Panayiotou N.A., Gayialis S.P., Domenikos H., Ponis S. A STAGED BPR APPROACH DRIVEN BY ER INFORMATION TECHNOLOGY, SCMIS 2005, pp. 513-523
A STAGED BPR APPROACH DRIVEN BY ERP INFORMATION TECHNOLOGY Nikolaos A. Panayiotou *, Lecturer, National Technical University of Athens, School of Mechanical Engineering, Section of Industrial Mgt & Operational Research, 15780 Zografos, Tel. +302107721195, E-Mail:
[email protected] Sotiris P. Gayialis, Research Engineer, National Technical University of Athens, School of Mechanical Engineering, Section of Industrial Mgt & Operational Research, 15780 Zografos, Tel. +302107721339, E-Mail:
[email protected] Harry Domenikos, Director of Organization Development, Duty Free Shops, 23rd km of Athens-Lamia National Road, 14565 Ag. Stefanos, Tel. +302106269852, E-mail:
[email protected] Stavros T. Ponis, Research Engineer, National Technical University of Athens, School of Mechanical Engineering, Section of Industrial Mgt & Operational Research, 15780 Zografos, Tel. +302107722384, E-Mail:
[email protected] Abstract Business Process Reengineering (BPR) is a well-known buzzword heavily used by the Greek companies in the last decade. It refers to important organisational, technological and process changes affecting the whole organisation, trying to improve substantially its overall performance. The most usual approach for re-engineering in the last few years is ERP-driven BPR. In contrast with the pure BPR approach of the clean-cut design, the ERP-driven BPR is realised through the use of the selected ERP software and its functional specifications that impose a corresponding organisational and process transformation. This paper presents a case study of a hybrid BPR approach, combining the two contradictory approaches mentioned above. The case study of the staged BPR approach in a large Greek manufacturing company proved to be successful, strengthening the argument that such an approach can be helpful in the organisational transformation of other companies, reducing, in this way, the historically high percentage of unsuccessful introduction of enterprise information technology. Keywords: BPR, ERP Systems, BPI, Organisational Change, Case Study
1. Introduction Initiatives like Business Process Reengineering (BPR) and Enterprise Resource Planning (ERP) promised significant improvements in relatively short periods of time. Both got lot of attention and investments, provided huge benefits but not without difficulties, disruption and, sometimes, failures. As part of the change program, organisations need to take a critical look at their core business processes as processes are at the heart of every enterprise. It is the processes through which companies create value for their customers. Processes are central to both BPR and ERP. The critical question facing the organisations is what to do first: should the processes be reengineered first and then improved processes be automated or select from a “menu” of supposedly world class best practices offered by the ERP packages and avoid BPR altogether or reengineer them after implementing ERP? BPR is a discipline in which extensive research has been carried out and numerous methodologies churned out. According to Hammer and Champy [8], “Reengineering is 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”. BPR refers to important organisational, technological and process changes affecting the whole organisation, trying to improve substantially its overall performance. Due to the radical change involved in real BPR projects, the shock for the organisations undergoing such an initiative is so heavy that a long period is needed for achieving the expected benefits. The most usual approach for re-engineering in the last few years is ERP-driven BPR. In contrast with the pure BPR approach of the clean-cut design, the ERP-driven BPR is realised through the use of
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the selected ERP software and its functional specifications that impose a corresponding organisational and process transformation. The traditional Hammer (clean-cut) approach is resource-consuming and has proved to be ineffective in most cases of the Greek traditional market. The ERP-driven approach has proved more successful, however, the customisation of some organisations (especially of those with peculiarities in nature which in fact provide their competitive advantage in the market) in the mould of the ERP predefined (and difficultly changing) functions was not ideal, raising questions about its real benefits. This paper presents a case study of a hybrid BPR approach, combining the pure BPR and the ERP-driven BPR approaches as well. The benefits of the proposed approach can be found in the improved management of change in the organisation and the better planning of re-engineering, at the cost of the longer period needed for the realisation of the full BPR results. However, the risk of implementation becomes much lower and the potential benefits of change much more, as the organisation becomes quickly familiar with new practices and information technology advancement. The case study of the staged BPR approach in a large Greek manufacturing company proved to be successful, strengthening the argument that such an approach can be helpful in the organisational transformation of other companies, reducing, in this way, the historically high percentage of unsuccessful introduction of enterprise information technology.
