Business Process Change

Chapter 12 Business Process Change

Question 1 – Harmon process-strategy matrix and outsourcing
Introduction
The Country Car Club (3C) was established fifty years ago to offer breakdown assistance to motorists. In return for an annual membership fee, members of 3C are able to phone for immediate assistance if their vehicle breaks down anywhere in the country. Assistance is provided by ‘service patrol engineers’ who are located throughout the country and who are specialists in vehicle repair and maintenance. If they cannot fix the problem immediately then the vehicle (and its occupants) are transported by a 3C recovery vehicle back to the member’s home address free of charge.

Over the last fifteen years 3C has rapidly expanded its services. It now offers vehicle insurance, vehicle history checks (to check for previous accident damage or theft) as well as offering a comprehensive advice centre where trained staff answer a wide range of vehicle-related queries. It also provides route maps, endorses hotels by giving them a 3C starred rating and lobbies the government on issues such as taxation, vehicle emissions and toll road charging. All of these services are provided by permanent 3C employees and all growth has been organic culminating in a listing on the country’s stock exchange three years ago.

However, since its stock market listing, the company has posted disappointing results and a falling share price has spurred managers to review internal processes and functions. A Business Architecture Committee (BAC) made up of senior managers has been charged with reviewing the scope of the company’s business activities. It has been asked to examine the importance of certain activities and to make recommendations on the sourcing of these activities (in-house or outsourced). The BAC has also been asked to identify technological implications or opportunities for the activities that they recommend should remain in-house.

First review
The BAC’s first review included an assessment of the supply and maintenance of 3C’s company vehicles. 3C has traditionally purchased its own fleet of vehicles and maintained them in a central garage. When a vehicle needed servicing or maintenance it was returned to this central garage. Last year, 3C had seven hundred vehicles (breakdown recovery vehicles, service patrol engineer vans, company cars for senior staff etc) all maintained by thirty staff permanently employed in this garage. A further three permanent employees were employed at the garage site with responsibility for the purchasing and disposal of vehicles. The garage was in a residential area of a major town, with major parking problems and no room for expansion.

 

The BAC concluded that the garage was of low strategic importance to the company and, although most of the processes it involved were straightforward, its remoteness from the home base of some vehicles made undertaking such processes unnecessarily complicated. Consequently, it recommended outsourcing vehicle acquisition, disposal and maintenance to a specialist company. Two months ago 3C’s existing vehicle fleet was acquired by AutoDirect, a company with service and repair centres nationwide, which currently supplies 45,000 vehicles to companies throughout the country. It now leases vehicles back to 3C for a monthly payment. In the next ten years (the duration of the contract) all vehicles will be leased from AutoDirect on a full maintenance basis that includes the replacement of tyres and exhausts. 3C’s garage is now surplus to requirements and all the employees that worked there have been made redundant, except for one employee who has been retained to manage the relationship with AutoDirect.

Second review
The BAC has now been asked to look at the following activities and their supporting processes. All of these are currently performed in-house by permanent 3C employees.

• Attendance of repair staff at breakdowns – currently undertaken by permanent ‘service patrol engineers’ employed at locations throughout the country from where they attend local breakdowns.
• Membership renewal – members must renew every year. Currently renewals are sent out by staff using a bespoke computer system. Receipts are processed when members confirm that they will be renewing for a further year.
• Vehicle insurance services providing accident insurance which every motorist legally requires.
• Membership queries handled by a call-centre. Members can use the service for a wide range of vehicle-related problems and issues.
• Vehicle history checks. These are primarily used to provide ‘peace of mind’ to a potential purchaser of a vehicle. The vehicle is checked to see if it has ever been in an accident or if it has been stolen. The check also makes sure that the car is not currently part of a loan agreement.

Required:

(a)     The Business Architecture Committee (BAC) has been asked to make recommendations on the sourcing of activities (in-house or outsourced). The BAC has also been asked to identify technological implications or opportunities for the activities that they recommend should remain in-house.

Suggest and justify recommendations to the BAC for each of the following major process areas:

(i)      Attendance of repair staff at breakdowns;
(ii)     Membership renewal;
(iii)    Vehicle insurance services;
(iv)    Membership queries; and
(v)     Vehicle history checks.                                                                               (15 marks)
(b)     Analyse the advantages that 3C will gain from the decision to outsource the purchase and maintenance of their own vehicles.                                                                                               (10 marks)
                                                                                                                            (25 marks)
                                                                                 (ACCA P3 Business Analysis June 2008 Q2)

Question 2 – Financial analysis and evaluation procedure in selection of software package
OneEnergy plc supplies over half of the electricity and gas in the country. It is an expanding, aggressive company which has recently acquired two smaller, but significant, competitors.

