ms notes unit viii

8/2/2019 Ms Notes Unit VIII

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JIT Just-in-Time manufacturing

`Just-in-time' is a management philosophy and not a technique.

It originally referred to the production of goods to meet customer demand exactly, in time,

quality and quantity, whether the `customer' is the final purchaser of the product or another

process further along the production line.

It has now come to mean producing with minimum waste. "Waste" is taken in its most general

sense and includes time and resources as well as materials. Elements of JIT include:

Continuous improvement

Attacking fundamental problems - anything that does not add value to the product.

Devising systems to identify problems.

Striving for simplicity - simpler systems may be easier to understand, easier to

manage and less likely to go wrong.

A product oriented layout - produces less time spent moving of materials and parts.

Quality control at source - each worker is responsible for the quality of their own

output. Poka-yoke - `foolproof' tools, methods, jigs etc. prevent mistakes

Preventative maintenance, Total productive maintenance - ensuring machinery and

equipment functions perfectly when it is required, and continually improving it.

Eliminating waste. There are seven types of waste:

waste from overproduction.

waste of waiting time.

transportation waste.

processing waste.

inventory waste.

waste of motion.

waste from product defects.

Good housekeeping - workplace cleanliness and organisation.

Set-up time reduction - increases flexibility and allows smaller batches. Ideal batch size is

1item. Multi-process handling - a multi-skilled workforce has greater productivity, flexibility

and job satisfaction.

Levelled / mixed production - to smooth the flow of products through the factory.Kanbans - simple tools to `pull' products and components through the process.

Jidoka (Autonomation) - providing machines with the autonomous capability to use judgement,

so workers can do more useful things than standing watching them work.

Andon (trouble lights) - to signal problems to initiate corrective action.

JIT - Background and History

JIT is a Japanese management philosophy which has been applied in practice since the early

1970s in many Japanese manufacturing organisations. It was first developed and perfected

within the Toyota manufacturing plants by Taiichi Ohno as a means of meeting consumer

demands with minimum delays . Taiichi Ohno is frequently referred to as the father of JIT.

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Toyota was able to meet the increasing challenges for survival through an approach that

focused on people, plants and systems. Toyota realised that JIT would only be successful if

every individual within the organisation was involved and committed to it, if the plant and

processes were arranged for maximum output and efficiency, and if quality and production

programs were scheduled to meet demands exactly.

JIT manufacturing has the capacity, when properly adapted to the organisation, to strengthen

the organisation's competitiveness in the marketplace substantially by reducing wastes and

improving product quality and efficiency of production.

There are strong cultural aspects associated with the emergence of JIT in Japan. The Japanese

work ethic involves the following concepts.

Workers are highly motivated to seek constant improvement upon that which already

exists. Although high standards are currently being met, there exist even higher

standards to achieve.

Companies focus on group effort which involves the combining of talents and sharing

knowledge, problem-solving skills, ideas and the achievement of a common goal.

Work itself takes precedence over leisure. It is not unusual for a Japanese employee to

work 14-hour days. Employees tend to remain with one company throughout the course of their career span.

This allows the opportunity for them to hone their skills and abilities at a constant rate

while offering numerous benefits to the company.

These benefits manifest themselves in employee loyalty, low turnover costs and fulfilment of

company goals.

The Eight Elements Of TQM

Total Quality Management is a management approach that originated in the 1950's and hassteadily become more popular since the early 1980's. Total Quality is a description of the

culture, attitude and organization of a company that strives to provide customers with products

and services that satisfy their needs. The culture requires quality in all aspects of the company's

operations, with processes being done right the first time and defects and waste eradicated from

operations.

To be successful implementing TQM, an organization must concentrate on the eight key

elements:

Ethics Integrity

Trust

Training

Teamwork

Leadership

Recognition

Communication

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Key Elements

TQM has been coined to describe a philosophy that makes quality the driving force behind

leadership, design, planning, and improvement initiatives. For this, TQM requires the help of

those eight key elements. These elements can be divided into four groups according to their

function. The groups are:

I. Foundation - It includes: Ethics, Integrity and Trust.

II. Building Bricks - It includes: Training, Teamwork and Leadership.

III. Binding Mortar - It includes: Communication.

IV. Roof - It includes: Recognition.

I. Foundation

TQM is built on a foundation of ethics, integrity and trust. It fosters openness, fairness and

sincerity and allows involvement by everyone. This is the key to unlocking the ultimate

potential of TQM. These three elements move together, however, each element offers

something different to the TQM concept.

