Business process reengineering (BPR)

Business process reengineering (BPR) is the analysis and redesign

of workflows within and between enterprises in order to optimize end-to-end
processes and automate non-value-added tasks.
The concept of BPR was first introduced in the late Michael Hammer's 1990. They suggested
the reengineering principles to streamline the work process and thereby achieve significant
levels of improvement in quality, time management, speed and profitability:
1. Organize around outcomes, not tasks.
2. Identify all the processes in an organization and prioritize them in order of redesign urgency.
3. Integrate information processing work into the real work that produces the information.
4. Treat geographically dispersed resources as though they were centralized.
5. Link parallel activities in the workflow instead of just integrating their results.
6. Put the decision point where the work is performed, and build control into the process.
7. Capture information once and at the source.

Benefits of Re-engineering a legacy system:

Although many application development tool vendors emphasize new development in the form
of tools to drive multi-tier application development or web-enablement, the notion of how to
leverage past IT investments has largely been overlooked. Since business rules define the
active policy of an organization, an ability to identify, understand and leverage these rules is a
key prerequisite to evolving an organizations IT infrastructure.
Until recently, software engineering concentrated almost exclusively on the definition and
improvement of the software development process. And this produced a lot of important results,

ranging from structured analysis, to object oriented analysis, domain and component analysis,
CASE environments, etc., which are very useful in developing new systems and forward
engineering existing systems well maintained and documented. But legacy systems, created
prior these methodologies and tools, usually are very poor in documentation and suffer of years
of personnel change and ad-hoc maintenance interventions. This is where reengineering steps
in.

Reengineering is the systematic transformation of an existing system into a

new form to realize quality improvements in operation, system capability,
functionality, performance, or resolvability at a lower cost, schedule, or risk to
the customer.
This definition emphasizes the focus that reengineering puts on improving existing systems with
a greater return of investment (ROI) than could be obtained through a new development.
Reengineering is closely related to traditional maintenance, as defined by ANSI-IEEE:
maintenance entails making corrective, perfective, and adaptive changes to software, while
development focuses on implementing new capabilities, adding functionalities, or making
substantial improvements typically by using new computer resources and incorporating new
software technologies; reengineering spans the gap between these two activities and exhibits
characteristics of both.
Here are the five reasons why business process reengineering should start before your ERP
implementation:

1. Maintain your competitive advantage.

Yes, your current enterprise systems are probably a mess . . . if they even exist. You probably
have a ton of spreadsheets, manual workarounds and other inefficiencies that make you wonder
how your organization has managed to survive and thrive for this long. But you probably also
have business processes that give you a competitive edge, no matter how painful or inefficient
they may be. Business process reengineering without the constraints of software configuration
ensures that you maintain these competitive advantages as you select and implement your new
ERP systems.

2. Best practices are a farce, but lean Six Sigma isnt.

Best practices are a lot like unicorns and Santa Clause they sound mythical, magical, and
represent what we all hope really exists, but then we realize one day that they dont. Best
practices sound good in theory, but the reality is that they are simply best practices for how any
particular ERP vendors software works rather than for your operations. An exception to this rule
is vanilla, back-office functions such as HR and accounts payable. Lean Six Sigma, on the other
hand, is a set of tools that can be used to define your own set of best practices, efficiencies, and
competitive advantages that you likely dont want to be replicated by industry peers. The graphic
below illustrates some of the lean Six Sigma activities that Panoramas team has built into its
business process reengineering methodology:

3. Faster realization of business process improvements and business

benefits.
When we help clients identify process improvements, we often find that although a new ERP
system may help automate and further enable process changes, many improvements can be
rolled out independent of the chosen ERP software. For example, if a company decides that it
wants to incorporate a purchase order approval workflow to institute tighter controls on
procurement costs, it may decide to do so via email approvals until a more robust ERP system is
in place to further automate this change. In addition, from an organizational change
management perspective, spoon feeding changes to employees sooner is more effective than
waiting to implement a massive degree of change all at once during an ERP implementation.

4. Avoid the paving the cowpaths trap.

Companies that fail to define business process improvements prior to their implementations are
much more likely to simply automate their existing broken processes. The reason? Once an
implementation starts, the meter is running on expensive technical consultants, so every minute
spent making process decisions or agreeing to changes costs time and money. This set-up
forces most project teams into the path of easiest resistance (i.e., simply configuring or
customizing the software to fit existing processes). On the other hand, companies that take the
time to define processes up front ultimately end up accelerating their implementation durations
and minimizing extra costs, allowing the technical resources to focus on how the software can
be best configured to meet those processes.
Business process reengineering is one of the holy grails of ERP implementations. Everyone
wants it, but few know how to achieve it. By having a realistic understanding of how processes
are best defined and incorporated into an ERP implementation, projects teams will be much
more likely to succeed. In addition, your implementation will be faster, less expensive, and more
widely embraced by employees with these tips and guidelines in place.