Just over a year ago, OneEnergy purchased the RitePay payroll software package from RiteSoftware. The recently appointed Human Resources (HR) director of OneEnergy recommended the package because he had used it successfully at his previous employer – a major charity. His unreserved recommendation was welcomed by the board because the company was currently running three incompatible payroll systems. The purchase of the RitePay payroll system appeared to offer the opportunity to quickly consolidate the three separate payroll systems into one improved solution. The board decided to purchase the software without evaluating alternative solutions. It was felt that payroll rules and processes were relatively standard and so there was no need to look further than a package recommended by the HR director. The software was purchased and a project initiated for converting the data from the current systems and for training users in the features and functions of the new software.

However, it soon became apparent that there were problems with the suitability of the RitePay software package. Firstly, OneEnergy had a wide variety of reward and pay schemes to reflect previous employment in the acquired companies and to accommodate a wide range of different skills and grades. Not all of these variations could be handled by the package. Consequently, amendments had to be commissioned from the software house. This led to unplanned costs and also to delays in implementation. Secondly, it also became clear that the software was not as user-friendly as the previous systems. Users had problems understanding some of the terminology and structure of the software. ‘It just does not work like we do’, commented one frustrated user. Consequently users made more errors than expected and training costs exceeded their budget.

Three months ago, another set of amendments was requested from RiteSoftware to allow one of the acquired companies in OneEnergy to pay bonuses to lorry drivers in a certain way. Despite repeated requests, the amendments were not received. Two weeks ago, it was announced that RiteSoftware had filed for bankruptcy and all software support was suspended. Just before this was announced the HR director of OneEnergy left the company to take up a similar post in the public sector.

OneEnergy has engaged W&P consultants to advise them on the RitePay project. An interim report from W&P suggests that OneEnergy should abandon the RitePay package. ‘It is clear to us that RitePay never had the functionality required to fulfil the variety of requirements inevitable in a company the size of OneEnergy.’ They also commented that this could have been avoided if the project had followed the competitive procurement policy defined in company operating procedures.

W&P also reports that:

• The procurement department at OneEnergy had requested two years of accounts from RiteSoftware. These were provided (see Figure 1) but not interpreted or used in the selection process in any way. W&P concluded ‘that there were clear signs that the company was in difficulty and this should have led to further investigation’.
• They discovered that the former HR director of OneEnergy was the brother of the managing director of RiteSoftware.

Figure 1: RiteSoftware Accounts

Required:

(a)     W&P concluded in their report ‘that there were clear signs that the company (RiteSoftware) was in difficulty and this should have led to further investigation’.

Assess, using the financial information available, the validity of W&P’s conclusion.
                                                                                                                            (13 marks)
(b)     Examine FOUR ways in which OneEnergy failed to follow a proper evaluation procedure in the selection of the RitePay software package. Include in your examination a discussion of the implication of each failing.                                                                                                                            (12 marks)
                                                                                                                                     (25 marks)
                                                                                 (ACCA P3 Business Analysis June 2009 Q3)

Question 3 – Benefits of outsourcing, role of business analyst in process re-design and stakeholders
Ergo city authority administers environmental, social care, housing and cultural services to the city of Ergo. The city itself has many social problems and a recent report from the local government auditor criticised the Chief Executive Officer (CEO) for not spending enough time and money addressing the pressing housing problems of the city.

Since 1970 the authority has had its own internal Information Technology (IT) department. However, there has been increasing criticism of the cost and performance of this department. The CEO has commented that ‘we seem to expand the department to cope with special demands (such as the millennium bug) but the department never seems to shrink back to its original size when the need has passed’. Some employees are lost through natural wastage, but there have never been any redundancies in IT and the labour laws of the nation, and strong trade unions within the authority, make it difficult to make staff redundant.

In the last few years there has been an on-going dispute between managers in the IT department and managers in the finance function. The dispute started due to claims about the falsification of expenses but has since escalated into a personal battle between the director of IT and the finance director. The CEO has had to intervene personally in this dispute and has spent many hours trying to reconcile the two sides. However, issues still remain and there is still tension between the managers of the two departments.

