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Esm Assignment 1

The document summarizes the process for financing computer purchases at IBM Credit Corporation. Originally, a request would pass through 6 departments over 6 days. Two managers mapped the process and found a generalist could handle it in 90 minutes with the right computer system. They recommended replacing specialists with generalists supported by a computer system. This would dramatically improve the turnaround time from 6 days to just a few hours. However, challenges included the costs and human impacts of such a radical change, and whether employees could adapt their thinking and take on new responsibilities. Information technology alone would not solve the issues - the process structure needed reengineering as well.

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Anubhav Puri
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110 views

Esm Assignment 1

The document summarizes the process for financing computer purchases at IBM Credit Corporation. Originally, a request would pass through 6 departments over 6 days. Two managers mapped the process and found a generalist could handle it in 90 minutes with the right computer system. They recommended replacing specialists with generalists supported by a computer system. This would dramatically improve the turnaround time from 6 days to just a few hours. However, challenges included the costs and human impacts of such a radical change, and whether employees could adapt their thinking and take on new responsibilities. Information technology alone would not solve the issues - the process structure needed reengineering as well.

Uploaded by

Anubhav Puri
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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Business Process Reengineering

for

IBM Credit Corporation


Under Guidance Of

Prof. Jyotiranjan Hota


Submitted By:
Pawan Kumar Bothra Enrl No: 07BS2814 SEC: B

Introduction:
The Business Process Reengineering (BPR) concept is quite new, emerging in the work of writers such as Davenport and Short (1990), Hammer (1990), Hammer and Champy (1993), and Harrington (1991). The concept is currently very topical, however, and is ubiquitous in recent organizational, management and information technology literature. The extent of the widespread popular interest in the BPR concept can be gauged from the fact that Hammer and Champy's recent book on BPR featured at the top of the US best-seller lists. This popularity is also reflected in the fact that many organizations claim to be undertaking BPR projects and many software vendors are offering products to support BPR. However, several studies have recently appeared in the literatures which have critically examined the BPR phenomenon (e.g. Earl, 1994; Coulson-Thomas, 1994; Strassman, 1993). The progression of a concept from theory to sustained practice is dependent on the development of its theoretical base, and the introduction of methodological approaches that are capable of being used by practitioners. This definition comprises four keywords: fundamental, radical, processes and dramatic. Fundamental Understanding the fundamental operations of business is the first step prior to reengineering. Business people must ask the most basic questions about their companies and how they operate: Why do we do what we do? and why do we do it the way we do? Asking these basic questions lead people to understand the fundamental operations and to think why the old rules and assumptions exist. Often, these rules and assumptions are inappropriate and obsolete. Radical Radical redesign means disregarding all existing structures and procedures, and inventing completely new ways of accomplishing work. Reengineering is about business reinvention, begins with no assumptions and takes nothing for granted. Processes Process is the most important concept in reengineering. In classic business structure, organisation are divided into departments, and process is separated into simplest tasks distributing across the departments. The preceding order-fulfilment example shows that the fragmented tasks - receiving the order form, picking the goods from the warehouses and so forth - are delayed by the artificial departmental boundaries. This type of task-based thinking needs to shift to process-based thinking in order to gain efficiency. The following example is taken from Hammer and Champy to illustrate the characteristics of reengineering - fundamental, radical, dramatic, and especially process.

Dramatic Reengineering is not about making marginal improvements or modification but about achieving dramatic improvements in performance. There are three kinds of companies that undertake reengineering in general. First are companies that find themselves in deep trouble. They have no choice. Second are companies that foresee themselves in trouble because of changing economic environment. Third are companies that are in the peak conditions. They see reengineering as a chance to further their lead over their competitors.

Methodology:

Business Process at IBM Credit Corporation:

IBM Credit Corporation is in the business of financing the computers, software, and services that the IBM Corporation sells. The IBM Credit's operation comprises of five steps as follows:

(1) When an IBM field sales representative called in with a request for financing, one of the operators in the central office wrote down the request on a piece of paper.

(2) The request was then dispatched to the credit department where a specialist checked the potential borrower's creditworthiness, wrote the result on the piece of paper and dispatched to the next link in the chain, which was the business practices department.

(3) The business practices department was in charge of modifying the standard loan covenant in response to customer request. The special terms to the request form would be attached to the request if necessary.

