The Challenges Of Modern Business Environments Commerce Essay

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Nowadays, business decisions have to be made very quickly. It is not matter of days but hours or sometimes even minutes (Worthington & Britton 2006). There are several different aspects which cause such situation. This chapter will briefly evaluate current business environment's features and allow comparison both BPR and Kaizen in relation to it.

2.1 Globalisation.

One of the most important aspects of modern business environment is globalization which accelerated strategic decisions to gain or maintain competitive advantage.

Due to simplified international trade laws and production often outsourced to third world countries, large international organizations which benefit with significant financial advantage and economy of scale, have more opportunities of entering new markets and becoming major threats for local manufacturers and service providers.

In such events, local businesses have to react very quickly to retain their competitive advantage. To do so, they have to change and adapt to new situation by improving quality or optimizing production process to keep being competitive. Local manufacturers on the other hand have the advantage of choice of international suppliers.

Ideal example might be a new Boeing 787 Deamliner which components are being manufactured in several different countries over the world and transported for final assembly to Washington US.

Such way of designing process allowed Boeing to choose suppliers on exactly those principles that they wanted rather than on distance.

Globalization has very strong disadvantage too. Because all global markets are linked, recession in one country can cause serious troubles in other markets.

That's exactly what happened recently when American economic slowdown led whole Europe to the recession.

Therefore, even though globalization has serious advantages as it brings opportunities for organizations, sadly it brings threats too.

2.2 Information Technology

Development of information technology made operations easier due to increased speed of processing data (Aberdeen Group 2004). ERP systems for instance, allow making both strategic and operation's decisions quicker and more accurate due to advanced analytical tools they provide (Spathis & Constantinides 2003).

Even inventory management and supply requests can be done remotely these days.

This in consequence makes acceleration of the process almost automatic.

In terms of service management, information technology allows to provide service to higher amount of customers in shorter period of time or decrease the price of operations.

Swift Cover provided by AXA group was the first insurance company which switched to 100% online service. Customers have to print their certificates of insurance and all changes to the policy can be made online. Such approach forced change in operations of other institutions like Royal Mail, which from now on was forced to accept print outs of motor insurance certificates during Road Tax sales service. It shows how change in one organization influences other even non related organizations.

The main issue with development of IT is fact that it is very complex and computers tend to fail in the least expected moments, leaving managers with difficult decisions on their own.

Moreover companies are constantly under serious threat of cyber attacks when large amounts of precious data can be stolen.

Nevertheless IT accelerated business a lot and allowed managers to act quicker and make better decisions.

2.3 Hardware development

Another very important aspect of modern business environment is the acceleration of technology development.

Production lines for instance, became more efficient and more maintenance free. Production processes are almost free of errors these days.

Optimization of production resulting from excellence of machinery is incredibly valuable.

Te main problem though is that these days hardware very quickly becomes out of date and machinery that company have bought last year, might be completely uncompetitive with new machines of competitive organizations. Modernizations though, might be very expensive.

2.4 Fluctuating price of commodities

Unstable prices of raw materials make the production process very difficult.

Organizations have to predict price shifts and counteract by ordering high quantities up front, buying derivatives or taking part in hedge funds. Larger organizations have advantage of economy of scale in such event, as they can make larger orders. In consequence, due to large orders price that they have to pay decreases.

Growing price of petroleum for instance causes serious trouble for transport industry which is completely dependent on petrol and these days there is almost no alternative for it.

2.5 Hyper Competition

All previously listed aspects of modern business environment lead to the most important one. These days, organizations are operating in the world of hyper competition and accumulation of information. (Worthington & Britton 2006)

There are so many different aspects where organizations can gain competitive advantage that it is almost impossible to compete with each other on the same basis.

That's why some organizations focus on quality, some on price and other on delivery methods. Everybody is trying to find own unique selling point as a recipe for success.

The problem though is that during the race, organisations can easily loose their true value or brand image.

Several years ago, there was a serious debate in United Kingdom about Burberry Brand which production has been moved to China similarly to D&G, Armani and Calvin Klein.

Even though the production became cheaper, annual profit decreased due to decreased demand. (China business services association 2007)People simply refused paying premium price for products which are produced in China. It proves how important processes are and how battle for the customer can be lost by wrong strategic decisions.

Organizations operating in modern world are in very difficult position. On the one hand, there is an overload of competing organizations within the same market- large international organizations are serious threat for local manufacturers and service providers. On the other hand, there is a constant change which is a serious disadvantage of modern business environment.

Trends on the market for instance are almost unpredictable. In such environment organizations are forced to make right strategic decisions. This is important to mention though, that modern business environment creates opportunities too.

