Business processes represent the way an organization conducts its business. They are the way businesses harness technology to achieve organizational goals and strategies.
The Process of Business Process Restructuring
By: Lyle P. Wallis, CCE
Abstract
Business processes represent the way an organization conducts its business. They are the way businesses harness technology to achieve organizational goals and strategies. The process methodology embraced by a specific company supports its ability to effectively and efficiently perform. Processes represent people's accountabilities, their roles, relationships, and segmented skills in combination with automation, lending to the achievement of maximum productivity.
In the past decade we have all heard quite a bit about Business Process Reengineering. Many businesses have implemented restructuring initiatives. Organizations have embraced a number of techniques designed to implement change to their operations. Methods employed include upgrading technology, restructuring manufacturing techniques & operations, streamlining the organization, replacing the senior management team, and downsizing across the board. Repeatedly, these efforts have failed to achieve long-term solutions to remedying existing problems or creating lasting efficiencies.
Downsizing has been a favored tactic amongst a number of organizations. Many so-called turn around experts have adopted this approach in a crisis situation to realize an immediate gain, only to determine that it fails to address long-term issues. To simply implement a BPR initiative and expect a long-term and lasting turnaround is totally impractical.
What is BPR?
Business Process Reengineering is a comprehensive process requiring a change in the fundamental way business processes are performed. BPR identifies unnecessary activities and eliminates them; wherever possible it takes manual procedures and automates them. It requires you to have a thorough understanding of existing processes and with this knowledge allows for an analysis of how you can perform each component of the process more effectively with a constant focus on customer satisfaction. In this case customer satisfaction does not refer specifically to external customers, but also internal customers within the organization (other areas of the company that are serviced). Successful BPR efforts are generally customer driven, based on recent validated data, and focused on establishing goals and satisfying them.
To effectively implement BPR, traditional management functions must give way to empowered leadership. The free exchange of information at all levels throughout the organization is essential. Implementing goals and objectives to the process and defining roles and shared strategies in lieu of mandates, budgets and strict controls are critical to the success of a BPR initiative. Experience has shown that a happy loyal customer base results in more stability, reduced operating costs, decreased sensitivity toward pricing, sustained growth and profitability.
The process starts by empowering all members of the organization. Each individual should be assured that he or she has ownership in the project. An entrepreneurial atmosphere should be created throughout the organization. Attitude can be contagious. A fair amount of time and effort needs to be devoted to the implementation of this approach, but once in place the attitude becomes entrenched. As team members take ownership of the process, a sense of pride becomes a driving force in their performance. Given our human makeup there is always a fundamental desire to contribute and make a difference. It is extremely important for organizational leaders to recognize individual accomplishments and take the time to celebrate them. An ata-boy and a pat on the back go a long way in motivating people to strive to perform better.
The first step, that of empowerment, is the easiest. The other steps involved in a successful BPR implementation require a fair amount of strategic thought and planning. The company needs to look beyond doing fewer tasks with fewer employees, putting employees on unpaid vacation, or lowering quality and service standards. They need to identify methods, practices, tools and technologies to increase productivity, accelerate A/R and inventory turns, and lower operational costs. More important however is implementing these tools and practices without negatively impacting quality and service.
Traditional methods use the stair step approach, which results in a series of cost reductions over time. This process allows for quick achievement of cost cutting goals, involves little analysis, and allows for across the board reductions. Its quick and it is down and dirty. The problem is that the traditional approach does not focus on quality, the customer, product or the morale and emotional state of the employees. This approach has an initial fast and dramatic impact, but it is a short-term fix that may have negative repercussions on the long-term well being of the organization.
To effectively implement a Business Process Restructuring initiative the organization must first engage in a step-by-step analysis of its current processes. A map detailing the activities that are encompassed in the overall process needs to be developed. It is important to include all players in this phase. Once the mapping of the existing process has taken place, the mapping team should then turn its attention to each step of the map. Redundancies should be identified and eliminated. The steps should be tweaked with the intent of creating efficiencies and finding quality solutions.
Once the restructured process is in place constant attention should be given to continual improvement of the various components of that process. Each individual involved in the process should share this responsibility. An environment fostering continual process improvement should be implemented. The organization must be managed by facts, persistently improving through innovative solutions, progressing on an incremental and a breakthrough basis. Employees should be recognized continually for their efforts in this vain. Senior management must understand that operating in this mode reduces costs, satisfies customers, improves employee morale and delivers solid returns to the company.
The Japanese Approach
Kaizen, a principal developed and embraced by the Japanese in the 1960’s, allowed Japanese businesses and the Japanese economy as a whole to evolve through the 70’s and 80’s into an international force. Kaizen is a method of process improvement. Its focus is on improving the process rather than achieving certain results. The term is derived from two words in the Japanese language. Kai, meaning continuous and Zen meaning improvement. It is a methodology that when embraced follows the same principals that we are discussing with BPR.
The following set of principals serve as the foundation for the practice of Kaizen.
• Not a single day should go by without some kind of improvement being made somewhere in the company
• Customer-driven strategy for improvement - any management activity should eventually lead to increased customer satisfaction
• Quality first, not profit first - an enterprise can prosper only if customers who purchase its products or services are satisfied
• Recognition that any corporation has problems and establishing a corporate culture where everyone can freely admit these problems and suggest improvement
• Problem solving is seen as a cross-functional systemic and collaborative approach
• Emphasis on process - establishing a way of thinking oriented at improving processes, and a management system that supports and acknowledges people's process-oriented efforts for improvement
These principals should be reviewed, considered and adopted as the foundation for the development of any Business Process Restructuring initiative.