2. Literature Review 2.1. Business Process Reengineering Business Process Reengineering (BPR) means the overhaul of organisational structures, management systems, employee responsibilities and performance measurements, incentive systems, skills development, and the use of information technology. BPR can potentially impact every aspect of how we conduct business. Successful BPR can result in enormous reductions in cost or cycle time. It can also potentially create substantial improvements in quality, customer service, or other business objectives. In 1990 and again in 1993, some definitive works were put forth by Michael Hammer, James Champy [8,9], and Thomas Davenport [3,4]. Hammer and Champy gathered information about organisations thriving in their respective industries, along with assorted management consulting experiences. They discovered that most of the companies that had succeeded in changing their processes had used a similar set of tools and tactics. They called this set of procedures Business Reengineering [8,9]. Thomas Davenport also performed research in this area, asking similar questions, through his work for Information Technology and Strategy. By examining companies that were redesigning processes, he gathered information on methods and practices which led to the successful implementation of what he called Process Innovation [4]. Although slightly different, both Business Reengineering and Process Innovation address the concept of redesigning how businesses perform strategic processes. In fact, both approaches shared a number of core activities. Because processes were at the heart of these management philosophies, the term Business Process Reengineering, or BPR, was adopted to describe these efforts. Since then, a large number of books, articles, seminars, workshops, and computer tools have been developed by academicians, management consultants, and software developers to help organizations actually perform BPR. According to most researchers in the BPR field, reengineering should focus on processes and not be limited to thinking about the organisations. After all, the organisation is only as effective as its processes [9,10]. Davenport and Short [3] define business process as “a set of logically related tasks performed to achieve a defined business outcome”. A process is “a structured, measured set of activities designed to produce a specified output for a particular customer or market. It implies a strong emphasis on how work is done within an organization” [4]. Processes have two important characteristics: a) They have customers (internal or external), b) They cross the organisational boundaries (they occur across or between organisational units). Due to the amount of potential change affecting people and their work environments, Business Reengineering projects are often accompanied by a considerable amount of resistance from the organisation`s members and outside forces. Additionally technical obstacles may prevent
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Business Reengineering implementation success. In the worst case the barriers to Business Reengineering implementation may cause a failure of the whole effort. High failure rates of Business Reengineering projects are reported at the literature: 70% by Champy [2] or even 80% by Schumann and Hoch [16]. Three primary reasons attributed to failing BPR efforts:
The lack of an adequate business case resulting in unclear, unreasonable, or unjustifiable expectations for what is wanted or expected to result from a BPR effort The absence of robust and reliable technology and methodologies for performing BPR so that there is a failing in executing BPR efforts An incomplete or inadequate implementation
2.2. BPR Methodologies Some of the most representative BPR methodologies in the literature, from the academic, consulting and user fields, are those of Hammer and Champy [9], Davenport [4], Manganelli and Klein [12] and Kodac Corporation [11]. Hammer and Champy [9] see poor management and unclear objectives as the main problems to Business Reengineering success. Only just recently they acknowledge people’s resistance as a major obstacle to Business Reengineering successful implementation [5]. Davenport puts Information Technology at the heart of Business Reengineering. For Davenport [3,4], Information Technology possesses the most important role for innovating Business Processes. Despite his emphasis on innovation and technology, Davenport states, that organisational and human resource issues are more central, than technology issues to the behaviour issues that must occur to within a business process. Manganelli and Klein [12] argue, to only concentrate on those Business Processes, that directly support the strategic goals of the company and customer requirements. Product development (a knowledge process) is such a preferred Business. They claim, Business Reengineering to be more successful than incremental change initiatives, which tend to fail more often. The international Kodak organization developed a Business Reengineering methodology that is being applied to Kodak facilities around the world [11]. Similar to other practitioner approaches, has the Kodak methodology been influenced by Hammer and Champy. The four representative methodologies assume, that Business Reengineering projects are typically not considered collaborative efforts, but rather top-down power driven projects. An overview of the previous mentioned methodologies, structured in three common phases that include the discrete steps of each one, is shown in Table 2.1. [15]. The comparison of the four selected methodologies shows many similarities. First, the overall approach Business Reengineering projects take is of a linear nature. Further, Business Reengineering projects take a similar route as Information Technology implementation projects. Within the three consecutive steps, the individual approaches differ in the scope of project preparation. Davenport asks for a complete preparation including visioning, whereas the other methodologies contrast by hands-on approaches right from the project start. Davenport, Manganelli and Klein and Kodak address the people side of Business Reengineering, but only as far as implementation issues are concerned. Phase 1: Project Preparation
