Business Reengineering

.. categories: Functional Structure Geographic Structure Divisional Structure Strategic Business Units Matrix Organization We will address each one of them. 3.2.1 Functional Structure: Mainly occur in organizations with single or narrow product focus, require well-defined skills and areas of specialization to build competitive advantage in providing their products/services. Dividing work into functional specialties enables personnel to concentrate on only one aspect of the necessary work. This allows use of latest technical skills and develops a high level of efficiency.

Functional areas can be divided into engineering, production, human resource, finance and accounting and marketing. Another way of dividing could be: purchasing, receiving and inventory, order entry, wholesales, retail sales, accounting, billing and customer service. Example of this structure can be found in East Africa Breweries Limited, Barclays Bank of Kenya. Advantages: 1. Achieves efficiency through specialization 2. Helps in developing of functional expertise 3.

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It involves differentiation and delegation of daily operating decisions. 5. Retains centralized control of strategic decision 6. It tightly links structure to strategy by designating key activities as separate units Disadvantages 1. It promotes narrow specialization and functional rivalry or conflict 2.

It creates difficulties in functional coordination and inter-functional decision making 3. Limits development of general managers 4. It has a strong potential for inter-functional conflicts arising from priorities being placed on functional areas and not the entire business 3.2.1. Geographical Structure It is common in firms that have grown by expanding the sale of their products of services to new geographical areas. In these areas, they frequently encounter differences that necessitate different approaches in producing, providing or selling services or products.

The key strategic advantage of this structure is responsiveness to local market conditions. E.g. Coca Cola, Africa Online, Total Kenya Limited. Advantages 1. Allows tailoring of strategy to needs of each geographic market.

2. It delegates profit or loss responsibility to lowest strategic level 3. It improves functional coordination within the target market 4. It takes advantage of economies of local operations 5. It provides excellent training grounds for higher level general managers Disadvantages 1.

It poses problems of deciding whether head office should impose geographic uniformity or diversity should be allowed 2. It makes it more difficult to maintain consistent company image or reputation from area to area 3. Adds a layer of management with the responsibility of running geographic units 4. It can result in duplication of customer services at head office and local levels 3.2.2 Divisional Structure This structure is used when a firm diversifies its product/service lines, utilizes unrelated market channels or begins to serve heterogeneous customer groups. This is often as a result of the functional structure being unable to meet the increased coordination and decision-making requirements that result from increased diversity and size.

Examples of this structure can be seen in CMC Motors, Unga Limited and Nation Media Group. Advantages 1. Forces coordination and authority down to the appropriate level for rapid response 2. Places strategic development and implementation in close proximity to the unique environment of each division. 3.

It frees the CEO to be involved in broader strategic decision-making. 4. Shortly focuses accountability for performance 5. It helps retain functional specialization within each division 6. It provides a good training ground for strategic managers Disadvantages 1.

It fosters potentially dysfunctional competition for corporate level resources 2. It presents the problem of determining how much authority should be given down to divisional managers. 3. Creates a potential for policy inconsistencies among divisions 4. It presents the problem of determining how to distribute corporate overhead costs in a way acceptable to divisional managers. 3.2.5 Strategic Business Units This structure arises in order to counter difficulties in evaluating and controlling the operations of the divisions and the diversity, size and number of units continues to increase.

To deal with this a firm may need to add another layer of management to improve strategy implementation, to promote synergy and to gain control over the firm’s diverse business interests. This can be accomplished by creating groups that combine various divisions in terms of common strategic elements. These groups are known as Strategic Business Units and are usually based on the independent product-market segments served by the firm. Examples of this can be seen in Unilever, Sameer Group, Matsu*censored*a Corporation and Lonhro East Africa. Advantages 1.

It improves coordination among divisions with similar strategic concerns and market environments. 2. It tightens the strategic management and control of large and diverse business interests. 3. Facilitates distinct and in-depth business planning at the corporate and business levels. 4. It helps channel accountability to distinct business units.

Disadvantages 1. It places another layer of management between the division and corporate management. 2. It may increase dysfunctional competition for corporate resources. 3. May present difficulties in defining the goal of the group Vice President.