Business Process Restructuring and the Credit Professional
As credit professionals we are all cognizant of the fact that the credit and collection function is but one component of the larger order to cash process. However, the success of the credit and collection function is largely dependent upon the efficient management of the broader O to C process. Shortcomings within the O to C process lend heavily to disruptions in timely payment of customer financial obligations. Errors related to billing, order entry, or pricing, and issues such as late delivery, or shortages lend to customer dissatisfaction and subsequent non-payment, late payment or partial payment of invoices.
In that the credit professional is typically saddled with the responsibility of reconciling these issues to secure payment, they are well positioned to move towards becoming a driving force in a BPR initiative for the order to cash process. There are two compelling reasons. First, because they should have a general understanding of all the components of the process in that they have been forced to reconcile many of the discrepancies resulting from faulty execution of these components and secondly, because they should have a vested interest in making the process more efficient as it relieves the pressure on the collection effort and lends to a decrease in DSO and an increase in receivable turns. In formulating a process restructure for the Order to Cash Process certain steps should be followed. First a cross-functional process team comprising players who are responsible for the execution of the O to C process. (e.g., sales, customer service, credit, finance, logistics) must be assembled. It is important to include a representative from each areas participating in the process. Once the cross-functional team is assembled it should chart as-is account-team collaboration business processes and weigh each component. Upon completion all documented processes should be validated assuring that nothing has been overlooked. The team should then work to enhance as-is processes and create to-be business processes, looking for redundancy that may be eliminated and seeking to change steps with an eye on creating efficiencies. All process participants should then be trained on the new to-be processes. Those who are going to work under the restructured process have to gain a general understanding of new duties and expectations. Throughout this process the team should give consideration to adopting new or harnessing existing technologies to support the enhanced to-be processes. It is very important that tools are identified that can automate processes and enhance productivity.
Change Management
One of the biggest issues confronting a BPR implementation is the resulting change. To restructure is to change. By nature people find themselves uncomfortable with change. It is not uncommon to find a tremendous amount of resistance to any restructuring effort.
In process reengineering we identify some future state to be realized, some current state to be left behind, and some structured, organized process for getting from the one to the other. The process at various times will focus on defining the outcomes of the change effort, on identifying the changes necessary to produce these outcomes, and on finding and implementing ways and means of making the required changes. On paper this all sounds well and good, but in practice it seldom works unless we are able to get a full buy in from those folks who are going to work under the restructured process.
Implementing the change and making the change work is heavily dependent on nurturing an environment where the change is accepted and embraced by all involved. It is important to establish a workplace situation where those participating in the change process can take ownership. If you feel that you are part of the effort then you are going to embrace the change.
The ability to manage change requires a host of skills. First and foremost is leadership. A strong manager is not necessarily a good leader. The ability to get people to follow is an art. The skills most needed in this area are those that typically fall under the heading of communication or interpersonal skills. To be effective, we must be able to listen and listen actively, to restate, to reflect, to clarify without interrogating, to draw out the speaker, to lead or channel a discussion, to plant ideas, and to develop them. Part of the job of a leader is to reconcile and resolve the conflict between and among disparate (and sometimes desperate) points of view. Charm is great if you have it. Courtesy is even better. A well-paid compliment can buy gratitude. A sincere “Thank you” can earn respect.
Another skill set essential to change management is that of analysis. Two particular sets of skills are very important here: (1) workflow operations or systems analysis, and (2) financial analysis. One must learn to take apart and reassemble operations and systems in novel ways, and then determine the financial and political impacts of what they have done. Conversely, they must be able to start with some financial measure or indicator or goal, and make their way quickly to those operations and systems that, if reconfigured a certain way, would have the desired financial impact.
System skills play an integral part in change management. While it is important to have an understanding of computer systems and there ability to automate various tasks within the process, we also need to have an understanding that there is much more to systems than just computers. A system is an arrangement of resources and routines intended to produce specified results. To organize is to arrange. A system reflects organization and, by the same token, an organization is a system. The ability to embrace this concept in the BPR endeavor is imperative.
Lastly it is imperative to have a thorough command of your business skills. This entails an understanding of money — where it comes from, where it goes, how to get it, and how to keep it. It also calls into play knowledge of markets and marketing, products and product development, customers, sales, selling, buying, hiring, firing, EEO, AAP, and just about anything else you might think of.
Redefining Job Duties
With any restructuring it is inevitable that job functions and related duties are going to change. Forming cross functional job responsibilities move people away from traditional job roles and into new positions that are a hybrid of the previous core functions. While it is easy to define the new role responsibilities, redefining job titles and appropriate compensation becomes an issue. Because we are sailing in un-chartered waters so to speak Human Resource departments struggle with the assignment of appropriate compensation guidelines and issues such as whether the job should be classified as exempt or non-exempt. Comparing these newly created jobs with those in other areas of the business or those in other companies poses a challenge in that there is no history or basis of comparison for these recently created job functions.
Note - The Credit Research Foundation is currently engaged in a major research project designed to provide credit professionals with a general guideline for taking the lead or proactively participating in a BPR initiative. The blue ribbon research committee participating in this project is actively seeking answers to issues related to mapping processes, change management, and job duty redefinition. Anyone interested in the committees work is encouraged to contact CRF.
Lyle Wallis has a broad background in commercial credit having spent 30 years in the business credit field. He joined CRF in 1998 after previously being associated with a number of businesses including London Fog, Euler ACI and General Electric Capital Corp. Lyle is Vice President of Research for the foundation and deals with project development and education. He serves as the executive editor of the quarterly trade journal, The Credit and Financial Management Review, which is published by CRF. Lyle was awarded the Certified Credit Executive designation in 1987 and is a graduate of The Graduate School of Credit and Financial Management at Dartmouth College. Lyle may be reached at lylew@crfonline.org
