Owning and running a business, just like carrying out other forms of investment, is all about making profit and hence creating wealth. The routes towards the common destination of business success vary as much as the fate of those who embark on the journey. This can be attributed to the different approaches employed which are sharpened by a range of factors such as type of business, available capital or funds for implementation of the chosen strategy and/or strategic change, existing industry standards, existing competition, etc. Available funds, business ideas, government legislation, existing demand and available supply populate the knowledge base and influence the decision of any intending or existing entrepreneur. Presently, the knowledge of these determinants does not guarantee success. This has prompted recent studies on other factors that can determine or impact largely on the level of success enjoyed by a business venture. There are admittedly different levels of business organisation based on the staff size and magnitude of operations and hence varying determining factors. An amount of skill is required, after the initial decision to establish a business or to introduce strategic change in an existing business, to determine and manage the factors and relationships which dynamically affect the outcome of the business. This dissertation paper attempts to study system dynamics and system thinking and investigate their application in the area of strategic system change and its effect in value generation in Small and Medium Business Enterprises (SMEs). While trying to establish the important role to be played by system dynamics in business strategy formulation, design and implementation in SMEs, the paper also makes a critical analysis of the different perspectives on the subject matter and the various approaches to business value generation. One key aspect of the proposed framework is the concept of Business Process Reengineering and its relationship system dynamics. The framework is evaluated and recommendations for further research are made.
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The constant need for a business to stay competitive has led into various areas of research, one of which is complexity of a system which underlines the concept of system dynamics. It has been seen by different scholars and researchers to impact every endeavour including the business sector, irrespective of its size or geographic scope. There is a popular saying that the only thing that does not change is change itself. With the ever changing nature of the world around us as well as the rules that guide various aspects of our existence, there is a constant and renewed drive to adapt and stay relevant. This is very much more evident in the business atmosphere according to Whitman et al (1999) who say that "in a world increasingly driven by customers, competition and change, companies are constantly searching for new ways to solve their business problems". Different approaches have been adopted ranging from management changes, objective or directional changes to core business changes. But the most recent and most popular is the changes to business processes also known as Business Process Reengineering or Redesigning.
The concept of Business Process Reengineering (BPR)
The success of every organisation is defined by its component business processes. It follows then that for a business to experience a total or significant makeover, the basic underlying processes need to be reviewed and redesigned as seen necessary. Hammer and Champy (1993) define BPR as "the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed. The concept of Business Process Re-engineering (BPR) has emerged as a new way to create revised and updated business processes that meet current business goals. It is essential for the organisations to know which factors affect such a process and contributes positively towards the final outcome (Dixon, 2000). Hale and Craig (1996) describe BPR as highly risk, time consuming, and lacking in assurance of success. To alleviate and or manage some of the uncertainty that comes with change of this nature, it is imperative that an understanding of the processes and existing relationships be gained. This is where system dynamics comes in.
Existing studies and research into the efficiency of BPR have largely been funded and carried out about or for large organisations, government agencies and industrial heavyweights as studies has shown according to Khosrow-Pour (2006). However, the need for further research into the effects of the application of this concept on relatively smaller organisations has arisen due to the part they have been playing for quite some time now in the economic and financial scheme of things. The Small and Medium Enterprises (SMEs), which are largely private businesses and mainly sole entrepreneurship, have become key players in the economics of the environments in which they are located and ultimately the global economy.
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The development of the framework for the application or integration of the concept of system dynamics into system change in SMEs will require
An investigative study of system dynamics to identify its inadequacies when applies to BPR in SMEs.
A recommendation of steps to be taken to compensate for, complemented or neutralise such inadequacies
An explanation of how these steps are to be applied using to case study, using use cases and diagrams.
Project management is all about planning, organising, controlling, monitoring and managing resources to bring about the successful accomplishment of project objectives. Phillips (2003) and Ireland (2006) agree that the main challenge in project management is the achievement of set project goals in spite of and while honouring the preconceived and emergent project constraints. There are numerous project management tools and techniques including the Gantt chart, Critical Path Method, PERT Analysis, etc. Being an individual work and not requiring of any man management, this project will be managed using the Gantt chart. My choice is informed by my experience from using this technique in my coursework in other modules and obviously because it is very easily understandable. The Gantt chart and task breakdown for this study can be found in Appendix B and C respectively.