1. Ethics - Ethics is the discipline concerned with good and bad in any situation. It is a two-

faceted subject represented by organizational and individual ethics. Organizational ethics

establish a business code of ethics that outlines guidelines that all employees are to adhere to inthe performance of their work. Individual ethics include personal rights or wrongs.

2. Integrity - Integrity implies honesty, morals, values, fairness, and adherence to the facts and

sincerity. The characteristic is what customers (internal or external) expect and deserve to

receive. People see the opposite of integrity as duplicity. TQM will not work in an atmosphere

of duplicity.

3. Trust - Trust is a by-product of integrity and ethical conduct. Without trust, the framework of

TQM cannot be built. Trust fosters full participation of all members. It allows empowerment

that encourages pride ownership and it encourages commitment. It allows decision making at

appropriate levels in the organization, fosters individual risk-taking for continuous

improvement and helps to ensure that measurements focus on improvement of process and are

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not used to contend people. Trust is essential to ensure customer satisfaction. So, trust builds

the cooperative environment essential for TQM.

II. Bricks

Basing on the strong foundation of trust, ethics and integrity, bricks are placed to reach the roof

of recognition. It includes:

4. Training - Training is very important for employees to be highly productive. Supervisors are

solely responsible for implementing TQM within their departments, and teaching their

employees the philosophies of TQM. Training that employees require are interpersonal skills,

the ability to function within teams, problem solving, decision making, job management

performance analysis and improvement, business economics and technical skills. During the

creation and formation of TQM, employees are trained so that they can become effective

employees for the company.

5. Teamwork - To become successful in business, teamwork is also a key element of TQM.

With the use of teams, the business will receive quicker and better solutions to problems.Teams also provide more permanent improvements in processes and operations. In teams,

people feel more comfortable bringing up problems that may occur, and can get help from other

workers to find a solution and put into place. There are mainly three types of teams that TQM

organizations adopt:

A. Quality Improvement Teams or Excellence Teams (QITS) - These are temporary teams with

the purpose of dealing with specific problems that often re-occur. These teams are set up for

period of three to twelve months.

B. Problem Solving Teams (PSTs) - These are temporary teams to solve certain problems and

also to identify and overcome causes of problems. They generally last from one week to three

months.C. Natural Work Teams (NWTs) - These teams consist of small groups of skilled workers who

share tasks and responsibilities. These teams use concepts such as employee involvement

teams, self-managing teams and quality circles. These teams generally work for one to two

hours a week.

6. Leadership - It is possibly the most important element in TQM. It appears everywhere in

organization. Leadership in TQM requires the manager to provide an inspiring vision, make

strategic directions that are understood by all and to instill values that guide subordinates. For

TQM to be successful in the business, the supervisor must be committed in leading his

employees. A supervisor must understand TQM, believe in it and then demonstrate their belief

and commitment through their daily practices of TQM. The supervisor makes sure thatstrategies, philosophies, values and goals are transmitted down through out the organization to

provide focus, clarity and direction. A key point is that TQM has to be introduced and led by

top management. Commitment and personal involvement is required from top management in

creating and deploying clear quality values and goals consistent with the objectives of the

company and in creating and deploying well defined systems, methods and performance

measures for achieving those goals.

III. Binding Mortar

7. Communication - It binds everything together. Starting from foundation to roof of the TQM

house, everything is bound by strong mortar of communication. It acts as a vital link between

all elements of TQM. Communication means a common understanding of ideas between the

sender and the receiver. The success of TQM demands communication with and among all the

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organization members, suppliers and customers. Supervisors must keep open airways where

employees can send and receive information about the TQM process. Communication coupled

with the sharing of correct information is vital. For communication to be credible the message

must be clear and receiver must interpret in the way the sender intended.

There are different ways of communication such as:

A. Downward communication - This is the dominant form of communication in an

organization. Presentations and discussions basically do it. By this the supervisors are able to

make the employees clear about TQM.

B. Upward communication - By this the lower level of employees are able to provide

suggestions to upper management of the affects of TQM. As employees provide insight and

constructive criticism, supervisors must listen effectively to correct the situation that comes

about through the use of TQM. This forms a level of trust between supervisors and employees.

This is also similar to empowering communication, where supervisors keep open ears and

listen to others.

C. Sideways communication - This type of communication is important because it breaks down

barriers between departments. It also allows dealing with customers and suppliers in a more

professional manner.

