Lori holds an MBA. She has taught business and accounting at several community colleges.
Process and Re-engineering
I think we all recognize computers are a normal and vital part of doing business. We might place an order online or work where we use a computer all day. So how do these information systems work to help the organization? An organization is more than just its information system. Each occupation within the organization plays a role in its success. Processes are the way tasks, or jobs, are completed.
If we make chocolate chip cookies, we don't want to add the chips in the first step, where we blend the shortening with the sugar. This would mush the chocolate chips, completely changing the taste and texture of the cookie. Enter process re-engineering, or the redesign of workflows and processes. If we recognize that adding chips at the beginning of the process just doesn't work, we would try re-engineering to make the cookies taste the best with the most efficient process. Let's walk through the making of the cookies. Put dry ingredients in one bowl, shortening and brown sugar in another and in a third, stir the eggs, milk and vanilla together. Blend the shortening and brown sugar well, then add the wet ingredients, mix them together and then add the dry stuff. Once everything is combined, use a spoon to stir in the chocolate chips. You then drop the dough on cookie sheets, bake for a few and hello, awesome and efficiently prepared chocolate chip cookies!
The precursor to process re-engineering is business process modeling, when analysts and managers review a business' systems, or processes, in an attempt to improve them. They'll look at how a process is affecting time and money for the company. They'll also review activities that may be replicated in different departments. The analysis team will break down three types of processes: management, or the governance of a system; operational activities, or departments that must exist to keep the business going, such as sales, purchasing and manufacturing; and support activities. These are processes required so the operational activities can continue. They include accounting, human resources and information technology departments.
Let's look at an operational activity. The current production of chocolate chip cookies has consumer feedback citing overly brown bottoms. A review of the process shows the cookies remain on the metal baking trays when removed from the oven and are allowed to cool on the trays. All the ingredients, the order they're added in and the other processes have been confirmed as correct. Can you re-engineer the last step(s) of baking the cookies so the bottoms aren't overly cooked? A couple of possible ideas are to use a stone baking sheet or to remove the cookies from the baking sheets as soon as they are out of the oven and place them on brown craft paper.
TQM and Competitive Advantage
When all processes are combined, we can look at a term called Total Quality Management (TQM), or just Quality Management. This is a concept aimed at securing customer satisfaction by the entire company working toward the goal of continuous improvement. If we go back to the cookie re-engineering scenario, TQM would be part of this. We would be constantly looking for a way to make this a more efficient process. Another important part of TQM is that each employee who participates in a given task, such as processing a check or doing the same manufacturing job, must do it in exactly the same way as another employee. This contributes to improved quality.
Why does a company use TQM? It's one way to give them a competitive advantage, or something about a company that sets it apart from its competitors. The 'something' can be cost. Do you choose a pair of jeans over another because they cost less? Or maybe because they are different and unique enough that they stood out to you? A third area of competitive advantage can be technological. How does that relate to picking a pair of jeans? Let's say the store you wish to buy jeans from doesn't exist anywhere near where you live. The company may have created a competitive advantage by setting up a website so you can purchase those jeans.
An example of a corporate acquisition simply to gain a technological competitive advantage happened just at the turn of the 21st century. A prominent snack producer had an excellent distribution system. A certain cereal manufacturer knew this would give them a competitive advantage for efficient delivery of products. The benefit to the snack company that was acquired came from the order and payment system of the cereal company. This cereal manufacturer was one of the first to utilize electronic data interchange (EDI), which is the use of networks and the Internet to place orders, invoice customers and receive payments. Since the acquisition was complete, the snack company's computer system was rolled over to the same one the cereal company used, something that many businesses do now on a daily basis.
Companies use business process modeling, the analysis of a business' systems and processes, in order to re-engineer, or redesign, those systems. This is always a work in progress in an effort to practice Total Quality Management, or utilizing consistency and continuous improvement in an effort for customer satisfaction. Excellence in this endeavor may result in a competitive advantage, giving the company that practices TQM a leg up on others in its industry.
After watching this lesson, you should be able to:
- Define processes, process re-engineering and competitive advantage
- Describe business process modeling and the three types of processes analyzed
- Summarize the process of TQM
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