Scope of project
To guide the direction of this study and ensure its success in meeting set objectives, it is imperative that its scope is defined. This will also keep the study in proper context and eliminate noise. This dissertation is part of a sensitisation for the management of system change in SMEs. Areas touched by this work include the different approaches for implementing system change in organisation. Particular attention is paid to the approach(es) most suited to organisations that fall under this category - SMEs. An understanding of the underlying business processes in SMEs, an appreciation of the dynamics that exist between the processes, the opportunity that exists for change and approaches and techniques for implementing them especially Business Process Reengineering (BPR) is also being obtained. Relevant aspects of the application of BPR in larger organisations will be accessed, but this study is centred on the role of System Dynamics in Organisational system change in SMEs.
In Chapter 2, the aims and objectives of this work are identified and briefly outlined. They should also serve as a means of evaluating this study on completion to measure how much success has been achieved by carrying out comparison. The approach and methodology employed in achieving these set aims and objectives are also briefly introduced.
Chapter 3 studies Business Process Reengineering and how it can be used to bring about organisational change. Previous literature on how it has been employed and the critical evaluation of some typical cases are also examined. Investigative research is carried out on relevance of system dynamics in the organisational change and how it may complement or be incorporated into the concept of BPR in increasing value in an organisation. The possibility of downscaling BPR is also examined.
Chapter 4 studies the available feasible options for carrying out system change in an existing organisation. The alternatives for scaling the existing BPR framework while introducing SD are also examined. Different scenarios and the determining factors are identified and compared. The options of system dynamics approaches available are also summarised and compared. The adaptation of the various system dynamics techniques is investigated and simulated where possible to identify a suitable and feasible approach. This follows an identification of key structural organisational variables associated with the proposed change. A critical evaluation of all the available system change approaches including the proposed framework using system dynamics is also carried out to identify the most suitable. This is followed by the analysis and evaluation of the proposed framework, using illustrations and diagrams where necessary.
In Chapter 5, the implementation of the framework is being outlined and the results are analyzed. The client's reaction and feedback on the output is also received and evaluated. The way the project was managed and the unanticipated setbacks encountered are discussed. The result of the work in this chapter is a measure of the success enjoyed in this project. The key success factors are the ability to achieve the set objectives of the project.
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Conclusion and recommendations are made in Chapter 6. Aspects of the work needing further research are also identified here.
Aims, Objectives and Research Methodology
Nowadays, Business Process Reengineering (BPR) has become a very popular concept as it is seen as one of the current major techniques of implementing and managing change within organisations. Companies that have embraced the concept and gone a step further to implement it have reported some gains including - improvement in quality and productivity, reduction in the production life cycle, increased profits, increased customer satisfaction, among others. An earlier survey of US firms and some European companies show that only a quarter of them had not made significant effort in implementing BPR (Verespej, 1995). This survey also observed that the companies that were applying BPR were prompted by
critical problem situation which they encounter
a forecasted or probable problem situation
the need to improve and/or stay ahead of the pack
Implementing BPR requires a thorough understanding of the system and the existing relationships. Any change(s) proposed by the redesigning of the system processes will be based on these relationships. This is one of the many areas where system dynamics has become invaluable. Businesses have proven challenging to steer and manage. This can be attributed to the conditions that exist within the business environment which evolves over time as a result of feedback responses, many involving nonlinear relationships (Lyneis and Ford, 2007). This has made the study of system dynamics as it applies to business (business dynamics) worthwhile and very fertile.
In this chapter, the aims and objectives of this work are outlined along with the methodology applied towards achieving these aims and objectives.
2.2 Aims and Objectives
The aims of this research and the objectives to be achieved are listed thus:
The aims of this study are
Critically evaluate the existing business plan and analyse it from the SD methodology perspective. Identify SD methods that could be injected into the existing plan to bring about sustained growth.
Introduce the SD approach to the client making modifications to fit the desired purpose and setting.
