Example of Business Process Improvement By Martin Smith Contact Martin Smith at [email protected].

Abstract: This project is an example of business process improvement, or re-engineering as it is sometimes called. The corporation was not radically re-structured; instead, one department achieved significant gains in efficiency and quality of service by re-designing several processes. A small team of front-line supervisors and managers did the design work and then carried out the implementation of the new process design. Two internal consultants supported the team. The project was characterized by a disciplined approach, strong executive support and quantified results.

Situation: The setting was the Accounting Department of a local telephone company. The department had about 500 employees. Most were assigned to two work centers. 3.5 million bills were issued each month to business and residence customers. Critical Business Issue: Reduce expenses by 8-10% in each of the next five years. Intervention: Re-design the CASH PROCESS. This process involves receipt of the customer’s payment, crediting the customer’s account and depositing the amount in the company’s account.

Exhibit 1. Relationship Map Specific to Cash Process

Re giona l Te le phone Com pa ny

Corporate Data Center

Loca l Te le phone Compa ny

Accounting De pa rtme nt

Coin Collections

Cash Sum m ary

Public Communications

Dishonored Check s Dishonored Check s Error Reports Data Corrections

Revenue Accounting Office

Bank Central Cash Unit

Investigation Investigation Requests Requests

Notify of Out of Balance

Customer Service Centers

Investigation Requests

Balance Sheet Data

Unidentified Paym ents Paym ents

Dishonored Check s

Proof for Cash Sum m ary

Information Systems Support Group

Unidentified Paym ents

Refund Data

Payment Agents

Paym ents Inquiries

Treasury Corporate books

Inquiries

Refunds

Customers

Exhibit 2. Schedule for Design Phase Week

Project Activity

1. Train the Team

1 2

3

4

5 6

7

8

9 10 11 12 13 14 15 16 17

Start: Sept 17

2. Plan the Project 3. Prepare Relationship Map 4. Build IS Map 5. Identify Disconnects 6. Patch or Redesign? 7. Define Attributes 8. Build SHOULD Map 9. Specify Measures 10. Stakeholder Review 12. Revise

13. Formulate Recommendations 14. Decide What to Implement NOTE: The Project Team worked full time for 4 weeks and part time for 10 weeks.

End: Dec 15

Exhibit 3. Flowchart for Sub-Process, Dishonored Checks, BEFORE the Re-design Bank

1 Di shonored Check Rec eived from Customer's Bank

24 Bank Fi les Updated

3 End

2

Central Cash Unit

Yes

47 Process Payment

32 Correct

Mem o Card

Upda ted Custom er Account Data

Check

Our Cus tomer ?

Daily Bank Stat ement

4 No

Resident of XYZ State?

Yes

6 Prepare Form to Re-bill Cus tomer

7 Prepare Form to Adjust Customer's Account

12 Enter Adjus tment i nto Busi ness Office Support System

No

14 System Correctly Updated?

No Form

19 Yes

16 Corr ect Err or

17 Alert Service Rep

Correction

Dai ly Cash Sheets (Form 508) Prepared to Reflect Di shonored Checks

21 Fi le di shonored Checks

20 Mai l Copy

30 Bal ance Dai ly Bank Statement

No 31 Bal ance ?

Yes

34 Printout Corr ect?

No

33

41 Pul l Check and Cal l Bank

End

Yes 43 Funds Availa ble ?

No

44

45

Enter Note in Busi ness Office Support System

Enter Note in BOSS and Prepare Memo Card

Acco unt Debi t Form 508

5 Ca sh O pe ration

26

Prepare Tra nsaction Form 770

29 Veri fy Printout

27 Batch 508's

Re-bal ance Form 508's

35 Corr ect Err ors

Yes Transact ion Ticket

B atched Forms

8 Da ta Entry Group

28 Data Keyed

Key Data

36 Transmit Batch Li sting Printout

Electroni c Tran smission

Com pute r Roo m

Corrections

37 Execute Run 1

9 Execute

Custome r ser vice Cente r

18 Contact Cus tomer

Electroni c Tran smission

Yes 38 Redeposit?

Yes 39 No

Check Returned ?

Notificatio n to Return Custom er Check

No

50 Contact Cus tomer to Resol ve

40 End

Electronic Me ssage

10 Systems

Service Order System

15 Busi ness Office Support System

51 Cash System

48 Busi ness Office Support System

49 Busi ness Office Support System

NOTE. Do not try to read the content of the process steps but rather understand the diagramming conventions. Rows represent work groups or computer systems. Boxes indicate steps where work is performed. Diamonds are decision points. Lines crossing the boundaries between rows represent hand-offs from one function to another. Compare Exhibit 7 to Exhibit 3. The old design had 50 steps compared to the 24 steps in the new design.

