Chapter 2
Business process reengineering (BPR),
Michael Hammer and James Champy argued that to become more competitive, American businesses needed to radically redesign their business processes to reduce costs and increase quality. The authors further asserted that information technology is the key enabler of such change. This radical redesign, called business process reengineering (BPR), is a strategy for making an organization's business processes more productive and profitable. The key to BPR is for enterprises to examine their business processes from a "clean sheet" perspective and then determine how they can best reconstruct those processes to improve their business functions. BPR's popularity was propelled by the unique capabilities of information technology, such as automation and standardization of many process steps and error reduction due to improved communication among organizational information silos.
Business process management (BPM),
Sustains BPI over time , includes methods and tools to support the design, analysis, implementation, management, and continuous optimization of core business processes throughout the organization. BPM integrates disparate BPI initiatives to ensure consistent strategy execution. Important components of BPM are process modeling, Web-enabled technologies, and business activity monitoring.
Porters value chain model
To identify specific activities where they can use competitive strategies for greatest impact, they use his value chain model (1985). A value chain is a sequence of activities through which the organization's inputs, whatever they are, are transformed into more valuable outputs, whatever they are. The value chain model identifies points where an organization can use information technology to achieve competitive advantage. Activities conducted in any organization can be divided into two categories: primary activities and support activities. Primary activities relate to the production and distribution of the firm's products and services. The primary activities are buttressed by support activities. Unlike primary activities, support activities do not add value directly to the firm's products or services. Rather, as their name suggests, they contribute to the firm's competitive advantage by supporting the primary activities.
Web enabled technology in BPM
Web-enabled technologies display and retrieve data via a Web browser. They enable an organization to integrate the necessary people and applications into each process, across functional areas and geographical locations.
Business Environment
combination of social, legal, economic, physical, and political factors in which businesses conduct their operations.
Process modeling in BPM
graphical depiction of all of the steps in a process. Process modeling helps employees understand the interactions and dependencies among the people involved in the process, the information systems they rely on, and the information they require to optimally perform their tasks. Process modeling software can support this activity.
Procurement
includes all of the tasks involved in acquiring needed materials externally from a vendor. Procurement comprises five steps that are completed in three different functional areas of the firm: warehouse, purchasing, and accounting.
Cross functional business processes
meaning that no single functional area is responsible for their execution. Rather, multiple functional areas collaborate to perform the process. For a cross-functional process to be successfully completed, each functional area must execute its specific process steps in a coordinated, collaborative way. Includes procurement and fulfillment
Business process
ongoing collection of related activities that create a product or a service of value to the organization, its business partners, and/or its customers. A process is comprised of three fundamental elements: inputs, outputs, resources
Customer relationship management (CRM)
organization-wide effort toward maximizing the customer experience
Strategic information systems (SISs)
provide a competitive advantage by helping an organization implement its strategic goals and improve its performance and productivity. Any information system that helps an organization either achieve a competitive advantage or reduce a competitive disadvantage, qualifies as a strategic information system.
Business activity monitoring in BPM
real-time approach for measuring and managing business processes. Companies use BAM to monitor their business processes, identify failures or exceptions, and address these failures in real time. Further, because BAM tracks process operations and indicates whether they succeed or fail, it creates valuable records of process behaviors that organizations can use to improve their processes.
Digital divide
refers to the wide gap between those individuals who have access to information and communications technology and those who do not. This gap exists both within and among countries.
Social BPM
technology enables employees to collaborate, using social media tools on wired and mobile platforms, both internally across functions and externally with stakeholders (such as customers or experts), to exchange process knowledge and improve process execution.
6 Characteristics of Business-information technology alignment
Organizations view IT as an engine of innovation that continually transforms the business, often creating new revenue streams. Organizations view their internal and external customers and their customer service function as supremely important. Organizations rotate business and IT professionals across departments and job functions. Organizations provide overarching goals that are completely clear to each IT and business employee. Organizations ensure that IT employees understand how the company makes (or loses) money. Organizations create a vibrant and inclusive company culture.
Enterprise architecture
Originally developed as a tool to organize a company's IT initiatives, the enterprise architecture concept has evolved to encompass both a technical specification (the information and communication technologies and the information systems used in an organization) and a business specification (a collection of core business processes and management activities).
Business process improvement (BPI).