Explain the significance of modifications as well as the implementation of the revised SD approach (i.e. the application of the new steps).
The main objective of this work is:
To research how system dynamics can be used in the analysis and improvement of structured and non-structured systems. Various system dynamics methods will be explored and discussed as well as their fitness for the purpose of this work.
To using the findings from the research, deliver a report to 'Noble Business Services' which will point out the failings and limitations of the business planning method currently implemented from the perspective of profitability.
2.3 Research Methodology
Methodology refers to the basis of my research in combination with the approach I have employed in obtaining the information used in this work. It also encompasses the procedures and rules that guide the conclusions reached and the recommendations made in this work, in achieving the set objectives. Firstly, previous work on relating subjects was searched and researched, primarily to establish the authenticity and originality of this work and also to acquire helpful knowledge that could serve as a foundation for my work. The way organisations have adapted to change in times past, and how the concepts of business improvement and learning organisations are some of the existing concepts researched in this work. This work is based on existing texts on related subject and research using most secondary data from and literature review of existing academic texts in related research areas. The findings of my research and the recommendations from my work will for the bases of the proposed change management to be implemented on a case study which is an ideal organisation of Small and Medium Enterprises (SMEs) classification. In so saying, this research is not carried out on something entirely new, but it seeks to put flesh on the bones of previous surveys (Bell, 2005) and researches culminating in a conceptual study of system dynamics in change management. This research is the basis of the framework to be implemented on the client organisation which will respond by giving me a feedback on the performance of the proposed system change approach. This is also in fulfilment of one of the objectives of this work.
2.4 Literature Review
The research for this work was done by the review of published literature in related areas especially in business. The literature review was centred on the concepts of business improvement, business renovation, improved value generation, change management and system dynamics. I have paid particular attention to the ways businesses, prior to the study of the concept of system dynamics, have adapted tactically to ever changing variables within the business environment or strategically to meet long term organisational goals as stated in the organisation mission statement. I studied the change management system adopted in some thriving asian business environments economies in order to understand the need and application of system change from the perspective of the organisations or to establish a trend. The bulk of the work is done on change management methods and the role and implementation of system dynamics in successfully achieving the desired change. The study will take into consideration the size classification of the organisations surveyed.
For the purpose of information and literature sourcing, academic literature for existing business change management approaches was examined. The main sources of the information used in this work include the Malaysia library, academic journals from Australian /Malaysian universities website, online magazines, and the local libraries. Viewing recent surveys also aided me in establishing the current picture of change management within different organisations and the motivations for change measured against the approach adopted.
2.4.1 Research Topics
The following topics were addressed primarily in reaching the conclusions and recommendations of this study:
2.4.1a The use of Business Process Reengineering (BPR) in business change management
One aspect of this research looks at Business Process Reengineering and its role in change management. Recently business change management has become a very important subject considering the uncertainty and volatility that has become synonymous with the business environment. Business Process Reengineering or Redesign has initially been associated with strategic business planning but recently is being used as a tactical tool for charting the course of businesses seeking to gain competitive advantage. BPR underlined the focus of change on process especially in the area of customer satisfaction rather than on product. The implementation of BPR is also viewed from the perspective of organisations varying in size and the triggers that determine the response and approaches of the different size classes of organisations.
2.4.1b The use of system dynamics (SD) in business change management
Another aspect researched in this study is the use of system dynamics in implementing successful system change within business organisations. System Dynamics, which is a part of the Soft System Methodology (SSM), was introduced by Wolstenholme et al (1993) as a "rigorous method for qualitative description, exploration of complex systems in terms of their processes, information, organizational boundaries and strategies; which facilitates quantitative simulation modelling and the analysis of the design of system structure and control". The possible role that system dynamics can play in the BPR context is also analysed and a framework for the implementation of system dynamics within BPR and ultimately organizational change management is proposed. System dynamics or systems thinking should play a crucial role in the decision support system in implementation of any organisational change management as it represents the relationships that exist within the environment in the form of feedback loops.