IV. Roof

8. Recognition - Recognition is the last and final element in the entire system. It should be

provided for both suggestions and achievements for teams as well as individuals. Employees

strive to receive recognition for themselves and their teams. Detecting and recognizing

contributors is the most important job of a supervisor. As people are recognized, there can be

huge changes in self-esteem, productivity, quality and the amount of effort exhorted to the task

at hand. Recognition comes in its best form when it is immediately following an action that an

employee has performed. Recognition comes in different ways, places and time such as,

Ways - It can be by way of personal letter from top management. Also by award banquets,

plaques, trophies etc.

Places - Good performers can be recognized in front of departments, on performance boards

and also in front of top management.

Time - Recognition can given at any time like in staff meeting, annual award banquets, etc.

Conclusion

We can conclude that these eight elements are key in ensuring the success of TQM in an

organization and that the supervisor is a huge part in developing these elements in the work

place. Without these elements, the business entities cannot be successful TQM implementers. Itis very clear from the above discussion that TQM without involving integrity, ethics and trust

would be a great remiss, in fact it would be incomplete. Training is the key by which the

organization creates a TQM environment. Leadership and teamwork go hand in hand. Lack of

communication between departments, supervisors and employees create a burden on the whole

TQM process. Last but not the least, recognition should be given to people who contributed to

the overall completed task. Hence, lead by example, train employees to provide a quality

product, create an environment where there is no fear to share knowledge, and give credit

where credit is due is the motto of a successful TQM organization.

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Quality Circles

Quality Circle is a small group of 6 to 12 employees doing similar work who voluntarily meet

together on a regular basis to identify improvements in their respective work areas using

proven techniques for analysing and solving work related problems coming in the way of

achieving and sustaining excellence leading to mutual upliftment of employees as well as the

organisation. It is "a way of capturing the creative and innovative power that lies within the

work force".

Quality Circles is a people building philosophy, providing self-motivation and happiness in

improving environment without any compulsion or monetary benefits. It represents a

philosophy of managing people specially those at the grass root level as well as a clearly

defined mechanism and methodology for translating this philosophy into practice and a

required structure to make it a way of life. It is bound to succeed where people are respected

and are involved in decisions, concerning their work life, and in environments where peoples

capabilities are looked upon as assets to solve work-area problems.

The Quality Circle philosophy calls for a progressive attitude on the part of the managementand their willingness to make adjustments, if necessary, in their style and culture.

If workers are prepared to contribute their ideas, the management must be willing to create a

congenial environment to encourage them to do so.

CONCEPT

The concept of Quality Circle is primarily based upon recognition of the value of the worker as

a human being, as someone who willingly activises on his job, his wisdom, intelligence,

experience, attitude and feelings. It is based upon the human resource management considered

as one of the key factors in the improvement of product quality & productivity. Quality Circle

concept has three major attributes:a. Quality Circle is a form of participation management.

b. Quality Circle is a human resource development technique.

c. Quality Circle is a problem solving technique.

OBJECTIVE

The objectives of Quality Circles are multi-faced.

a) Change in Attitude. From "I dont care" to "I do care"

Continuous improvement in quality of work life through humanisation of work.

b) Self Development Bring out Hidden Potential of people People get to learn additionalskills.

c) Development of Team Spirit Individual Vs Team "I could not do but we did it"

Eliminate inter departmental conflicts.

d) Improved Organisational Culture Positive working environment. Total involvement of

people at all levels. Higher motivational level. Participate Management process.

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Balancing Six Sigma and the Capability Maturity Model (CMM/CMMI)

Challenged by the changes during the past 10 years in the importance and utilization of

software by businesses, enterprises now view the cost and quality of software development

differently. Whereas IS organizations formerly minimized the significance of development

engineering costs as non-recurring, the current critical nature of software in a product or service

offering has elevated the importance of the development process. Thus, it is essential to

maximize the use of any available tools or models to increase the efficiency and effectiveness

of software development.

Although two prominent approaches are available, whether to incorporate one or both solutions

can be perplexing. One solution involves a Capability Maturity Model (CMM or CMMIsm)

as a framework for improving the methods and processes used for software product or service

development and delivery. Another frequently considered choice is to implement a Six Sigma

program to address quality and customer satisfaction issues. It is imperative to understand

whether these approaches are compatible for joint use or should be used independently.

Six Sigma is applied in a process-specific way. Trained "Black Belts" lead processimprovement projects that define, measure, analyze, improve and control selected processes.