A recent internal human resources (HR) survey of the IT department found that, despite acknowledging that they received above average pay, employees were not very satisfied. The main complaints were about poor management, the ingratitude of user departments, (‘we are always being told that we are overheads, and are not core to the business of the authority’) and the absence of promotion opportunities within the department. The ingratitude of users is despite the IT department running a relatively flexible approach to fulfilling users’ needs. There is no cross-charging for IT services provided and changes to user requirements are accommodated right up to the release of the software. The director of IT is also critical of the staffing constraints imposed on him. He has recently tried to recruit specialists in web services and ‘cloud computing’ without any success. He also says that ‘there are probably other technologies that I have not even heard of that we should be exploring and exploiting’.

The CEO has been approached by a large established IT service company, ProTech, to form a new company ProTech-Public that combines the public sector IT expertise of the authority with the commercial and IT knowledge of ProTech. The joint company will be a private limited company, owned 51% by ProTech and 49% by the city authority. All existing employees in the IT department and the IT technology of the city authority will be transferred to ProTech who will then enter into a 10 year outsourcing arrangement with the city authority. The CEO is very keen on the idea and he sees many other authorities following this route.

The only exception to this transfer of resources concerns the business analysts who are currently in the IT department. They will be retained by the authority and located in a new business analysis department reporting directly to the CEO.

The CEO has suggested that the business analysts have the brief to ‘deliver solutions that demonstrably offer benefits to the authority and to the people of the city, using information technology where appropriate’. They need to be ‘outward looking and not constrained by current processes and technology’. They will also be responsible for liaising between users and the newly outsourced IT company and, for the first time, defining business cases with users.

 

In principle, the creation of the new company and the outsourcing deal has been agreed.

Required:

(a)     Evaluate the potential benefits to the city authority and its IT employees, of outsourcing IT to ProTech-Public.                                                                                                                             (12 marks)
(b)     The role of the business analyst is currently being re-designed.

Analyse what new or enhanced competencies the business analysts will require to undertake their proposed new role in the city authority.                                                                                (7 marks)
(c)     Identify the main stakeholders that would be affected by the planned changes at the city authority.  (6 marks)
                                                                                                                                     (25 marks)
                                                                            (Amended P3 Business Analysis June 2010 Q3)

 

Question 4 – Swim lane re-design improvement and advantages of software package solution
The Institute of Analytical Accountants (IAA) offers three certification programmes which are assessed through examinations using multiple choice questions. These questions are maintained in a computerised question bank. The handling process for these questions is documented in Figure 1 and described in detail below. The IAA is currently analysing all its processes seeking possible business process re-design opportunities. It is considering commissioning a bespoke computer system to support any agreed re-design of the business processes. The IAA is keen to implement a new solution fairly quickly because competitors are threatening to move into their established market.

Figure 1: Question Handling process at IAA

The author (the question originator) submits the question to the IAA as a password protected document attached to an email. The education department of the IAA (which is staffed by subject matter experts) select an appropriate reviewer and forward the email to him or her. At no point in the process does the author know the identity of the reviewer. A copy of the email is sent to the administration department where administrators enter the question in a standard format into a computerised question bank. These administrators are not subject matter experts and sometimes make mistakes when entering the questions and answers. A recent spot-check identified that one in ten questions contained an error. Furthermore, there is a significant delay in entering questions. Although five administrators are assigned to this task, they also have other duties to perform and so a backlog of questions has built up. Administrators are paid less than education staff.

The reviewer decides whether the question should be accepted as it is, rejected completely, or returned to the author for amendment. This first review outcome is recorded by the education department before the administration department updates the database with whether the question was accepted or rejected. On some occasions it is not possible to find the question which needs to be updated because it is still in the backlog of questions waiting to be entered into the system. This causes further delay and frustration.

The finance department is notified of all accepted questions and a payment notification is raised which eventually leads to a cheque being issued and sent to the author.

The amended question is returned by the author to the education department who forward this onto the reviewer. A copy is again sent to the administration department so that they can amend the question held on the database.

On the second review, the question is accepted or rejected. Rejected questions (irrespective of when they are rejected) are notified to the finance department who raise a reject notification and send it back to the author.

Currently, 20% of questions are immediately rejected by the reviewer and a further 15% are sent back to the author for revision. Of these, 30% are rejected on the second review.

Required:

(a)     The IAA would like to consider a number of re-design options, ranging from very simple improvements to radical solutions.

Identify a range of re-design options the IAA could consider for improving their question handling process. Evaluate the benefits of each option.                                                                   (15 marks)
(b)     Eventually, the IAA decided not to develop a bespoke solution but to use an established software package to implement its multiple choice question management and examination requirements. The selected package, chosen from a shortlist of three, includes the delivery of tests, question analysis, student invoicing and student records. It is already used by several significant examination boards in the country.