Reengineering Benefits:
Lower costs.
Evidence from a number of US projects suggests that reengineering an existing system costs
significantly less than new system development. Ulrich, for example reports on a reengineering
project that cost $12 million, compared to estimated redevelopment costs of $50 million.

Lower risks.
Reengineering is based on incremental improvement of systems, rather than radical system
replacement. The risk of losing critical business knowledge, which may be embedded in a
legacy system, or of producing a system that does not meet its users real needs, is drastically
reduced.

Better use of existing staf.

Existing staff expertise can be maintained, and extended accommodate new skills during
reengineering. The incremental nature of reengineering means that existing staff skills can
evolve as the system evolves. The approach carries less risk and expense which is associated
with hiring new staff.

Revelation of business rules.

As a system is reengineered, business rules that are embedded in the system are rediscovered.
This is particularly true where the rules govern exceptional situations.

Incremental development.
Reengineering can be carried out in stages, as budget and resources are available. The
operational organization always has a working system, and end users are able to gradually
adapt to the reengineered as it is delivered in increments.
S oftware reengineering is often associated with business process reengineering (BPR). They
should not however been confused. Software reengineering is the improvement of software
systems. The objective of BPR is to increase the efficiency of an organizations business
processes. BPR is however, often a precursor to software reengineering.
It is important to view legacy systems from the greater perspective of BPR. Software
reengineering is of little value if the software system is being improved in a way, which is not
suited to the business process in which the system operates.
Many of todays legacy systems were developed to support dated bureaucratic and hierarchical
organizational structures. Organizations have generally changed their ways of working to be
more productive and reduce their running costs. Unless the legacy systems change to support
new working

How to Implement Business Process Reengineering in

Your Business:
The following steps (Davenport, 1992) can help BPR realize its core principles of customer
satisfaction, reduced costs of business and increased competitiveness.

1. Business Vision and Objectives:

Any BPR activity needs to begin with clearly defined and measurable objectives. Whether the
goal is reducing costs, improving quality of product, or increasing efficiency, the framework for
what needs to be achieved has to be decided upon at the outset, in line with the companys
vision and mission.

2. Identification and Slacking Process:

Once a clear goal is in mind, all processes need to be studied and those seen as slacking or
that can be improved need to be identified. Among these, those processes with direct impact on
the companys output or those that clash with the companys mission become part of the red
list. This clear identification makes the difference between BPR success and failure.

3. Understand and Measure the RED Processes:

With a list of slacking processes in hand, it is imperative to identify how they were identified as
such. Are they taking too much time to complete? Is the quality of the outcome being
compromised? Whatever the issue, each process must be judged objectively either against
industry standards or ethically obtained competitor best practices.

4. Information System and Technology Capabilities:

An efficient and relevant IT system is an essential BPR enabler. Without such a system, it is not
possible to keep a check on all factors affecting the change. Before setting out on a radical BPR
activity, it is vital to set in place information systems that can deal with the magnitude of the
change.

5. Design Build and Test the New Prototype:

Before any new product is launched, a prototype is tested out. A failure at a testing stage should
never be implemented at a larger scale. BPR projects fail more often than not for a variety of
reasons but a basic reason is the inability to identify and accept any limitations at the testing
stage. Among other factors, both the managements attitude towards the new way of work and
the employees outlook towards the change should be carefully assessed.

6. Adapting the Organization:

Managing change brought about by BPR activities is the final effort towards a successful
project. Providing updated documentation, organizational structures, governance models as well
as updated charts of authority and responsibility leave little room for confusion and allow a
smooth transition into the new way of work.
Business process reengineering is a radical change activity that cannot be repeated if it goes
wrong the first time. It is often a high risk activity that involves monetary investment and a risk of
demotivated employees. In is essential to have buy in all the way from top management down
and it should have a broad functional scope.

Successes and Failures of Business Process ReEngineering:

It is important to acknowledge and understand that BPR is not a foolproof method of success.
As with all activities it runs the risk of failure.

A BPR program can be successful if:

Customer needs are made the priority and this vision is used to appropriately direct
business practices.

There are cost advantages to be achieved that help the organization become more
competitive in its industry

A strategic view of all operational processes is taken with relevant questions being asked
about the established way of work and how it can be developed over the long term into
more efficient business practices

There is a willingness to look beyond tasks and traditional functional boundaries with
focus outcomes. Through this, entire processes can be eliminated or amalgamated into
fewer but more relevant and powerful processes throughout the organization.

There is a real desire to simplify the way of work by objectively assessing all activities
and tasks and eliminating any that add less value and more complexity.

A BPR program will fail if:

It is seen as a way to make minor adjustments and improvements to existing processes.