Six Sigma's results are optimized by applying the program to iterative processes (e.g.,

producing a consistent product or operations delivering a service to many customers). Six

Sigma projects typically address process problems and produce a measurable return on

investment. The Capability Maturity Models are organizational change models that reflect the

steps an enterprise must take to improve its software development process capability. With five

levels of maturity for implementing software development practices, each level builds on the

lower levels (see Figure 1). Whereas Six Sigma projects typically are short-term (that is, three

to six months), the Capability Maturity Model is applied long term across an enterprise to

improve the success of application development or maintenance projects by institutionalizing

practices known to achieve good results.

Six Sigma and the CMM also view quality from two different perspectives. The goal of a Six

Sigma program is to reduce defects (that is, any problem with service performance or a product

fault that does not meet the customer's specification) to a level that statistically relates to 3.4

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defects per million instances or opportunities. For CMM, however, any defects occur in

internal work products with negative ramifications to the completion of subsequent work. The

fundamental premise behind the CMM is to improve the quality of a software product by

improving the quality of the development process.

Maturity Level 2

Whereas CMM Level 1 enterprises demonstrate no development methodology and few

processes, Level 2 enterprises exhibit repeatable tasks and processes, however, inconsistently.

The CMM establishes policies, provides some documented guidance, and instantiates

management practices that support and track software development project commitments.

Measures at this level are limited to tracking size, effort, schedule and cost over the life of a

project. Unlike Six Sigma, the CMM ensures a progression through Level 2 with policies, plans

and commitments that must be followed, thus establishing a project management culture. The

Six Sigma variability of project performance and lack of a defined process inhibit a statistically

valid analysis in which consistent sources of defects are identified. Despite these drawbacks,

Six Sigma training would be useful for analyzing development life cycles and establishing

historical data for improved software project cost and schedule estimations as enterprises moveto Level 3.

Maturity Level 3

Leveraging Level 2 capabilities, Level 3 enterprises improve the consistency of their

organizational processes and detail methods for building and delivering applications, with

training support. Best practices are institutionalized in a process description. In addition to a set

of organizational process assets, process engineering groups develop an organizational

measurement database. By itself, Six Sigma does not offer such elements. At Level 3, measures

usually are taken at project milestones or collected and reported periodically, which is not

granular enough for effective statistical analysis using the full arsenal of Six Sigma tactics andtechniques. Initially, the data from the projects is inconsistent and unclear. With greater

consistency and commonly shared definitions across projects, the quality and usefulness of the

data improve. A Six Sigma group can inhibit the instantiation of Level 3 practices by

concentrating on short-term engagements and subprocess optimization. However, using a

CMM framework, trained Green Belts or Black Belts can help establish derive processes and

create a measurement foundation and infrastructure that will support Level 4 quantitative

management techniques.

Maturity Level 4

Level 4 is characterized primarily by measurement. Actual results of process performance ondevelopment projects are compared in a statistically significant manner with the expected

results. Measurements occur at the process event level in near real time. In addition, the level of

automated data collection and analysis is sophisticated. To implement Level 4, the

development organization establishes and maintains baselines of process performance and

capability. Based on the known capability, projects establish performance goals and use actual

process performance data and statistical tools to manage toward these goals. At this level, Six

Sigma techniques become extremely useful, and its training for managers and developers

emphasizes a measurement culture. However, a potential problem with using Six Sigma by

itself exists at all maturity levels through Level 4. The Six Sigma structure strives to identify

improvement proposals and implement those with the most potential benefit. This may conflict

with setting up organizational assets including process capability baselines. At this level, a

paradox with Six Sigma exists. The classic Six Sigma project life cycle includes measuring,

analyzing, improving and controlling the improved process. However, Level 4 of the CMM

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establishes the ability to manage a process quantitatively, thus making it predictable. Any

improvement comes from fixing and stabilizing existing processes. Only at this point can a

process be improved and control returned, which is CMM Level 5.

Maturity Level 5

At this level, CMM and Six Sigma work well, and both improvement projects are virtually

identical. The data now exists to make an improvement investment decision as well as to

predict and confirm measurable benefits. A small difference between the two improvement

strategies is caused by the orientation of the CMM as an organizational change model. The

process needed to deploy and institutionalize process and technology changes is more explicit

in the CMM framework, which helps in creating a sustained environment for continuous

improvement. Otherwise, an enterprise operating at Level 5 provides benefits similar to a best-

in-class Six Sigma program.

