Business Transformation/ Business Process Reengineering October - December, 2016 (Lecture 1)
FORE School of Management Prof Raman Sethi & Vineeta Kumar
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA VINEETA KUMAR
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FORD MOTOR COMPANY
In the early 1980s, when the American Am erican automotive industry was in a depression, Ford’s Ford’s top management put accounts a ccounts payable - along with many other departments - under the microscope in search of ways to cut costs Accounts payable payable in North N orth America alone employed more than 500 people Ford was enthusiastic about its plan pl an to tighten accounts payable Until it looked at Mazda.
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA VINEETA KUMAR
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FORD MOTOR COMPANY
In the early 1980s, when the American Am erican automotive industry was in a depression, Ford’s Ford’s top management put accounts a ccounts payable - along with many other departments - under the microscope in search of ways to cut costs Accounts payable payable in North N orth America alone employed more than 500 people Ford was enthusiastic about its plan pl an to tighten accounts payable Until it looked at Mazda.
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA VINEETA KUMAR
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FORD MOTOR COMPANY
While Ford was aspiring to a 400-person department, Mazda’ Ma zda’ss accounts payable organization organization consisted of a total of 5 people The difference difference in absolute a bsolute numbers was astounding, and even after adjusting for Mazda’s smaller size Ford figured that its accounts payable organization organization was five f ive times the size it should be The Ford team knew better than to attribute the discrepancy dis crepancy to calisthenics, company songs, or low interest rates rates
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA VINEETA KUMAR
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FORD MOTOR COMPANY Background/Problems: Ford needed to review its procurement process to:
Do it cheaper (cut costs)
Do it faster (reduce turnaround times)
Do it better (reduce error rates)
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY
BUSINESS TRANSFORMATION – SEPT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY SYSTEM DRAWBACKS:
Ford’s accounts payable organization was performed by so many people The department spent most of its time on mismatches, instances where the purchase order, receiving document, and invoice disagreed In these cases, an accounts payable clerk would investigate the discrepancy, hold up payment, generate document, and all in gum up the works Its process was not efficient
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY SUGGESTED IMPROVEMENT
The management thought that by rationalizing processes and installing new computer systems, it could reduce the head counts
One way to improve things might have been to help the accounts payable clerk investigate more efficiently but a better choice was to prevent the mismatches in the first place
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY Possible Fix:
Automation would bring 20% saving but Ford chose not to Why?
technology needed to automate the process was not available? nobody could develop the technology to automate the process? not enough computers/computer-literate employees at Ford?
Correct answer: Mazda showed how to do it with 15 people!
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY SUGGESTED IMPROVEMENT
Ford instituted “invoiceless processing” Now when the purchasing department initiates an order, it enters the information into an on-line database It doesn’t send a copy of the purchase order to anyone. When the goods arrive at the receiving dock, the receiving clerk checks the database to see if they correspond to an outstanding purchase order If so, he or she accepts them and enters the transaction into the computer system. (If receiving can’t find a database entry for the received goods, it simply returns the order)
BUSINESS TRANSFORMATION – SEPT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY
Ford reengineered the process
Now it’s fast and efficient
The new process cuts head count in accounts payable by 75%
Eliminates invoices
Improves accuracy
Matching is computerized
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY CONCLUSION:
Ford discovered that reengineering only the accounts payable department was futile The appropriate focus of the effort was what might be called the goods acquisition process, which included purchasing and receiving as well as accounts payable When Ford reengineering its payables, receiving clerks on the dock had to learn to use computer terminals to check shipments, and they had to make decisions about whether to accept the goods
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY CONCLUSION:
Purchasing agents also had to assume new responsibilities-like making sure the purchase orders they entered into the databases had the correct information about where to send the check Attitudes towards vendors also had to change: vendors could no longer be seen as adversaries; they had to become partners in a shared business process
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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FORD MOTOR COMPANY CONCLUSION:
Vendors too had to adjust In many cases, invoices formed the basis of their accounting systems At one ford supplier adapted by continuing to print invoices, but instead of sending them to Ford threw them away, reconciling cash received against invoices never sent
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Example
Airline Ticketing history
Evolution
software
Inter globe
Amadeus
Galileo
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Environment - circumstances are continuously changing.
Power Sector Overview
The survival of any organization depends on its capacity to adapt to the changing environment
Political
Social
Economical
Technological
Legislative
Competitive
Cultural
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Challenges
Power Sector Overview
Organizations face challenges from:
Globalization
Deregulation
More competitors; lower margins
Oversupply of products; greater choice
Increased customer expectations
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The Three Types of Business Pressure Market Pressure: – The global economy and strong competition – The changing nature of the workforce – Powerful customers.
