bprl1
DESCRIPTION
presenatation on reegninerringTRANSCRIPT
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Business Process Reengineering
&
Bench Marking
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• Organization Flexible enough to adjust to changing Market Conditions
• Lean enough to beat any competitor’s price
• Innovative enough to keep its products & services technological fresh
• Dedicated enough to deliver max. quality & customer service
CEOs’ Statements
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• Want organizations to be
Lean
Nimble Flexible Responsive Competitive Innovative Efficient Customer Focused Profitable
Cont.
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So many businesses are• Bloated
• Clumsy• Rigid• Sluggish• Non competitive • Uncreative• Inefficient• Disdainful of customer’s needs
• Losing Money
Then Why
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How do these companies do their work ?
&
Why do they do it that way ?
Answer
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• Goal :Filling Customer Orders Quickly• To achieve this formed a multi-tiered Distribution
System Factory > CDC > RDC > Customer(regional and central
distribution centre)In one case RDC located in same building as CDCFrom CDC to RDC takes 11days:RDC to notify CDC 1 dayCDC to check pick & dispatch 5 daysRDC to officially receive , shelve, pick & pack 5 days
Examples
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• RDC rated by time to respond customer order while
• CDC is not.• CDC judged on #Inventory Cost #Inventory Turns # Labour Costs
Reason
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• RDC does not order on CDC
• Overnight airlift from other RDC
• Airway bills run into millions of dollars
Result
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• Each RDC has a unit to track the inventory of other RDCs
• Some goods moved & handled more times than good sense dictates
• CDC & RDC doing their job but overall system does not work
• Efficiency of a company’s part is at the expense of the efficiency of the whole
Additionally
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• An aircraft of US Air grounded one afternoon for repair at Airport Airy
• Mechanic capable of repairing located at Pittsburg airport which is nearest to Airy
• Airport manager of Pittsburgh refused to send mechanic that afternoon because he would stay at hotel overnight & hotel bill be debited in Pittsburg account
• Mechanic dispatched next day morning to fix problem & return the same day
• Multimillion dollar worth aircraft remained idle , airline lost thousands of $ in revenue but Pittsburg airport manager’s budget not hit by $100 hotel bill
Another Example
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• Pittsburg manager was neither foolish nor careless
• He was doing what he was supposed to do i.e. controlling & minimizing expenses
• Whenever co-operation /coordination of several different departments is required ; it is a source of trouble
Is this an example of inefficiency ?
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• Return of unsold goods involves 13 different departments
Receiving Warehousing Inventory updates Promotions check price at which it was sold Sales accounting adjusts commissions And so on No single department /individual is responsibleFor each dept. it is a low priority distractionMistakes happen Returned good ends up lost
Another Example
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• Company pays sales commission on unsold goods
• Retailer does not get credit & gets angry• Nullifies efforts of sales & marketing• Unhappy retailers less likely to promote new
products of the manufacturer• They delay paying bills & pay what they think
they owe after deducting value of returns • This throws mfg. accounts deptt. into turmoil
because retailer cheque does not match invoice
• Eventually manufacturer simply gives up unable to trace what really happened
Cont.
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Lost revenue runs into nine figurers
As a result Management attempts to
tighten the disjointed return process
& New problems crop up
Result
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• A Pharma. Company• New drug tried on 30 patients who took for 1 week .
Info. Collection took 2 years• Company scientist took 4 months developing study &
specifying kind of data to be collected Designing study 2 weeks Getting reviewed 14 weeks • Physicians scheduling /conducting interviews to recruit
other doctors who would identify appropriate patients & administer the trial drug 2 Months
• Securing permissions from all hospitals involved took 1 Month
• Physician was paid in advance & hence had no interest• Collecting forms from doctors took 2 Months
Another Example of Impact on Bottom line
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• Data entry detected errors in 90% Forms
• Back to Protocol designer to study Administrator to Physician who tried to correct the mistakes
• Company lost 2 years of profit worth millions of $
• None responsible for getting field study done
Even when there is a major impact on the bottom line no one is in charge
Cont.
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• Are the above examples exceptions ?
• Are the workers lazy ?
• Are the managements inept ? NoThe Problem lies somewhere else
What is the problem ?