Whereas in most cases CMM and Six Sigma work well together, some situations present

conflicts for the two approaches. CMM is cited for its ability to control the process and to

progress into a disciplined and managed software development environment. Six Sigma is

noted for the process analysis and statistical skills that assist Black Belts when working withprocess problems. Motorola and Allied Signal, early adopters of Six Sigma, elected to use the

CMM as a framework to start their software process improvement initiatives. They leveraged

their experience with Six Sigma and were among the first enterprises to achieve CMM Level 4.

Ultimately, a blend of the two approaches seems most appropriate, with Six Sigma entering at

the higher maturity levels.

ERP

Enterprise resource planning (ERP) is a company-wide computer software system used to

manage and coordinate all the resources, information, and functions of a business from shareddata stores.[1]

An ERP system has a service-oriented architecture with modular hardware and software units

or "services" that communicate on a local area network. The modular design allows a business

to add or reconfigure modules (perhaps from different vendors) while preserving data integrity

in one shared database that may be centralized or distributed.

Advantages

In the absence of an ERP system, a large manufacturer may find itself with many software

applications that neither talk to each other nor interface effectively. Tasks that need to interface

with one another may involve: Integration among different functional areas to ensure proper communication,

productivity and efficiency

Design engineering (how to best make the product)

Order tracking, from acceptance through fulfillment

The revenue cycle, from invoice through cash receipt

Managing inter-dependencies of complex processes bill of materials

Tracking the three-way match between purchase orders (what was ordered), inventory

receipts (what arrived), and costing (what the vendor invoiced)

The accounting for all of these tasks: tracking the revenue, cost and profit at a granular

level. ERP Systems centralize the data in one place. This eliminates the problem of

synchronising changes and can reduce the risk of loss of sensitive data by consolidating

multiple permissions and security models into a single structure.

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Some security features are included within an ERP system to protect against both outsider

crime, such as industrial espionage, and insider crime, such as embezzlement. A data-tampering

scenario, for example, might involve a disgruntled employee intentionally modifying prices to

below-the-breakeven point in order to attempt to interfere with the company's profit or other

sabotage. ERP systems typically provide functionality for implementing internal controls to

prevent actions of this kind. ERP vendors are also moving toward better integration with other

kinds of information security tools.[19]

Disadvantages

Problems with ERP systems are mainly due to inadequate investment in ongoing training for

the involved IT personnel - including those implementing and testing changes - as well as a

lack of corporate policy protecting the integrity of the data in the ERP systems and the ways in

which it is used.

Customization of the ERP software is limited.

Re-engineering of business processes to fit the "industry standard" prescribed by the

ERP system may lead to a loss of competitive advantage.

ERP systems can be very expensive (This has led to a new category of "ERP light"

solutions)

ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and

business process of some companiesthis is cited as one of the main causes of their

failure.

Many of the integrated links need high accuracy in other applications to work

effectively. A company can achieve minimum standards, then over time "dirty data"

will reduce the reliability of some applications.

Once a system is established, switching costs are very high for any one of the partners

(reducing flexibility and strategic control at the corporate level).

The blurring of company boundaries can cause problems in accountability, lines of

responsibility, and employee morale.

Resistance in sharing sensitive internal information between departments can reduce the

effectiveness of the software.

Some large organizations may have multiple departments with separate, independent

resources, missions, chains-of-command, etc, and consolidation into a single enterprise

may yield limited benefits.

The system may be too complex measured against the actual needs of the customers.

ERP Systems centralize the data in one place. This can increase the risk of loss ofsensitive information in the event of a security breach.

Performance management

Performance management is the process of assessing progress toward achieving predetermined

goals. It involves building on that process, adding the relevant communication and action on

the progress achieved against these predetermined goals helping organizations achieve their

strategic goals.[1] Rather than discarding the data accessibility previous systems fostered,

performance management harnesses it to help ensure that an organizations data works in

service to organizational goals to provide information that is actually useful in achieving them

and focus on the Operational Networking Processes between that performance level. The mainpurpose of performance management is to link individual objectives and organizational

objectives and bring about that individuals obey important worth for enterprise. Additionally,

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performance management tries to develop skills of people to achieve their capability to satisfy

their ambitiousness and also increase profit of a firm.