Phase 2: Redesign of Processes
Phase 3: Implementation
Hammer and Champy (Consultants / Academics)
1. Introduction 2. Identification 3. Selection
4. Understanding 5. Redesign
6. Implementation
Davenport (Academic)
1. Visioning and Goal-setting 2. Identification
3. Understand and Measure 4. Information Technology
5. Prototyping 6. Implementation
Manganelli and Klein (Consultants)
1. Preparation 2. Identification
3. Process Vision 4a. Technical Design 4b. Social Design
5. Transformation
Kodak (Users)
1. Project Initiation 5. Change Management
2. Understanding 3. New Process Design 5. Change Management
4. Business Transition 5. Change Management
Table 2.1. Comparison of Selected Business Reengineering Methodologies
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2.3. BPR and Information Technology Business Reengineering combines the adoption of a process view and the application of advanced Information Technology (IT) in planned organizational change efforts. The literature on BPR and IT is extensive. Hammer [8] in a paradigm shift introduced a broader theme to the role and view of BPR, and also discussed the awareness or lack of it in the business community. While on the IT front, Davenport and Short [3] emphasise the need to incorporate IT into the actual business process redesign. In another contribution, Hammer and Champy [9] presents a number of high-profile case studies in which dramatic productivity improvements were achieved via the use of BPR and IT. It is possible to cite many other references that trumpet the benefits of deploying BPR with appropriate aid from IT, such as Caron et. al. [1] and Stoddard et. al. [17]. According to Sarker and Lee [14] the discussion about IT-enabled business process redesign leads to the following propositions:
Effective business process redesign can occur only if the redesigning is IT-driven. Effective business process redesign must occur if effective design of the enabling IT occurs. Where the necessary conditions for effective business process redesign are satisfied, and effective redesign occurs to some extent, the use of computerized tools for facilitating such redesign will have a positive moderating effect on the redesign’s effectiveness.
2.4. BPR and ERP A popular perception about BPR is that it is a means of streamlining the business processes. There exists a fundamental difference between streamlining a business process and reinventing it. Streamlining is an exercise, which results in making incremental changes to the current process to increase performance parameters. In the case of reinventing a process, the existing one is scrapped and a new one is created from scratch with a fresh look. Ideally, organisations should look at a continuum from streamlining to reinventing. Many reengineering efforts, especially those that are combined with the implementation of ERP packages are grouped somewhere in the middle of the continuum from streamlining to reinventing. As such the effort may be a combination of solving old problems and creative redesign of selected processes. According to the traditional approach, BPR & ERP were isolated activities. But, they are actually parallel activities and the organization should adopt the benefits of ERP solutions right through the BPR exercise. Companies have invested millions of dollars in developing information systems that are never used or are underused [13]. These information systems are not only bad investments, but resources have been wasted in developing or acquiring the information systems. The outcomes of software projects often deliver disappointing organisational results, even if the information systems work well technically. One explanation is that companies use technology to automate old, ineffective processes. Hammer [8] advocates that the power of modern information technology should be used to radically redesign business processes to achieve dramatic improvements in their performance. An alternative approach to the traditional software development methods is to implement enterprise resource planning (ERP) systems. ERP systems are integrated enterprise-wide systems, which automate core corporate activities such as manufacturing, human resources, finance and supply chain management. From a software perspective an ERP system is complete. From a business perspective, the software and the business processes need to be aligned which involves a mixture of business process design and software configuration. The focus of ERP projects is therefore much more on BPR activities than on more traditional systems development projects that still typically retain a high technical component. From case studies research, it is shown that ERP implementations have different types of problems compared with traditional software development methods. These centre on the alignment of business processes with the standard software package and the project management of the implementation process. ERP implementation requires a different approach
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that places less emphasis on the technical aspects of software development and instead seeks to balance the business process design, software configuration and project management aspects of IT implementation with the overall strategy and structure of the firm [7]. The importance of enterprise systems is emphasised by Davenport [6] who claims that: “While the rise of the Internet has received most of the media attention in recent years, the business world’s embrace of enterprise systems may in fact be the most important development in the corporate use of information technology in the 1990s” [6]. Enterprise systems (or ERP systems) promise the seamless integration of all the information flowing through an organisation [6]. Implementing ERP systems has become enormously popular among larger enterprises. Such systems promise to integrate large numbers of business processes, which then will boost organisational efficiency and productivity as well as management control over what is going on inside the organisations.