Governments to some extent are defending local businesses by promoting fair business competition.

Globalization allows small organizations to be merged with larger. It facilitates access to wider group of customers.

Information technology on the other hand, allows organizations to make business without the need of travelling and meeting. It shrinks the distance (Eriksen 2007)

Even though modern business environment has its own advantages and disadvantages, it is very important to underline that organizations operate in uncertain world of constant change and improvement.

3. What is Kaizen

3.1 Kaizen - what does it mean

Kaizen is a Japanese philosophy created in the Middle of XIX century when team of statisticians led by doctor Deming has arrived to Japan. Doctor Deming- a specialist in quality management has initiated a "quality revolution" (Imai 1997).

He taught Japanese that the quality is not only about ensuring that the product or service match

specified requirements, but rather that it is a lifestyle- endless process of improvement.

The commitment and desire to continually improve the quality of the company and product gave strength to rebuild the country and became the appropriate direction on the way to the Japanese economic miracle.

The phrase Kaizen means "good change" and is a philosophy of management linked directly to Japanese culture and mentality (Imai 1997).

The improvement of organisations, processes and products should be continuous even if quality goals have already been met (Imai 1997).

Kaizen is also a way of thinking where seeking for improvements and creative solutions are a routine. The Plan- Act- Check-Do approach is a very important aspect of this routine as constant improvement is based on this idea.

Reproduced from Imai M (1997), Gemba Kaizen: A commonsense, low-cost approach to management,, Mc Graw Hill, New York (pp. 229)

Those organizations which follow this circular pattern are more likely to standardize their processes and succeed as actions are well thought through.

Imai, believes that Kaizen philosophy could be applied to any business, because

"Even the biggest fool is able to increase productivity when investing significant amounts.

The real trick is to improve efficiency without additional investments in new tools and technologies. By following the right steps and applying the processes properly, any company, no matter what its nationality, should be able to benefit from Kaizen"

(Imai 1997 pp. 2).

The most well known followers of Kaizen philosophy are Toyota, Sony and Honda.

3.2 The reasons of loss in the organisations

The starting point for every kaizen implementation is a definition of loss in the organisation.

Traditionally, organisation makes loss when achieves negative financial result.

Kaizen broadens the term of loss and focuses on all aspects of operations within the organisation which do not add value to the final product or service (Fischer 2010). To some extent, it could be defined as an opportunity cost.

According to Kaizen, products which are exceeding customer expectations are creating as much loss to the organisation as those that do not meet those expectations. Everything must be delivered exactly how customer expected with the lowest possible expenditures. (Imai 1997)

Kaizen method divides loss into two different types: avoidable and necessary. (Imai 1997)

Decreased efficiency resulting from employee's need of brake or presence of unused stock is natural for every organisation. These are the necessary types of loss.

Even in such aspects though, Kaizen seeks for optimization and creative solutions.

The main issue for Kaizen are operations which are inefficient, slow down production or harm the image for the organisation. Liquidation of those problems allows achieving high quality results.

Kaizen takes advantage of using six core management systems:

Total Quality management (TQM) - Every employee is responsible for improvement of organization

Just in time- Elimination of non value adding activities like keeping unused stock

Total productive maintenance- Improvement of equipment quality

Policy development- establishing clear and achievable targets

Suggestion System- employees have voice and are allowed to suggest changes and improvements

Small group activities- creating small specialized teams where members know each other well.

Those six proposed systems allow company to grow because it's most important assets (people) are involved personally in operations.

Apart from that, Kaizen approach takes puts serious attention to the role of managers and supervisors within the organization.

Reproduced from Imai M. (1997), Gemba Kaizen: A commonsense, low-cost approach to management, Mc Graw Hill, New York (pp. 111)

The Ishikawa diagram (Fishbone diagram) shows that the effect is quality, cost and delivery and the causes are materials, machines, manpower, measurement and methods (the 5 M's).

The main idea is that managers while managing main "bones", they have to remember about controlling smaller bones two. This is another approach that links to Quality management.

It is important to remember though, that every organization is different so the responsibilities of managers will differ too.

Even though, Kaizen is very reasonable approach which brings value to the organisation, it has some shortcomings too.

First of all, Kaizen method is a rather long term solution. First tangible results can be spotted no sooner than after a year from the moment of implementation (Hughes 2010).

Moreover Kaizen does not radically change current condition of the organisation. It does improve efficiency of the operations but gradually.

Additionally, because of focus on details Kaizen can be difficult to be accepted by Western organisations where employees are rather planners than doers:

(HOW TO REFERENCE THAT THING!!!)