Performance management is closely connected to Performance measurement. They are

sometimes mistaken for each other. In careful usage, Performance Management is the larger

domain and includes Performance Measurement as a component:

Performance management is the process of assessing progress toward achieving predetermined

goals. It involves building on that process, adding the relevant communication and action on

the progress achieved against these predetermined goals helping organizations achieve their

strategic goals.[1] Rather than discarding the data accessibility previous systems fostered,

performance management harnesses it to help ensure that an organizations data works in

service to organizational goals to provide information that is actually useful in achieving them

and focus on the Operational Networking Processes between that performance level. The main

purpose of performance management is to link individual objectives and organizational

objectives and bring about that individuals obey important worth for enterprise. Additionally,

performance management tries to develop skills of people to achieve their capability to satisfy

their ambitiousness and also increase profit of a firm.

Performance management is closely connected to Performance measurement. They aresometimes mistaken for each other. In careful usage, Performance Management is the larger

domain and includes Performance Measurement as a component:

Performance management is the process of creating a work environment or setting in which

people are enabled to perform to the best of their abilities. Performance management is a whole

work system that begins when a job is defined as needed. It ends when an employee leaves

your organization. Many writers and consultants are using the term performance

management as a substitution for the traditional appraisal system. A performance management

system includes the following actions.

* Develop clear job descriptions.

* Select appropriate people with an appropriate selection process.

* Negotiate requirements and accomplishment-based performance standards, outcomes, and

measures.

* Provide effective orientation, education, and training.

* Provide on-going coaching and feedback.

* Conduct quarterly performance development discussions.

* Design effective compensation and recognition systems that reward people for their

contributions.

* Provide promotional/career development opportunities for staff.

* Assist with exit interviews to understand WHY valued employees leave the organization.

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What is Benchmarking?

"Benchmarking: A continuous, systematic process of evaluating and comparing the capability

of one organization with others normally recognized as industry leaders, for insights for

optimizing the organizations processes."

Performance analysis forms the basis for your current process improvement which enables you

to make better software tomorrow. Performance benchmarking removes misconceptions, and

lets us see the actual need for improvement.

Performance Benchmarking and Robust Design

Performance benchmarking and robust design of software is used to:

Create reliable performance baselines and quantitative models for bidding/creation of

RFPs including an estimate of the minimum development time possible given the

historical performance

Assess the process level Before-After improvement linked to other initiatives such as

CMMI L4/L5 or new technology deployment

Look at a credible alternative to Reassessment - addresses the question of what after

CMMI L5? De-risk the development process

Early Warning Systems: that create profiles of customers, employees, projects and

products

Robust Design: Use innovation tools based on TRIZ Functional Modeling, AFD

(Anticipatory Failure Determination)

Vendor capability assessment: Assess the ability of vendors/service providers to meet

the requirements

Business process outsourcing (BPO)

Business process outsourcing (BPO) is a form of outsourcing that involves the contracting of

the operations and responsibilities of a specific business functions (or processes) to a third-

party service provider. Originally, this was associated with manufacturing firms, such as Coca

Cola that outsourced large segments of its supply chain.[1]. In the contemporary context, it is

primarily used to refer to the outsourcing of services.

BPO is typically categorized into back office outsourcing - which includes internal business

functions such as human resources or finance and accounting, and front office outsourcing -

which includes customer-related services such as contact center services.

BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is

contracted to a company's neighboring (or nearby) country is called nearshore outsourcing.Given the proximity of BPO to the information technology industry, it is also categorized as an

information technology enabled service or ITES. Knowledge process outsourcing(KPO) and

legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing

industry.

BPO increasing the flexibility of organizations One of the most important advantages of BPO

is the way in which it helps to increase a companys flexibility. However, several sources have

different ways in which they perceive organizational flexibility. Therefore business process

outsourcing enhances the flexibility of an organization in different ways.

Most services provided by BPO vendors are offered on a fee-for-service basis. This helps a

company becoming more flexible by transforming fixed into variable costs.[4] A variable coststructure helps a company responding to changes in required capacity and does not requisite a

company in investing in assets and hereby making the company more flexible.[5] Outsourcing

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may provide a firm with increased flexibility in its resource management and reduce response

times to major environmental changes.

Another way in which BPO contributes to a companys flexibility is that a company is able to

focus on its core competencies, without being burdened by the demands of bureaucratic dictate.

