A VALUE-CHAIN BASED PROCESS MODEL FOR SUPPORTING BUSINESS PROCESS REENGINEERING

Abstract

Constantly envisioning how the rapid developments in information technology offer new opportunities, and engineering business processes accordingly will continue to be a difficult problem for senior management. An important observation by Keen (1991) is that over the last three decades, effective use of rapidly changing technology has lagged its availability. A central problem is that of justifying the technology, measuring its business value. The value-chain model articulated by Porter (1985) is a natural candidate in providing a basis for this evaluation. It is based on the simple economic theory that a firm remains competitive by virtue of being a low cost producer or differentiating its products/services to the customer, that is, by providing customer satisfaction. It is intuitive to think of "the customer" as the end user of a product or service. However, projecting this definition into the organization, where all pieces of work within it have a customer that needs to be satisfied provides a good basis for work design and its implementation. As technology evolves, forcing the organization to reassess its customers, the work must be redesigned. This is becoming known increasingly as "process reengineering" . Porter's model has found widespread appeal among practitioners at the strategic level due to its theoretical simplicity and commonsense appeal. Several methodologies have been designed around this model that encourage executives to "think through" and identify technologies that could provide competitive advantage. However, these methods have some serious limitations due to the lack of a sound conceptual underpinning and their inability to link explicitly, technology to business value metrics. Based on an analysis of one specific industry (insurance) we have found that simple process oriented models such as BSP, when extended to deal with value (in terms of cost or product/service differentiation to the customer), provide a sound basis for exploring process reengineering. An implementation of this methodology should enable management to simulate how a system would "react" to various types of inputs in terms of specific metrics of interest.