(4) Next, the request went to the price department where a pricer determined the appropriate interest rate to charge the customer.

(5) Finally, the administration department turned all this information into quote letter that could be delivered to the field sales representative

Flow chart of the Business Process:

IBM field sales representative (IBM Corporation)

IBM Credit Corporation

Operator in central office

Credit Department

Business Practices Department

Price Department

Administration Department

Analysis of the process:


This entire process consumed six days on average. From the sales representative's point of view, this turnaround was too long that the customer could be seduced by another computer vendor. Furthermore, no-one would tell where the request was and when it could be done.

Steps taken by IBM:


To improve this process, IBM Credit tried several fixes. They decided, for instance, to install a control desk, so they could answer the sale representative's question about the status of the request. That is, instead of forwarding the request to the next step in the chain, each department would return the request to the control desk where an administrator logged the completion of each step before sending out the request again. This fix did indeed solve the problem, however, at the expense of adding more time to the turnaround. Eventually, two senior managers at IBM Credit took a request and walked themselves through all five steps. They found that performing the actual work took in total only ninety minutes. Clearly, the problem did not lie in the tasks and the people performing them, but in the structure of the process itself.

Recommendations for Re-engineering the process:


IBM Credit can replaced its specialists - the credit checkers, pricers and so on - with generalists. Now, a generalist can processes the entire request from beginning to end. The old process design was, in fact, found on a deeply held assumptions : that every bid request was unique and difficult to process, thereby requiring the intervention of four highly trained specialists. In fact, this assumption seems to be false as most requests were simple and straightforward: finding a credit rating in a database, plugging numbers into a standard model, pulling clauses from a file. These tasks fall well within the capability of a single individual when he or she is supported by an easy-to-use computer system. IBM Credit can therefore developed a new, sophisticated computer to support the generalists. In most situations, the system provides guidance and data to generalists. In really tough situations, he or she can get help from a small pool of real specialists who are assigned to work in the same team. From this the new turnaround can take just few hours instead of six days. The company can achieved a dramatic performance breakthrough by making a radical change to the process .

Re-engineered Model:

IBM field sales representative (IBM Corporation)

IBM Credit Corporation

Generalists (with specialized computer)

Defining the challenges:


The preceding solution appears simple and attractive. However, the more closely we look at it, the more questions about the benefits of reengineering arise. The arguments can be as follows: (1) What are the underlying costs for the implementation of the radical change? People need intensive training for their new skills and their styles - the ways in which they think and behave - and their attitudes - what they believe is important about their work. (2) What are the implications of the radical change to the organisation, especially the human issues? Organisations are communities of people and cannot treat as machines. People may resist the change and fear losing their jobs. Inspirations and cultures may therefore destroy during reengineering. Furthermore, reengineering requires people to take more responsibilities and to learn and change constantly. These may contradict the majority people who seek for stability for their lives. (3) Even company provides intensive training, can people change their styles? People who are used to think the purpose of their work is to perform the same task over and over again, may feel uncomfortable to change the new styles that first concern is creating value for the customer and taking responsibility for the performance of an entire process. They just cannot work in this way.

Conclusion
The reengineering profoundly changes all aspects of business and people. Part of the organization is easy to change by reinventing a way to work. However, the other part, people, is very difficult to change. In particular, it requires not only jobs and skills change but also people's styles - the ways in which they think and behave - and their attitudes - what they believe is important about their work. These are indispensable factors to determine whether reengineering succeeds or not. Leaders must help people to cope with these changes. Information technology (IT) plays a crucial role in business reengineering and is an essential enabler. However, most people misuse the technology. They look at the technology through the lens of their existing tasks i.e. they only computerize the old existing tasks. Consider the case in IBM Credit. It might have tried to digitalize the request application and to send it to different departments by a computer network. Such computerization would have accelerated the time that required to move pieces of paper from one department to another, but it also would have increased the queuing time in each departments. Hence, it would have done nothing to the overall process. The structure of the old process was still unchanged. In contrast, the company attained more than 90% improvement through reengineering. State of the art information technology allows to break conventional rules/assumptions of processes. These rules were designed when the processes were created. Therefore, the rules may be no longer valid nowadays. As the preceding example has been showed, IBM Credit used the sophisticated computer system to break the assumption that every request has to be examined by different specialists.

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