IT ENABLEMENT OF BUSINESS PROCESSES (STUDY OBJECTIVE 4)
Generally, information technology (IT) comprises all forms of technology used to create, store, exchange, and utilize information in its various forms, including business data, conversations, still images, motion pictures, and multimedia presentations. For the purposes of this book, information technology is defined as the computers, ancillary equipment, software, services, and related resources as applied to support business processes. IT usage to support business processes accomplishes one or more of the following objectives:
- Increased efficiency of business processes
- Reduced cost of business processes
- Increased accuracy of the data related to business processes
Any of the processes within an organization, including the linkages within the supply chain, are processes that may benefit by IT enablement. The touch-screen cash register at a McDonald's is an example of IT that increases the efficiency of the sales process. Another popular example of IT enablement of processes is e-commerce sales such those in place at Amazon.com, Inc. Amazon.com uses complex IT systems to present a sales model that allows customers to place orders on its website.
These two examples only scratch the surface of the types of processes that can be IT enabled. Any business process has the potential to be improved by IT enablement. In many cases, using IT to enable processes leads to a completely different approach to those processes. For example, the remote order-taking system described at the beginning of this chapter is a completely different order-taking process from the usual drive-through system. Using more complex IT such as voice over IP and digital photos, McDonald's is experimenting with improving the efficiency of drive-through order taking. Applying IT to business processes is an opportunity to “think outside the box” and consider completely different methods for business processes. This concept of revising processes as IT enabling occurs is called business process reengineering.
Business process reengineering (BPR) is the purposeful and organized changing of business processes to make them more efficient. BPR not only aligns business processes with the IT systems used to record processes, it also improves efficiency and effectiveness of these processes. Thus, the use of these sophisticated IT systems usually leads to two kinds of efficiency improvements. First, the underlying processes are reengineered to be conducted more efficiently. Second, the IT systems improve the efficiency of the underlying processes. Through rethinking and redesigning a process, the organization may be able to improve, and thereby enhance, the process. This rethinking and redesign is especially aided by the use of IT. When technology or computers are introduced into processes, the processes can be radically redesigned to take advantage of the speed and efficiency of computers to improve processing efficiency. IT and BPR have a mutually enhancing relationship. IT capabilities should support the business processes, and any business process should be designed to match the capabilities that the IT system can provide. BPR should leverage the capabilities of IT to improve the efficiency of processes. This is exactly what McDonald's has done in the remote drive-through example; it has taken advantage of the capabilities offered by technology to improve the process and match it to the capability of the IT system.
THE REAL WORLD
An example of business process reengineering with IT enablement occurred at Ford Motor Company several years ago. Ford used a purchasing process that required a three-part purchase order. One copy was sent to the vendor, one was kept by the purchasing department, and one was forwarded to the accounts payable department. When purchased parts were received, the receiving department prepared a two-part receiving report. The receiving department kept a copy, and the other copy was forwarded to accounts payable. The vendor mailed an invoice to Ford's accounts payable department. Matching purchase orders, receiving reports, and invoices required more than 500 people. These employees spent a great deal of time investigating mismatched documents. For example, the quantity on the purchase order might not have agreed with the quantity on the invoice. These time-consuming steps of document matching and reconciling mismatches led to late payments to vendors and, therefore, unhappy vendors.
Using IT and business process reengineering, Ford changed its purchasing and payment processes. After BPR an online database was used. No document copies were prepared or circulated internally. When parts were received, the receiving employee verified that the goods matched to an outstanding purchase order in the database. The computer system verifies the matching of the part number, unit of measure, and supplier code between the purchase order and receiving report. When they agree, the computer system prepares a check to pay the vendor. This reengineered process allowed Ford to reduce the number of employees in accounts payable by 75 percent.
Each of the business process categories (revenue, expenditure, conversion, and administrative) described in the early part of this chapter has been affected by business process reengineering and IT enablement. In this book, the chapters in the section “Business Processes” provide more detail about those categories of common business processes. Parts of those chapters also provide details of IT enablement that allowed BPR to occur in organizations. The next sections of this chapter briefly describe basic IT concepts and IT enabling systems.