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• American entrepreneurs led the world in creating business organizations that set the pace for
• Product Development ; Production ; Distribution thereby creating Highest Standards of living in the world
But Some companies & their descendents no longer
perform well Because World has changed beyond their capacity to adjust or
evolve
Principles on which they were organized were superbly suited to conditions of an earlier era but they can stretch only that far
20th Century
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• Advanced technologies • Boundaries disappearance among
national markets• Altered expectations of customers
who have more goals & methods Basic Principle of Classical
Organization is OBSOLETE
What has changed ?
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Renewing Competitive Capabilities
is Not a Question of Working Hard But Of Learning to Work Differently
What Then?
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Companies & Employees must Unlearn
Many of Principles & Techniques That Brought Success for so Long
An Unpleasant Reality
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Most companies today can trace back
to Pin Factory Described by Adam Smith in Wealth of Nations
Trace back to 1776
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• Workers each performing single step can make far more as compared to one making whole
• Steps involve Draw wire Straighten Cut Point Grind at top Head - 2 operations Put it on Whiten Packing
Principle of Division of Labour
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• 10 workmen make > 48000 pcs ./day• If each trying to make whole ; can not
make more than 20 pcs. Or perhaps none
• Division of labour increased productivity by a factor of hundreds due
Increase of Dexterity of Workmen
Saving of time lost in passing from one operation to another
Invention of machines
Output
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• All organizations built around Smith’s Central Idea i.e.
Division/Specialization of Labour
Consequently Fragmentation of Work
• Workers never complete a job but perform piece meal tasks
Today
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• Were best in the world• Manufacturing Facilities sprouted
around the country• Growth occurred due to innovative
changes in shipping goods• Built railroad which extended &
accelerated economic development• It is the railroad companies who
invented the modern business bureaucracy
U.S. Companies
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• Formalized operating procedures• Organizational Structure• Mechanisms• Role of Contingency• Lines of authority• Reporting
Railroad companies
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• Programmed workers to act according to rules & make one track system predictable
• Command & Control Systems even today embody same principles railroads introduced 150 years ago
Management Principles
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ForDeveloping today’s Business Organization Came In Early Twentieth Century From Two Automobile Pioneers ^ Henry Ford ^ Alfred Sloan
Next Large Evolutionary Step
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• Ford improved on Smith’s concept Instead of having skilled assemblers
build entire car Ford reduced to installing a part in a prescribed manner
• Initially workers walked from one assembly stand to the next taking themselves to work
Innovation for which Ford is best remembered; brought work to the worker
Remembering Henry Ford
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• Assembly broken into simple uncomplicated tasks
But
• Made process of coordinating people & combining the results of their tasks into a whole car far more complex
Simplicity led to Complexity
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• Alfred Sloan created prototype of Management System which Ford’s factory System demanded
• Neither Henry Ford nor William Durant ever learnt as to how to manage sprawling organizations
• Sloan took over from Durant & made system of Ford complete and this system is today called Mass Production
Management System
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• Sloan applied Smith’s principle of division of labour to Management as Ford had applied to Production
• Sloan created smaller decentralized divisions that managers could oversee from corporate head quarters simply by monitoring
Production & Financial Numbers
Decentralization
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• Corporate executives did not need specific expertise in manufacturing/engineering but needed financial expertise
• Also this solved the problem that prevented other companies from expanding
• Financial/Marketing complemented Engineering Professionals
• Sloan firmly established division of Professional labour in parallel with division of manual labour
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• Final Evolutionary step came by end of WW II & 1960which was the period of Enormous Economic Expansion
• Elaborate Planning Exercises led Business wanting to have
Capital to be allocated Returns expected from operating managers Large staff of corporate controllers , planners ,
auditors ,acted as eyes & ears of management
• This organization model spread to Europe & Japan
End of World War II
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• Heavy Demand /Accelerating growth suited post world war times perfectly
• Market accepted whatever was offered• Pyramidal structure suited high growth
environment because it was scalable • In 1960 white collar jobs were further
broken down due new office technology became available
• These could be mechanized or automated
Post World War II