All in all Kaizen seems to be a solution for organisations which seek an overall increase of profit, quality or reputation.

Kaizen could be useful also for manufacturers who want to improve monitoring of processes as it involves all employees in control and gives people chance to report issues and suggest changes (TQM).

4. What is the BPR

The word "reengineering" has been created by M. Hammer in 1990 and then popularized by Hammer & Champy 1996 in the book "Reengineering the cooperation".

According to Hammer & Champy (1996) Reengineering means radical, fundamental redesign of organizational processes.

Reengineering is a method of rapid and radical redesign of strategic processes, related systems, procedures and organizational structure in order to optimize workflow and productivity of the company. (Hammer & Champy 1996)

BPR analyzes organization's procedures, discovers all of the shortcomings and creates an action plan to eliminate the largest possible number of failures. (Hammer & Champy 1996). In practice, Business Process Reengineering is the most intensive type of all transformation processes that can happen in the organization. This is caused by the fact that the changes expected by the company that is implementing BPR are radical in nature, especially when it comes to labour productivity of the plant.

At the beginning of 1990 Grange distinguished four general principles underlying the reengineering:

1) Discover the customers' needs.

2) Analyze processes in the enterprise.

3) Take into account existing limitations.

4) Think alternatively.

(Champy 2005)

Application of the re-engineering process in the organization causes a significant change in terms of formulation of corporate strategy. It is not easy and inexpensive tough. It requires following of such terms as:

1) Having a team of highly skilled, creative people, who wants achieve success

2) Modern management infrastructure in terms of availability of up-to-date information technology;

3) Knowledge of Re-engineering methods and other management techniques that will support change support.

(Champy 2005)

Properly conducted reengineering leads to numerous advantages for organization.

The most important are:

• Optimization of the process.

• Significant growth of quantitative indicators of process.

• Increase in customer satisfaction.

• Improvement of company's market position.

(Champy 2005)

There are some significant threats that can result from implementation of Re-engineering too.

On the one hand, it is a possible that employment costs will increase (Additional salary for Re-engineering managers and in some cases a radical reconstruction of payroll system of the organization).

On the other hand, there is an existing threat of organizational chaos, due to complexity of implementation revolutionary changes (it should also be take into account the resistance of workers

terms of significant changes).

5. Discussion

Previous paragraphs have presented current business environment and defined differences between BPR and Kaizen in terms of what they do, and how they do it.

BPR is more process orientated, Kaizen focuses on employees.

BPR radically reengineers faulty processes in the organisation and Kaizen consequently improves organisation over longer period of time.

Therefore, BPR seems to be more appropriate to modern world due to its rapid nature.

Unstable environment where changing situation often forces management to make radical decisions indicates that the use of BPR would be better choice

Nevertheless, It is important to say that because of differences between organisations, the choice of one the most universal technique is impossible.

Moreover Kaizen and BPR can operate simultaneously, supporting each other and complementing their unique features. Therefore, instead of deciding which one will be better for organization, it is worth to ask how they can be combined.

There are five major types of organizations which could want to take advantage of using either BPR or Kaizen. Depending on the nature of problem affecting the organization, BPR, Kaizen or both techniques could be recommended for use. During simultaneous use, always one technique will be leading and one supporting (following).

5.1 Organizations which are struggling to survive

In such event Reengineering followed by Kaizen seems to be the only right choice. In the event of critical situation, core processes have to be investigated and redesigned. Quick revolution can help business to become profitable again and survive in current environment.

The role of Kaizen in such scenario would be supporting implemented changes and controlling sub processes in terms of their efficiency.

Such bundle will allow not only to implement designed change package but also to keep improving the organization in the long run.

Very up-to-date example of organization that needs to be reengineered is British Airways.

Due to several different reasons like high competition, inefficient operations, strike of unhappy employees and natural factors, loss of BA for last 12 months is £531 mln. In 2008- 2009 the loss was £401 mln (www.news.bbc.co.uk). The only chance for BA to survive are serious changes but. The problem though, is fact that employees do not agree for any radical changes.

5.2 Organizations which are doing well but are seeking for improvement in price/ QUALITY.

Often battle for customers force organization to constantly seek for new solutions which will allow them to stay ahead and keep their position on the market. In such event Kaizen should be used as a primary method. Description of non value adding activities followed by constant implementation of changes will bring harmony to the organization and improve those areas of which are limiting profits.

It is important though, to remember that it takes time to teach employees how to think and operate in Kaizen way.

Every year, car manufacturers introduce new types of engines on the markets.

Most of them are better because there are more efficient, consume less fuel, are more durable and are cheaper in production process.