2.4.1c Investigation of existing organisational change models
Another area of research in this work is to find and critically evaluate existing models used in various organisations to carry out system change, and from the analysis, to present a more efficient framework using system dynamics as the pivot for the business or organisational change management. The research will enable us to extract the best practices used in traditional business change methods, and apply them in the system dynamics based approach. This research also seeks to justify the suggested modifications to the existing change management methods by carrying out a critical analysis of both the existing and proposed system change approaches.
2.4.1d Investigation of the role of SD and BPR in System Change
While there are various separate studies on these two areas which can great impact on the outcome of a system change initiative, very few have studied them as a set of concepts that can actually complement each other and probably increase the chances of system change implementation success. This is the thrust of this research.
2.5 Evaluation of the proposed change management system
There already exist different approaches to managing needed change within organisations. While most of these approaches can be classified under the umbrella of BPR, others prefer a rather traditional approach. This paper views all of these, and proposes an approach based on the dynamics existing within the business environment(s), which may embrace aspects of the more conventional or traditional approach, that are workable or even commendable within the organisational context. The framework will be discussed and critically evaluated; modifications or amendments to the BPR framework critically evaluated as well, and both approaches viewed in terms of their strengths and weaknesses. The final evaluation of this work, to determine the amount of success achieved, will be carried out against the aims and objectives of this work as outlined in the terms of reference of this dissertation.
In this chapter, I have briefly outlined the main aspects of this work and described the approach employed in carrying out this research. I have also tried, without giving much away, to give a picture of the various systems that interact in the event of a system change within a typical business organisation so as to simplify the final evaluation of the dissertation. The research topics relevant to this work are also briefly outlined to make the perception and scope, as well as the direction of the work clear. The critical evaluation of the topics being researched to validate findings is also discussed. This also provides a way of assessing the entire work and ensures that the evaluation of completed work against the set aims and objectives is consistent.
System Dynamics in Business Process Reengineering and System Change
In this chapter, the relevance of the study of system dynamics to organisational system change especially as relating to the concept of Business Process Reengineering is being discussed. This is preceded by a brief background history of the BPR concept. The main aim of the chapter is to establish the appropriateness for use of different System Dynamics techniques in implementing radical system change as can be seen in the BPR context. System dynamics is an approach to understanding the behavior of complex systems over time. It deals with internal feedback loops and time delays that affect the behavior of the entire system (MIT, SDEP). In the organisational context, System Dynamics expresses a system in terms of its constituent processes, procedures, subsystems and the relationships that exist among them. This work seeks to establish the potential for improved success in organisational system change through the introduction of System Dynamics and system thinking.
BPR and the role it has occupied in facilitating organisational system change is presented and discussed with references to some key cases and secondary data from previous literature and surveys. System Dynamics (SD) is introduced. It is also critically evaluated to ascertain its usefulness, as a whole or in parts, towards successful organisational change as well as its effectiveness in comparison to other (more traditional) system change methodologies.
A Background History of BPR
The introduction of the concept known today as Business Process Reengineering can be seen as a radical reaction of the business organisation to the ever changing parameters within the business environment considering the expectations that accompany its implementation as has been established in many different researches on the subject such as Hammer and Champy (1993), Davenport (1993), Drucker (1993), and many more.
BPR in Organisational System Change
Business Process Reengineering (BPR)
The popularisation of the management philosophy known as Total Quality management (TQM) in the 1980s brought about a realisation that over 90% of the possible quality improvement that can be carried out on an organisation belong to the system or process (Deming, 1986). In addition, more businesses considered and eventually embraced improvement in processes spanning the entire organisation (company-wide) rather than focus only on production processes, which accounts for less than 10 per cent of the value of the final product (Harrington, 1991). This was the basis of the conception of BPR. More research has brought about various perspectives and hence numerous definitions and concepts, as well as their associated difficulties and risks (Davenport and Short, 1990; Pedrozzo and Stepper, 1994; Carr and Johansson, 1995; Gulmaraes and Bond, 1996). Al-Mashari et al (2001) viewed BPR as an organisation's response to the increase in consumer requirements for both product and service efficiency and effectiveness. Hammer and Champy (1993) defined BPR as a fundament rethink and redesign of business processes to obtain dramatic and sustained improvements in quality, cost, service, lead-times, outcomes, flexibility and innovation. One thing common to all the definitions of BPR over time is the desire to improve the business organisation through gains in organisational performance by redesigning "from scratch the core business process" (Attaran and Wood, 1999). This has led to the adoption of BPR as one of the primary modern change management techniques within business organisations.
