Business Process Re-engineering and ERP Systems

Chapter 2: Re-engineering and Enterprise Resource Planning Systems

Objectives

• Recognize the factors associated with the evolution of ERP systems, including:

  • Business Process Reengineering (BPR): A methodology aimed at improving and redesigning business processes to enhance performance.

  • Client-server networking: This architecture decentralizes data processing, enabling multiple users to access shared data and applications, enhancing communication, and facilitating the growth of enterprise applications.

  • Integrated databases: Centralized databases that integrate information across various functional areas of an enterprise, ensuring data consistency and reducing redundancy.

• Examine the role of process modeling in redesigning business models, which is crucial for visualizing processes, identifying bottlenecks, and improving work efficiency.

Case Study: Blockbuster

• Background Information: Blockbuster was a prominent American-based home movie and video game rental company founded in 1985, quickly becoming a cultural icon in the entertainment industry.

  • Peak Operations: At its height in 2004, Blockbuster operated over 9,000 stores worldwide, making it a household name in movie rentals.

  • Bankruptcy: Filed for bankruptcy in 2010 due to failure to adapt to the digital streaming revolution and stiff competition from Netflix, resulting in a significant decline in rental revenues.

• Business Model:

  • Initially based on a large chain-store model that rented VHS and later DVDs, they earned millions from late fees—a substantial revenue source that ultimately hampered customer loyalty.

• Rise and Fall:

  • Blockbuster dominated the 1990s but notoriously declined to purchase Netflix for $50 million in 2000, a decision that epitomizes a critical failure to innovate and anticipate market trends.

• Final Days:

  • Acquired by Dish Network in 2011, which resulted in the closure of most corporate locations by 2014 as the business struggled to pivot effectively to change.

• Current Status:

  • A single franchise location remains operational in Bend, Oregon, serving as a nostalgic tourist attraction that highlights the cultural memory of the company.

• Significance in Business Studies:

  • Blockbuster serves as a cautionary tale in business studies regarding the consequences of failing to innovate and adapt to evolving technology, illustrating the importance of agility in business operations and strategic foresight.

What is Business Process Reengineering (BPR)?

• Definition: BPR is known as “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.” - Hammer & Champy (Founders of BPR).

• Key Characteristics:

  • Fundamental: BPR involves challenging basic assumptions about business processes, questioning existing workflows, and eliminating non-value-added activities.

  • Radical: The process entails a complete redesign from the ground up, which can lead to significant transformations in how work is performed.

  • Dramatic: Aims for quantum leaps in performance metrics, such as cost reductions, improved quality of service, and accelerated processing times, leading to a competitive edge.

Signs Your Organization Needs BPR

• External feedback highlighting process issues like delays or inaccuracies in service delivery.

• Customer dissatisfaction with services or products, leading to high churn rates.

• Inadequate technology that hinders progress and affects the quality of products or services provided.

• Operational flaws affecting organizational efficiency, such as slow response times or errors in order processing.

• Presence of a technology gap impacting workflow and productivity.

• Existing process inefficiencies needing immediate attention due to evolving market conditions.

• Declining performance metrics suggesting stagnation or regression, often visible in sales and customer retention figures.

Motivation for Reengineering

• Key Motivations Include:

  • Reduction of Costs: Cutting down unnecessary expenses through efficiency improvements and waste elimination.

  • Improvement of Financial Performance: Enhancing revenues and profitability through better resource utilization and innovation.

  • Reduction of External Competitive Pressure: Developing strategies to address competition effectively and sustain market relevance.

  • Response to Emerging Market Opportunities: Leveraging new business openings to create additional revenue streams and market presence.

  • Improved Customer Satisfaction: Elevating service quality to meet or exceed customer expectations and experiences.

  • Quality Enhancement: Focusing on higher standards of products and services to drive customer loyalty.

  • Competitiveness: Being able to compete effectively in the market through strategic advantages.

  • Long-term Survival and Success: Ensuring sustained growth and market presence through adaptability and innovation.

Business Process Reengineering (BPR)

• Technology Utilization:

  • Mechanization used to streamline and enhance work processes by automating repetitive tasks.

  • Creation of new business rules while eliminating outdated ones to foster enhanced decision-making.

  • Emphasis on improved responsiveness and reduced operational costs through technological integration.

• Organizational Changes:

  • Decentralizing decision making to enhance responsiveness to customer needs and improve operational flexibility.

  • Flattening organizational hierarchies to foster more direct communication and eliminate unnecessary middle management.

  • Leveraging information technology to enable BPR initiatives effectively across the organization.

  • Redesign of jobs which may require new judgment levels and a focus on new leadership types, necessitating skill development and training.

  • Ensuring processes are adaptable to changing circumstances, improving resilience against market dynamics.