If there is no clear willingness to put all existing process onto the chopping block, there is
no chance of success

It is seen as a one-time cost cutting exercise. In reality, cost reductions are often a handy
by product of the activity but not the primary concern. It is also not a one-time activity but
an ongoing change in mindset

There is no success in gaining dedicated long term commitment from management and
the employees. Bringing people onboard is a difficult task and many BPR initiatives never
take off because enough effort is not put into securing support

There is less effort to redesign and more to automate

One department is prioritized at the expense of the process. There needs to be an

openness towards studying every single process in detail and a willingness to change
whatever is needed to achieve overall efficiency

There is too much internal focus and not enough of an eye on the industry and what
competitor best practices can be used as benchmarks

Business process reengineering Model

Examples of BPR (Business Process Re-insurance):

Connecticut Mutual Life:

Connecticut Mutual Life Insurance, the sixth oldest American life insurer with approximately 1.3
million policyholders, was facing business issues stemming from the company's financial rating,
fragmented operations, labor/paper intensive processes and a small work force that was over
burden. The fragmented operation and unconnected systems caused both policyholders and
agents to have to interact with several departments of the company at one time to resolve
problems or provide service. To resolve this issue the company redesigned its computer system
from a host-based system that had been configured to meet the companies vertical business
needs. The new system consisted of a client/server document management system with
relational databases that provides its representatives with a client's complete record. This action
resulted in increased response time to the policyholder and increased productivity.

FORD:
In his suggestions to Ford, Michael Hammer proposed something radical: Eliminate the invoice.
In the new scenario, a buyer no longer needed to send a copy of the purchasing order form to
the creditor administration. Instead, he registers an order in the online database. When the
items appear at the store, the storekeeper checks whether these correspond to the purchase
order form in the system. In the old system he did not have access to this form. If the items
match the order, he accepts them and registers this in the computer system. If they do not, the
items are returned. Hammer reported that Ford benefited drastically from this change with an
almost 75% decrease in workforce in the accounts payable department.

HALLMARK:
Hallmark used to spend 3 years in bringing new products to the market. With more niche
markets identified Hallmark executives were convinced that the product development process
needed to be redesigned. Using reengineering, the goal was set to change cycle time to one
year. They discovered to their surprise that two thirds of the product cycle was spent on planning
and conceptualizing the card rather than on printing and production rework as had previously
been thought. The concept spent 90% time waiting for a creative staffer to complete a new
iteration till it was eventually finalized, In 1991, a new line of cards was brought to market in 8
months, ahead of schedule, by creating a cross functional team for product development.

CASE STUDY:
BPR in Insurance:
Introduction
Business process re-engineering is an approach which aims to improve the efficiency and
effectiveness of the existing processes in the organization. One of the key aspects of business
process re-engineering is to identify the processes in place which can be further improved by
making necessary changes which can also help in elevating the business performance.
Definition of BPR: It can be defined in one of the ways 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."1
Business process re-engineering is mainly focused at removing the non-value adding
processes. Many managers fail to recognize this and tend to spend their resources and time on
optimizing these non-value adding processes. On the other hand it is really important to
recognize such processes which can be obliterated because obliteration of important processes
could have negative implications. Making trade-offs between elimination and keeping the
process which is of mediocre importance is also a big challenge for the managers. Hence a
veteran level experience is required to make a successful business process re-engineering.
In contrast to the other organizational development approaches like TQM and Continuous
improvement, BPR brings in drastic changes in the organization. Businesses should focus on
bringing in drastic changes which can improve the activity by several times in short time and not
just
Business Process re-engineering in Insurance
1

Implementation of BPR in Insurance industry/organization can bring in drastic changes in the

business activity. Some of the areas of Insurance where business process redesign can be
implemented are:

Under writing solutions

Business Intelligence and Data Analytics
Claims processing solutions
Re-insurance solutions
Insurance work flow and Interface solutions

Under Writing Solutions: Insurance industry is facing the problem of automating the
underwriting solution. This leads to reduced profits and inefficient business activity. The BPR
process may help under writing activity to develop new application platforms and eliminate
legacy systems. E-commerce and web based applications may also be used to make the activity
real-time.
Business Intelligence and Data Analytics: Insurance industry deals with huge amount of data
and BPR solutions can really help organize, structure and integrate data across the
organization. BPR can also help in achieving efficiency in following areas of BI and DA:

Data mining
Data modeling
Data transformation
Data scrubbing and cleansing

Claims Processing Solutions: This is a critical business activity in insurance industry. Here
are some of the areas where BPR can be implemented in claims processing activity:

Custom Application development

Modernization of legacy systems
Documenting existing applications

Benefits derived out of implementation of BPR in claims processing: Reduction in 35% of

transactional cost and improved settlement efficiency by almost 40%.
Re-insurance solutions: Re-insurance solution involves extensive paper work and
implementation of BPR can solve this problem. Some of the areas where this can be
implemented are:

Maintenance and support of legacy systems

Web enabling of the applications
Migration of legacy systems

Benefits derived out of implementation of BPR in claims processing: Reduction in

processing cost by almost 40%. Improved efficiency through automation of processes.