It is also important to mention at this point that in spite of being very commendable and in certain instances, nothing short of impressive, there are a few potential problems associated with the implementation of BPR. According to Hammer and Champy (1993) and Cafasso (1993), "it has been claimed that about 70 per cent of reengineering initiatives fail to achieve the desired results and that about one-quarter of 300 reengineering projects in the USA never achieved their set goals". In this work, I will therefore also attempt to identify the common motivating factors for the desire to implement organisational change (to reengineer) as well as the barriers that these kind of projects are likely to encounter, paying particular attention to Small and Medium Enterprises (SMEs). The negative side of implementing BPR will also be identified, in an attempt to minimize or eliminate them in my proposed SD framework for implementing organisational system change.
The Need for BPR
Business methods have evolved as a result of the ever-changing parameters withing the business environment. BPR is always associated with terms like competitive advantage, customer needs, and change. O'Neill and Sohal (1999) pointed out that competition in recent times have not been centred on cost and quality but on flexibility and responsiveness. Competitive advantage was determined by the quality of an organisation's response to the ever changing needs of the customers. And the management of business processes (BPR) was introduced by Hammer (1990) and Davenport and Short (1990) with a claim that it could radically improve the performance of an organisation. Porter's (Porter, 1980, 1985, 1990) work on competitive advantage has been referenced by most researches on BPR and from it, Hammer and Champy (1993) summarise the three main reasons for radical organisational change as:
Customers who can now be diverse, segmented and expectant of consultation and involvement.
Competition has intensified to meet the ever changing need of the customer in every niche
Change that has become pervasive, persistent, faster and in some markets a pre-requisite.
These factors are primarily responsible for the business organisations constant need to adapt, to be able to respond to change as dictated by the customer. This, Drucker (1969), terms as the "age of discontinuity" or the challenge to the traditional assumptions of business. Customers nowadays are not only unrelenting in their demands in quality, service and price; but their willingness to act on default of contract and their disloyalty (O'Neill and Sohal, 1999). According to Drucker (1954), this power and freedom exercised by the customer has totally done away with the managerial assumptions upon which the early management revolution was based. In this new picture, the power play between rival organisations and the interjection of government to protect industry has made way for the decision of the latest and most powerful stakeholder - the customer. For large organisations dependent on externally sourced funding, a demonstration of winning the customer's trust will not only guarantee them business but investors as well. A survey carried out by Tennant and Wu (2005) on some UK based companies to investigate the triggers for BPR and identify the main barriers to BPR revealed that competitive pressure, need to reduce costs, acquisitions, and managing change topped the list of triggers. Other triggers from the survey include but are not limited to poor customer satisfaction, marketing opportunities, dramatic loss of market share among others. This is represented in figure 1 below.
The Goals and Objectives of BPR
The same trend of variety was established after an investigative survey on the goals and objectives set on the plan of the BPR projects studied. Cost reduction, productivity, emphasize added value, focus on results and objectives, were often given priority when making decisions on employing BPR as represented in the diagram in figure 2 below.
Figure 2: Goals and objectives included in BPR
Motivation and effectiveness of employees is also one of the highly rated goals and this would suggest that organisations have linked BPR to people issues. Surprisingly, reducing the product development time did not rate as highly as previous researches (Tennant and Roberts, 2001) where reengineering the new product introduction process was seen as one of the major needs for BPR. Also, setting business goals within the strategic context of BPR did not seem to be getting the attention it deserved.
Figure 3 represents the findings from the survey, on the implementation time-frame for the BPR projects. It was found that majority of the companies (approx. 71%) expected BPR to be implemented in as soon as or even less than two years, suggesting that BPR is mainly being applied as a tactical tool to address short-term business concerns, rather than to achieve strategic objectives. This is not in line with previous research by Hill and Collins (1998) which indicated that companies see "BPR as an important part of their future strategy". Less than 10 per cent of the companies studied in the research by Tennant and Wu (2005) had a BPR implementation time frame of five years or more.
