CA IPCC Strategic Management Notes Reaching Strategic Edge Notes

CHAPTER 7

Reaching Strategic Edge

I)   IMPORTANCE OF / STEPS IN BUSINESS PROCESSES:

1. Analysis: The structural elements that constitute a process provide the basis for its analysis, appraisal, and re-design for achieving higher levels of efficiency and effectiveness, quality and output.
2. Linkages: A set of inter-connected processes comprise a Business System. The performance of the Business Firm is thus the outcome of the inter-related operations.
3. Competitive Advantage: Core Business Processes are critical in a Company’s evaluation by its customers. Such processes are crucial for generating competitive advantage for the Firm.

II) CORE OR GENERIC BUSINESS PROCESS :

Meaning : A core business process creates value by the capabilities it provides to the competitiveness. Core business processes are critical in a company’s evaluation by its customers. They are vital for success in the industry sector within which the company is positioned. They are crucial for generating competitive advantages for a firm in the marketplace.

Examples:

♦ In the insurance industry, the actual work that leads to a balance of competitive premium for customers, and profit after claims for the company, is a core business process.

♦ In the banking industry, the activities that help mobilise deposits and generate funds for advances to customers, is a core business process.

Change : The core processes of a company may change over a period of time according to the shifting requirements of its competitiveness.

Types : “The generic business processes of a firm needing redesign may be classified into three broad categories as follows:

♦ Processes pertaining to development and delivery of product(s) and/or services. These may include research, design, engineering, manufacturing, and logistics, besides purchasing / procurement and materials management.

♦ Process involving interface(s) with customers. These usually include marketing, advertising, order fulfilment, and service.

♦ Process comprising management activities: These include strategy formulation, planning and budgeting, performance measurement and reporting, human resource management, and building infrastructure.

BUSINESS PROCESS RE-ENGINEERING (BPR) :

BPR stands for Business Process Re-Engineering . It refers to the analysis and redesign of workflows and processes within and between the organisations and external entities. Its objective is to improve performance in terms of time, cost, quality and responsiveness to customers. It implies giving up old practices and adopting the improved ones. Its an effective tool of realising new strategies.

UNDERLYING PREMISES FOR BPR :

Issues that emerge from the foregoing discussions on the need for change form the underlying premises of Business Process Reengineering (BPR). They may be briefly outlined as follows:

♦ The operational excellence of a company is a major basis for its competitiveness.

♦ Process Orientation : The business strategy of a company should be oriented towards leveraging its operational excellence into the marketplace.

♦ No Old Ideas : For considering totally new ways of redesigning processes, each and every concept, assumption, purpose, and principle, needs to abandoned temporarily.

♦ Dramatic Improvement : Dramatic improvement in performance is the prerequisite for overcoming competition. Continuous improvement is a deficient approach when a company is far behind the industry standards, and needs rapid quantum leaps in performance.

♦ Competitive Advantage : How to compete is more important than deciding about where to compete.

♦ Top Management Support : BPR drive is supported by the vision and commitment of the Firm’s top leadership, to ensure its effective completion and implementation.

Rationale of BPR :

Improving business processes is paramount for businesses to stay competitive in today’s marketplace.

Over the last decade several factors have accelerated the need to improve business processes. The most obvious is technology. New technologies (like Information Technology) are rapidly bringing new capabilities to businesses, thereby raising the strategical options and the need to improve business processes dramatically.

After opening up of Indian economy companies have been forced to improve their business processes because of increased competition. More companies have entered the market place, and competition has become harder and harder. In today’s market place, major changes are required to just stay even. It has become a matter of survival for most companies.

Customers are also demanding better products and services. If they do not receive what they want from one supplier, they have many others to choose from. They are ready to try new brands  

THE BASIC PRINCIPLES THAT DIFFERENTIATE REENGINEERING FROM ANY OTHER DRIVE ON IMPROVING ORGANIZATIONAL EFFICIENCY :

OBJECTIVES OF BUSINESS PROCESS RE-ENGINEERING : 

1. To obtain quantum gains in the performance of the process in terms of time, cost, output, quality, and responsiveness to customers.
2. To simplify and streamline the processby – a)  Eliminating all redundant steps, activities. b) Reducing drastically the no. of stages. c) Speeding up the work-flow through the use of info-tech systems.
3. To obtain dramatic improvement in operational effectiveness, by re-designing core business processes and supporting business systems.

TOTAL QUALITY MANAGEMENT : “is mgmt philosophy , an abstract entity”

Total Quality Management (TQM) : is a people-focused management system that aims at continual increase in customer satisfaction at continually lower real cost. There is a sustained management commitment to quality and everyone in the organisation and the supply chain is responsible for preventing rather than detecting defects.

TQM is a total system approach (not a separate area or program) and an integral part of high-level strategy; it works horizontally across functions and departments, involves all employees, top to bottom, and extends backward and forward to include the supply chain and the customer chain. TQM stresses learning and adaptation to continual change as keys to organizational success.

"Continuous improvement" refers to both incremental and "breakthrough" improvement. Improvements may be of several types:

✔  Enhancing value to the customer through new and improved products and services;

✔  Developing new business opportunities;

✔  Reducing errors, defects, and waste;

✔  Improving responsiveness and cycle time performance; and

✔  Improving productivity and effectiveness in the use of all resources.

1. 4.       SIX SIGMA:

Primarily Six Sigma means maintenance of the desired quality in processes and end products. It means taking systemic and integrated efforts toward improving quality and reducing cost. It also means taking systematic and integrated efforts toward improving quality and reducing cost.

Features :

a)       Highly disciplined process that helps in developing and delivering near-perfect products and services.

b)       It strives to meet and improve organizational goals on quality, cost, scheduling, manpower, new products and so on.

c)       Six Sigma has its base in the concept of probability and normal distribution in statistics.

d)       Six Sigma strives that 99.99966% of products manufactured are defect free. Six Sigma is a smarter way to manage a business or a department.

e)       Six Sigma puts the customer first and uses facts and data to drive better solutions.

f)        Full or Total Business Initiative, not merely a quality initiative.

g)       Seeks to achieve breakthroughs in every area of operation, not merely small marginal improvement.

6. CONTEMPORARY STRATEGIC ISSUES

Medical organizations:

• A successful hospital strategy for the future will require renewed and deepened collaboration with physicians.
• Backward integration strategies include acquiring ambulance services, waste disposal services, and diagnostic services.
• Many people research medical ailments online, which is causing a dramatic shift in the balance of power between doctor, patient, and hospitals.
• Intel recently began offering a new secure medical service whereby doctors and patients can conduct sensitive business on the Internet, such as sharing results of medical tests and prescribing medicine.
• The most successful hospital strategies today are providing physical rehabilitation centres, cardiac rehabilitation centres, women’s medicine services, and psychiatric services, etc.