturer at
central warehouse
Lee et al., 2004
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An Integrated and Synchronized Value Network for
Apparel Manufacturing and Retailing
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Service
Monitor retail sales, replenish inventory, and
design new products
Select order raw materials according to sales
patterns new design requirements
Design product according to sales pattern
manufacture according to design specs
Distribute orders directly to customers retail
outlets
Perform test marketing of new products at retail
stores
Manufacturer's Value Chain (TAL)
Hub (shared data and processes)
Retailers Value Chain (J.C. Penney)
Focus on after-sales service to end consumers
Focus on marketing sales service to end
consumers
Streamlined product delivery vendor-managed
inventory at the store level
Lee et al., 2004
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Impacts?

• US2M in annual savings for J.C. Penney
• 35 increase in inventory turnover
• 19 increase in sales
• 5 increase in gross margin
• Reduced out of stock situations and zero local
  (warehouse) inventory

23
Implications?

• Radically transformed industry structure new
  rules of competition
• Much higher switching costs for customers.
• Access to real-time sales data at the store level
• Useful for TAL as it seeks new customers.

24
Lessons

• Innovation can be driven by a weak member
• Strong networks, manufacturing expertise
• Use IT to leverage strengths
• IT changes the value chain
• Develop an integrated and synchronised value
  network
• Shared data, systems, processes and performance
  indicators

25
Lessons for IT Based Org Change

• Top Management must be the change architects
• IT cannot transform an organisation IT enables
  transformation
• Enterprise-wide business-IT Partnerships are
  needed
• The pace of change must match the rate of
  acceptance
• Individual transformation is as important as
  organisational transformation
• Change champions must be diverse, yet work
  together
• Offshoring IT development sounds attractive, but
  it is not just an IT project.

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Consequences of Transformation

• Organisational culture and identity
• There will be pressure for change here too
• People who support the old way will feel left
  out, marginalised or discriminated against
• A new, more flexible set of cultural norms may be
  necessary
• Guided by new principles, new values, and
  perhaps new managers?
• A Culture of Blogging? The CEOs blog-desk?

27
The Value of IT?

• IT can enable transformation
• But IT is not cost-free
• The price is the price of change, the
  acceptability of change
• If management doesnt want change, then handle IT
  carefully
• IT is only IT, but IT enables people to do things
  that were previously impossible
• Even email can produce radical changes in
  organisations

28
The CEO as CIO

• What are the risks associated with the CEO also
  being the CIO?
• What kind of IT-related culture has ICICI
  developed?
• How much of a threat is ICICI going to be to more
  established, Western banks?
• Imagine you are an IT consultant. How would you
  try to persuade CEOs to make more of their IT
  investments?