[6] Key employees are herewith released from performing non-core or administrative processes

and can invest more time and energy in building the firms core businesses.[7] The key in this

lies in knowing which of the main value drivers to focus on customer intimacy, product

leadership, or operational excellence. Focusing on one of these drivers may help a company

create a competitive edge.[8]

A third way in which BPO increases organizational flexibility is by increasing the speed of

business processes. Using techniques such as linear programming is a way to reduce cycle time

and inventory levels, which reduces a companys slack. Supply chain management with the

effective use of supply chain partners and business process outsourcing increases the speed of

several business processes, such as the throughput in the case of a manufacturing company.[9]

Finally, flexibility is seen as a stage in the organizational life cycle. BPO helped to transform

Nortel from a bureaucratic organization into a very agile organization. A company can herebyhelp maintaining ambitious growth goals, which do not fit with regular incumbent strategies.

[10] BPO therefore allows firms to retain their entrepreneurial speed and agility, which they

would otherwise sacrifice in order to become efficient as they greatly expanded. It avoids a

premature internal transition from its informal entrepreneurial phase to a more bureaucratic

mode of operation.[11]

Although the above-mentioned arguments favor the view that BPO increases the flexibility of

organizations, management needs to be careful with the implementation of it. Some tends to

change their attitudes, personalities and character on how the way they talk to other clients.

Although BPO has many potential advantages there are a few stumbling blocks, which couldcounter these advantages. Among problems, which arise in practice are: A failure to meet

service levels, unclear contractual issues, changing requirements and unforeseen charges. When

BPO does not work out as planned the company might well experience the way in which BPO

makes a company very dependent on a vendor and therefore very inflexible. Consequently,

these challenges need to be considered before a company decides to engage in business process

outsourcing[12]

Threats

Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information

System, for example, can cause security risks both from a communication and from a privacyperspective. From a knowledge perspective, a changing attitude in employees, underestimation

of running costs and the major risk of losing independence, outsourcing leads to a different

relationship between an organization and its contractor.[13][14]

Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order

to manage outsourcing in a structured way, maximizing positive outcome, and minimizing risks

and avoiding any threats, a Business Continuity Management (BCM) model is setup. BCM

consists of a set of steps, to successfully identify, manage and control that business processes

that are, or can be outsourced.[15]

Another framework, more focused on the identification process of potential outsourceable

Information Systems, identified as AHP, is explained.[16]

L. Willcocks, M. Lacity and G. Fitzgerald identify several contracting problems companies

face, ranging from unclear contract formatting, to a lack of understanding of technical IT-

processes.[17

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Balanced Scorecard

The balanced scorecard is a new management concept which helps managers at all levels

monitor results in their key areas. An article by Robert Kaplan and David Norton entitled "The

Balanced Scorecard - Measures that Drive Performance" in the Harvard Business Review in

1992 sparked interest in the method, and led to their business bestseller, "The Balanced

Scorecard: Translating Strategy into Action", published in 1996.

There's nothing new about using key measurements to take the pulse of an organization. What's

new is that Kaplan and Norton have recommended broadening the scope of the measures to

include four areas:

financial performance,

customer knowledge,

internal business processes,

learning and growth.

This allows the monitoring of present performance, but also tries to capture information about

how well the organization is positioned to perform well in the future.

Kaplan and Norton cite the following benefits of using the balanced scorecard:

Focusing the whole organization on the few key things needed to create breakthrough

performance.

Helping to integrate various corporate programs, such as quality, re-engineering, and

customer service initiatives.

Breaking down strategic measures to local levels so that unit managers, operators, and

employees can see what's required at their level to roll into excellent performance

overall.

Business Process Reengineering (BPR)

It is a management practice that aims to improve the efficiency of the business process. The

key to BPR is for organizations to look at their business processes from a "clean slate"

perspective and determine how they can best construct these processes to improve how they

conduct business. Reengineering is a fundamental rethinking and radical redesign of business

processes to achieve dramatic improvements in cost, quality, speed, and service. BPR combines

a strategy of promoting business innovation with a strategy of making major improvements to

business processes so that a company can become a much stronger and more successful

competitor in the marketplace.

Re-engineering is the basis for many recent developments in management. The cross-functional

team, for example, has become popular because of the desire to re-engineer separate functional

tasks into complete cross-functional processes. Also, many recent management information

systems developments aim to integrate a wide number of business functions. Enterprise

resource planning, supply chain management, knowledge management systems, groupware and

collaborative systems, Human Resource Management Systems and customer relationship

management systems all owe a debt to re-engineering theory.

Business Process Reengineering is also known as Business Process Redesign, Business

Transformation, or Business Process Change Management.