3. Methodological Approach The proposed methodological approach is a hybrid resulting from the combination of pure BPR and ERP-driven BPR, trying to take advantage of the benefits of both. The so-called by the authors ‘BPR & ERP-Driven BPI’ depicted in Figure 1, includes an initial business process reengineering before the ERP implementation, which can transform the organisation in strategic issues according to the corporate vision without the existence of external technical limitations. BPR is supported by a suitable ERP system and a ‘light’ BPR, or, more precisely, a final process alteration and improvement (BPI) takes place in order to complete the transformation of the organisation.
Business Business Process Process Reengineering Reengineering
ERP ERP Implementation Implementation
Business Business Process Process Reengineering Reengineering
ERP-Driven BPR
ERP ERP Implementation Implementation
Business Business Process Process Improvement Improvement
BPR & ERP-Driven BPI
1st Phase
Strategic Decision Making Business Processes Definition High Level BPR Definition of Responsibilities per Dept. Software Selection
2nd Phase Process Adjustment in the System Definition of Responsibilities per Role Continuous Process Improvement
Figure 1. ERP-Driven BPR vs BPR & ERP-Driven BPI
The proposed methodological approach can be analysed in four main stages and nine steps, which are depicted in Figure 2. This staged approach involves a first business process redesign, taking into account both the particularities of the company and the study of the functionality provided by different ERP vendors as well. Based on the results of the first redesign, the selection of the most appropriate ERP software (which is the one that can cover the strategic missions of the organisation, defined in the previous stage, at an acceptable cost) is realised and
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a final ERP-Driven BPI is taking place. In other words, the first phase of the proposed approach includes the important strategic decision-making by the Top Management and the business process definition and classification (in strategic, core and support). The high level BPR is based on these strategic choices and results in activity models of future operations with defined responsibilities for each department. The software selection of the ERP system is based on the new specific needs of the reengineered processes and the future software plays the role of the enabling technology. In the second phase of the approach, final adjustments in the processes are made, based on the capabilities and constraints of the new (existing) system and analytical activity models are developed with responsibilities defined for each specific organisational and information technology role. The informational, process and organisational system becomes the base for the future business process improvement leading to the desired evolution of the company.
Sta ge
dB
PR App roa c
h
Continuous Business Process Improvement New Needs Identification Final Business Process Redesign ERP Parameterisation ERP Software Selection Analytical Functional Specifications Initial Business Process Redesign Study of ERP Functionality Analysis of Existing Processes Figure 2. Stages of the Adopted BPR Approach
The application of the proposed approach will be further analysed in a real case study in the following paragraphs.
4. The Case Study for the Staged BPR Approach The staged BPR approach described in Chapter 3 was applied in a Greek large manufacturing company. The traditional operation of the manufacturing company during the past years focused on production volumes and high capacity utilization and prevented it from being customeroriented. The fierce competition of the last years and the maturity of the product in the market put high pressure on the company for strategic re-thinking and business process re-engineering. However, the nature of the industry and the peculiarities of the product called for the need of documenting the valuable knowledge the company attained during the forty years of its operation. Although business process reengineering was a prerequisite, some of the advantages of the existing operations should be included in the newly designed processes. The need for reengineering was perceived by the management as the only way forward in order to continue its successful operation for the years to come. Business Process Reengineering (BPR) was understood as a concept describing the collection of techniques that can be used to model existing and to develop new business processes. According to the Top Management’s point of view, a real BPR project should be organized around the business processes decreasing the functional/ departmental culture of the past. The recognized and expected outcomes of reengineering included all of the following:
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Integration of data to one single enterprise database, ensuring just one version of the truth Standardization of systems and processes across the whole organization Optimisation of the processes Time savings Cost reduction in operations Increased productivity Improved profitability Improved competitiveness Facilitation of a culture change within the organization Decrease of unnecessary interfaces Improved communications throughout the business Improved customer satisfaction by providing a more efficient and effective service Improved relationships with external stakeholders (customers, suppliers and other partners).
It could be understood that the former information systems (built around an IBM AS400) were not capable of supporting the future and ambitious objectives described above, so a new ERP system should be used as an enabler for the reengineering of the processes. A lot of thought was given for the approach that was most appropriate for the change. The most important peculiarities and/ or limitations recognized that should be taken into account were the following:
A large number of different but complementary product lines existed A lot of internal ‘customer’ relationships were recognised between different departments resulting in augmented requests for the Production Planning, the Costing and the Purchasing Departments The nature of the raw material made the production process difficult and the production planning ineffective The large variance of the final products (in dimensions, features combination and production techniques) led to a large number of material master records The importance of monitoring the inventory levels of raw material, work in process and final products was very high and also difficult due to the large number of material master records Different bills of materials and routings existed for most of the products produced by the company During the production process a large percentage of by– products & co - products existed The commercial activities of the company were complex including sales of different product families to different distribution networks with different terms and conditions.