Explain the advantages of fulfilling users’ requirements using a software package solution and discuss the implications of this solution for process re-design at IAA.                                   (10 marks)
                                                                                                                            (25 marks)
                                                                                 (ACCA P3 Business Analysis June 2011 Q3)
Question 5 – Cultural web and Harmon process-strategy matrix
iCompute was founded twenty years ago by the technology entrepreneur, Ron Yeates. It initially specialised in building bespoke computer software for the financial services industry. However, it has expanded into other specialised areas and it is currently the third largest software house in the country, employing 400 people. It still specialises in bespoke software, although 20% of its income now comes from the sales of a software package designed specifically for car insurance.

The company has grown based on a ‘work hard, play hard work ethic’ and this still remains. Employees are expected to work long hours and to take part in social activities after work. Revenues have continued to increase over the last few years, but the firm has had difficulty in recruiting and retaining staff. Approximately one-third of all employees leave within their first year of employment at the company. The company appears to experience particular difficulty in recruiting and retaining female staff, with 50% of female staff leaving within 12 months of joining the company. Only about 20% of the employees are female and they work mainly in marketing and human resources.

The company is currently in dispute with two of its customers who claim that its bespoke software did not fit the agreed requirements. iCompute currently outsources all its legal advice problems to a law firm that specialises in computer contracts and legislation. However, the importance of legal advice has led to iCompute considering the establishment of an internal legal team, responsible for advising on contracts, disputes and employment legislation.

The support of bespoke solutions and the car insurance software package was also outsourced a year ago to a third party. Although support had been traditionally handled in-house, it was unpopular with staff. One of the senior managers responsible for the outsourcing decision claimed that support calls were ‘increasingly varied and complex, reflecting incompetent end users, too lazy to read user guides.’ However, the outsourcing of support has not proved popular with iCompute’s customers and a number of significant complaints have been made about the service given to end users. The company is currently reviewing whether the software support process should be brought back in-house.

The company is still regarded as a technology leader in the market place, although the presence of so many technically gifted employees within the company often creates uncertainty about the most appropriate technology to adopt for a solution. One manager commented that ‘we have often adopted, or are about to adopt, a technology or solution when one of our software developers will ask if we have considered some newly released technology. We usually admit we haven’t and so we re-open the adoption process. We seem to be in a state of constant technical paralysis.’

Although Ron Yeates retired five years ago, many of the software developers recruited by him are still with the company. Some of these have become operational managers, employed to manage teams of software developers on internal and external projects. Subba Kendo is one of the managers who originally joined the company as a trainee programmer. ‘I moved into management because I needed to earn more money. There is a limit to what you can earn here as a software developer. However, I still keep up to date with programming though, and I am a goalkeeper for one of the company’s five-a-side football teams. I am still one of the boys.’

However, many of the software developers are sceptical about their managers. One commented that ‘they are technologically years out of date. Some will insist on writing programs and producing code, but we take it out again as soon as we can and replace it with something we have written. Not only are they poor programmers, they are poor managers and don’t really know how to motivate us.’ Although revenues have increased, profits have fallen. This is also blamed on the managers. ‘There is always an element of ambiguity in specifying customers’ requirements. In the past, Ron Yeates would debate responsibility for requirements changes with the customer. However, we now seem to do all amendments for free. The customer is right even when we know he isn’t. No wonder margins are falling. The managers are not firm enough with customers.’

The software developers are also angry that an in-house project has been initiated to produce a system for recording time spent on tasks and projects. Some of the justification for this is that a few of the projects are on a ‘time and materials’ basis and a time recording system would permit accurate and prompt invoicing. However, the other justification for the project is that it will improve the estimation of ‘fixed-price’ contracts. It will provide statistical information derived from previous projects to assist account managers preparing estimates to produce quotes for bidding for new bespoke development contracts.

Vikram Soleski, one of the current software developers, commented that ‘managers do not even have up-to-date mobile phones, probably because they don’t know how to use them. We (software developers) always have the latest gadgets long before they are acquired by managers. But I like working here, we have a good social scene and after working long hours we socialise together, often playing computer games well into the early hours of the morning. It’s a great life if you don’t weaken!’

