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FindArticles / Business / Internal Auditor / June, 1995

Business process reengineering

by Marshall Romney
More Articles of Interest 7 tips for effective listening: productive listening does not occur naturally. It requires hard work and practice - Back To Basics - effective listening is a crucial skill for internal auditors The dropout dilemma: One in four college freshmen drop out. What is going on here? What does it take to stay in? America's most wanted j-o-b-s - 10 hottest employment opportunities Culture, leadership, and power: the keys to organizational change - includes bibliography Eyewitness to Tragedy: 50 Years Ago, A Nation Mourned Its Children It's not just a new twist on an old idea or the latest "bee in someone's bonnet," BPR is radical, revolutionary, and -- in most organization -- requisite. During the last decade, networks of powerful desktop computers, large data bases, and powerful software tools have become commonplace. Unfortunately, these technological advancements have not significantly increased the productivity of many workers because businesses have simply relied on computers to speed up existing business processes. To achieve productivity breakthroughs, organizations must abandon outdated business procedures, create entirely new ones, and combine the new work practices with technological improvements and significant changes in their organizational structure. This radical change is called business process reengineering (BPR). There are at least two reasons why internal auditors must understand the BPR process. First, internal auditors are often asked to help reengineer the business processes. They need to understand BPR concepts well enough to advise management and to help systems analysts design effective, efficient, and secure systems. Second, once the system is completely reengineered, internal auditors will have to assess the new system and develop new audit plans. Because of the significant changes to business processes and the use of the very latest in information technology, internal auditors may have to develop or adopt new tools and techniques to audit the reengineered system. * The Reengineering Process A business process is a task or activity that adds value to an organization. Reengineering is the thorough analysis, fundamental rethinking, and complete redesign of essential business processes. The intended result is a dramatic improvement in service, quality, speed, and cost. BPR focuses on why business processes are done rather than on the details of how they are done. It challenges organizational structures, rules, work flows, job descriptions, management procedures, controls, and organizational values and culture. It then completely reshapes organizational work practices and information flows to take advantage of technological advancements. The efficient and effective use of the latest in information systems technology is essential in

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reengineering efforts. For example, local area and wide area networks can connect users. Imaging technology allows users at different locations to work with the same documents and information at the same time. The knowledge and expertise of specialists can be captured and made available to others in the form of an expert system. With mobile computing, people can keep in constant communication with their organizations no matter where they are. Organizations benefit from BPR in three ways: cost savings, time savings, and reductions in defects. CSC Index, a company that specializes in BPR efforts, measured these aspects before and after helping 15 clients complete BPR efforts. They found that fundamentally changing a business process produced an average improvement of 48 percent in cost, 80 percent in time, and 60 percent in defects. Organizations have also measured the benefits they received. For example: * Citibank increased profits by over 750 percent by reengineering a credit analysis system. * A reengineering effort at CIGNA RE sped up document processing, even though the number of employees was reduced almost by half. * Kodak reduced the time required to develop a camera by more than half. Given the compelling benefits of a successful reengineering effort, it is not difficult to understand why so many companies are pushing reengineering efforts. For example, American Express is currently engaged in 57 different reengineering efforts, each of which is expected to save the company from half a million to fifty million dollars. CSC Index asked IS executives to specify their most pressing challenges for the coming year. In the last three years reengineering business processes led the list or were a strong second. The latest study shows that nearly 75 percent of the companies surveyed had a major BPR effort underway. * Seven BPR Principles Michael Hammer, co-author of Reengineering the Corporation: A Manifesto for Business Revolution and the father of reengineering, established seven principles that have guided many successful reengineering efforts: Organize around processes and outcomes, not tasks. Companies often divide business processes into individual tasks and assign them to different people. The documents used in the business process often wait for hours or days at each desktop as they are passed between the people involved in the process. Delphi Consulting Group estimates that up to 90 percent of the time needed to complete typical office tasks is a result of gathering and transferring paper documents. When a system is reengineered, the responsibility for an entire process is assigned to a single individual whenever possible. In reengineered systems each job is designed around an objective or an outcome, such as a completed process, rather than one of the tasks necessary to complete the process. Interdisciplinary teams that concentrate on completing a particular business process and adding value to customers often replace functional departments, such as accounting, manufacturing, and engineering. In the past, when salespersons at IBM Credit Corporation called with a request for financing, they reached one of fourteen employees who recorded the request. The request was forwarded through five different individuals who checked the customer's credit, determined the interest rate, and handled other procedures. It took six days to two weeks to complete all five steps. Since there was no way to track requests as they moved from desk to desk, sales representatives were unable to get an answer when they called to determine the status of a request. When a request was walked through the five steps, the company discovered that the actual work took only an hour and a half. IBM Credit reengineered the process and eliminated the five steps. Most applications are

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straightforward and one individual, called a deal structurer, uses a computer system to process an application from beginning to end. When complexities arise, the deal structurer can call on a small group of specialists. IBM Credit increased the number of applications it processes by 100-fold while reducing its head count slightly. Centralize and disperse data. Some companies centralize operations to achieve economies of scale. Others decentralize operations to be more responsive to their customers and to provide better service. With current technology, companies can have the advantages of both approaches: corporate-wide data bases centralize data, and telecommunications technology disburses it. Each of Hewlett-Packard's 50 manufacturing units had its own decentralized purchasing system. Although the systems served the needs of the individual units very well, HP was unable to negotiate quantity discounts based on its purchasing power. As part of its reengineering efforts, HP organized a corporate purchasing department that created a data base of approved vendors. HP now has the best elements of centralization and decentralization: each plant meets its needs by purchasing from the approved vendors, and the corporate office tracks purchases and negotiates quantity discounts; wins other concessions from vendors; and resolves problems with vendors. The result was a 75 percent reduction in failure rates, a 150 percent improvement in ontime deliveries, a significantly lower cost of goods purchased, and a 50 percent reduction in lead times. Capture data once, at its source. Many organizations have a number of separate information systems, such as an accounting system, a management information system, a marketing system, a production system, and so on. Each of these systems collects, enters, and processes some of the same information. Not only is this inefficient and expensive, but redundant data exists that all too often contains discrepancies. These problems can be solved by capturing data once, at its source, storing it in data bases, and making the data accessible to all authorized users. For example, data can be captured electronically at its source using bar codes and scanners. Alternatively, data can be entered directly into a system using electronic data interchange IEDI). This approach reduces errors and costs and eliminates data processing delays.

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