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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The Three Types of Business Pressure Technology Pressures: – Technological Innovation and Obsolescence – Information Overload.
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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The Three Types of Business Pressure Societal Pressure: – Social responsibility – Government regulation and Deregulation – Spending for social programs – Protection Against Terrorist Attacks. – Ethical Issues
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Necessary
Power Sector Overview
With this backdrop, it is essential for the organisation
to trim any flab
optimise its functioning
Fine tune all processes to achieve higher efficiency levels
Re-look into its business processes through
the entire value chain from production to consumers
other suppliers
market place
BUSINESS TRANSFORMATION – OCt– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Business Transformation
Power Sector Overview
Business Transformation is a proactive approach on behalf of the management to evaluate the opportunities to change, based on the strengths and weaknesses of the organization
Dramatic
Business Process re-engineering (BPR)
Continuous
Kaizen philosophy: Continuous incremental improvements
Six Sigma
TQM (Total Quality Management)
Today firms must seek not fractional, but multiplicative levels of improvement – 10x rather than 10%
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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BPR - Hammer and Champy
Power Sector Overview
BPR is the fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed.
Rather than organizing a firm into functional specialties (like production, accounting, marketing, etc.)
Look at the tasks that each function performs
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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BPR - Hammer and Champy
Power Sector Overview
Business Process Re-engineering or BPR is the analysis and redesign of workflow and processes within and between
Organizations
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Power Sector Overview
BPR Generic Circumstances that influence whether BPR is
advisable
Does the competition clearly outperform the company?
Are there many conflicts in the organization?
Is there an extremely high frequency of meetings?
Excessive use of non-structured communication? (memos, emails, etc) Is it possible to consider a more continuous approach of gradual, incremental improvements?
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Reengineering is not …….
Automation of existing ineffective processes
Sophisticated computerization of obsolete processes
Playing with organization structures
Downsizing – doing less with less Automation : use technology to automate the “AS IS” process to make it happen faster Effectiveness: To improve service and satisfy customer needs, while lowering costs
BUSINESS TRANSFORMATION – OCT– DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Power Sector Overview BPR involves an assessment of the business processes.
Focus
On whole processes
Streamlining of work processes
To shift people from non-thinking work to more productive activities Tackle more interesting, challenging work
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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BPR
Power Sector Overview
It is the examination and change of five basic business components:
• Strategy • Process • Technology • Organization • culture
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Power Sector Overview BPR involves an assessment of the business processes
A one-dimensional job (a task) will be eliminated, automated or rolled into a bigger process One-dimensional, repetitive work is exactly what computers, robots and other machines are best at And what human workers are poorly suited to and almost uniformly despise Managing a process instead of executing tasks makes all the difference to the work ethos
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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The essence of BPR is Transformation
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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A 4-Pronged Approach to Transformation Transforming Process • Eliminate • Simplify • Automate • Base on Trust • Integrate • Join Up • Legislate
Using Technology • Enterprise Architecture • Standards • Unified Databases • Unified Networks • SOA • Portals
Transforming Channels
Transformation
• Multiple Channels • 24x7 • Access • Common Service Centres • Mobile • Self-Service • Licensed Intermediaries
Transforming People
• •Training • Change Management • CRM skills • Consultation • Empowerment • Education • Awareness
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Case: PEPSI
• PepsiCo is a global food and beverage leader • Net revenues of more than $65 billion • A product portfolio that includes 22 brands that generate more than $1 billion each in annual retail sales. • Company owned and Franchisee owned model • 3 regions (earlier 4) • 38 beverage plants and 3 food plant
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Case: PEPSI
• Multiple branch and regional offices • Production: Bottling Plant • Distribution: Warehouse – Distributor – Retailer – Consumer • Deliver products and collect empty bottles • Collection: Distributor has to pay in advance • PEPSICO wants to remove the warehouses to free real estate and reduce costs • PEPSICO needs to know the impact of this move
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Case: PEPSI •
Production Process • The empty bottles are washed and sanitised • The filling line fills the bottles, caps them and prints the date on the neck • One line can only fill one product in one run • These are stored in a godown • Dispatched to the warehouse
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Case: PEPSI •
Distribution Process • Warehouse gets instructions from the region on the requirement of each distributor • Logistics makes a route plan • Trucks are loaded • Product is delivered to the distributor and empties collected
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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Case: PEPSI •
Financial collection • Distributor deposits a demand draft / cash at the regional office • Alternately sales agent collects the DD/ Cash • Distributor places an order for product requirement with the SA
BUSINESS TRANSFORMATION – OCT – DEC 2016 - PROF RAMAN SETHI & VINEETA KUMAR
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