Required:

(a)     Analyse the culture of iCompute, and assess the implications of your analysis for the company’s future performance.                                                                                                       (13 marks)
(b)     iCompute is currently re-considering three high level processes:
(i)      Advice on legal issues (currently outsourced)
(ii)     Software support (currently outsourced)
(iii)    Time recording (in-house, bespoke software development)
Evaluate, using an appropriate framework or model, the suitability of iCompute’s current approach to EACH of these high level processes.                                                                    (12 marks)
                                                                                                                                     (25 marks)
                                                                         (ACCA P3 Business Analysis December 2011 Q2)

Question 6 – Evaluation and formal process for software package approach
Introduction
Flexipipe is a successful company supplying flexible pipes to a wide range of industries. Its success is based on a very innovative production process which allows the company to produce relatively small batches of flexible pipes at very competitive prices. This has given Flexipipe a significant competitive edge over most of its competitors whose batch set-up costs are higher and whose lead times are longer. Flexipipe’s innovative process is partly automated and partly reliant on experienced managers and supervisors on the factory floor. These managers efficiently schedule jobs from different customers to achieve economies of scale and throughput times that profitably deliver high quality products and service to Flexipipe’s customers.

A year ago, the Chief Executive Officer (CEO) at Flexipipe decided that he wanted to extend the automated part of the production process by purchasing a software package that promised even further benefits, including the automation of some of the decision-making tasks currently undertaken by the factory managers and supervisors. He had seen this package at a software exhibition and was so impressed that he placed an order immediately. He stated that the package was ‘ahead of its time, and I have seen nothing else like it on the market’.

This was the first time that the company had bought a software package for something that was not to be used in a standard application, such as payroll or accounts. Most other software applications in the company, such as the automated part of the current production process, have been developed in-house by a small programming team. The CEO felt that there was, on this occasion, insufficient time and money to develop a bespoke in-house solution. He accepted that there was no formal process for software package procurement ‘but perhaps we can put one in place as this project progresses’.

This relaxed approach to procurement is not unusual at Flexipipe, where many of the purchasing decisions are taken unilaterally by senior managers. There is a small procurement section with two full-time administrators, but they only become involved once purchasing decisions have been made. It is felt that they are not technically proficient enough to get involved earlier in the purchasing lifecycle and, in any case, they are already very busy with purchase order administration and accounts payable. This approach to procurement has caused problems in the past. For example, the company had problems when a key supplier of raw materials unexpectedly went out of business. This caused short-term production problems, although the CEO has now found an acceptable alternative supplier.

The automation project
On returning to the company from the exhibition, the CEO commissioned a business analyst to investigate the current production process system so that the transition from the current system to the new software package solution could be properly planned. The business analyst found that some of the decisions made in the current production process were difficult to define and it was often hard for managers to explain how they had taken effective action. They tended to use their experience, memory and judgement and were still innovating in their control of the process. One commented that ‘what we do today, we might not do tomorrow; requirements are constantly evolving’.

When the software package was delivered there were immediate difficulties in technically migrating some of the data from the current automated part of the production process software to the software package solution. However, after some difficulties, it was possible to hold trials with experienced users. The CEO was confident that these users did not need training and would be ‘able to learn the software as they went along’. However, in reality, they found the software very difficult to use and they reported that certain key functions were missing. One of the supervisors commented that ‘the monitoring process variance facility is missing completely. Yet we had this in the old automated system’. Despite these reservations, the software package solution was implemented, but results were disappointing. Overall, it was impossible to replicate the success of the old production process and early results showed that costs had increased and lead times had become longer.

After struggling with the system for a few months, support from the software supplier began to become erratic. Eventually, the supplier notified Flexipipe that it had gone into administration and that it was withdrawing support for its product. Fortunately, Flexipipe were able to revert to the original production process software, but the ill-fated package selection exercise had cost it over $3m in costs and lost profits. The CEO commissioned a post-project review which showed that the supplier, prior to the purchase of the software package, had been very highly geared and had very poor liquidity. Also, contrary to the statement of the CEO, the post-project review team reported that there were at least three other packages currently available in the market that could have potentially fulfilled the requirements of the company. The CEO now accepts that using a software package to automate the production process was an inappropriate approach and that a bespoke in-house solution should have been commissioned.

Required:

(a)     Critically evaluate the decision made by the CEO to use a software package approach to automating the production process at Flexipipe, and explain why this approach was unlikely to succeed. (12 marks)
(b)     The CEO recommends that the company now adopts a formal process for procuring, evaluating and implementing software packages which they can use in the future when a software package approach appears to be more appropriate.

Analyse how a formal process for software package procurement, evaluation and implementation would have addressed the problems experienced at Flexipipe in the production process project. (13 marks)
                                                                                                                            (25 marks)
                                                                        (ACCA P3 Business Analysis June 2012 Q2)