The staged BPR approach described in the previous chapter was regarded to be the most preferable for the company, as it was offering enough time for the organisation to rethink its future position, to determine the necessary changes and to manage cultural resistance. The consensus created in all departments concerning the business processes offered the opportunity to continue with the technical issues connected with the implementation of the information system which could support the new and agreed business processes. The analysis of the existing processes was a prerequisite in order to collect the practises from all the organisational departments and obtain a reference base for future change actions. The changes were driven by the best practices recognised in the sector worldwide and the advance functionality provided by best-in-class ERP solutions having into mind that particular strategic practices providing a competitive advantage should be kept in the future. The agreed reengineered business processes enabled the definition of the appropriate functional specifications of the future ERP system and its easier selection according to the pre-defined needs. Such an approach decreased the risk of implementing an inappropriate solution and helped on the perfect fit of the enabling technology with the reengineered business processes, which are in line with the corporate strategic orientation. The six-month period, from the analysis of the existing software to the selection of the ERP system, was followed by a twelve-month period of implementation of the new ERP system. As it was expected from the beginning, some alterations of the business processes should be arranged under the light of the functionality offered by the selected ERP software.
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Table 1 includes the views documented throughout the BPR and ERP-Driven BPI project. It is important to comment on the fact that not all the views were covered in the different steps of the proposed approach due to the fact that not all of them were clear or necessary in every step. For example, the automatic or manual activities of the existing models were not really necessary. The same happened for the analytical process documentation of the existing system as this was going to change after the completion of the project. Similarly, the exact IT roles were not known in the BPR phase, before the introduction of the selected ERP system. View
st
Analysis
1 BPR
ERP-driven BPI
Activities
Automatic/ Manual Activities
Interfaces
IT Modules
Departmental Roles
IT Roles
Process Documentation
ERP Documentation
Information
Table 1. BPR & ERP-driven BPI Analysed Views The ERP system went live under schedule and no serious problems arose in the organisation. The transformation of the organisation was successful with minor change management issues. The completion of the ERP implementation did not mean that the evolution of the organisation would stop there. After a period of mastering the new system (process, organisational and informational), the organisation identified new improvement points and recognised future needs that should be covered through a continuous improvement scheme. This is exactly the notion adopted by continuous Business Process Improvement that was followed by the company. BPI signalled a number of new improvement projects in the organisation.
5. Conclusions and Further Work Business Process Reengineering has historically demonstrated high percentages of unsuccessful results in companies all over the world due to inability of the organisations to transform accordingly. ERP-driven BPR tried to make the organisational change easier, driven by technology, but it also demonstrated a lot of failure stories due to the fact that the companies were urged to transform into something that did not fit with their culture and their differentiated needs. The proposed ‘BPR & ERP-driven BPI’ showed positive signs for an organisation, mostly due to the following: The organisational change is based on the corporate strategy, its future vision, its peculiarities and history The basic strategic decisions are made before the introduction of the information system and decision making does not affect the ERP implementation The documentation of business processes and activities in all stages supports change and facilitates improvement The transformation of the organisation accompanied with the implementation of the enabling ERP system takes place in a rather short period of time (no more than one and a half year) The most suitable enabling technology is selected based on the real and the timely recognised functional requirements of the organisation after the first BPR phase The selection of the ERP system is easier as the company becomes familiar with IT functionality before the implementation The change management is smoother, minimising “culture shock” effects in the organisation The employees’ training in the new business processes is more efficient and knowledge remains within the boundaries of the company.
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The proposed staged approach can prove useful to companies that want to substantially change their business processes based on their pre-defined strategic plans. The additional cost of the initial BPR compensates the organisation later in the software selection and the ERP-driven BPI phases, as the appropriate functionality is implemented without risky delays and associated costly problems. Taking into account that most of the failures of both BPR and ERP implementation projects are grounded on luck of strategic decision making when this is needed, on luck of understanding concerning the useful functionality provided by technology and on luck of time for the completion of a large number of preparatory projects connected with the ERP system to be introduced, it is strongly believed that BPR & ERP-driven BPI can improve the percentage of organisational transformation success stories with the use of information technology. The application of the approach in other companies in the future will validate the expected benefits presented in this paper.
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