IT-enabled business process reengineering in financial services and healthcare

¶ … led BPR efforts

Business Process Re-engineering (BPR) is a type of organizational change in which processes are analyzed, and subsequently redesigned and simplified, with the aim of improving efficiency and profitability within a firm. The necessity for the implementation of BPR initiative results partly from an increase in consumer expectation with regard to services and products provided by organizations (Lobontiu & Big, 2006). Information technology (IT) is used in BPR to improve service, speed, and quality of processes. The adoption of IT-BPR projects has been shown to be positively affected by organizational innovation, competitive intensity, and market pressure (Lee et al., 2009). Essentially, BPR entails the construction of new IT systems that will ultimately improve processes of a business in order to improve and maximize efficiency and profits. These new IT systems assist organizations in achieving improvements with regard to quality, costs, and delivery time (Olalla, 2009). However, not every IT-enabled BPR project results in effective improvement, and BPR programs are widely considered to be huge undertakings with a high rate of failure (Elmuti & Kathawala, 2000).

Kohli & Hoadley (2006) examined three case studies of firms in various industry sectors. The three organizations under observation were a financial services firm labeled FinCo, a non-durable manufacturing firm labeled ManuCo, and a hospital labeled HealthCo. The researchers investigated these three firms with regard to how successfully they executed IT-enabled BPR, and how effective their efforts were in achieving sought after outcomes. The measures used to determine success of the BPR were also analyzed by the researchers. The following discussion will examine each of these three organizations with regard to concepts involving planned organizational change, the value of information systems in business, the management of project risk, and the role information systems play in achieving competitive advantage.

FinCo

FinCo is a quality-differentiated investment organization characterized by having the highest price in the industry. Investment relationships with customers are built and maintained by FinCo through a traditional account structure, and their BPR efforts were aimed at assessing work hours spent on each customer account in order to successfully implement a document imaging system. The goal was to devise ways to reduce cycle time involved in account management. The overall process measure for FinCo was profitability.

Achieving competitive advantage is important for all organizations, and was an especially important motivating factor for FinCo. There are a few crucial strategies that must be employed in order to effectively deal with competitive forces. One highly effective strategy is low-cost leadership, which entails achieving the lowest possible operating costs and the lowest possible prices. FinCo undertook IT-led BPR in order to reduce the costs involved in gaining and servicing accounts while still providing the customer with the highest value with regard to customization and service. FinCo recognized the importance of this particularly due to the fact that they were the most highly priced firm in the financial industry. This low-cost leadership would be attained through the development and implementation of the document imaging system that would ultimately reduce time spent by managers on each customer account, thereby improving efficiency and profitability.

To achieve greater profitability, FinCo must improve customer value and productivity. In order to assess the target for IT enabled BPR, competitive forces were identified and strategies, such as low-cost leadership, were implemented. The focus of this strategy and the exact manner in which it could be implemented could have been determined through a value chain model. This model would have determined the activities of the organization that add value to its services, and these activities are designated as either primary or supportive. The account structure used by FinCo would be considered as a component of supportive activities that makes the delivery of financial services possible. The targeting of this activity by the BPR involved improving technology involved in document imaging in order to make account management more efficient, and thus achieve greater customer value and profitability.

Organizational change through IT system development occurs readily through BPR. FinCo implemented BPR through the analysis, simplification, and redesign of technology associated with account structures. This was done with the goal of improving the speed at which account managers could deal with customer accounts, which also led to improved service and product quality. These changes could fall under the realm of work flow management, in which business procedures are streamlined to improve ease and efficiency in the movement of documents. By identifying the need for a more streamlined procedure for account management, FinCo took the first step toward effective BPR. The next step in effective BPR is the measurement of change due to the IT-led BPR. This is done through comparing changes in customer value, productivity, and profitability with FinCo before and after implementation of the BPR.

The study by Kohli & Hoadley (2006) determined there were little or unknown gains with regard to profitability of the FinCo BPR project, while some gains were observed in productivity. Most of the gains incurred by FinCo due to the implemented BPR were improvements in customer value (Kohli & Hoadley, 2006). This calls into question whether this IT-enabled BPR produced sufficient results in order to justify the high costs involved in its implementation. Profitability would be considered a tangible benefit, while improvements in customer value would be considered intangible benefits. Overall though, the outcomes of the BPR were deemed as positive (Kohli & Hoadley, 2006). However, the completion time of the BPR project was considered to be burdensome, thus presenting evidence of project risk, likely with regard to the size of the project. This could have been effectively dealt with through early identification of this potential risk and subsequent use of appropriate planning and control tools for the documentation and monitoring of the BPR project.

HealthCo

HealthCo is a prominent leader in the healthcare industry, and is the number one provider of health services in several parts of the U.S. Hospitals are working more than ever before to reduce costs and improve efficiency due to the decrease in reimbursements for healthcare services provided to patients. This pressure to reduce costs motivated HealthCo to implement IT-led BPR at both the patient care and administrative levels. The outcome focus of the BPR was based on the reduction of costs, since an increase in revenue in the health services industry is considered to be impossible. HealthCo therefore sought to reduce operating costs through the improvement of administrative efficiency in patient care. In other words, the improvement of administrative productivity was seen by HealthCo as the only method to maintain, or maybe even possibly increase, profitability.

There are significant competitive forces within the healthcare services industry, so it was important that HealthCo devised an effective plan for an IT-led BPR. The IT system strategy employed by HealthCo in order to deal with these competitive forces was to establish themselves as low-cost leaders through cost reduction. This reduction in costs occurred as a result of consolidation of the functions performed by subsidiary organizations, as well as the centralizing of IT and administrative services to one location. This was facilitated through the implementation of an upgraded centralized information system, known as the Enterprise Resource Planning system.

An analysis of business processes involved in the aim of cost reduction by HealthCo could take the form of the value chain model applied to the other two firms already discussed. The value chain model basically indicates activities within the organization where competitive strategies for improvement can most effectively be applied. A primary activity most directly related to the services provided by HealthCo would be the direct service involved in patient care. A secondary activity related to service delivery in patient care would be the administrative operations necessary to support the provision of patient care. The IT-enabled BPR conducted by HealthCo was directed at secondary administrative activities, in that the changes and technology implemented was focused on improving the efficiency and streamlining of administrative functions within the organization. It was determined that the IT-led BPR conducted by HealthCo was successful based on effectiveness measures (Kohli & Hoadley, 2006).

Conducting an IT-enabled BPR presents risks for organizations, especially with regard to the costs involved (Kohli & Hoadley, 2006). Due to this risk and the difficulty in management of immense, widespread organizational change, most BPR projects do not result in performance gains that could be considered as overwhelmingly successful. A study conducted by Elmuti & Kathawala (2000) indicated that about half of the organizations with BPR programs under observation stated they had not achieved the objective of increased organizational effectiveness. Measuring effectiveness depends on different factors that are industry-specific. This was evident in the case studies presented by Kolhi & Hoadley (2006), and the different outcomes produced by the BPR projects in the three different firms. Nonetheless, the core focuses of the three organizations were the same. They all involved improvements in customer value and productivity, and furthermore, profitability. The extent to which each firm achieved these improvements varied, and it was concluded by the researchers that HealthCo was the most successful due to their clarity in focus, and high process and performance orientation. FinCo and ManuCo, on the other hand, were assessed as less effective due to ambiguity in focus variables in the BPR projects, as well as a lack of appropriate outcome measures (Kohli & Hoadley, 2006).