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• As tasks grew, overall process became increasingly complicated
• No. of people in the middle of organization was one price paid for benefit of fragmenting
• Another disadvantage was increasing distance between senior management & consumers
• How customers responded was measured only in nos. & not in faces
Complications
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• These are roots of today’s corporation • Principles forged by necessity on which
today’s companies have been structured
• Old ways of doing business simply do not work any more
• Here & now onwards crisis of competitiveness is not a temporary phenomenon
Reality
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• In today’s world nothing is constant or predictable
Market Growth Customer Demand Product Life Cycle Rate of technological change Nature of competitionAdam Smith’s world & its way of doing
business are yesterday’s paradigm
Unpredictability
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• Separately or in combination are driving companies deeper & deeper into territory that most of their executives & managers find frighteningly unfamiliar
• Three Cs Customer Competition Change Names familiar but characteristics are
different
Three Forces
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• From early 1980 dominant force in seller – customer relationship has changed
• Sellers no longer have an upper hand • What , When , How they will pay• This is unsettling for companies who have
operated in mass markets• In reality Mass Markets never existed . The
truth is there was no choice• In US relatively few competitors & most of
them offered similar products
Customers Take Charge
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• Demand is tailor made• No “the customer” ; “this
customer”• Mass markets broken into pieces
some as small as a single customer
• Individually & in combination a number of factors contributed to shifting the balance of market power from producer to customer
Customers Have Choice
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• Soured in US due Japanese competitors who supplied market with lower prices & higher quality
• Fast introduction of new products & unmatchable service
• Mass production +Quality , Price , Selection & Service
Customer Expectation
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• Consumer demanded more • Data base allow service providers
& retailers to track consumers with their preferences & hence a new foundation for competitiveness was laid
Consumers Expectations Raised
Service Sector
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• Some mega dealers replacing many
Mall – sized discounters emptied Main Street Store Fronts
Changed equation between Buyer & Seller
Consolidation
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• This threat shifted power from seller to buyer
Do it my way or I will do it myself• Easy to learn Desk top Publishing
gave the chice
Backward Integration
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• Companies who grew with above mentality had to realize
“Each one counts”• Movie “Field of dreams” if you build they will
buy• Goods shortage no longer exists• More Producers• Developed countries have low population
growth• Many Product Markets Matured• Industry in “Replacement Mode”• Consumers wield Power & hence can be
choosy
Mass Market Mentality
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• Consumers – What they want , What to pay , How to get on terms
• Do not want to deal with
companies who do not appreciate & understand this startling in customer buyer relationship
Long & Short of the Story
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• Earlier companies could go to market with an acceptable product /service at best price & would get a sale
• Now not only more competition but many different kinds
• Niche competitors change the market• Similar goods sell in different market on different basis• Trade barriers falling & no national turf is protected• One superior performer raises competitive threshold
for the market around the world• Good performer chases out inferior• Adequate is no longer good enough
The second C - Competition
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• Carry no organizational baggage & not constrained by history
• Enter market faster with new products• Big is no longer impregnable• Sun Micro System is still a start up & so is Wal
– Mart• Work station Innovation• Wal – Mart reinvented retailing• Start – up do not play by rules , they write
new rules• Unburdened they create new ways of working
that produce better results
Start – up Companies
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• Technology changes nature of competition• In retailing Wal-Mart & P & G could merge their
inventory /distribution which is mutually beneficial • In after sales service Otis handles task of managing
93000 elevators / escalator in North America round the clock
• Limits of possible changed thereby raising customer expectations for all the companies in market
• Change becomes constant• Change has become pervasive & persistent• It is the norm• Life Insurance companies offered two products Term &
Life • Today they supply constantly changing new products
Third C - Change
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• Pace of change accelerated• Rapidity of technological change promotes innovation• Product life cycle reduced from years to months• Ford produced the model T for entire human generation• Life cycle of computers reduced to 6 months• Pension products life reduced to 3 months • Product / Service life cycles diminished• Time available to develop / introduce new products
have diminished substantially Move fast or won’t move
Cont.