4. It may present difficulties in defining how much autonomy should be given to the group Vice President and Divisional Managers. 3.2.5 Matrix Organization As large companies increase diversity, the result is the upsurge of numerous product and project effort of major strategic importance. This may need an organization form that provides skills and resources when and where they are most vital. The Matrix Organization meets this need by providing dual channels of authority, performance responsibility, evaluation and control. Essentially, subordinates are assigned both to a basic functional area and to a project/product manager.

This structure increases the number of middle level managers who exercise general management responsibilities. Although the Matrix structure is easy to design, it’s difficult to implement. The dual chains of command challenge fundamental organization orientations. Examples of this structure can be seen in Citicorp and Shell Oil. Advantages 1.

It accommodates a wide variety of project oriented business activities. 2. Provides good training ground for strategic managers. 3. It maximizes the efficient use of functional managers. 4.

It helps foster creativity and provides multiple sources of diversity. 5. Gives middle management broader exposure to strategic issues. Disadvantages 1. It may result in confusion and contradictory policies. 2.

It necessitates tremendous horizontal and vertical coordination. 3. Can cause information jams and result to excess reporting. 4. Can lead to loss of accountability.

3.3. Guidelines to match structure to strategy Considerable research has shown that the structure of the organization is dependent upon the strategy it adopts. The following are some guidelines that have a great significance in matching the two. Restructure to emphasize and enforce strategically critical activities. Reengineer strategic business processes Downsize, outsource and self manage Strategy and structure evolution Restructure to emphasize and enforce strategically critical activities.

Restructuring has been very core to modern businesses. It arises from the fact that some activities within a business’s value chain are more critical to the success of a business than others. Examples of this can be seen in Motorola and Coca Cola Motorola has its organizational structure designed in such a manner as to protect and nurture its legendary R & D and new product development capabilities. Coca Cola on the other hand emphasizes on the importance of distribution, advertising and written support to its bottlers. Two critical considerations arise when restructuring organizations. First, managers need to make the strategically critical activities the central building blocks for designing the organization structure.

Those activities should be identified and separated into self-contained parts. The second consideration is to design the organization structure so that it helps coordinate and integrate these activities to be able to maximize the support of strategy/critical primary activities in the firms value chain and does so in a way to minimize the const of supporting activities and the time spent on internal coordination. Managerial efforts to do this in the 1990’s have placed reengineering, downsizing and outsourcing as prominent tools for strategists restructuring the organizations. Reengineering will be looked at later on in details. 3.3.1 Downsizing This is eliminating the number of employees particularly those in middle management. This has been due to the arrival of a global market place, information technology and intense competition, which has caused companies to reevaluate middle management activities to determine just what value, is being added to the company’s products and services.

The result of this scrutiny along with continuous improvement in information processing technology has been a major cause of downsizing. Nowadays, job cuts or reductions are not an alarming phenomenon. Most of companies in the Kenya corporate sector are undergoing through this scenario both those in the service as well as manufacturing industry. Mass retrenchments are the order of the day from banks in Nairobi Central Business Districts to manufacturing concerns in Industrial area and to rural agricultural industries. 3.3.2.

Self Management This has been a direct outcome of downsizing. Cutbacks in the number left those that remained with more work to do. The result was that they had to give up a good measure of control to workers and they had to rely on the workers to help out. Spans of control traditionally thought to maximize fewer than ten people, have become much larger due to information technology leading to a lot of delegation to lower levels. This delegation includes empowerment through self-managed work groups.

The result is that major decisions can be handled at operating levels. This is evident in American oriented service companies. 3.3.3. Outsourcing This one has also arisen from downsizing. This simply means obtaining work previously done by employees inside the company from sources outside the company. Managers have found that as they attempt to restructure the organization particularly if they do so from a business process orientation, numerous activities can often be found in their company that is not strategically critical activities.

This has been particularly the case of numerous staff activities and administrative control processes, previously the domain of various middle level management. Further scrutiny has led managers to conclude that these activities not only add little value or no value to the product or services, but that they are either unnecessary or they can be done much more cost effectively by other businesses specializing in these activities. Outsourcing then can be a source of competitive advantage where activities, which the company can out rightly eliminate, are excluded from the structure. Example Unilever decided to eliminate its huge R & D department from its structure as a strategic decision. This department was later formed to be the current Research International firm, which is a world-renowned market research. Another example could be the elimination of transport services from the USIU administration structure opting for an outside agent to offer the same service. 3.4 Strategy structure evolution There is usually a general sequence that a firm adopts as it continues to grow and expand.