(Less risky and costly than bpr) Because BPR was so taxing and so extreme, many companies instead resorted to BPI, in which businesses increasingly began to organize work around business processes rather than individual tasks. The result was a less radical, less disruptive, and more incremental approach. It focuses on reducing variation in the process outputs by searching for root causes of the variation in the process itself (such as a broken machine on an assembly line) or among the process inputs. BPI is usually performed by teams of employees that include a process expert—usually the process owner
Value system
A firm's value chain is part of a larger stream of activities, which Porter calls a value system. A value system, or an industry value chain, includes the suppliers that provide the inputs necessary to the firm along with their value chains. After the firm creates products, these products pass through the value chains of distributors (which also have their own value chains), all the way to the customers. All parts of these chains are included in the value system.
Benefits of BPM
BPM initially helps companies improve profitability by decreasing costs and increasing revenues. Over time, BPM can create a competitive advantage by improving organizational flexibility—making it easy to adapt to changing business conditions and to take advantage of new opportunities. For many companies, BPM can reduce costs, increase customer satisfaction, and ensure compliance with rules and regulations. In all cases, the company's strategy should drive the BPM effort.
Reasons businesses fail to achieve alignment
Business managers and IT managers have different objectives. The business and IT departments are ignorant of the other group's expertise. A lack of communication.
Michael Porter's competitive forces model
Companies use Porter's model to develop strategies to increase their competitive edge. The model identifies five major forces that can endanger or enhance a company's position in a given industry: 1. The threat of entry of new competitors 2. The bargaining power of suppliers 3. The bargaining power of customers (buyers) 4. The threat of substitute products or services 5. The rivalry among existing firms in the industry
Customer-oriented strategy
Concentrate on making customers happy
5 steps of BPI
DEFINE: BPI team documents the existing "as is" process activities, process resources, and process inputs and outputs, usually as a graphical process map, or diagram. documents the customer, customer's requirements for the process output, description of the problem MEASURE: identifies relevant process metrics, such as time and cost to generate one output (product or service), and collects data to understand how the metrics evolve over time. Many times, the BPI team needs to combine operational process data already stored in the company's IS systems with other data sources, such as customer and employee observations, interviews, and surveys. ANALYSIS: BPI team examines the "as is" process map and the collected data to identify problems with the process (such as decreasing efficiency or effectiveness) and their root causes. If possible, the team should also benchmark the process, employ IT applications such as statistical analysis software or simulation packages in this phase. IMPROVE: BPI team identifies possible solutions for addressing the root causes, maps the resulting "to be" process alternatives, and selects and implements the most appropriate solution. CONTROL: establishes process metrics and monitors the improved process after the solution has been implemented to ensure the process performance remains stable.
Operational effectiveness strategy
Improve the manner in which a firm executes its internal business processes so that it performs these activities more effectively than its rivals. Such improvements increase quality, productivity, and employee and customer satisfaction while decreasing time to market.
Innovation strategy
Introduce new products and services, add new features to existing products and services, or develop new ways to produce them.
Differentiation strategy
Offer different products, services, or product features than your competitors. Southwest Airlines,
Business process management suites (BPMS).
Often supports BPM, an integrated set of applications that includes a repository of process information, such as process maps and business rules; tools for process modeling, simulation, execution, coordination across functions, and re-configuration in response to changing business needs; as well as process-monitoring capabilities.
Cost leadership strategy
Produce products and/or services at the lowest cost in the industry. An example is Walmart's
Fulfillment
The fulfillment process is concerned with processing customer orders. Fulfillment is triggered by a customer purchase order that is received by the sales department. Sales then validates the purchase order and creates a sales order. The sales order communicates data related to the order to other functional areas within the organization, and it tracks the progress of the order. The warehouse prepares and sends the shipment to the customer. Once accounting is notified of the shipment, it creates an invoice and sends it to the customer. The customer then makes a payment, which accounting records.
Competitive advantage
any assets that provide an organization with an edge against its competitors in some measure such as cost, quality, or speed. A competitive advantage helps an organization to control a market and to accrue larger-than-average profits. Significantly, both strategy and competitive advantage take many forms.
Business-information technology alignment
tight integration of the IT function with the organization's strategy, mission, and goals. That is, the IT function directly supports the business objectives of the organization.