Figure 3: BPR implementation time frame
The Applications of BPR
Following the successful implementation of BPR, many organisations and companies have reported certain desirable benefits including; improvement in quality and productivity, significant (and in some cases astonishing) reduction in production cycle time, increased profits and increase in customer satisfaction. Tennant and Wu (2005) and Verespej (1995), from their various studies concluded that companies applying BPR fell into one of the following three categories:
They had identified that they were in big trouble and were trying to turn around their fortunes,
They were not in trouble yet but could foresee major problems ahead and were trying to avert them, and
They were in a strong position but wanted to maintain that status as well as improve (stay ahead of the pack) to accommodate the constantly changing business environment.
The role of IT in BPR
It is considered by some as a major enabler for new forms of working and collaborating within an organization and across organizational borders.
In their study of BPR, Hammer and Champy (1993) identified some IT capabilities which they termed disruptive technologies that were supposed to challenge traditional wisdom about how work should be done within an organisation. They include
Shared databases, making information available at many places
Expert systems, allowing generalists to perform specialist tasks
Telecommunication networks, allowing organizations to be centralized and decentralized at the same time
Decision-support tools, allowing decision-making to be a part of everybody's job
Wireless data communication and portable computers, allowing field personnel to work office independent
Interactive videodisk, to get in immediate contact with potential buyers
Automatic identification and tracking, allowing things to tell where they are, instead of requiring to be found
High performance computing, allowing on-the-fly planning and revisioning
In the mid 90s, workflow management systems were considered as a significant contributor to the improvement of process efficiency. This brought about a wave of solutions from ERP (Enterprise Resource Planning) vendors, such as SAP, JD Edwards, Oracle, PeopleSoft, which were positioned as vehicles for business process redesign and improvement.
Its primary use in most organisations being gathering and dissemination of information, IT improves coordination and information access thereby allowing for more effective management of task interdependence. Table 1 below shows some of the different ways to view IT capabilities and the likely roles within the BPR project according to a survey carried out by Davenport and Short (1990). From their survey, 80% of the respondents felt that IT had a very key role to play in BPR, especially in the implementation of the solution. It was also identified that the main IT tools used within the respondent organisations in their BPR projects were SAP, data management, process planning, and surfing the internet.
To transform unstructured processes into routine transactions
To enable rapid transfer of information across great distances, making processes independent of geography
To replace or reduce human labour in a process
To bring complex analytical methods to bear on the process
To bring vast amount of detailed information into a process
To enable changes in the sequence of tasks in a process, allowing multiple tasks to be worked on simultaneously
To allow the capture and dissemination of knowledge and expertise to improve the process
To connect two parties within a process that would otherwise communicate through an intermediary.
Table 1: IT capabilities and their organisational impact in a BPR project
BPR Implementation Difficulties
The most common BPR implementation difficulties reported include
Too much focus on new technology instead of business processes and the people aspect of change
Emphasis on quick result leading to business mistakes
Lack of management enthusiasm and incompatibility issues between BPR initiative and company culture
Most organisations however fall back on BPR in a last ditch effort to re-establish themselves. This often times results in failings as a result of the inadequate planning and misplaced focus of the reengineering effort. Hammer and Champy (1993) estimated from their survey that about 60 to 70% of reengineering initiatives fail to achieve set objectives. Malhotra (1998) after examining some BPR projects to understand the key factors affecting the success of the BPR method concluded that the biggest barriers to the BPR concept are: lack of management commitment and leadership, unrealistic scope and expectations and resistance to change.
Researches have also been carried out on the factors that negatively impact on the BPR method. Among them are Attaran (2000), in which he proposed a framework for the successful design and construction of the reengineering solution; and Hammer (1990) who suggested that the reengineering effort should be organised around outcomes and not tasks, and information processing work should be subsumed into real work that produces more information.
Bashein et al (1994) addressed factors related to the successful application of the BPR method that were derived throughout the interviews from BPR consultants. Among these factors were senior management commitment and sponsorship, realistic expectations, empowered and collaborative workers, strategic context of growth and expansion, appropriate people just to mention few.