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• Think companies equipped with effective change sensing radars
• Problem is they hear what they expect• Survey gives good news & market share goes
down• Company’s sloppy order fulfillment process
annoying & hence retailers reduce shelf space • Neither Brand manager nor anyone else has
broad enough perspective to deal with the problem
The changes that put companies out of business are those that happen outside the light of its current expectation
Executive Perception
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• Companies designed to operate in one environment cannot be fixed to work well in another
• Companies created to thrive on Mass Production , Stability & Growth cannot be fixed to succeed in a world of 3 Cs
Demand is Flexibility & Quick
Response
New World of Business
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Some executives blame :
Closed foreign markets Low cost of capital Predatory pricing policy by foreign companies
subsidized by their govts. Federal government Mishandling of economy by govt. Regulations Poor husbandry of natural & human resources Unions poorly educated Unmotivated workers
Blame Game
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If so then all should decline But
• Sears going down & Wal-Mart moving up
• GM declining & Honda is shining• Insurance Industry looking south &
Progressive Insurance is moving north
Is This True ?
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• Products have a limited life
• Not products but processes that create products bring long term success
Good products do not make winners ; Winners make good products
Right Products /Service Solution?
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• Sell one division • Buy another • Change markets • Get into different business • Do only distribution All this prevents them from
making changes in basic work they actually do
Different Strategy a Solution ?
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• Some feel if managed differently & better they would thrive ; let us look at Fads of 3 decades
MBO One Minute Managing Zero Based Budgeting Value Chain Analysis Decentralization Quality Circles Excellence Restructuring Portfolio Management
Have not enabled companies to sustain Competitive Performance
Management Deficiencies
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Jobs get done faster but fundamentally the same job is being done
No Fundamental Improvement Performance
Automation – Answer ?
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• For daily operations of business• It is not asset portfolio but People
working to Invent , Make , Sell & provide Service lead to success
• If company not succeeding ,it means their people not doing above as well as they should
God is in “Details” Architect Mies van der Rohe
Profound Contempt
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• Goes to very heart of problem• A company better at Meat &
Potato of its business i.e. inventing , manufacturing , selling , servicing will beat competition in market place
• Winning companies know how to do their work better
• It is as simple & formidable as that
Real Diagnosis
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• Customer places order & goods are delivered : a dozen steps
• There are some advantages like ^ No need to hire employees with
higher degrees ^ Every one is assigned a specific
responsibility ^ Accountable through bureaucratic
chain of command
Order Fulfillment Process
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Some disadvantages ^ None responsible ^ Process is error prone ^ Each hand off entails queues , batches ,& wait times ^ No service element ^ Complex involving 12 people can not be made
flexible ^ None is empowered to answer a question or solve a
problem ^ Once order enters the process , it might as well be
lost until it emerges at other end
Trying to fix what is wrong by tinkering with each process piece is the guaranteed bad performance
Accept Trade - Off
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• Not necessary to organize work around Adam Smith’s division of labour
• Task oriented jobs in world of 3Cs are obsolete
• Instead organize around Process
Today none is In charge of Process
What Is the Solution ?
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• Vertical Structures built on narrow pieces of Process
• People look inwards , upwards but not outwards
Contemporary Performance
Problems that companies experience are outcome of Process Fragmentation
Today Cos. Functional Silos
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• Example : For 100 units of work /hour• Co. needs 10 workers + 1 supervisors• For 10 times more output it needs 100
workers+10 supervisors +1 manager +3 Asst.Managers + 18 in HR +19 in Long Range planning+22 in Audit +23in Facilitation & Expediting =196
This is quite opposite of what Adam Smith had envisioned .Diseconomies are in O/H.
Diseconomies of Scale
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• Leads to Bureaucratic Proliferation & Empire building
• Hire King’s horses & king’s men to paste the fragmented work back together again
• It is the Glue to hold together who really work
• Direct labour cut down & O/H gone up• Paying more for glue than the real work Recipe for Trouble
Humpy Dumpy School of Organizational Management
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• No . Inflexibility , Unresponsiveness, Absence of customer focus , Obsession with activity ,Bureaucratic Paralysis Lack of Innovation High O/H are legacies of past business practices
• They were present all along but cos. Did not worry about them
• If cost were high pass them on • Product introduction slow , customers will wait• Customers were unhappy but they could not go
anywhere• Job of Manager was to manage growth rest did not
matter• Now growth has flattened & rest matters a great deal Problem is we are doing business in 21st century with
companies designed in 19th century to work in 20th century .
We need something Entirely Different
Are These Problems New ?