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Overview

Business process reengineering (BPR) began as a private sector technique to help organizations

fundamentally rethink how they do their work in order to dramatically improve customer

service, cut operational costs, and become world-class competitors. A key stimulus for

reengineering has been the continuing development and deployment of sophisticated

information systems and networks. Leading organizations are becoming bolder in using this

technology to support innovative business processes, rather than refining current ways of doing

work.[1]

Reengineering guidance and relationship of Mission and Work Processes to Information

Technology.Business process reengineering is one approach for redesigning the way work is

done to better support the organization's mission and reduce costs. Reengineering starts with a

high-level assessment of the organization's mission, strategic goals, and customer needs. Basic

questions are asked, such as "Does our mission need to be redefined? Are our strategic goals

aligned with our mission? Who are our customers?" An organization may find that it is

operating on questionable assumptions, particularly in terms of the wants and needs of its

customers. Only after the organization rethinks what it should be doing, does it go on to decide

how best to do it.[1]

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Within the framework of this basic assessment of mission and goals, reengineering focuses on

the organization's business processesthe steps and procedures that govern how resources are

used to create products and services that meet the needs of particular customers or markets. As

a structured ordering of work steps across time and place, a business process can be

decomposed into specific activities, measured, modeled, and improved. It can also be

completely redesigned or eliminated altogether. Reengineering identifies, analyzes, and

redesigns an organization's core business processes with the aim of achieving dramatic

improvements in critical performance measures, such as cost, quality, service, and speed.[1]

Reengineering recognizes that an organization's business processes are usually fragmented into

subprocesses and tasks that are carried out by several specialized functional areas within the

organization. Often, no one is responsible for the overall performance of the entire process.

Reengineering maintains that optimizing the performance of subprocesses can result in some

benefits, but cannot yield dramatic improvements if the process itself is fundamentally

inefficient and outmoded. For that reason, reengineering focuses on redesigning the process as

a whole in order to achieve the greatest possible benefits to the organization and their

customers. This drive for realizing dramatic improvements by fundamentally rethinking how

the organization's work should be done distinguishes reengineering from process improvementefforts that focus on functional or incremental improvement.[1]

Definition

Different definitions can be found. This section contains the definition provided in notable

publications in the field:

"... 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."[5]

"encompasses the envisioning of new work strategies, the actual process design activity, andthe implementation of the change in all its complex technological, human, and organizational

dimensions."[6]

Additionally, Davenport (ibid.) points out the major difference between BPR and other

approaches to organization development (OD), especially the continuous improvement or TQM

movement, when he states: "Today firms must seek not fractional, but multiplicative levels of

improvement 10x rather than 10%." Finally, Johansson[7] provide a description of BPR

relative to other process-oriented views, such as Total Quality Management (TQM) and Just-in-

time (JIT), and state:

Business process reengineering topics

"Business Process Reengineering, although a close relative, seeks radical rather than merely

continuous improvement. It escalates the efforts of JIT and TQM to make process orientation a

strategic tool and a core competence of the organization. BPR concentrates on core business

processes, and uses the specific techniques within the JIT and TQM toolboxes as enablers,

while broadening the process vision."

In order to achieve the major improvements BPR is seeking for, the change of structural

organizational variables, and other ways of managing and performing work is often considered

as being insufficient. For being able to reap the achievable benefits fully, the use of information

technology (IT) is conceived as a major contributing factor. While IT traditionally has been

used for supporting the existing business functions, i.e. it was used for increasing

organizational efficiency, it now plays a role as enabler of new organizational forms, and

patterns of collaboration within and between organizations.

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BPR derives its existence from different disciplines, and four major areas can be identified as

being subjected to change in BPR - organization, technology, strategy, and people - where a

process view is used as common framework for considering these dimensions. The approach

can be graphically depicted by a modification of "Leavitts diamond".[8]

Business strategy is the primary driver of BPR initiatives and the other dimensions are

governed by strategy's encompassing role. The organization dimension reflects the structural

elements of the company, such as hierarchical levels, the composition of organizational units,

and the distribution of work between them. Technology is concerned with the use of computer

systems and other forms of communication technology in the business. In BPR, information

technology is generally considered as playing a role as enabler of new forms of organizing and

collaborating, rather than supporting existing business functions. The people / human resources

dimension deals with aspects such as education, training, motivation and reward systems. The

concept of business processes - interrelated activities aiming at creating a value added output to

a customer - is the basic underlying idea of BPR. These processes are characterized by a

number of attributes: Process ownership, customer focus, value adding, and cross-functionality.

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ms notes unit viii

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