The sequence may be in either of the two following ways. Volume expansion To Geographic expansion To Vertical integration Product diversification Single product To Single dominant business To Related diversifies businesses To Unrelated diversifies businesses In line with the above strategy evolutions, structure also follows suit in adapting to each stage of evolution. The following structure-strategy fit is often maintained. 1. Functional structure is often used for strategies of single dominant business. 2.

Divisional structure is applied where we have a strategy of several lines of business, which are somehow related. 3. The SBU structure is also applied where we have a strategy of several unrelated lines of business. NB: Its also worth noting that the firm that achieves the first structure strategy fit will achieve the most of competitive advantage in its industry of operation. 3.5 Illustrations of potential strategic priority and critical activities Potential strategy and priority critical activities can be classified as follows.

1. Compete as a low cost provider of goods and services. 2. Compete as a high quality provider. 3. Stress customer service. 4.

Provide rapid and frequent new products. 3.5.1. Compete as low cost provider of goods and services Broadens Markets mainly due to the fact that more people will be able to afford the goods and services. Requires longer production runs and fewer product changes. This is because of the benefits that arise from the economies of scale.

The longer the production runs, the more units that are produced and the lower the cost of production per unit. Fewer product changes would mean cost savings in terms of purchasing additional raw materials and those arising from process changeover costs e.g. Japanese car makers (Toyota) When Toyota mass production of its cars, it’s broadened as the cheaper vehicles were now affordable by a large market. This meant that they had to decentralize their operations and open up offices in many countries. Now we have many subsidiaries of the Toyota company e.g. Toyota Team Kenya, Toyota Team Europe.

Further in order to be allow cost provider of cars, Toyota had to produce cars en mass. This meant that they had to introduce automated production lines, which could run 24-7-365. This saw the laying off front hose personnel. In order to save costs, Toyota makes very few changes to their vehicles. This saves on raw materials and process changeover costs.

3.5.2. Compete as a high quality provider Example In the early 1990s Rolls Royce produced 6 hand-made vehicles. The revenues earned from the sale of these vehicles were enough to cover the company’s costs and earn them profits. This is because the profits obtained per unit, and from tote Required more quality assurance effort and higher operating costs. The quality assurance effort had to be stepped-up as the chances of fault became increasingly higher due to human error.

Operating costs increase since the salaries and wages paid to highly skilled Personnel are higher and much more testing has to be done to ensure that the vehicles are of quality of the cars Requires more precise equipment, which is more expensive. Going back to the Rolls Royce e.g. since the cars are hand made the possibilities of human error becomes greater. Thus the testing must have a high degree of precision. This obviously results in the costs of production being very high. Requires highly skilled workers, necessitating high wages and greater training.

In order to ensure great quality of their cars, Rolls Royce had to acquire highly skilled workers, train them further and pay them well in order to retain and motivate them. 3.5.3 Stress customer service Example: Steers free delivery of orders Requires broader development of service people and service parts and equipment. When Steers started the free delivery of orders within Nairobi, it had to train its service personnel to ride motorbikes as well as acquiring enough motor bikes for this purpose. Requires rapid response to customer needs or changes in customer tastes, rapid and accurate information system as well as careful coordination. At Steers this is done mainly through their customer hot lines and over the Internet where customers can call in to order, complain or complement their services.

All these enable them to keep up with customer’s tastes as well as to coordinate smooth delivery of orders. Requires high inventory investment Since most of their foods are made in orders, Steers has to have high inventory of ingredients required for most of the foods ordered. This reduces delays in preparation since they store the ingredients in their proximity. This is costly to maintain. 3.5.4 Provide rapid and frequent introduction of new products Example SmithKline Beecham: Requires versatile equipment and people.

SmithKline Beecham, an international pharmaceutical with a Kenyan plant is reputed to have high caliber equipment and renowned professionals in the pharmaceutical fields no wonder they are able to release new products every now and then. E.g. Coldrex, Requires higher R & D costs example Motorola Motorola spends twice the industry average in R & D each year. This translates into a capability of releasing new and frequent products in the market every now and then. Their products range from Radio equipment and mobile handsets. This is an industry that requires the release of new products every now and then for the company to survive. 4.