In most respects, those changes are implemented to let manufacturers stay in the game.

5.3 Organiztations which are trying to gain competitive advantage

There is a type of organizations that are competing on the market on the very similar basis as their rivals.

Therefore, if they don't want to stuck in the middle (Miller & Dess1996 cited in Milligan 2008), they have to define their USP (Unique selling point). Such undertaking often leads to major changes within the processes when company decides to introduce new product on the market or radically cut costs of production. BPR might be very useful as it will allow rapidly to redesign processes, implement changes and become more competitive in new areas.

Example of such company might be Swatch. The brand has been established in 1983 as another watch manufacturer from Switzerland. Directors understood though, that it was not enough to offer a good watch. The watches needed to be high quality, innovative, fashionable and funny with attractive design and acceptable price. The Swatch watches became not only high-tech but also came in a variety of fashion and art design.

5.4 Organizations which want to counter act in the event of sudden changes on the market

There are certain situations on the global market like sudden recession which happened recently or rapidly growing prices of commodities, force managers to prepare emergency plans.

Counteracting is always less costly and less painful for the company than reacting under pressure. (Bone 1993)

In most respects, it is caused by the fact that people have time to think through all possibilities, make simulations and choose the right solution.

Decision making under pressure sometimes lead to costly mistakes.

Depending on the situation, Either Kaizen or BPR might be useful in such event.

In the situation when price of commodity is growing but organizations do not have to change process (only adapt to new conditions) we can talk about Kaizen counteracting.

The example might be a manufacturing company which is using diesel lorries to deliver their products to core client. Decision about adopting lorries for LPG to cut rising costs of fuels would be rather Kaizen improvement. In such event, even though the change is big, process of transportation remains the same. BPR on the other hand would be decision of relocation of the plant so there is no need of transport of products any more.

It proves that it is not a rule that change in BPR has to be spectacular or Kaizen gentle. Everything depends on the individual situation of the company, its environment and available resources.

5.5 Organizations which want to improve monitoring within the organisation

For the monitoring purposes, Kaizen is ideal solution. Both TQM and Suggestion system allow organization to involve employees in the monitoring and improvement processes.

Even the most basic employees are becoming responsible for monitoring of processes and report all issues. This system allows to spot issues quicker and improve the situation.

6. Conclusions & Recomendations

Both Kaizen and BPR are techniques which are leading to improvement of the organization by spotting activities that are not adding value to the organization.

Moreover, both techniques can bring serious improvements in terms of efficiency of processes when used properly.

The two main differences between them. One is fact that BPR is process orientated and Kaizen focuses on discipline and people. Secondly BPR is more rapid as Kaizen is methodic and rather slow.

Therefore in the world of hyper competition, quick communication and constant changes, BPR seems to be more suitable.

Nevertheless, as those two techniques do not exclude each other, they can be used simultaneously and bring even more value to the organization.

Depending on the current situation, Techniques can be used separately or follow each other as dominating and supporting.

This solution brings complex biphasic support package to the organization. One phase is quick riddance of inefficient activities, changing wrong organizational habits and reengineering processes. Second phase is implementation healthy organizational culture, constant improvement and intuitive responsiveness. Such biphasic action allows organization to become more adaptive to changes, more process focused more resistant to the modern business unsure nature.

7. References

Aberdeen Group, Inc.(2004) The ABCs of ERP: An Executive Primer; Boston, Massachusetts.

Bone C. (1993), Value management in the public sector, Longman, Harlow

Champy J. (1995), Reengineering Management: The mandate for new leadership, HarperCollins, Glasgow

Eriksen T. H. (2007), Globalization: The key concepts, Berg, New York

Fischer B. (2010), Financial Management April, p12-12, 1p

Hammer M. &Champy J. (1993), Reengineering the corporation: a manifesto for business revolution, HarperCollins, Glasgow

Hughes M. (2010), Industrial Engineer: IE, February, Vol. 42 Issue 2, p50-52, 3p,

Imai M (1997), Gemba Kaizen: A commonsense, low-cost approach to management,, Mc Graw Hill, New York

Milligan J (2008), Strategic Management: MK602, 2nd, McGraw Hill, Glasgow

Spathis, C. & Constantinides, S. (2003), The usefulness of ERP systems for effective management, Industrial Management and Data Systems, MCB UP Limited

Worthington I. & Britton C. (2006), The business environment, 5th, Prencice Hall, Harlow

http://news.bbc.co.uk/1/hi/business/10135112.stm

Website of China business services association (2007) http://www.chinabusinessservices.com/blog/?p=484

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