46 Mai l Check to Cus tomer

Exhibit 7. Flowchart for Sub-Process, Dishonored Checks, AFTER the Re-design Cycle Ti me

(7 Days)

(1 Day)

(1 Day)

4 Ba nk, Payment Proce ssing Agent, o r Ele ctronic Funds Transfe r

1 Dis honored Check Received

2 Check Presented Second Time for Payment

3 Yes

Returned Again?

No

7 End

Can Check Be Autodebited?

No

Yes

6 Checks & Listing Forwarded

5 Debits Listed

List

List and Che ck s

No

Check

Cash Operation

9 Cus tomer Account Debited

12 Total Entered on Daily Worksheet

Electronic Tra nsaction

13 Data Entered into Business Office Support System

18 Statements Filed

19 Res ident of XYZ State?

Yes

20 $5 Charge Debited to Customer's Account List

Work sh eet

Data En try Group

17 Daily Bank St at ement Balanced

Data

22 Batch Listing Transmitted

10 Run 1 Executed

Batch

23 Run AB01 Executed

Compute r Room Data

14 Balance Pos ted to Treasury Daily Report

Treasury

Systems

11 Cash System

15 End

16 Business Office Support System

24 Cus tomer Record Info System

21 End

Exhibit 4. Categories of Disconnects (total of 62) • • • • • •

Duplication of effort Steps that should be performed by other departments Discrepancies between the two processing centers Unnecessary steps Cycle time delays Opportunities for automation. Exhibit 5. Categories of Recommendations (total of 32)

• • • • • • • •

Automation of manual activities Work elimination Transfer of responsibilities and personnel from one department to another Job redesign Measurement plan for tracking process performance Documentation of work procedures Training to cover the new procedures Re-arrangement of the work force Exhibit 6. Design Attributes for “Dishonored Checks” Sub-process Element

Attributes

Inputs

• Automatic check debiting • All checks processed twice by the bank • Non-company check volume reduced

Processing

• No re-depositing of checks • Fewer hand-offs • Manual forms eliminated

Outputs

• Debit reflected ASAP • “Uncollectables” reduced

Implementation: 29 of the 32 recommendations were implemented within 12 months of the executive decision to proceed. A year-to-year comparison yielded the following results.

Exhibit 8. Results Measure

Result

Process Steps

• 44% Reduction from 422 to 237 steps

Manually Processed Payments

• 90% reduction from 42,000 to 4,000 per month

Unplaced cash (payment cannot be credited to an account)

• 43% reduction

Customer Queries about processing of payment

• 44% reduction

Force

• 45% fewer employees assigned to Cash process

Operating Expense

• $930,000 reduction in annual expense

Postscript: the General Manager commissioned another project at the time this project entered the implementation phase. Over the next two years, two additional projects were undertaken. Together, these projects encompassed about 75% of the department’s work activity.

Exhibit 9. Lessons According to the Project Team • Start with a small process, something that can be done in a short timeframe. • Set clear time lines. Keep them firm. Keep short intervals between target dates. This policy reinforces accountabilities and maintains momentum of the project. • Don’t dissipate resources over too many projects. Limit the organization to two projects at one time, one in design and the other in implementation. • Include key stakeholders on the project team. Work units responsible for the process must be represented on the team. The staff who maintain the supporting computer systems should also be represented. • Focus on short term pay-offs. Pay-offs should be quantified in terms of financial, cycle time and customer service results. • Use a PC for all flowcharting and documentation. Capture entries on the PC while the team is working out the design on the easel. Edit the draft off-line. • Manage the on-going process immediately. Don’t wait for all the changes to be implemented. Collect measurement data as soon as practical. Schedule process reviews as part of the GM’s staff meeting at least once a month. Exhibit 10. Lessons According to the Author • The support of the General Manager and the senior management team was essential. They enforced strict adherence to the project schedule. They attended the same training as the team. They met at decision points with the project team. The GM initiated quarterly sessions with all management and representative non-management personnel to review the status of each of several processes. Measurement trends and improvement plans were reviewed for each process. • Any given change effort requires coordination with other change efforts to ensure adequate resources. • Another alignment issue was the coordination of the process change with departmental strategy on one hand, and job-level design on the other hand. Further Information: Bisson, B., Folk, V. and Smith, M.E. (2000). Case study: How to do a business process improvement. Quality and Participation, 23 (1), pp. 58-63. www.stractics.com