RE-ENGINEERING STRATEGIC BUSINESS PROCESSES Introduction Leading organizations throughout the world are being driven to rethink their businesses and orient towards processes. Doing this forces them to quantify the business’s efforts by the four new “value metrics”: – 1. Improved product quality and or service 2. Reduced cycle times 3. Reduced cost to customer 4. Increasing the speed of innovation and new product development Why BPR? (Drivers to BPR) 1. Customer demands 2. Competition 3.

Demand for better cost 4. Technology shifts 5. Shareholders BPR was popularized by Michael Hammer and James Champy (1993) from a realization that continuous improvement cannot apply when a firm is lagging far behind the world standard. It needs a rapid, quantum leap improvement. It is one method for restructuring efforts to remain competitive that concentrates on core business processes to focus on external measures of success like improved market share.

It challenges internal company rules and industry rules. Definition BPR has been defined as the means by which an organization can achieve radical change in performance as measured by cost, cycle time, service, and quality, by the application of a variety of tools and techniques that focus on the business as a set of related customer oriented core business processes rather than a set of organizational functions. 4.2 Characteristics of BPR A core business process, as distinct from other processes is a set of linked activities that crosses functional boundaries and, when carried out in concert, addresses the needs and expectations of the marketplace and drives the organization’s capabilities. Core business processes are usually limited and may not exceed more than half a dozen like reducing the Federal Drug Association’s approval of blockbuster drug for Pharmaceutical firms. Examples of non-core business processes are monthly closing of books by the Finance Department.

It is intended to re-organize a company so that it can best create value for the customer by eliminating barriers that create distance between employees and customers. It involves fundamental rethinking and radical re-design of a business process. Radical – because it strives structure organizational efforts and activities around results and value creation by focussing on processes that are undertaken to meet customer needs (not specific tasks and functional areas such as marketing and sales) It reduces fragmentation by crossing traditional departmental lines and reducing overhead to compress formerly separate steps and tasks that are strategically intertwined in process of meeting customer needs (Processes are managed not functions) The process orientation rather than functional orientation becomes the perspective around which various activities and tasks are then grouped to create the building blocks of the organization’s structure. A multi-dimensional, multi-level team identifies customer needs and how the customer wants to deal with the company. Customer focus must permeate all phases.

4.3 BPR IMPLEMENTATION STEPS 1. Develop a flowchart of the total business process including its interfaces with other value chain activities 2. Try to simplify the process first, eliminating tasks and steps where possible and analyzing how to streamline the performance of what remains. 3. Determine which parts of the process can be automated (usually those that are repetitive, time consuming and requiring little thought or decision) Consider introducing advanced technologies that can be upgraded to achieve next generation capability and provide a basis for further productivity gains down the road 4. Evaluate each activity in the process to determine whether it is strategy-critical or not. Strategy-critical activities are candidates for benchmarking to achieve best in industry or best in world performance status 5. Weigh the pros and cons of outsourcing activities that are non-critical or that contribute little to organizational capabilities and core competencies 6.

Design a structure for performing the activities that remain; re organize the personnel and groups who perform these activities into the new structure 4.4 Benefits of Implementing BPR 1. Gaining competitive advantage from increased sales resulting from satisfied customers e.g. Standard Chartered Bank Kenya Ltd. 2. Reduced cycle time and cost e.g. Accounts Payable Dept Smithkline Beecham Kenya 2000 3.

Flat organizations – Microsoft and dotcom companies 4. Increased responsiveness to customers NB. BPR requires maintenance of Key Performance Indicators on Quality, Lead time, Cost and Service. CONSEQUENCES As BPR efforts progress, one of the first phenomena is excess capacity. As processes are re-engineered, even more capacity is discovered. The most frequent response is downsizing.

BPR suggests that old practices must be “obliterated” and new processes designed from scratch to fully leverage new technologies and business realities. In practice, few managers have the luxury of re-designing their processes or organizations from “clean sheet of paper” – people, equipment and business knowledge cannot be so easily scrapped. Furthermore, organizational change almost inevitability becomes a learning process in which unanticipated obstacles and opportunities emerge. Business.